<PAGE>
As filed with the Securities and Exchange Commission on December 4,, 1997
Registration No. 333-40163
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ALL AMERICAN FOOD GROUP, INC.
(Name of Small Business Issuer in Its Charter)
New Jersey
(State or Other Jurisdiction of
Incorporation or Organization)
5461
(Primary Standard Industrial
Classification Code Number)
22-3259558
(I.R.S. Employer
Identification No.)
104 New Era Drive
South Plainfield, New Jersey 07080
(908) 757-3022
(Address and Telephone Number of Principal Executive Offices and Principal Place
of Business)
---------------
Andrew Thorburn
Chairman and Chief Executive Officer
All American Food Group, Inc.
104 New Era Drive
South Plainfield, New Jersey 07080
(908) 757-3022
(Name, Address and Telephone Number of Agent for Service)
---------------
Copies to
Hank Gracin, Esq.
Lehman & Eilen
50 Charles Lindbergh Blvd., Suite 505
Uniondale, NY 11553
(516) 222-0888
---------------
<PAGE>
Approximate Date of Proposed Sale to the Public:
As soon as possible after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. / /
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Amount To Be Proposed Maximum Offering Proposed Maximum Amount of
Securities To Be Registered Registered Price Per Share(1)(5) Aggregate Offering Price Registration Fee
- --------------------------- ------------ -------------------------- ------------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock (2) 3,736,797 sh. $1.50 $5,605,195.50 $1,653.53
Common Stock (3) 2,235,000 sh. 1.50 3,352,500 988.99
Common Stock (4) 638,462 sh. $1.50 957,693 282.52
Common Stock 50,000 sh. $1.50 75,000 22.13
Total 6,660,259 sh. $1.50 $9,990,388.50 $2,947.17
</TABLE>
1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
2) Based upon 166% of the shares issuable upon the conversion of
$2,600,000 principal amount of 6% Convertible Debentures on October 21,
1997 if the Debentures had been fully outstanding and were converted on
that date at a 20% discount to the Market Price (as defined in the
Debentures) of the Common Stock. The actual number of shares issuable
upon conversion of the Debentures cannot be predicted at this time,
insofar as it will be based, among other things, on the future market
price of the Common Stock. This is not intended to constitute a
prediction as to the number of shares of Common Stock into which the
Debentures will be converted.
3) Based upon 2,235,000 shares issuable upon exercise of Warrants to
purchase Common Stock of Registrant.
4) Based upon 166% of the shares issuable upon the conversion of 300
shares of Series D Convertible Preferred Stock on December 3, 1997 if
the shares were converted on that date at a 20% discount to the average
closing price of the Common Stock for the five days preceding such
date. The actual number of shares issuable upon conversion of the
Preferred Stock cannot be predicted at this time, insofar as it will
be based, among other things, on the future market price of the Common
Stock. This is not intended to constitute a prediction as to the number
of shares of Common Stock into which the Preferred Stock will be
converted.
5) The closing price of the Common Stock of the Registrant on October 24,
1997 on The Nasdaq SmallCap Market was $1.50 per share.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
2
<PAGE>
6,660,259 Shares
ALL AMERICAN FOOD GROUP, INC.
Common Stock
(no par value)
---------------
The shares of Common Stock ("Common Stock") offered hereby are offered
by the holder of 6% Convertible Debentures (the "Debentures") of All American
Food Group, Inc. (the "Company"), the holder of Series D Convertible Preferred
Stock (the "Preferred Stock") of the Company and the holders of warrants to
purchase shares of the Company's Common Stock ("Warrants") and the holder of
50,000 shares of Common Stock (the "Trautman Shares"). Except for the Trautman
Shares, the shares of Common Stock so offered are issuable upon the conversion
of the Debentures, the conversion of the Preferred Stock and the exercise of the
Warrants. See "Selling Securityholders." The Common Stock is currently quoted on
the under the symbol "AAFG." On December 3, 1997 the closing price on the Nasdaq
SmallCap Market of the Common Stock was $.9375 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
THIS PROSPECTUS RELATES TO AN AGGREGATE OF 6,660,259 SHARES OF COMMON STOCK, NO
PAR VALUE PER SHARE, WHICH IS BASED ON 166% OF THE SHARES ISSUABLE IF $2,600,000
PRINCIPAL AMOUNT OF DEBENTURES HAD BEEN OUTSTANDING ON OCTOBER 21, 1997 AND ALL
THE DEBENTURES HAD BEEN CONVERTED ON THAT DATE AT A 20% DISCOUNT TO THE MARKET
PRICE (AS DEFINED IN THE DEBENTURES) OF THE COMMON STOCK, 166% OF THE SHARES
ISSUABLE IF ALL OF THE SHARES OF PREFERRED STOCK HAD BEEN CONVERTED ON DECEMBER
3, 1997 AT A 20% DISCOUNT TO THE AVERAGE CLOSING PRICE OF THE COMMON STOCK FOR
THE FIVE DAYS PRECEDING SUCH DATE AND ALL OF THE WARRANTS HAD BEEN EXERCISED ON
THAT DATE. SEE "SELLING SECURITYHOLDERS." THE EXACT NUMBER OF SHARES THAT WILL
BE ISSUED ON THE CONVERSION OF THE DEBENTURES AND/OR PREFERRED STOCK WILL DEPEND
ON THE MARKET PRICE OF THE COMMON STOCK ON THE DATE OF CONVERSION) AND IS NOT
NOW KNOWN. SEE "DESCRIPTION OF SECURITIES." ALL THE COMMON STOCK OFFERED HEREBY
IS BEING SOLD BY THE SELLING SECURITYHOLDERS AND MAY BE OFFERED TO THE PUBLIC
FROM TIME TO TIME BY THE SELLING SECURITYHOLDERS. THE COMPANY WILL NOT RECEIVE
ANY OF THE PROCEEDS RECEIVED BY THE SELLING SECURITYHOLDERS FROM THE COMMON
STOCK SOLD.
THE COMPANY WILL PAY ALL REASONABLE EXPENSES OF THIS OFFERING ESTIMATED AT
$60,000. THE SELLING SECURITYHOLDERS, HOWEVER, WILL BEAR THE COST OF ALL
BROKERAGE COMMISSIONS AND DISCOUNTS INCURRED IN CONNECTION WITH THE SALE OF
THEIR COMMON STOCK. THE COMMON STOCK MAY
3
<PAGE>
BE SOLD BY THE SELLING SECURITYHOLDERS DIRECTLY OR THROUGH UNDERWRITERS, DEALERS
OR AGENTS IN MARKET TRANSACTIONS OR PRIVATELY NEGOTIATED TRANSACTIONS. SEE
"SELLING SECURITYHOLDERS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 4, 1997
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Investors should carefully consider the information set forth under the heading
"Risk Factors."
The Company
All American Food Group, Inc. (together with its wholly owned
subsidiaries, the "Company") franchises two distinct bagel store concepts,
distributes bagel bakery equipment and currently operates ten retail bagel
stores. All of the Company's bagels are prepared using the Company's proprietary
bagel mix and dough conditioner, in the "Old World" style, by first boiling and
then baking the dough using the Company's bagel kettle and bagel oven. The
Company believes that this process and the use of its proprietary ingredients
and its equipment ensure the consistent preparation of premium quality bagels
with a shine, crust, texture and overall flavor that distinguish its products
from those of its competitors.
The Company franchises its concepts and operates its bagel stores under
the names "Goldberg's Original Old World Bagels" ("Goldberg's"), "Sammy's New
York Bagels" ("Sammy's"), and variations thereof. Stores franchised under the
Goldberg's name and concept offer a traditional bagel/delicatessen menu,
consisting of bagels, spreads, sandwiches, salads, soups and "appetizing" bakery
items. Sammy's stores differ from Goldberg's stores in that they offer bagels
and related dairy items in a kosher store, under national Kof-K Kosher
Supervision. Management believes that Sammy's is the only franchised food chain
subject to national kosher certification currently available in the United
States.
The Company's operations are based on those of a group of bagel shops
operating in New York and New Jersey under variations of the "Goldberg" name
since 1938. In October 1993, the Company acquired two such restaurants (one of
which subsequently was sold), together with exclusive franchise rights to their
recipes, flours, mixes and equipment and the prior owners' related bagel bakery
equipment business. (The Goldberg family continues to operate ten bagel stores
that are not affiliated with the Company and, subject to certain noncompetition
covenants, may open additional stores in the future.) In September 1994, the
Company acquired three Sammy's stores (one of which subsequently was sold) and a
commissary. Since its acquisition of the Goldberg's and Sammy's stores, the
Company has engaged in an extensive process of analyzing, standardizing and
documenting all aspects of its retail bagel operations, preparing franchise
materials and developing its franchise system and program. In addition, it
retrofitted one of the Goldberg's locations to serve as a prototype store for
purposes of marketing franchises and training personnel. As of October 24, 1997,
the Company's retail system consisted of eighteen Goldberg's and nine Sammy's
stores located in nine states, including eight Goldberg's and two Sammy's stores
owned and operated by the Company and ten Goldberg's and seven Sammy's stores
operated under franchise or license arrangements with the Company.
The Company also distributes and services its bagel bakery equipment
for use by its franchisees. The Company's equipment utilizes the old-fashioned
method of boiling, then baking bagels with revolving tray ovens. Management
believes that the Company is the only franchisor of bagel stores that provides
bagel equipment directly to its franchisees.
The Company intends to expand its retail operations primarily through
franchising, and to a lesser extent, through acquisitions in key markets.
Management believes that food service franchising in general, and the
franchising of bagel restaurants in particular, present a unique opportunity for
success in the current consumer and franchise markets. According to industry and
government statistics, U.S. per capita bagel consumption nearly doubled from
1993 to 1996. Management believes that this increased demand for bagels arises
primarily from increased consumer demand for healthier, low-fat food products
and that the versatility, convenience and relatively low price of bagels add to
their appeal.
5
<PAGE>
Management believes that the Company has a unique combination of
characteristics that will help it to build a successful nationwide chain of
franchised bagel restaurants under both of its concepts. The
Company's key competitive strengths include the following:
- Quality Products. Management believes that the key to the
Company's success lies with the quality of its products. Therefore, all
of the Company's bagels are prepared in the old-fashioned style, using
the Company's proprietary bagel mix and dough conditioner, by first
boiling and then baking the dough using the Company's bagel kettle and
bagel oven. The Company believes that this process and the use of its
proprietary ingredients and its equipment ensure the consistent
preparation of premium quality bagels with a shine, crust, texture and
overall flavor that distinguish its products from those of its
competitors.
- Experience. The Company's products and operating systems are
based on those developed by the Goldberg family during the 58 years of
operation of its family-owned bagel shops. The Company's products and
operating systems are the product of this half-century of experience.
- Complementary Concepts. Management believes that the
Company's franchise program is unique in offering two complementary
bagel concepts. Management also believes that the availability of these
two concepts uniquely positions the Company to benefit from economies
of scale in purchasing, while permitting it to penetrate distinct
segments of the bagel market.
- Kosher Concept and Production Facilities. Management
believes that Sammy's is the only franchised food chain subject to
national kosher certification currently available in the United States.
In addition to the market for kosher products by consumers requiring
kosher food by reason of dietary restrictions in connection with their
religious faith, management believes that a market for kosher products
also exists among consumers who are not subject to such restrictions,
but who view kosher certification as a sign of high quality,
authenticity and careful preparation.
- Equipment Business. Management believes that the Company is
unique in designing, manufacturing and distributing its bagel bakery
equipment and providing consulting services in connection with the sale
and installation of such equipment. Management believes that this
capability provides the Company with a distinct advantage in equipping
and advising its franchise outlets and in ensuring the quality of its
products.
THE OFFERING
Common Stock Offered.................. 6,660,259 shares (based upon the
3,736,797 shares issuable upon the
conversion of 6% Convertible
Debentures, based on the Market
Price (as defined in the
Debentures) of $1.50 per share on
October 24, 1997) 638,462 shares
issuable upon conversion of the
Preferred Stock, based on the
average closing price of $.975
for the five days preceding
December 3, 1997, 2,235,000 shares
issuable upon exercise of the
warrants and the 50,000 Trautman
Shares
Common Stock Outstanding
Prior to Offering..................... 12,557,598 shares
Common Stock to be Outstanding
Immediately After Offering............ 12,557,598 shares based on all
shares offered under this Prospectus
(assuming full conversion of the
Debentures and exercise of all the
Warrants).
6
<PAGE>
Use of Proceeds....................... None of the proceeds of the sale of
the Common Stock registered
hereunder will accrue to the
Company. See "Use of Proceeds."
Risk Factors.......................... The Securities offered hereby
involve a high degree of risk.
Investors should purchase the
securities offered hereby only if
they can afford the loss of their
entire investment.
NASD SmallCap Market Symbol........... "AAFG"
The Company was incorporated under the laws of the State of New Jersey
on September 27, 1993, under the name "Jutland Food Group, Inc." for the purpose
of establishing a chain of franchised bagel restaurants using the recipes,
procedures, experience and expertise of an existing, well-seasoned bagel
restaurant and bakery operation. The Company changed its name to "All American
Food Group, Inc." on October 24, 1995. Its executive offices are located at 104
New Era Drive, South Plainfield, New Jersey 07080 and its telephone number is
(908) 757-3022.
CURRENT FINANCING
In September 1997, pursuant to a private placement, the Company (a)
sold to one investor $1,300,000 principal amount of 6% Convertible Debentures
(the "Debentures") and (b) received a commitment from the investor, subject to
various conditions, to purchase additional Debentures in the aggregate principal
amount of $1,300,000. The investor may convert the Debentures into Common Stock
(the "Debenture Conversion Shares"), and the Company has the right, under
certain circumstances, to require such conversion. In connection with such
private placement, the Company issued warrants to purchase up to 130,000 shares
of its Common Stock to such investor and warrants to purchase 350,000 shares of
its Common Stock to Trautman Kramer & Company ("Trautman Kramer"). The Company
has agreed in principle to exchange the warrants issued to Trautman Kramer for
warrants to purchase up to 500,000 shares of its Common Stock (the "Trautman
Warrants") at exercise prices ranging from $.50 a share to $1.08 a share and may
issue warrants to purchase up to an additional 1,500,000 shares of its Common
Stock to Trautman Kramer and/or other third parties at exercise prices above,
below or at the then current market price of the Common Stock for services to be
rendered to the Company. The shares issuable under all such warrants are herein
referred to as the "Warrant Shares." In connection with such closing the Company
also agreed to issue to Trautman 50,000 shares of Common Stock (the "Trautman
Shares") in lieu of a portion of the 10% placement fee due Trautman, together
with the warrants described below.
On December 4, 1997, pursuant to a private placement, the Company sold
to one investor 300 shares of Series D Preferred Stock (the "Preferred Stock")
for $300,000 and issued warrants to purchase 105,000 shares of Common Stock at
an exercise price of 110% of the closing price of the Common Stock on December
4, 1997. The investor may convert the Preferred Stock into Common Stock (the
"Preferred Conversion Shares").
The Debenture Conversion Shares, Preferred Conversion Shares, Warrant
Shares and Trautman Shares constitute the Selling Securityholders' Common Stock
being offered and sold by the Selling Securityholders pursuant to this
Prospectus. See "Description of Securities," "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "Selling Securityholders and Plan of Distribution."
SUMMARY OF FINANCIAL DATA
The summary financial data set forth below are derived from the
Consolidated Financial Statements of the Company and its subsidiaries appearing
elsewhere in this Prospectus. The Consolidated Financial Statements of the
Company as of, and for the nine months ended, July 31, 1997 and 1996, for the
three months ended January 31, 1995 and the year ended October 31, 1995, as
aggregated, are unaudited. The summary financial data should be read in
conjunction with, and are qualified in their entirety by reference to, the
Consolidated Financial Statements of the Company and the Notes thereto, and
"Management's Discussion and Analysis or Plan of Operation," included elsewhere
in this Prospectus. At the time of its formation in September 1993, the
Company's fiscal year end was January 31. During calendar year 1995, the Company
changed its fiscal year end to October 31. The financial data set forth below
gives effect to a one-for-two reverse split of the Company's Common Stock
effected as of December 5, 1996.
7
<PAGE>
Statement of Operations Data:
<TABLE>
<CAPTION>
Three Nine Aggregated
Months Months Year Year
Ended Ended Ended Ended
January 31 October 31, October 31, October 31, Nine Months Ended July 31,
1995 1995 1995 (1) 1996 -----------------------------
(unaudited) unaudited) 1997 1996
----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 674,464 $2,350,268 $3,024,732 $2,240,187 $2,094,446 $1,712.54
Net loss.................. $ (475,356) $(1,151,545) $(1,626,901) $(1,973,592) $(2,785,564) $(1,204,571)
Net loss per share........ $(0.27) $(0.84) $(1.10) $(1.85) $(0.91) $(1.40)
Weighted average number of
common shares
outstanding............. 1,785,776 1,373,708 1,476,024 1,373,708 3,091,402 1,373,708
</TABLE>
- ----------
(1) Represents the total of results for the nine-month fiscal period ended
October 31, 1995 and the three-month interim period ended January 31, 1995.
Balance Sheet Data (unaudited):
July 31, 1997
-------------
Current assets.............. $2,012,940
Current liabilities......... 1,409,218
Working capital (deficit)... 603,722
Total assets................ 3,839,001
Total long term debt........ 1,059,888
Deferred franchising revenue 106,119
Redeemable preferred stock 262,022
Common stock................ 7,577,281
Non-redeemable preferred stock 495,532
Accumulated deficit......... $(7,071,059)
- ----------
8
<PAGE>
RISK FACTORS
The securities offered hereby are highly speculative and involve a high
degree of risk and substantial dilution. An investment in these securities
should be made only by investors who can afford the loss of their entire
investment. In addition to the factors set forth elsewhere in this Prospectus,
prospective investors should give careful consideration to the following risk
factors in evaluating the Company and its business before purchasing the
securities offered hereby.
Limited Operating History; Operating Losses
The Company has been in existence for approximately four years and
eight of the twenty-seven stores currently in operation by the Company or under
franchise or license arrangements have been in operation for less than 12
months. Further, the Company incurred net losses of $1,626,901 and $1,973,527
for the twelve month period ended October 31, 1995 and the fiscal year ended
October 31, 1996, respectively, and, as of July 31, 1997, had an accumulated
deficit since inception of approximately $7,072,000. Such operating losses and
deficits reflect the cost of developmental and other start-up activities
including, in particular, the acquisition of the Company's initial retail stores
and equipment business and the development of its franchise program. See
"Business -- Overview" and "-- History of the Company." The Company expects to
continue to incur significant losses in the future as it implements its
expansion program. See "Management's Discussion and Analysis or Plan of
Operation" and "Business -- Plan of Operations."
The Company's operations are subject to numerous risks associated with
establishing any new business, including unforeseen expenses, delays and
complications, as well as specific risks of the food service and franchising
industries. There can be no assurance that the Company will achieve or sustain
profitable operations or that it will be able to remain in business. In
particular, there can be no assurance that the Company-owned and operated stores
will operate profitably, that the Company will succeed in opening additional
stores successfully, that stores currently operating under franchise or license
arrangements will operate successfully or that the Company will be successful in
selling additional franchises.
Need for Additional Working Capital
The Company anticipates that its capital resources, including the net
proceeds from its Debenture Offering, will be adequate to satisfy its capital
requirements for at least 12 months from the date hereof. See "Use of Proceeds"
and "Management's Discussion and Analysis or Plan of Operation -- Liquidity and
Capital Resources." During that time, the Company intends to expand through the
sale of additional franchises and to seek additional customers for its bagel
bakery equipment, which expansion will require the expenditure of working
capital. The Company's future capital requirements will depend upon many
factors, including the Company's ability to market its franchises and operate
its own stores successfully, as well as market developments and cash flow from
operations. To the extent that the net proceeds of this Offering and cash
generated from operations are insufficient to fund the Company's activities, the
Company will be required to raise additional funds through bank borrowings or
equity or debt financings. There can be no assurance that additional financing,
if required, will be available at all or in amounts or on terms acceptable to
the Company. In addition, any equity financing could result in dilution to the
Company's existing shareholders. Failure to obtain additional working capital in
a timely manner or on acceptable terms could have a material adverse effect on
the Company, its operations, financial results and prospects. See "Business,"
"Management's Discussion and Analysis or Plan of Operation -- Liquidity and
Capital Resources" and the Consolidated Financial Statements of the Company
included elsewhere herein.
9
<PAGE>
Volatility of Stock Price
The trading price for the Common Stock has been highly volatile and
could continue to be subject to significant fluctuations in response to
variations in the Company's quarterly operating results, general conditions in
the food service industry or the general economy, and other factors. In
addition, the stock market is subject to price and volume fluctuations affecting
the market price for public companies generally, or within broad industry
groups, which fluctuations may be unrelated to the operating results or other
circumstances of a particular company. Such fluctuations may adversely affect
the liquidity of the Common Stock, as well as the price that holders may achieve
for their shares upon any future sale.
Continued Nasdaq Listing; Potential Adverse Effects of Delisting
There can be no assurance that the Company will be able to maintain the
standards for continued listing of the Common Stock on The Nasdaq SmallCap
Market. Delisting of the Common Stock would adversely affect the price of the
Common Stock and the ability of holders to sell their shares. In addition, in
order to be relisted on Nasdaq, the Company would be required to comply with the
initial listing requirements, which are substantially more onerous than the
maintenance standards.
If the Company were unable to satisfy the maintenance requirements for
continued listing on the Nasdaq SmallCap Market and the share price for Common
Stock were to remain below $5.00 per share, unless the Company satisfies certain
asset or revenue tests (at least $5,000,000 in net tangible assets if in
business less than three years, at least $2,000,000 in net tangible assets if in
business at least three years, or average revenues of at least $6,000,000 for
the last three years), the Common Stock would become subject to the so-called
"penny stock" rules promulgated by the Securities and Exchange Commission (the
"Commission"). Under the penny stock rules, a broker or dealer selling penny
stock to anyone other than an established customer or "accredited investor"
(generally, an individual with net worth in excess of $1,000,000 or annual
income exceeding $200,000, or $300,000 together with his or her spouse) must
make a special suitability determination for the purchaser and must receive the
purchaser's written consent to the transaction prior to sale, unless the broker
or dealer or the transaction otherwise is exempt. In addition, the penny stock
rules require the broker or dealer to deliver, prior to any transaction, a
disclosure schedule prepared by the Commission relating to the penny stock
market, unless the broker or dealer or the transaction otherwise is exempt. A
broker or dealer also is required to disclose commissions payable thereto and to
the registered representative and current quotations for the securities. In
addition, a broker or dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer's
account and information with respect to the limited market in penny stocks.
These additional sales practice and disclosure requirements could adversely
effect the level of trading activity in the secondary market and could impede
the sale of the Company's Common Stock in that market, with a concomitant
adverse effect on the price of the Common Stock in the secondary market.
No Dividends
The Company has not paid any cash or other dividends on its Common
Stock since its inception and does not anticipate paying any such dividends in
the foreseeable future. It is anticipated that earnings, if any, will be used in
the Company's operations and to finance the expansion of its business. See
"Dividend Policy" and "Management's Discussion, Analysis or Plan of Operation --
Liquidity and Capital Resources" and "Business -- Plan of Operations."
Seasonal and Quarterly Fluctuations
The Company's interim results of operations may be affected by the
timing of the sale of franchises and the opening of new stores, receipt of
franchise and market area developer fees and seasonal factors, such as weather
conditions, in the areas where stores are located. In addition, the Company's
results may be affected by the timing of expenses associated with its expansion.
10
<PAGE>
Dependence on Franchisees
The Company will realize a substantial portion of its revenues from
initial franchise fees, ongoing royalty payments from its franchisees and the
sale of foodstuffs and equipment to its franchisees. The Company is therefore
substantially dependent upon its ability to attract, retain and contract with
suitable franchisees, and the ability of these franchisees to open and operate
their stores successfully. Should the Company experience difficulty in
attracting suitable franchisees, or should the Company's franchisees encounter
business or operational difficulties, the Company's revenues will be adversely
affected. Such a reduction in revenues may also have an adverse effect on the
Company's ability to sell new franchises and on its financial results and
prospects. Consequently, the Company's financial prospects are directly related
to the success of its franchisees, over which the Company has no direct control.
There can be no assurance that either the Company or its franchisees will be
able to develop new franchises, or operate the Company's bagel stores,
successfully.
Expansion
The opening and success of the Company's bagel stores will depend on
various factors, including the availability of suitable sites; the ability of
franchisees to negotiate acceptable lease terms for new locations, to obtain
construction and any other necessary permits in a timely manner, and to meet
construction and opening schedules; the Company's ability to manage its
anticipated expansion and to hire and train personnel; and general and local
economic and business conditions. The foregoing factors are not within the
control of the Company.
The Company's proposed expansion also will require the implementation
of enhanced operational and financial systems and will require additional
management, operational and financial resources. Failure to implement these
systems and add these resources could have a material adverse effect on the
Company's operations, financial results and prospects. There can be no assurance
that the Company will be able to manage its expanding operations effectively or
that it will be able to maintain or accelerate its growth. In addition, there
can be no assurance of the viability of the Company's concepts in new geographic
regions or particular local markets.
Competition; Ease of Entry into Business
The food service industry, in general, and the fast-food and take-out
sectors in particular, are intensely competitive. The Company competes, and can
be anticipated to compete, against well established food service companies with
substantially greater product and name recognition and with substantially
greater financial, marketing and distribution capabilities than the Company's,
as well as against a large number of local food establishments that offer
similar or competitive products. In addition, management believes that the
start-up costs associated with opening a retail food establishment offering
similar products on a stand-alone basis are comparable to the start-up costs of
the Company's bagel stores and, accordingly, such start-up costs are not an
impediment to entry into the retail bagel business. Further, as the demand for
bagels increases and consumers become more familiar with the product, they also
may be expected to become increasingly discriminating in selecting bagels based
on quality and value. There can be no assurance that the Company can compete
successfully in this complex and changing market.
Food Service Industry
Food service businesses often are affected by changes in consumer and
competitive conditions, including changes in consumer tastes; national,
regional, and local economic conditions and demographic trends; traffic
patterns, and the type, number, and location of competing businesses. Adverse
publicity resulting from food quality, illness, injury, or other health concerns
or operating issues stemming from one
11
<PAGE>
store or a limited number of stores also may adversely affect multi-unit chains
such as the Company. In addition, factors such as inflation, increased food,
labor, and employee benefit costs, regional weather conditions and the
unavailability of experienced management and hourly employees also may adversely
affect the food service industry in general, and the Company's operations,
financial results and prospects in particular.
Government Regulation
The Company's franchise operations are subject to regulation by the
Federal Trade Commission (the "FTC") in compliance with the Uniform Franchise
Act which requires, among other things, that the Company prepare and update a
comprehensive disclosure document in connection with the sale and operation of
its franchises. The Company and its franchisees also must comply with state
franchising laws and a wide range of other state and local rules and regulations
applicable to their businesses. See "Business -- Government Regulation."
Compliance with this broad federal, state and local regulatory network is
essential and costly, and the failure to comply could have a material adverse
effect on the Company and its franchisees. Violations of franchising laws and/or
state laws and regulations governing substantive aspects of doing business in a
particular state could subject the Company and its affiliates to rescission
offers, monetary damages, penalties, imprisonment and/or injunctive proceedings.
In addition, under court decisions in certain states, absolute vicarious
liability may be imposed upon franchisers based upon claims made against
franchisees. The Company currently does not carry insurance against such claims,
although it intends to obtain such coverage in the future. However, there can be
no assurance that the Company will be able to obtain such coverage or that such
coverage will be sufficient to cover potential claims against the Company.
This Prospectus does not constitute, and shall not be construed as, an
offer to sell a Goldberg's or Sammy's franchise. Such offers may be made only by
an Offering Circular in compliance with applicable state law and the Federal
Trade Commission Disclosure Rule. The description of the franchises set forth in
this Prospectus is not intended to be a complete description of a Goldberg's or
Sammy's franchise business.
Lack of Trademark and Patent Protection
The Company has no registered trademark or service mark protection
under federal trademark law. While management believes that, in the food service
industry, trademarks, service marks and the "look" ("trade dress"), of a retail
chain can be adequately protected by common law, there can be no assurance that
the absence of protected, registered marks will not have an adverse effect on
the Company's competitive position, business or prospects. Further, although the
Company modifies and installs certain bagel bakery equipment in a proprietary
manner, the Company does not believe these refinements are patentable.
Therefore, there can be no assurance as to whether, to what extent, or for what
period of time the Company may enjoy a competitive advantage based on the
availability of its equipment. In addition, it is the Company's practice to
protect its proprietary dough conditioner, bagel mix and bagel dough by relying
on trade secret laws and confidentiality agreements. There can be no assurance
that the confidentiality of its trade secrets will be maintained or that others
will not independently develop or obtain access to the same, comparable or
improved recipes and formulas. See "Business -- Trademarks and Service Marks."
12
<PAGE>
Dependence on Key Personnel
The Company is substantially dependent upon the personal efforts and
abilities of its senior management. See "Management." The loss of any of the
Company's senior management personnel could adversely affect the Company until
such time, if any, as a suitable replacement is found. The Company's ability to
develop and market its products and to achieve and maintain its competitive
position depends, in large part, on its ability to attract and retain qualified
personnel. Competition for such personnel is intense and there can be no
assurance that the Company will be able to attract and retain such personnel.
Effect of Debenture and Preferred Stock Conversion and Exercise of Warrants
Upon conversion of the Debentures, the Preferred Stock and exercise of the
Warrants there will be not less than 11,118,036 shares of Common Stock
outstanding, consisting of 5,897,339 shares currently outstanding and a
minimum of 5,220,697 shares (and potentially substantially more depending upon
the Market Price at the time of conversion) issuable upon conversion by the
Debentures, the Preferred Stock and exercise of the Warrants available for offer
by the Selling Securityholders, which shares will be tradable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), as long as the Prospectus covering such sales remains
current and effective. No prediction can be made as to the effect, if any, that
future sales of shares of Common Stock, whether offered by the Selling
Securityholders or others, will have on the market price of the shares of Common
Stock prevailing from time to time. Sales of substantial amounts of Common
Stock, or the perception that these sales could occur, could adversely affect
prevailing market prices for the Common Stock and could impair the ability of
the Company to raise additional capital through the sale of its equity
securities or through debt financing. See "Market for Common Equity and Related
Stockholder Matters."
Limitations on Directors' and Officers' Liability
As permitted pursuant to the corporate law of the State of New Jersey,
the Company's state of incorporation, the Company's Amended and Restated
Certificate of Incorporation (the "Charter") and Amended and Restated By-Laws
(the "By-Laws") require that the Company indemnify its directors and officers
against certain liabilities incurred in their service in such capacities. In
addition, the Charter provides that the personal liability of directors and
officers of the Company to the Company and its shareholders shall be limited
under certain circumstances. See "Management -- Limitation of Liability and
Indemnification Matters."
Potential Adverse Effect of Certain Anti-Takeover Provisions
The corporate law of the State of New Jersey, the Company's state of
incorporation, and the Company's Charter, contain provisions that may discourage
proposals or bids to acquire the Company. Such provisions authorize the issuance
of a maximum of 4,000,000 shares of Preferred Stock (of which 873,666 shares
were outstanding as of December 4, 1997) on terms which may be fixed by the
Company's Board of Directors without shareholder action. The terms of any series
of Preferred Stock, which may include priority claims to assets and dividends,
and special voting rights, could adversely affect the rights of holders of the
Common Stock. The issuance of Preferred Stock could make the takeover of the
Company or the removal of management of the Company more difficult, discourage
hostile bids for control of the Company in which shareholders may receive
premiums for their shares of Common Stock, or otherwise dilute the rights of
holders, and the market price of the Common Stock. See "Description of
Securities -- Preferred Stock."
13
<PAGE>
Shares Eligible for Future Sale; Issuance of Additional Shares. Future
sales of shares of Common Stock by the Company and its stockholders could
adversely affect the prevailing market price of the Common Stock. There are
currently 702,300 restricted shares and 5,195,039 shares of Common Stock which
are freely tradeable or eligible to have the restrictive legend removed pursuant
to Rule 144(k) promulgated under the Securities Act. Of the 702,300 restricted
shares, 187,500 shares have been held for at least one year from the date of
this Prospectus are currently eligible for resale under Rule 144. Of the
restricted shares, 530,545 shares held by certain of the Company's officers and
directors will be subject to certain lock-up agreements through December 12,
1998. The Company has filed registration statements which register up to
1,950,000 shares of Common Stock relating to certain options and/or shares of
Common Stock which have been or may be granted pursuant to certain stock option
plans (of which 900,000 shares have been issued to date and options to purchase
100,000 shares are currently outstanding). Sales of substantial amounts of
Common Stock in the public market, or the perception that such sales may occur,
could have a material adverse effect on the market price of the Common Stock.
Pursuant to its Certificate of Incorporation, the Company has the authority to
issue additional shares of Common Stock and Preferred Stock. The issuance of
such shares could result in the dilution of the voting power of Common Stock
purchased in this Offering. See "Description of Securities," "Shares Eligible
for Future Sale," and "Principal Shareholders."
14
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company has been trading on Nasdaq SmallCap
Market under the symbol "AAFG" since December 1996.
The following table sets forth the range of high and low close prices
for the Company's Common Stock for each quarterly period indicated, as reported
by brokers and dealers making a market in the capital stock. Such quotations
reflect inter-dealer prices without retail markup, markdown or commission, and
may not necessarily represent actual transactions:
COMMON STOCK
QUARTER ENDED HIGH LOW
September 30, 1997 $ 2 1/32 $ 1 15/16
June 30, 1997 $ 15/16 $ 11/16
March 31, 1997 $ 2 $ 1 13/16
December 31, 1996* $ 3 7/8 $ 3 3/8
* From initial time of trading in December 1996, the closing price was $3.58.
REGISTRATION RIGHTS
In connection with the Company's private placement of $1,300,000
principal amount of 6% Convertible Debentures on September 16, 1997, the Company
is obligated to use its best efforts to cause this registration statement to
become effective by December 16, 1997 and to keep the registration statement
effective for two years or until the Debentureholder may sell all registerable
securities under Rule 144 or until the Debentureholder no longer owns any
registerable securities, whichever occurs first. The Company is further
obligated to register additional shares issuable upon conversion of the
Debentures, upon request by the Debentureholder, if the number of shares
issuable upon conversion exceed the number of shares registered, as well as to
register and qualify the registerable shares under such state securities laws as
the Debentureholder may request subject to specified limitations. The Company
will bear the reasonable expenses of the registration and qualification of the
shares under the Securities Act and state securities laws other than any
underwriting discounts and commissions and legal fees in excess of $3,500.
If the Registration Statement is not effective by December 16, 1997
(the "Initial Date"), then the Company must make payments to the Debentureholder
in such amounts and at such times as determined pursuant to Section 2(c) of the
Registration Rights Agreement, which states that the amount to be paid by the
Company to the Selling Securityholder shall be determined as of each Computation
Date, and such amount shall be equal to two percent (2%) of the purchase price
paid by the Selling Securityholder for the Debenture for the period from the
Initial Date to the first Computation Date, and three percent (3%) of the
purchase price for each Computation Date thereafter, to the date the
Registration Statement is declared effective by the SEC, except to the extent
any delay in the effectiveness of the Registration Statement occurs because of
an act of, or a failure to act or to act timely, by the Selling Securityholder
or its counsel. "Computation Date" means the date which is the earlier of (a)
five days after the Company is notified by the SEC that the Registration
Statement may be declared effective or (b) December 17, 1997, and, if the
Registration Statement has not theretofore been declared effective by the SEC,
each date which is thirty (30) days after the previous Computation Date until
such Registration Statement is so declared effective. Thus, if the registration
statement is not effective by December 16, 1997, and such delay is not related
to an act, or a failure to act or to act timely, by the Debentureholder or its
counsel, then for the period from December 17, 1997 to January 16, 1998, the
Company must pay to the Selling Securityholder a penalty of
15
<PAGE>
$26,000. If the registration statement still is not effective on January 16,
1998, and such delay is not related to an act, or a failure to act or to act
timely, by the Debentureholder or its counsel, then for the period from January
17, 1998 to February 16, 1998, the Company must pay to the Selling
Securityholder an additional penalty of $39,000, and so on.
In connection with the Company's private placement of Debentures, the
Company also issued to the Debentureholder Warrants to purchase 130,000 shares
of Common Stock exercisable at 150% of the Market Price on September 16, 1997,
or $3.25, for a period of five (5) years. On September 19, 1997, the Company
issued to Trautman Kramer warrants to purchase 175,000 shares of
Common Stock at $1.875 per share (the closing price of the Common Stock on such
date) and warrants to purchase 175,000 shares of Common Stock at $2.4375 per
share (130% of the closing price of the Common Stock on such date). The Company
has agreed in principle to exchange the warrants it issued Trautman Kramer for
warrants to purchase 187,500 shares of Common Stock at $.50 per share, warrants
to purchase 62,500 shares of Common Stock at $.65 per share, warrants to
purchase 125,000 shares of Common Stock at $.75 per share and warrants to
purchase 125,000 shares of Common Stock at $1.08 per share. The Company may
issue warrants to purchase up to an additional 1,500,000 shares of Common Stock
to Trautman Kramer and/or other third parties at prices above, below or at the
then current price of the Common Stock in respect of services to be rendered to
the Company. The Company is required to prepare and file a registration
statement under the Securities Act for the number of shares of Common Stock
issuable upon the exercise of the above Warrants. Timely filing of the
registration statement has been made.
In respect of the Company's private placement of Preferred Stock the
Company is required to include the shares issuable upon conversion of said
Preferred Stock in this Registration Statement, together with the 105,000 shares
issuable upon the exercise of the warrants issued in connection therewith. In
the event such registration statement is not declared effective by December 15,
1997, the Company must pay a penalty equal to $9,000 for each 30 day period
until effectiveness.
USE OF PROCEEDS FROM SALE OF DEBENTURES AND PREFERRED STOCK
None of the proceeds from the sale of the Common Stock registered
hereunder will accrue to the Company.
Through private placement, the Company has obtained $1,300,000 of
financing in the form of 6% Convertible Debentures and $300,000 in the form of
the Preferred Stock. The holder of these Debentures, who is also a Selling
Securityholder, has agreed to purchase an additional $1,300,000 aggregate
principal amount of Debentures in each commencing not less than 30 days after
the effective date of the Registration Statement of which this Prospectus is a
part, subject to: (i) the effectiveness of the Registration Statement of which
this Prospectus is a part, (ii) the continuing material accuracy of specified
representations and warranties of the Company to the Selling Securityholder and
(iii) the Market Price of the Common Stock for the five trading days prior to
the purchase of the Debentures exceeding $1.25.
The Company intends to apply the net proceeds of the Debentures and
Preferred Stock for working capital purposes.
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The Selling Securityholder whose Debenture Conversion Shares and
130,000 of Warrant Shares are being registered hereby is South Seas
Import-Export Corp. ("South Seas"). South Seas is a foreign entity with
principal place of business located at 111 Arlosorov Street, Tel Aviv, Israel.
South Seas does not have a domestic agent for service of process. South Seas has
no other affiliation with the Company or its officers, directors, promoters or
principal shareholders.
It may be difficult for United States investors to effect service
within the United States upon South Seas or its officers and directors or to
realize in the United States upon judgments rendered against the South Seas or
its officers and directors by courts of the United States predicated upon civil
liabilities under the Securities Act of 1933 ("Securities Act") or state
securities laws.
As of the date of this Prospectus, South Seas owned $1,300,000
principal amount of 6% Convertible Debentures, had committed to purchase an
additional $1,300,000 of Debentures. Upon conversion of the outstanding
Debentures, South Seas will acquire shares of Common Stock on the basis set
forth in the following paragraph, provided however, that South Seas can never
own more than 4.9% of the outstanding shares. (See note(1), Principal
Shareholders.)
16
<PAGE>
The Company has agreed to register the public offering of South Seas
shares of Common Stock under the Securities Act and to pay all expenses in
connection therewith other than brokerage commissions and discounts in
connection with the sale of the Debenture Conversion Shares and the expenses
of counsel for South Seas in excess of $3,500. The aggregate number of
Conversion Shares that may be offered and sold pursuant to this Prospectus by
South Seas will be determined by how many shares are issued upon conversion of
the Debentures, which will be determined by the conversion price applicable to
the Debenture Conversion Shares. See "Description of Securities." The conversion
price for a Debenture Conversion Share will be the lesser of the Market Price
(as defined in the Debentures) on September 16, 1997, which was $2.17, and (i)
82% of the Market Price on the Conversion Date if such date is between sixty
(60) and ninety (90) days from September 16, 1997; (ii) 80% of the Market Price
if the date is between ninety-one (91) and one hundred twenty (120) days from
September 16, 1997; (iii) 77.5% of the Market Price if the date is between one
hundred twenty-one (121) and one hundred fifty (150) days from September 16,
1997; or (iv) 75% of Market Price thereafter. Assuming that the Market Price on
the date of Conversion is $1.50 (which is the Market Price calculated as of
October 24, 1997) with respect to all the Debentures, and that all the
Debentures are converted at 80% of the Market Price, the aggregate number of
Debenture Conversion Shares issued would be 3,736,797 (excluding any Debenture
Conversion Shares issued with respect to accrued interest on the Debentures at
the time of conversion), and if all the Shares are sold, South Seas would have
no beneficial interest in the Common Stock of the Company, assuming that South
Seas did not acquire a beneficial interest in the Common Stock of the Company
otherwise than through the conversion of the Debentures, including, without,
limitation, through the exercise of its Warrants.
The Selling Security holder whose Preferred Conversion Shares and
105,000 of Warrant Shares are being registered hereby is ProFutures Special
Equities Fund, L.P. ("PSEF").
As of the date of this Prospectus, PSEF own 300 shares of Series D
Convertible Preferred Stock. Upon conversion of the Preferred Stock PSEF will
acquire shares of Common Stock on the basis set forth in the following
paragraph.
The Company has agreed to register the public offering of PSEF shares of
Common Stock under the Securities Act and to pay all expenses in connection
therewith other than brokerage commissions and discounts in connection with the
sale of the Preferred Conversion Shares. The aggregate number of Preferred
Conversion Shares that may be offered and sold pursuant to this Prospectus by
PSEF will be determined by how many shares are issued upon conversion of the
Preferred Stock, which will be determined by the conversion price applicable to
the Preferred Stock. See "Description of Securities." The conversion price for a
Preferred Conversion Share will be 80% of the average closing price of the
Common Stock for the five days preceding the conversion date. Assuming that the
five-day average price is $.975 (which is the five-day average calculated as of
December 4, 1997) with respect to all the Preferred Shares, the aggregate
number of Preferred Shares issued would be 307,692 (excluding any Preferred
Conversion Shares issued with respect to accrued dividends on the Preferred
Shares at the time of conversion), and if all the Shares are sold, PSEF would
have no beneficial interest in the Common Stock of the Company, assuming PSEF
did not acquire a beneficial interest in the Common Stock of the Company
otherwise than through the conversion of the Preferred Stock including, without
limitation, through the exercise of its warrants.
This Prospectus also relates to the resale of 130,000 Warrant Shares by
South Seas, 500,000 Warrant Shares by Trautman, Kramer & Company, Inc., an NASD
member firm, and 105,000 Warrant Shares by PSEF which may be acquired upon the
exercise of the Warrants respectively held (or issuable to) by them, and
1,500,000 shares which may be acquired under Warrants which may be issued to
Trautman Kramer and/or other third parties for services rendered to the Company.
Trautman, Kramer & Company, Inc. has no offer affiliation with the Company, or
its officers, directors, promoters or principal shareholders.
The following table sets forth the names of the Selling
Securityholders, the number of shares of Common Stock owned beneficially by
each of the Selling Securityholders as of December 4, 1997, and the number of
shares which may be offered for resale pursuant to this Prospectus. For the
purpose of calculating the number of shares of Common Stock beneficially owned
by South Seas, the number of shares of Common Stock calculated to be issuable in
connection with the conversion of the 6% Convertible Debentures is based on a
conversion price that is derived from the average closing market price of the
Common Stock on the five trading days preceding October 21, 1997 (which was
$1.44). The calculation of the total number of shares of Common Stock to be
offered by the holder of such Convertible Debentures, however, is an estimate
based upon a hypothetical 166% of the shares of Common Stock issuable upon
conversion of $2,600,000 principal amount of 6% Convertible Debentures at a 20%
discount to the average closing market price of the Common Stock on the five
trading days preceding October 21, 1997 (or $1.155). For the purpose of
calculating the number of shares of Common Stock beneficially owned by PSEF, the
number of shares of Common Stock calculated to be issuable in connection with
the conversion of the Preferred Shares is based on a conversion price that is
derived from the average closing market price of the Common Stock on the five
trading days preceding December 4, 1997 (which was $.975). The calculation of
the total number of shares of Common Stock offered by such holder, however, is
an estimate based upon a hypothetical 166% of the shares of Common Stock
issuable upon conversion of the Preferred Shares at a 20% discount to the
average closing market price of the Common Stock on the five trading days
preceding December 4, 1997 for $.78). The actual number of shares issuable upon
conversion of the Debentures and Preferred Shares cannot be predicted at this
time insofar as it will be based, among other things, on the future market price
of the Common Stock. The use of such hypothetical number of shares of Common
Stock is not intended to constitute a prediction as to the number of shares of
Common Stock into which the Debentures and Preferred Shares will be converted.
The information included below is based upon information provided by
the Selling Securityholders. Because the Selling Securityholders may offer all,
some or none of their Common Stock, no definitive estimate as to the number of
shares thereof that will be held by the Selling Securityholders after such
offering can be provided and the following table has been prepared on the
assumption that all shares of Common Stock offered under this Prospectus will be
sold.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY SHARES OF BENEFICIALLY
OWNED PRIOR TO COMMON STOCK OWNED AFTER
NAME OFFERING(1)(2) BEING OFFERED OFFERING(3)
- ---- -------------- ------------- ------------
<S> <C> <C> <C>
South Seas 3,866,797 3,866,797 0
Import-Export Corp.(4)
ProFutures Special Equities 743,462 743,462 0
Fund, L.P.(5)
Trautman, Kramer 2,050,000 2,050,000 0
& Company, Inc. (6)
</TABLE>
- -----------------
(1) Each of the parties listed has sole voting and investment power with
respect to all shares of Common Stock indicated.
(2) As required by regulations of the Securities and Exchange Commission,
the number of shares shown as beneficially owned includes shares which can
be purchased within 60 days after December 4, 1997. The actual number of
shares shown as beneficially owned is subject to adjustment and could be
materially less or more than the estimated amount indicated depending
upon factors which cannot be predicted by the Company at this time,
including, among others, the market price of the Common Stock prevailing
at the actual date of conversion of the Debentures.
(3) Assumes the sale of all shares offered hereby.
(4) The listed Selling Securityholder holds outstanding Warrants to purchase
130,000 shares of Common Stock at a price of $3.25 per share and $1,300,000
principal amount of Debentures. The Selling Securityholder has the right to
acquire an additional $1,300,000 principal amount of Debentures. The
Debentures are convertible into Common Stock at a conversion price per share
equal to the lesser of (a) $2.17, or (b) (i) 82% of the market price of the
Common Stock for the five trading days preceding the Conversion Date if
such date is between sixty (60) and ninety (90) days from September 16,
1997, (ii) 80% of the market price of the Common Stock for the five trading
days preceding the Conversion Date if the date is between ninety-one (91)
and one hundred twenty (120) days from September 16, 1997; (iii) 77.5% of
the market price of the Common Stock for the five trading days preceding
the Conversion Date if the date is between one hundred twenty-one (121) and
one hundred fifty (150) days from September 16, 1997; or (iv) 75% of market
price of the Common Stock for the five trading days preceding the
Conversion Date thereafter. The number of shares shown as being offered in
the table is based on a hypothetical 166% of the shares of Common Stock
issuable upon conversion of $2,600,000 of Debentures at a 20% discount to
the average closing market price of the Common Stock on the five trading
days preceding October 21, 1997 (or $1.155). Notwithstanding the foregoing,
the Selling Securityholder can convert Debentures into Common Stock only to
the extent the number of shares issued thereby, combined with the number of
Shares already held by it and its affiliates, would not exceed 4.9% of the
their outstanding Common Stock.
(5) The listed Selling Security holder holds outstanding Warrants to purchase
105,000 shares of Common Stock at an exercise price of 110% of the closing
price of the Common Stock on December 4, 1997 and 300 shares of Preferred
Stock. The Preferred Shares are convertible into a Common Stock at a
conversion price per share equal to 80% of the average closing price for the
Common Stock for the five trading days preceding conversion. The number of
shares shown as being offered in the table is based on a hypothetical 166%
of the shares of Common Stock issuable upon conversion of the Preferred
Shares on the five trading days preceding December 4, 1997.
(6) The listed Selling Securityholder holds Warrants to purchase 175,000 shares
of Common Stock at $1.875 per share (the closing price on the date of their
issuance) and Warrants to purchase 175,000 shares of Common Stock at
$2.4375 per share (130% of the closing price on such date). The Company has
agreed in principle to exchange the warrants it issued Trautman Kramer for
Warrants to purchase 187,500 shares of Common Stock at $.50 per share,
Warrants to purchase 62,500 shares of Common Stock at $.65 per share,
warrants to purchase 125,000 shares of Common Stock at $.75 per share and
warrants to purchase 125,000 shares of Common Stock at $1.08 per share. The
Company may issue warrants to purchase up to an additional 1,500,000 shares
of Common Stock to Trautman Kramer and/or other third parties at prices
above, below or at the then current market price of the Common Stock in
respect of services to be rendered to the Company.
The Selling Securityholders' Shares may be offered and sold from time
to time as market conditions permit, provided that a registration statement
covering such Shares is effective at the time of such offer and/or sale. Under
Section 10(a)(3) of the Securities Act of 1933, as amended, when a prospectus is
used more than nine months after the effective date of the registration
statement, the information contained therein must be as of a date not more than
16 months prior to such use.
The Selling Securityholders' Shares may be offered and sold in the
Nasdaq Smallcap market, or otherwise, at prices and terms then prevailing or at
prices related to the then-current market price, or in negotiated transactions.
The Selling Securityholders' Shares may be sold by one or more of the following
methods, without limitation: (i) a block trade in which a broker or dealer so
engaged will attempt to sell the share as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (ii) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
accounts pursuant to this Prospectus; (iii) ordinary brokerage transactions and
transactions in which the broker solicits purchases; and (iv) transactions
between sellers and purchasers without a broker or dealer. In effecting sales,
brokers or dealers engaged by the Selling Securityholders may arrange for other
brokers or dealers to participate. Such brokers or dealers may receive
commissions or discounts from Selling Securityholders in amounts to be
negotiated. Such brokers and dealers and any other participating brokers and
dealers may be deemed to be "underwriters" within the meaning of the Securities
Act, in connection with such sales.
CAPITALIZATION
The following table sets forth the actual capitalization of the Company
at July 31, 1997, as adjusted to reflect the sale of $2,600,000 principal amount
of Debentures and as further adjusted to reflect the conversion of all of the
Debentures assuming that the Market Price (as defined in the Debentures) of the
Common Stock on the date of the conversion was $1.155, which is equivalent to
80% of the closing price for the five days ended October 24, 1997, and as
adjusted to reflect the sale of the Preferred Shares and as further adjusted to
reflect the conversion of all of the Preferred Shares assuming the conversion
price on the date of conversion was $.78, which is equivalent to 80% of the
closing price for the five days ended December 4, 1997. This table should be
read in conjunction with the Consolidated Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
17
<PAGE>
<TABLE>
<CAPTION>
July 31, 1997
(unaudited)
Proforma Assuming
Actual Proforma Assuming Full Conversion of
Sale of Debentures Debentures
and Preferred Shares and Preferred Shares
------ -------------------- --------------------
<S> <C> <C> <C>
6% Convertible Debentures - 0 - 2,600,000 - 0 -
Current liabilities (including current portion of long-term
debt) ....................................................... 1,409,218 1,409,218 1,409,218
Long term debt and other liabilities (excluding current
portion) .................................................... 1,166,007 1,166,007 1,166,007
Redeemable preferred stock, no par value; Series B shares
issued and outstanding (actual), 60,000 shares issued and
outstanding (as adjusted) ................................... 262,022 262,022 262,022
Non-redeemable convertible preferred stock; no par value; ========== ========== ==========
Series A, 150,000 shares authorized, 10,000 shares issued and
outstanding; Series B, 180,000 shares authorized, 60,000 shares
issued and outstanding; Series C, 1,600,000
shares authorized, 982,503 shares issued and outstanding;
Series D, 300 shares issued and outstanding(as of December
4, 1997) .................................................... 495,532 765,532 495,532
Common Stock, no par value; 20,000,000 shares authorized,
3,735,167 shares issued and outstanding, actual 10,272,598
shares outstanding as adjusted (1)............................ 7,577,281 7,577,281 10,778,104
Retained (deficit) ............................................ (7,071,059) (7,071,059) (7,721,059)
---------- ---------- ----------
Total common stock, non-redeemable preferred stock
and other stockholders' equity ............................... 1,001,754 1,001,754 3,555,577
========== ========== ==========
</TABLE>
- -------
(1) Does not give effect to exercise of Warrants. Gives effect to issuance of
2,162,172 shares of Common Stock since July 31, 1997.
DIVIDEND POLICY
The Company has not paid any cash or other dividends on its Common
Stock since its inception and does not anticipate paying any such dividends in
the foreseeable future. The Company intends to retain any earnings for use in
the Company's operations and to finance the expansion of its business. See "Risk
Factors -- No Dividends."
18
<PAGE>
SELECTED FINANCIAL DATA
The following financial information is qualified by reference to, and should be
read in conjunction with the Company's Consolidated Financial statements and the
notes thereto and "Management's Discussion and Analysis or Plan of Operation"
contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months Year Ended Nine Months Ended Three Months Ended
Ended Nine Months October 31, July 31, July 31,
January 31, Ended 1995 Year Ended ------------------------ ------------------------
1995 October 31, (aggregated)(1) October 31, 1997 1996 1997 1996
(unaudited) 1995 (unaudited) 1996 (unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- --------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Store Sales $ 530,665 $1,422,341 $1,953,006 $ 1,401,266 $ 1,180,635 $ 1,028,726 $ 460,456 $ 382,409
Franchising revenue -- 377,201 377,201 277,854 432,560 237,223 33,159 41,584
Equipment and
product sales 143,799 550,726 694,525 561,067 481,251 446,592 124,808 149,593
--------- ---------- ----------- ----------- ----------- ----------- ----------- ----------
674,464 2,350,268 3,024,732 2,240,187 2,094,446 1,712,541 618,423 573,586
Operating expenses
Cost of sales-equip-
ment and product costs
and store operations
exclusive of depreci-
ation and amortization 535,145 1,739,147 2,274,292 1,572,185 1,320,774 1,094,082 469,887 358,814
Cost of sales-franchi-
sing activities,
exclusive of depreci-
ation and amortization -- 213,408 213,408 -- 190,473 -- -- --
Selling, general and
administrative expenses 445,686 1,146,365 1,592,051 2,132,072 2,835,323 1,435,132 1,245,910 541,702
Loss on disposal of
equipment -- -- -- -- 72,399 -- 72,399 --
Depreciation and
amortization 83,217 211,463 294,680 251,741 241,086 190,113 92,145 63,521
Settlement costs-
Employment Contracts 56,784 170,352 227,136 224,341 47,101 170,352 -- 56,784
--------- ---------- ----------- ----------- ----------- ----------- ----------- ----------
1,120,832 3,480,735 4,601,567 4,180,339 4,707,065 2,889,679 1,880,341 1,020,821
========= ========== =========== =========== =========== =========== =========== ==========
Operating loss (446,368) (1,130,467) (1,576,835) (1,940,152) (2,612,619) (1,177,138) (1,261,918) (447,235)
Interest expense 28,988 21,078 50,066 33,440 172,945 27,433 154,693 4,382
--------- ---------- ----------- ------------ ----------- ----------- ------------ ----------
Net loss ($475,356) ($1,151,545) ($1,626,901) ($1,973,592) ($2,785,564) ($1,204,571) ($1,416,611) ($ 451,617)
Net loss per
share ($0.27) ($0.84) ($1.10) ($1.85) ($0.91) ($1.40) ($0.40) ($0.33)
Weighted average
number of common
shares outstanding 1,785,776 1,373,708 1,476,024 1,373,708 3,091,402 1,373,708 3,554,392 1,373,708
<CAPTION>
Balance Sheet Data:
1/31/95 10/31/95 10/31/96 7/31/97
------- -------- -------- -------
<S> <C> <C> <C> <C>
Working capital
(Deficit) (539,020) (902,920) (1,039,059) 603,722
Total assets 1,743,561 1,338,794 2,188,474 3,839,001
Total liabilities 1,170,207 1,386,967 2,013,250 2,575,225
Redeemable preferred
stock -- -- 562,678 262,022
Common stock 1,277,000 876,150 3,360,136 7,577,281
Non-redeemable
preferred stock 54,000 1,022,580 537,905 495,532
Additional paid in
capital 365,000 365,000 -- --
Accumulated deficit (1,122,646) (2,311,901) (4,285,495) (7,071,059)
</TABLE>
- ----------
(1) Represents the total of results for the nine-month fiscal period ended
October 31, 1995 and the three-month interim period ended January 31, 1995.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto
included elsewhere in this document. The discussion of results, causes and
trends should not be construed to imply any conclusion that such results or
trends will necessarily continue in the future. The Company changed its fiscal
year end to October 31 from January 31 during calendar year 1995. Therefore, for
purposes if the following discussion, the Company's unaudited interim results
for the three months ended January 31, 1995 have been combined with its results
for the nine months ended October 31, 1995, as reflected in its audited
financial statements for the period then ended to reflect results for the
12-month period ended October 31, 1995 ("Fiscal 1995"), which have been compared
to the results for the full fiscal year ended October 31, 1996 ("Fiscal 1996").
OVERVIEW
Results of Operations - Three Months Ended July 31, 1997 and 1996
Revenues for the three months ended July 31, 1997 (the "1997 Quarter")
were $618,423, an increase of $44,837, or 8%, from $573,586 for the three months
ended July 31, 1996 (the "1996 Quarter"). This increase is attributable to an
increase in store sales of $78,047, or 20%, to $460,456 in the 1997 Quarter from
$382,409 in the 1996 Quarter, as a result of an increase to six stores from four
stores operated by the Company during the three month period, an increase in
commissary and product sales of $14,144, or 13%, to $119,228 in the 1997 Quarter
from $105,084 in the 1996 Quarter, as a consequence of a greater number of
franchise stores, and a concomitant increase in demand for product during the
1997 Quarter, which increases were offset by a decrease in franchising
activities of $8,425, or 20%, to $33,159 in the 1997 Quarter from $41,584 in the
1996 Quarter consisting of: (a) a decrease in initial non-recurring franchise
and market development fees of $23,186, or 91%, to $2,314 in the 1997 Quarter
from $25,500 in the 1996 Quarter offset by (b) an increase in ongoing royalties
of $14,761, or 92%, to $30,845 in the 1997 Quarter from $16,084 in the 1996
Quarter. The Company believes the decrease in initial non-recurring franchise
fees is attributable in part to the recent decline in the Company's stock price
during 1997 which has adversely affected its ability to market franchises. The
increase in store sales was also offset by a decrease in equipment sales of
$38,929, or 87%, to $5,580 in the 1997 Quarter from $44,509 in the 1996 Quarter
which decrease is attributable to the decrease in initial non-recurring
franchise fees.
Future equipment and commissary sales will be dependent on the
Company's franchising activities, and such sales will therefore increase or
decrease in direct proportion to the Company's success in expanding its system
of franchised stores.
Cost of sales increased by $111,073, or 31%, to $469,887 in the 1997
Quarter from $358,814 in the 1996 Quarter. Cost of sales as a percentage of
store and product sales increased to 80% in the 1997 Quarter from 77% in the
1996 Quarter, reflecting an increase attributable to additional costs associated
with the relocation of the Company's Lodi, New Jersey commissary and production
facility to its new headquarters in South Plainfield, New Jersey. To the extent
that future increases in the Company's total revenues are attributable to
franchise fees, market development fees and franchise royalties, costs of sales
can be expected to decrease as a percentage of revenues.
Selling, general and administrative expenses increased by $704,208, or
130%, to $1,245,910 in the 1997 Quarter from $541,702 in the 1996 Quarter. This
increase in both absolute dollars and as a percentage of revenues is
attributable to the implementation of the Company's national expansion plan,
substantial consulting fees incurred during the 1997 quarter and substantial
professional fees related to pending
20
<PAGE>
acquisitions and investment banking services. The increase is primarily due to
(i) an increase in salaries and related costs of $73,940, or 33%, to $298,838 in
the 1997 Quarter from $224,898 in the 1996 Quarter, (ii) an increase in selling
expense of $79,433, or 67%, to $198,374 in the 1997 Quarter from $118,941 in the
1996 Quarter, primarily due to increased advertising costs to attract new
franchisees and increased shipping costs associated with increased product
sales, (iii) an increase in occupancy costs of $122,257, or 154%, to $201,710 in
the 1997 Quarter from $79,453 in the 1996 Quarter attributable to an increase to
six stores operated by the Company from four stores during the three month, and
the move of the Company's headquarters (iv) an increase in professional fees and
related costs associated with the Company becoming a public Company, investment
banking services and pursuing an acquisition strategy of $70,523, or 277%, to
$95,997 in the 1997 Quarter from $25,474 in the 1996 Quarter, and (v) an
increase in consulting fees of $303,909, or 3,133%, to $313,609 in the 1997
Quarter from 9,700 in the 1996 Quarter. This increase is primarily attributable
to charges incurred under consulting contracts relating to investment banking
services and financial public relations.
Depreciation and amortization increased by $28,624, or 45%, to $92,145
in the 1997 Quarter from $63,521 in the 1996 Quarter, primarily as a consequence
of the Company owning and operating two more stores in the 1997 Quarter.
Interest expense increased by $150,311, or 3,430%, to $154,693 in the
1997 Quarter from $4,382 in the 1996 Quarter. This increase is attributable to
the discount granted in the Company's convertible debentures
The net loss increased by $964,994, or 214%, to $1,416,611 in the 1997
Quarter from $451,617 in the 1996 Quarter as a result of the factors discussed
above, particularly the lack of franchise sales and associated equipment sales,
and the consulting fees incurred in the period.
Results of Operations - Nine Months Ended July 31, 1997 and 1996
Revenues for the nine months ended July 31, 1997 (the "1997 Interim
Period") were $2,094,446, an increase of $381,905, or 22%, from $1,712,541 for
the nine months ended July 31, 1996 (the "1996 Interim Period "). This increase
is attributable to (i) an increase in store sales of $151,909, or 15%, to
$1,180,635 in the 1997 Interim Period from $1,028,726 in the 1996 Interim
Period, (ii) an increase in franchising activities of $195,337, or 82%, to
$432,560 in the 1997 Interim Period from $237,223 in the 1996 Interim Period
consisting of (a) an increase in initial non-recurring revenue from the sale of
Company-owned stores to franchisees of $200,000 in the 1997 Interim Period from
$0 in the 1996 Interim Period, (b) a decrease in initial non-recurring franchise
and market development fees of $55,581, or 27%, to $146,629 in the 1997 Interim
Period from $202,210 in the 1996 Interim Period and (c) an increase in ongoing
royalties of $50,918, or 145%, to $85,931 in the 1997 Interim Period from
$35,013 in the 1996 Interim Period, and (iii) an increase in commissary and
product sales of $102,463, or 45%, to $332,366 in the 1997 Interim Period from
$229,903 in the 1996 Interim Period, as a consequence of a greater number of
franchise stores and a concomitant increase in demand for product during the
1997 Interim Period, which increases were partially offset by a decrease in
equipment sales of $67,804, or 31%, to $148,885 in the 1997 Interim Period from
$216,689 in the 1996 Interim Period, primarily due to the fact that, during the
1997 Interim Period the Company has focused on franchising activities rather
than on sales of equipment to unaffiliated purchasers. Future equipment and
commissary sales will be dependent on the Company's franchising activities, and
such sales will therefore increase or decrease in direct proportion to the
Company's success in expanding its system of franchised stores.
Cost of sales increased by $417,165, or 38%, to $1,511,247 in the 1997
Interim Period from $1,094,082 in the 1996 Interim Period. The increase in cost
of sales from franchising activities is primarily due to the sale of a
Company-owned store to a franchisee. The increase in cost of sales from
equipment and
21
<PAGE>
product sales and store operations is primarily due to increased store sales.
Cost of sales as a percentage of product sales increased to 79% in the 1997
Interim Period from 78% in the 1996 Interim Period, reflecting the net effect of
an increase in the sale of a Company-owned store to a franchisee, and an
increase attributable to the upgrading of the Company's Lodi, New Jersey
commissary and production facility and increases in payroll and fixed overhead
costs associated with expansion of this facility. To the extent that future
increases in the Company's total revenues are attributable to franchise fees,
market development fees and franchise royalties, costs of sales can be expected
to decrease as a percentage of revenues.
Selling, general and administrative expenses increased by $1,400,191,
or 98%, to $2,835,323 in the 1997 Interim Period from $1,435,132 in the 1996
Interim Period. This increase in both absolute dollars and as a percentage of
revenues is attributable to the implementation of the Company's national
expansion plan substantial consulting fees incurred during the third quarter of
1997, substantial professional fees related to pending acquisitions and
investment banking services and substantial consulting fees incurred during the
third quarter of 1997. The increase is primarily due to (i) an increase in
salaries and related costs of $273,534, or 48%, to $839,442 in the 1997 Interim
Period from $565,908 in the 1996 Interim Period, (ii) an increase in selling
expense of $211,566, or 75%, to $492,241 in the 1997 Interim Period from
$280,675 in the 1996 Interim Period, primarily due to increased advertising
costs to attract new franchisees and increased shipping costs associated with
increased product sales, as a result of an increase to four stores from three
stores operated by the Company during the first three months and from four
stores to six stores operated by the Company during the second six months of the
1997 Interim Period (iii) an increase in occupancy costs of $216,592, or 97%, to
$441,026 in the 1997 Interim Period from $224,434 in the 1996 Interim Period as
a result of an increase to four stores from three stores operated by the Company
during the first three months and from four stores to six stores operated by the
Company during the second six months of the 1997 Interim Period, and the move of
the Company's headquarters (iv) an increase in professional fees and related
costs associated with the Company becoming a public Company, investment banking
services and pursuing an acquisition strategy of $115,078, or 153%, to $190,079
in the 1997 Interim Period from $75,001 in the 1996 Interim Period, and (v) an
increase in consulting fees of $404,239, or 1,376%, to $433,609 in the 1997
Interim Period from $29,370 in the 1996 Interim Period. This increase is
primarily attributable to charges incurred under consulting contracts relating
to investment banking services and financial public relations.
Depreciation and amortization increased by $50,973, or 27%, to $241,086
in the 1997 Interim Period from $190,113 in the 1996 Interim Period, primarily
as a result of an increase to four stores from three stores operated by the
Company during the first three months and from four stores to six stores
operated by the Company during the second six months of the 1997 Interim Period.
Interest expense increased by $145,512, or 530%, to $172,945 in the
1997 Interim Period from $27,433 in the 1996 Interim Period. This increase is
attributable to the discount granted in the Company's convertible debentures
The net loss increased by $1,406,650, or 117%, to $2,785,564 in the
1997 Interim Period from $1,204,571 in the 1996 Interim Period. To date, the
Company has operated at a loss as a result of the application of resources in
excess of revenues to develop its operating infrastructure, including the
support structure necessary to fulfill its obligations under its franchise
agreements and the anticipation of additional franchise sales. Consequently,
total revenues are not yet sufficient to support the Company's overhead.
Management anticipates, that during the fiscal year ending October 31, 1997, the
Company's revenues will increase due to additional franchise sales, increased
royalty income from existing stores, increased equipment sales to new
franchisees, increased sales in existing Company-owned stores and sales revenues
from newly opened Company-owned stores. There can be no assurance, however as to
whether, and to what extent, the Company will actually experience additional
revenues from any of these sources. The Company's ability to operate profitably
in the future is substantially dependent upon its ability to sell store and
market development franchises and to open additional franchise stores.
22
<PAGE>
Results of Operations - Fiscal 1996 and Fiscal 1995
Sales revenues for 1996 were $2,240,187, a decrease of $784,545, or 26%
from $3,024,732 in 1995. This decrease is attributable to (i) a decrease in
store sales of $551,740, or 28%, to $1,401,266 in 1996 from $1,953,006 in 1995,
as a result of a reduction from five stores to three stores operated by the
Company during the first three months, and from five stores to four stores
during the next six months in 1996, (ii) a decrease in equipment sales of
$380,611, or 66%, to $199,398 in 1996 from $580,009 in 1995, primarily due to
the fact that, during 1996, the Company has focused on franchising activities
rather than on sales of equipment to unaffiliated purchasers, and (iii) a
decrease in franchising activities of $99,347, or 26% to $277,854 in 1996 from
$377,201 in 1995 consisting of a decrease in initial non-recurring revenue from
the sale of Company-owned stores to franchisees of $247,777, or 100% to $0 in
1996 from $247,777 in 1995, partially offset by an increase in initial
non-recurring franchise and market development fees of $90,054, or 72% to
$215,378 in 1996 from $125,324 in 1995 and an increase in ongoing royalties of
$58,376, or 1,424% to $62,476 in 1996 from $4,100 in 1995. The decrease in
sales revenues was substantially offset by an increase in commissary and product
sales of $247,153, or 216% to $361,669 in 1996 from $114,516 in 1995, as a
consequence of a greater number of franchise stores and a concomitant increase
in demand for product during 1996.
Management anticipates that future equipment and commissary sales will
be dependent on the Company's franchising activities rather than on sales to
unaffiliated purchasers and that such sales will increase or decrease in direct
proportion to the Company's success in expanding its system of franchise stores.
Cost of sales decreased by $915,515, or 37%, to $1,572,185 in 1996 from
$2,487,700 in 1995. This decrease is primarily due to a decrease in the sale of
Company-owned stores to franchisees, decreased store sales and decreased
equipment sales. Cost of sales as a percentage of product sales decreased to 80%
in 1996 from 86% in 1995, reflecting the net effect of a decrease in the sale of
Company owned stores to franchisees and in equipment sales and an increase
attributable to the upgrading of the Company's Lodi, New Jersey commissary and
production facility and increases in payroll and fixed overhead costs associated
with expansion of this facility. To the extent that future increases in the
Company's total revenues are attributable to franchise fees, market development
fees and franchise royalties, costs of sales can be expected to decrease as a
percentage of revenues. To the extent that franchise fees, market development
fees and franchise royalties remain constant, cost of sales can be expected to
remain constant as a percentage of revenues.
Selling, general and administrative expenses increased by $540,021, or
34%, to $2,132,072 in 1996 from $1,592,051 in 1995. This increase is primarily
due to (i) an increase in salaries and related costs of $334,067, or 64%, to
$856,590 in 1996 from $522,523 in 1995, (ii) an increase in selling expense of
$64,960, or 19%, to $409,674 in 1996 from $344,714 in 1995 primarily due to
increased travel expenses related to franchise sales efforts, visits to proposed
retail locations and provision of on-site store training and assistance, and
(iii) an increase in professional fees of $39,562, or 43%, to $132,497 in 1996
from $92,935 in 1995 primarily due to increased legal fees associated with
general corporate matters.
Depreciation and amortization decreased by $42,940, or 15%, to $251,740
in 1996 from $294,680 in 1995, primarily as a consequence of the fact that the
Company owned and operated two fewer stores for the first three months of 1996
and one less store for the next six months of the year.
Interest expense decreased by $16,626, or 33%, to $33,440 in 1996 from
$50,066 in 1995, as a consequence of a continued reduction in the ordinary
course of business of the Company's outstanding debt.
The net loss increased by $346,691, or 21%, to $1,973,592 in 1996 from
$1,626,901 in 1995. To date, the Company has operated at a loss as a result of
the application of resources in excess of revenues to develop its operating
infrastructure in anticipation of additional franchise sales, Company-store
growth and commissary growth. Consequently, total revenues are not yet
sufficient to support the Company's overhead.
23
<PAGE>
Management anticipates, that during the fiscal year ending October 31, 1997, the
Company's revenues will increase due to additional franchise sales, increased
royalty income from existing stores, increased equipment sales to new
franchisees, increased sales in existing Company-owned stores, and sales
revenues from newly opened, Company-owned stores. There can be no assurance,
however as to whether, and to what extent, the Company will actually experience
additional revenues from any of these sources. The Company's ability to operate
profitably in the future is substantially dependent upon its ability to sell
single-unit and market development franchises and to open additional franchise
stores and to ensure that its existing Company-owned and franchise stores
operate profitably.
Liquidity and Capital Resources
In April 1996, the Company completed the Private Placements of its
Common Stock pursuant to which it received proceeds of $2,413,986. Of the net
proceeds, $410,000 consisted of property in the form of two unopened retail
bagel stores in the final stages of construction.
In December 1996 and January 1997, the Company completed an initial
public offering of 1,265,000 shares of its Common Stock (including 165,000
shares to cover the underwriters' over-allotments) at a price to the public of
$3.50 per share, yielding net proceeds to the Company of $3,235,000. The
proceeds of the offering are being used to redeem Series A and Series B
Preferred Stock, open additional Company-owned flagshipstores, expand the
Company's equipment inventory, relocate and consolidate its headquarters and
commissary facilities, expand its marketing and promotional activities, reduce
accounts payable and accrued expenses, develop its franchising system and for
working capital and general corporate purposes.
During July 1997 the Company sold $900,000 of Convertible Debentures.
In August 1997 the Company sold an additional $50,000 of convertible debentures.
The Company's revenues are not yet sufficient to support the Company's
operating expenses. Cash used by operating activities for the nine months ended
July 31, 1997 was $2,834,392 compared to cash used by operating activities of
$1,233,026 during the nine months ended July 31, 1996.
Additional funds will be required to support the Company's capital
requirements during the period it continues to operate at a loss.
In this regard, on September 16, 1997, the Company completed a private
placement of an issue of 6% Convertible Debentures in the total amount of
$2,600,000, payable in two tranches. The first tranche of $1,300,000 was paid on
September 16, 1997. The terms of the Convertible Debentures provide for an
annual interest rate of 6% payable quarterly, provide for conversion into shares
of Common Stock at the option of the holder as more fully described herein.
See "Description of Securities--6% Convertible Debentures," and include an
obligation on the part of the Company to file a Form SB-2 Registration
Statement for the shares underlying the Convertible Debentures. The
effectiveness of this Registration Statement, among other things, is a
prerequisite before the funding of the second tranche of $1,300,000.
On December 4, 1997, the Company completed a private placement of an
issue of Series D Preferred Stock in the total amount of $300,000. The terms of
the Preferred Shares provide for a quarterly dividend of 8%, and provide for
conversion into shares of Common Stock at the option of the holder as more fully
described herein. See "Description of Securities--Series D Preferred Stock."
BUSINESS
Overview
All American Food Group, Inc. (together with its wholly owned
subsidiaries, the "Company") franchises two distinct bagel store concepts,
distributes bagel bakery equipment and currently operates ten retail bagel
stores. All of the Company's bagels are prepared using the Company's proprietary
bagel mix and dough conditioner, in the "Old World" style, by first boiling and
then baking the dough using the Company's own bagel kettle and bagel oven. The
Company believes that this process and the use of its proprietary ingredients
and its equipment ensure the consistent preparation of premium quality bagels
with a shine, crust, texture and overall flavor that distinguish its products
from those of its competitors.
24
<PAGE>
The Company franchises its concepts and operates its bagel stores under
the names "Goldberg's Original Old World Bagels" ("Goldberg's"), "Sammy's New
York Bagels" ("Sammy's") and variations thereof. Stores franchised under the
Goldberg's name and concept offer a traditional bagel/delicatessen menu,
consisting of bagels, spreads, sandwiches, salads, soups and "appetizing" bakery
items. Sammy's stores differ from Goldberg's stores in that they offer bagels
and related dairy items in a kosher store, under national Kof-K Kosher
Supervision. Management believes that Sammy's is the only franchised food chain
subject to national kosher certification currently available in the United
States.
As of October 21, 1997, the Company's retail system consisted of
eighteen Goldberg's and nine Sammy's stores located in nine states, including
eight Goldberg's and two Sammy's stores owned and operated by the Company and
ten Goldberg's and seven Sammy's stores operated under franchise or license
arrangements with the Company.
The Company also distributes and services its bagel bakery equipment
for use by its franchisees. The Company's equipment utilizes the old-fashioned
method of boiling, then baking bagels with revolving tray ovens. Management
believes that the Company is the only franchisor of bagel stores that provides
bagel equipment directly to its franchisees.
The Company intends to expand its retail operations primarily through
franchising, and to a lesser extent, through acquisitions in key markets.
Management believes that food service franchising in general, and the
franchising of bagel restaurants in particular, present a unique opportunity for
success in the current consumer and franchise markets. See "-- The Bagel
Business."
Plan of Operations
The Company anticipates increasing its revenue, thereby generating
operating cash flow in the future, by implementing the following actions:
- Expanding franchise operations. The Company expects to
increase the sale of franchises by (i) advertising in national and
regional publications and business magazines and (ii) upgrading its
promotional material. In addition, depending upon the availability and
utilization of existing staff, the Company may hire additional sales
personnel. The Company also expects to increase its sale of franchises
by opening additional Company-owned flagship stores to generate
interest from experienced multi-store developers to enter into
multi-unit Market Development Agreements. Management anticipates that
the sale of additional franchise territories and the opening of
additional stores in such territories should result in increases in
franchise revenues.
- Increasing product sales. The Company intends to open new
Company-owned retail stores and expects increased sales from its
commissary to new franchise stores. The Company continuously develops
new products, which management believes will lead to increased sales as
the variety of products grows. The Company has retained an advertising
firm to help increase store revenues, increase franchise sales and
promote brand name recognition. See "-- Advertising."
- Making acquisitions. The Company intends to acquire other
bagel stores or complementary outlets which provide entry into new
markets. Management anticipates that, over a period of time, these
acquisitions will increase revenues significantly.
History of the Company
The Company was formed for the purpose of establishing a chain of
franchised bagel restaurants using the recipes, procedures, experience and
expertise of an existing, well-seasoned bagel restaurant and bakery operation.
In October 1993, the Company acquired all the assets of Howberg Bakery Equipment
Co., Inc. (the "Equipment Company"), Bagels of New Milford, Inc. and Goldberg's
Famous Bagels of Orangeburg,
25
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Inc. (together, the "Goldberg Companies"), each a retail and wholesale bagel and
related foodstuff company. (The Goldberg family continues to operate ten bagel
stores that are not affiliated with the Company and, subject to certain
noncompetition covenants, may open additional stores in the future.)
The assets of the Goldberg Companies consisted of two bagel stores
operated by the Goldberg family of Westwood, New Jersey (one of which
subsequently was sold), including the exclusive franchise rights to the recipes,
flour, mixes and proprietary equipment used in these stores. The Goldberg family
has been operating retail bagel shops for over 50 years under variations of the
Goldberg name.
The Equipment Company was engaged in the manufacture, assembly, sale
and servicing of equipment used in the production of bagels. In connection with
the sale of equipment, the Equipment Company also provided consulting services
in the area of store design, equipment layout, training, food preparation and
virtually all other aspects of the retail food business. The Company currently
operates the business of the Equipment Company under the name "All American
Equipment Company."
On September 29, 1994, the Company completed the acquisition of 100% of
the outstanding stock of four interrelated corporations (the "Sammy's
Companies") operating three retail stores (one of which subsequently was sold)
and a commissary under the trade name "Sammy's New York Bagels."
Since its acquisition of the Goldberg's and Sammy's stores, the Company
has engaged in an extensive process of analyzing, standardizing and documenting
all aspects of its retail bagel operations, preparing franchise materials and
developing its franchise system and program. In addition, it retrofitted one of
the Goldberg's locations to serve as a prototype store for purposes of marketing
franchises and training personnel.
The Company was incorporated as a subsidiary of Jutland Enterprises
Inc. ("Enterprises") under the laws of the State of New Jersey on September 27,
1993, under the name "Jutland Food Group, Inc." and changed its name to "All
American Food Group, Inc." on October 24, 1995.
On December 17, 1996 the Company completed an initial public offering
of 1,100,000 shares of its Common Stock at a price to the public of $3.50 per
share, yielding net proceeds to the Company of $2,752,000. On January 9, 1997
the underwriters of the initial public offering exercised their over-allotment
option by purchasing an additional 165,000 shares at a price of $3.50 per share
yielding net proceeds to the Company of $483,000.
In July 1997, the Company sold $900,000 of convertible debentures
pursuant to an exemption under Regulation S. In August 1997, the Company sold an
additional $50,000 of convertible debentures pursuant to an exemption under
Regulation S. The Company obtained $1,300,000 of financing in the form of 6%
Convertible Debentures on September 16, 1997 through private placement under
Regulation D.
The Company's executive offices are located at 104 New Era Drive, South
Plainfield, New Jersey 07080 and its telephone number is (908) 757-3022.
On September 23, 1997, pursuant to an Agreement and Plan of Merger,
dated September 19, 1997 (the "Agreement and Plan of Merger"), by and among the
Company, St. Pete Bagels Acquisition Corp, a wholly owned subsidiary of the
Company ("Subsidiary"), Sam & Son, Inc. ("Sam & Son"), Bagel Man, Inc. ("Bagel
Man") and St. Pete Bagel Co., Inc. ("St. Pete"; St. Pete, Sam & Son and Bagel
Man are herein collectively referred to as "St. Pete's Bagels") the Company
acquired St. Pete's Bagels through the merger of St. Pete's Bagels with and into
Subsidiary, in exchange for $200,000 and 479,800 shares of the Registrant's
common stock.
St. Pete's Bagels is a six-store bagel chain in St. Petersburg, Florida
which has been in business since 1987 and was Tampa Bay's first bagel chain. In
addition to their stores, it operates a 6,000 square foot bagel production
facility in the St. Petersburg area.
The Bagel Business
Management believes that food service franchising in general, and the
franchising of bagel restaurants in particular, present a unique opportunity for
success in the current consumer and franchise markets. According to industry and
government statistics, U.S. per capita bagel consumption is growing at the rate
of 8% annually and U.S. per capita consumption (currently an average of eight
bagels per person annually) rose 45% over the last five years. Management also
believes that this increased demand for bagels arises primarily from increased
consumer demand for healthier, low-fat food products and that the versatility,
convenience and relatively low price of bagels add to their appeal.
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Inasmuch as most flavors of bagels have no fat or cholesterol, they
represent an attractive alternative to doughnuts, pastries and other breakfast
baked goods, while at the same time offering substantially more versatility and
variety than more traditional bread products. Further, because bagels can be
used in sandwiches, bagel restaurants can be expected to attract customers
throughout the day. Management believes that lunch time business accounts for
approximately 40% of a typical bagel store's daily business. And, since
customers frequently desire to purchase bagels for home consumption, bagel
restaurants also can rely upon take-out trade for a significant portion of their
revenues.
While bagels historically have been a staple ethnic food along the East
Coast and in certain other urban areas throughout the country, management
believes that there is a substantial potential market in smaller urban and
suburban areas. Further, until recently the retail bagel industry has been
composed almost exclusively of one and two-store operations and a few larger
regional chains, some of which have indicated the intention to expand to a
national scope. Management believes that there is a significant market for high
quality bagels and that there is a significant market niche for companies able
to provide such bagels on a consistent basis through a nationwide system of
retail outlets. The Company believes that its system of producing bagels in each
store using proprietary ingredients and its equipment is the optimal method for
delivering fresh, consistently high quality products to a large and
geographically dispersed market.
Competitive Strengths
Management believes that the Company has a unique combination of
characteristics that will help it to successfully build a nationwide chain of
franchised bagel restaurants under both of its concepts. The Company's key
competitive strengths include the following:
Quality Products. Management believes that the key to the
Company's success lies with the quality of its products. Therefore, all
of the Company's bagels are prepared, in the "Old World" style, using
the Company's proprietary bagel mix and dough conditioner, by first
boiling and then baking the dough using the Company's bagel kettle and
bagel oven. The Company believes that this process and the use of its
proprietary ingredients and its equipment results in premium quality
bagels with a shine, crust, texture and overall flavor that distinguish
its products from those of its competitors. Bagels sold in Goldberg's
restaurants are produced on-site, in order to provide continuous
availability of oven-fresh products. In order to ensure full compliance
with the requirements for kosher certification, the Company produces
pre-formed, uncooked bagels for its Sammy's stores at its central
commissary in Lodi, New Jersey and ships such bagels frozen to the
stores on a weekly basis for on-site preparation. See "-- Kosher
Certification and Supervision."
Experience. The Company's products and operating systems were
developed based on the experience of the Goldberg family of Westwood,
New Jersey during the 58 years of operation of its family-owned bagel
shops. Based on this half century of experience and management's
experience in operating and franchising other food concepts, the
Company has analyzed, standardized and documented all aspects of its
retail bagel operations to develop its operating and franchise systems.
See "-- Franchising" and "Management."
Complementary Concepts. Management believes that the Company's
franchise program is unique in offering two complementary bagel
concepts -- Goldberg's, which offers a traditional bagel/delicatessen
menu, and Sammy's, which offers bagels and related dairy items in a
kosher store. Management believes that the availability of these two
complementary concepts uniquely positions the Company to benefit from
economies of scale in purchasing, while permitting it to penetrate
distinct segments of the bagel market.
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Kosher Concept and Production Facilities. Management believes
that Sammy's is the only franchised food chain subject to national
kosher certification currently available in the United States. Kof-K
Kosher Supervision estimates that the kosher market currently generates
over $2 billion in sales annually from 20,000 certified kosher
products. With over 6 million Jews nationally, another 6 million
Muslims and Seventh Day Adventists subject to similar dietary
restrictions, and a significant segment of the secular market that
views kosher certification as a sign of high quality, authenticity and
careful preparation, this market has experienced average annual sales
growth of 20% or more since 1990. In order to ensure consistency in the
quality of its products and achieve economies in kosher supervision,
the Company operates a central commissary from which all Sammy's stores
receive frozen, pre-formed, uncooked bagels on a weekly basis for
on-premises preparation. Management anticipates that, in the future, it
will utilize this facility for the production of bagels for sale to
Goldberg's as well as Sammy's franchisees. See "-- Properties."
Equipment Business. Management believes that the Company is
unique in designing and distributing its bagel bakery proprietary
equipment and in its ability to provide consulting services in all
areas of the retail bagel business, including store design, equipment
layout, training and food preparation. Management also believes that
these unique capabilities provide the Company with a distinct advantage
in equipping and advising its franchised outlets and in ensuring the
quality of its products. In addition, since the Company continues to
provide equipment to unaffiliated bagel shops and bakeries, equipment
sales represent an additional source of revenue to the Company.
Management believes that equipment sales will benefit from continued
demand for bagels nationwide. See "-- Plan of Operations" and "-- The
Bagel Business."
Menus and Format
The Company's aim is to provide consumers with superior products,
consisting primarily of fresh bagels, spreads, salads and complementary items,
and superior service in a pleasant and attractive environment. All of the
Company's bagels are prepared using the Company's proprietary bagel mix and
dough conditioner, in the "Old World" style, by first boiling and then baking
the dough, using the Company's bagel kettle and bagel oven. The Company believes
that this process and the use of its proprietary ingredients and its equipment
ensures the consistent preparation of premium quality bagels with a shine,
crust, texture and overall flavor that distinguish its products from those of
its competitors.
Goldberg's offers a traditional bagel/delicatessen menu, consisting of
a variety of flavors of bagels, spreads, sandwiches (served on freshly baked
bagels), salads, soups and "appetizing" bakery items. Sammy's offers bagels and
related dairy items in a kosher store, under National Kof-K Kosher Supervision.
Goldberg's bagels are prepared on-site "from scratch" and Sammy's bagels are
prepared from frozen, preformed dough delivered to the stores weekly and baked
on the premises, in each case providing a continuous supply of fresh product and
permitting customers to enjoy the aroma of freshly baked bagels. Both concepts
also offer an array of hot and cold beverages including coffee, tea, juices and
soft drinks. Depending upon local competitive and other conditions, Goldberg's
and Sammy's stores generally are open between the hours of 6 a.m. and 6 p.m.
seven days a week.
The Company's restaurants typically are located in strip-style
neighborhood and community shopping centers or other high-traffic areas and
consist of an overall area of between 750 and 2,600 square feet, including a
dining area providing seating for between eight and 30 customers, a take-out
counter, and kitchen, food preparation and storage areas. Decor is intended to
evoke a 1938 bagel shop and includes an original photo montage of New York City
scenes from that era, additional vintage photographs and memorabilia,
wainscoting and a tin ceiling.
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Kosher Certification and Supervision
All of the Sammy's stores have earned certification from the
internationally recognized Kof-K Kosher Supervision ("Kof-K"), ensuring that
they operate in strict compliance with Kashruth, the Orthodox Jewish laws
pertaining to the content and preparation of kosher foods and related matters.
Kof-K, headquartered in Teaneck, New Jersey, is one of two universally
recognized and accepted organizations responsible for certifying kosher products
and establishments. Founded almost 30 years ago, Kof-K employs more than 150
experts in Kashruth and food service, as well as an international network of
regional and local coordinators and Rabbinical representatives.
Prior to certifying an establishment as meeting Kashruth requirements,
Kof-K supervises and inspects the cleaning of the proposed site and obtains a
complete list of all products and ingredients to be used, as well as all food
handling and preparation procedures to be followed. Once Kof-K has established
that each relevant item complies with the requirements of Kashruth, it issues an
initial certification for the store. Throughout preopening preparations, Kof-K
works with the local religious community to enlist support for the new store and
to provide assurance that it will meet the Kashruth requirements. After opening,
Kof-K representatives inspect the store on a regular basis to ensure continued
compliance with Kashruth standards.
Management believes that the kosher status of the Sammy's stores places
them in a unique niche as the only franchised food chain subject to national
kosher certification currently available in the United States.
Franchising
Neither the following discussion, nor the other information contained
in this Prospectus, constitutes, and neither shall be construed as, an offer to
sell a Goldberg's or Sammy's franchise. Such offers may be made only by an
Offering Circular in compliance with applicable state law and the Federal Trade
Commission Disclosure Rule. The description of the franchises set forth in this
Prospectus is not intended to be a complete description of a Goldberg's or
Sammy's franchise business.
The Company offers single-unit franchises, as well as Market
Development Agreements covering a number of stores to be opened in a designated
area within a specified period of time. The Company currently may sell its
franchises in 40 states and expects to receive authorization to sell in an
additional 10 states by December 31, 1997. The Company has entered into a Market
Development Agreement for the State of Ohio, covering 15 retail stores, a Market
Development Agreement for the State of Arizona, covering 15 retail stores, a
Market Development Agreement covering a portion of the State of New York
covering 37 retail stores, a Market Development Agreement covering a portion of
the State of South Carolina covering 6 stores, a Market Development Agreement
covering a portion of the State of Pennsylvania covering 3 stores and a
licensing agreement covering the country of Israel.
Franchise revenue includes the sale of single unit franchises pursuant
to Single Unit Agreements, the sale of Company-owned stores to franchisees, the
sale of market development franchises pursuant to Market Development Agreements
and ongoing royalty and advertising fees.
Single Unit Agreements provide for payment of a nonrefundable initial
franchising fee (an "Initial Franchise Fee"), a weekly royalty on gross sales,
and a weekly cooperative advertising fund contribution. The Company's material
obligations under the terms of all Single Unit Agreements are assisting in site
selection and franchisee training. Initial Franchise Fees under Single Unit
Agreements are recognized as revenues when the Company has no further material
obligations in respect of the establishment of such franchise, which occurs upon
the opening of the store.
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Market Development Agreements provide for the payment, by the Market
Developer, of a nonrefundable initial fee (a "Market Development Fee") based on
the size, population and overall market potential of the territory subject to
the Market Development Agreement (the "Market Area"). The Market Developer
assumes substantially all of the responsibilities that otherwise would be
assumed by the Company, as franchiser within the Market Area. In exchange, the
Market Developer receives (i) the exclusive right to build stores for the Market
Developer's own account or to seek third party franchisees within the Market
Area and (ii) the right to share with the Company, on a 50/50 basis, initial and
ongoing single store fees within the Market Area. The Market Development
Agreement includes a development schedule setting forth the number of stores to
be developed by the Market Developer during the term of the Agreement. If the
Market Developer fails to maintain the store development schedule, the Market
Developer loses the exclusive right to develop the Market Area. Under Market
Development Agreements, the Company's obligations in respect of the development
of single unit franchises within the Market Area are limited to (i) approval of
franchisees presented by the Market Developer and (ii) approval of store sites.
The Company has no further material obligations in respect of a Market
Development Agreement at the time of execution of the Agreement. Market
Development Fees paid in cash or by promissory notes fully collateralized by
liquid assets or as to which the Company has obtained an independent third-party
valuation are recognized as revenues by the Company upon execution of the Market
Development Agreement and payment of the fee. In the absence of such collateral
or valuation, the Company recognizes Market Development Fees on a cash basis as
payments on such notes are received.
The Company's portion of the Initial Franchise Fee on single unit
franchises sold within a Market Developer's Market Area is recognized as
revenues when the Company has no further material obligations in respect of the
establishment of such franchise, which occurs upon opening of the store.
The Company seeks franchisees committed to the Company's high standards
of product quality and customer service. All franchised stores must operate in
strict compliance with the standards and procedures set out in the Company's
operations manuals. Each store must be under the management of a manager who has
completed the Company's training program, although franchisees are not required
to participate in the day-to-day management of their stores. The Company
conducts regular inspections (both scheduled and unannounced) to ensure that
franchises are operating in accordance with Company standards and procedures.
The Company provides support to its franchisees covering equipment and technical
issues 24 hours a day and seven days a week through a toll-free hotline.
Exclusivity. Each Single Unit Agreement provides the franchisee with an
exclusive area, within which the Company is not permitted to sell another
franchise. Such exclusive areas, which are determined on a unit-by-unit basis
based on population density, traffic patterns and other relevant considerations,
generally range from a radius of four blocks in densely populated urban areas to
one mile or more in suburban locations.
Market Development Agreements provide that, if the franchisee meets his
development schedule, the Company will not sell other franchises within the
developer's territory ("Market Area").
Real Estate and Local Regulation. Franchisees are obligated to purchase
or lease (for a term of at least ten years) the sites for their units.
Franchisees may designate a specific location or a locality in which they wish
to operate, subject to the exclusivity rights of other Goldberg's and Sammy's
franchisees. The Company provides assistance and guidance in site selection and
lease negotiation, and must approve all sites prior to lease execution. In
addition, the Company provides plans and specifications for a prototype store,
as well as assistance in obtaining financing, permits and licenses, and with
construction of leasehold
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improvements. Franchisees are expected to bear the expense of any modification
of the prototype plans and specifications required to meet local building, fire
or health codes and lease and other similar requirements, as well as the costs
of remodeling, fireproofing or other leasehold improvements. Franchises also are
responsible for, and expected to bear the expense of, local licensing matters
related to occupancy and operation of the business.
Financing. The Company does not offer direct or indirect financing in
connection with its franchises. Similarly, it does not guarantee the debt, lease
or other obligations of any franchisee. The Company will, however, render
assistance in arranging financing and negotiating leases.
Training and Field Support. Prior to opening, each franchisee (or an
owner thereof) and at least one manager of each franchised Goldberg's or Sammy's
restaurant must complete a 13-day training program including approximately 35
and 70 hours of classroom and on-the-job training, respectively, covering areas
essential to the management and operation of both a retail and wholesale bagel
business, including bagel preparation and production; store operating
procedures; accounting and cost control; employee matters; in- and out-of-store
marketing; ordering; catering; equipment maintenance; and sanitation matters.
All training is conducted by senior Company personnel at the Company's corporate
headquarters in Fairfield, New Jersey, or in nearby Company-owned stores. As of
the date of this Prospectus, the Company had not established a permanent
schedule for its training courses, but instead schedules such courses as needed
to meet the opening schedules of new stores. The Company does not charge for
this training and provides all participants with their midday meal, but
franchisees are expected to defray living expenses for themselves and their
employees during the training sessions. Similar training is required of all new
managers subsequently hired and is provided by the Company.
Refresher and ongoing training is available to franchisees on an
individualized basis, through consultative meetings at franchise sites, at
corporate stores and at corporate headquarters.
The Company provides on-site and other supervisory guidance and
assistance in connection with the opening of each Goldberg's and Sammy's store.
Once open, the Company conducts regular operational visits and provides ongoing
guidance and assistance based upon the results of such visits and review of
reports submitted to it. Such guidance and assistance may relate to standards,
methods and operating procedures; preparation of authorized food, beverages and
other products and services; selection, purchase and preparation of food,
beverage and other products, as well as fixtures, equipment, signs, materials
and supplies; formulation and implementation of advertising and promotional
programs; and establishment and operation of administrative, bookkeeping,
accounting, inventory control, sales and general operating procedures.
The Company periodically distributes operational bulletins and
newsletters to its franchisees and provides ongoing assistance with technical
and equipment problems through its 24-hour hotline, as well as personal
consultations either at the franchise site or at the Company's executive
offices.
Pricing. Prices are set by individual franchisees, pursuant to
guidelines provided by the Company, in light of local competitive and market
conditions.
Purchasing. Franchisees are required to purchase bagel mix and/or dough
conditioner, in the case of Goldberg's stores, and prepared dough, in the case
of Sammy's stores, directly from the Company. In addition, all franchisees are
required to purchase the Company's bagel kettle and bagel oven. Management
believes that purchase of these items from the Company is essential to
maintaining the Company's quality control standards, and to ensuring the
consistent high quality of the bagels offered at all of its Goldberg's and
Sammy's stores.
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With respect to other items used in the operation of its stores, the
Company designates approved types and brands of products. In certain instances
the Company may designate a single supplier or a limited group of suppliers for
a product or brand of product, in order to increase the volume of purchases from
suppliers and permit the Company's franchisees as a whole to benefit from
discounts associated with quantity purchasing.
In the event that a franchisee proposes to purchase any brand or type
of product not previously approved for purchase by the Company or to purchase
approved items from a supplier not previously approved, the franchisee is
required to submit to the Company information regarding the manufacturer's or
supplier's business reputation, delivery and service performance, reliability,
financial condition and credit worthiness. In addition, in the case of
previously unapproved products, the franchisee must submit samples for review by
the Company to determine compliance with the Company's specifications and
standards. The Company then reviews the submission and, within 30 days, makes a
determination whether or not to approve the supplier or product.
The Company provides its franchisees with operational and accounting
forms for use in the operation of their stores. The Company also provides its
franchisees with promotional and advertising materials and other marketing
tools.
Advertising. Each franchisee is responsible for developing local
advertising and promotional materials, all of which are subject to prior review
and approval by the Company. In addition, the Company administers promotional
funds for the benefit of all of its Goldberg's and Sammy's franchisees.
Franchisees are obligated to contribute to the applicable fund a promotional fee
equal to 1% of gross sales. Franchisees also may be required to participate in
local or regional advertising cooperatives. Contributions to such cooperatives
will be at least 1% of gross sales, and will be controlled by the local
cooperative. See "-- Advertising." Stores owned and operated by the Company are
required to contribute to the promotional funds and to participate in
advertising cooperatives on the same basis as franchised stores.
Franchise Fees and Royalty Payments. Current Single Unit Agreements
provide for an initial single unit payment of $25,000 for either a Goldberg's or
a Sammy's store. If a franchisee opens additional stores, either under a Market
Development Agreement or pursuant to additional Single Unit Agreements, the
initial payment is $17,500 per unit. In addition, franchisees of both concepts
pay a bi-weekly royalty and service fee equal to 5% of gross sales. Franchisees
also must contribute a minimum of 1% of gross sales to a local or regional
advertising cooperative.
Start-Up Time and Costs. Franchisees are required to enter into a lease
within 60 days of execution of a Single Unit Agreement and to open within 120
days following first possession of the leased premises. Subject to such factors
as the time to obtain a lease, financing or building permits, zoning and local
ordinances, weather conditions and availability of materials and equipment,
franchise stores generally can be expected to open within four to six months
following execution of a franchise agreement.
While costs vary based on location and type of store, the Company
currently estimates that the cost to a new franchisee to open a typical
Goldberg's or Sammy's restaurant, including initial franchise fees, equipment,
signs, opening inventory and other start-up costs, but exclusive of real estate
costs (purchase price, lease payments and/or improvements) generally is in the
range of $105,000 to $177,500 for either a Goldberg's or Sammy's store. In
addition, the Company estimates that rent for a typical Goldberg's or Sammy's
store currently is between $12,000 and $45,000 annually and that a new
franchisee will incur between $30,000 and $80,000 in real estate related
expenses with respect to each store.
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Term and Termination. Each Single Unit Agreement runs for an initial
term of ten years, subject to renewal for up to two additional five-year terms
upon agreement of the franchisee to refurbish and redecorate or secure new
premises. The Company has the right to terminate franchise agreements for a
variety of reasons, including failure to open a restaurant or complete training;
loss or surrender of restaurant premises; material misrepresentation; conviction
of a felony; failure to attend required training programs; unauthorized
assignment of a restaurant; unauthorized use of trademarks or confidential
information; failure to comply with Company specifications or procedures;
failure to make payments due to third parties; failure to make payments due to
the Company or to submit required reports; and sanitation problems.
Store Locations
The following table sets forth, by location, the number of Company
owned, franchised and licensed Goldberg's and Sammy's restaurants open or under
development, as of October 21, 1997:
COMPANY-OWNED STORES:
Date Opened
Location Concept (Projected)
- -------- ------- -----------
1443 Queen Anne Road
Teaneck, NJ 07666................... Sammy's 6/92
40 North James Road
Columbus, OH 43213.................. Sammy's 1/94
197 Bleecker Street
New York, NY 10012.................. Goldberg's 2/96
121 Route 59 W.
Nanuet, NY 10954.................... Goldberg's 1/97
1408 Whalley Avenue Goldberg's
New Haven, CT 06515................. Bagel Connection 3/97
1865 2nd Avenue (96th St.)
New York, NY 10029.................. Goldberg's 12/96
7043 4th Street North Goldberg's
St. Petersburg, FL 33702............ St. Pete Bagel 8/87
249 Central Avenue Goldberg's
St. Petersburg, FL 33701............ St. Pete Bagel 2/90
210 East Madison Goldberg's
Tampa, FL 33602..................... St. Pete Bagel 5/95
4329 West Kennedy Blvd. Goldberg's
Tampa, FL 33609..................... St. Pete Bagel 6/96
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FRANCHISED AND LICENSED STORES:
Date Opened
Location Concept (Projected)
- -------- ------- -----------
134 North Avenue
New Rochelle, NY 10803.................. Sammy's 10/92
4951 East Grant Rd.
Tuscon, AZ 85712........................ Goldberg's 9/95
421 Route 59
Monsey, NY 10952........................ Sammy's 11/95
1583 - A West Lane Ave.
Upper Arlington, OH ..................... Sammy's 12/95
6449 Oracle Ave.
Tucson, AZ 85712........................ Goldberg's 2/96
162 City Center Drive
Columbus, OH 43215...................... Sammy's 6/96
1312 Grandview Avenue
Grandview Heights, OH ................... Sammy's 7/96
1461 Weaver Street
Scarsdale, NY 10583..................... Sammy's 12/96
3318 Highway 17 So.
No. Myrtle Beach, SC 29582.............. Goldberg's 2/97
Goldberg's
3735 West Dempster Street Kosher New
Skokie, IL 60076........................ York Bagels 4/97
42 Pershing Drive Goldberg's
Derby, CT 06418......................... Bagel Connection 3/97
222 Main Street Goldberg's
Farmington, CT 06032.................... Bagel Connection 3/97
18 Old Stratford Road Goldberg's
Shelton, CT 06497....................... Bagel Connection 3/97
11130 Seminole Blvd. Goldberg's
Largo, FL 34640......................... St. Pete Bagel 2/95
5835 memorial Highway Goldberg's
Tampa, FL 33615......................... St. Pete Bagel 2/97
2989 Dixwell Avenue
Hamden, CT 06518........................ Goldberg's 10/97
3650 Nazareth Pike
Bethlehem, PA 18017..................... Goldberg's 10/97
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STORES UNDER DEVELOPMENT:
White Plains, NY......................... Sammy's 11/97
Mt. Kisco, NY............................ Sammy's 11/97
Albany, NY............................... Goldberg's 11/97
East Haven, NY........................... Goldberg's 11/97
Toledo, OH............................... Goldberg's 11/97
Trademarks and Service Marks
Management believes that, in the food service industry, trademarks and
service marks are most effectively protected by constant, continued and evolving
use of various distinctive identifying symbols. The Company is not dependent
upon particular registered marks and does not believe that the registration of
such marks would materially enhance its competitive position, business or
prospects.
The Company provides bagel ovens and kettles and other bagel bakery
equipment to its franchisees and to unaffiliated purchasers and believes that
this equipment is uniquely suited to the production of high quality bagels.
Although the Company modifies and installs this equipment in a proprietary
manner, the Company does not believe these modifications and refinements are
patentable. It is the Company's practice to protect its proprietary dough
conditioner, bagel mix and bagel dough by relying on trade secret laws and
confidentiality agreements. There can be no assurance that the confidentiality
of its trade secrets will be maintained or that others will not independently
develop or obtain access to the same, comparable or improved recipes and
formulas. See "Risk Factors -- Lack of Trademark and Patent Protection."
Competition
The Company competes, and can be anticipated to compete, against well
established food service companies with greater product and name recognition and
with larger financial, marketing and distribution capabilities than the
Company's, as well as innumerable local food establishments that offer similar
products. The food service industry in general, and the take-out sector in
particular, are intensely competitive with respect to food quality, concept,
location, service and price.
The bagel industry is highly fragmented and has traditionally been
dominated by "mom and pop" operators, which, management believes, creates a
unique growth opportunity for the Company's expansion. In addition, there is a
growing number of national, regional and local chains, operating both owned and
franchised bagel stores, including a number of such chains that have indicated
the intention to expand to a national scope. The Company believes that its most
direct competitors are Manhattan Bagel Company, Inc. ("Manhattan"), Einstein
Brothers Bagel, Inc. ("Einstein Brothers"), Bruegger's Corporation
("Bruegger's") and Big Apple Bagels ("Big Apple").
Recently, the bagel industry has experienced rapid expansion, with an
estimated 3,000 bagel shops (including chains and independent stores) currently
in operation. In addition, Dunkin' Donuts began selling its own line of
fresh-baked bagels in June 1996 and expects to be selling in almost as many of
its own stores as all other bagel chains combined. A number of bagel companies
also have been involved in initial public offerings and acquisitions, resulting
in the entry of such companies into the public capital markets and of large
public companies into the bagel industry for the first time. For example,
Quality Dining Inc., a
35
<PAGE>
public company, acquired Bruegger's, which it continues to operate as a private
unit; BAB Holdings, Inc., which operates Big Apple, completed its initial public
offering in November 1995; and Boston Chicken, Inc. acquired a majority interest
in Einstein Brothers, which completed its initial public offering in August
1996.
There are also several regional bagel chains and independent bagel
shops which may be expected to compete with the Company. The Company's stores
also compete with take-out and fast-food restaurants, delicatessens and prepared
food stores, bakeries, supermarkets and convenience stores. The Company believes
that the start-up costs associated with opening a retail food establishment
offering similar products on a stand-alone basis are competitive with the
start-up costs associated with commencing a Goldberg's or Sammy's store and
accordingly, such start-up costs are not an impediment to entry into the retail
bagel business. See "Risk Factors -- Competition; Ease of Entry into Business."
As a franchiser, the Company competes for qualified franchisees with a
wide variety of other investment opportunities both within and outside of the
food service industry. Management believes that the consistent quality of its
products, the efficiency of its operating systems, its proprietary ingredients,
its equipment and its franchisee support arrangements will permit it to compete
effectively, particularly against other franchisers of bagel stores.
Advertising
The Company presently advertises and plans to continue advertising, its
franchises in current stores, franchise trade shows, newspapers and business
opportunity magazines. The Company and its franchisees also advertise products
in newspapers, through direct mailing and on radio and television. See "--
Franchising."
The Company administers promotional funds ("Promotional Funds") to
support promotion and marketing programs designed to expand awareness of and
demand for Goldberg's and Sammy's products. Each Promotional Fund furnishes
Goldberg's or Sammy's franchisees, as the case may be, with promotional,
advertising and marketing materials, which may include such items as direct mail
pieces, media materials and brochures. The Company retains sole discretion over
creative concepts, materials and endorsements used in the Promotional Funds'
programs and over associated geographic, market and media placement and
allocation. The Promotional Funds may pay the cost of preparing materials,
employing advertising agencies and administering regional and local promotional
and advertising programs and public relations activities.
Franchisees are obligated to contribute to the appropriate Promotional
Fund a promotional fee equal to 1% of gross sales.
In the future, franchisees also may be required to participate in local
or regional advertising cooperatives. The cooperatives are expected to be made
up of franchisees within a given Designated Market Area for the purpose of
pooling advertising funds in order to purchase advertising effectively and
efficiently. Each franchisee will be entitled to one vote within the cooperative
for each store owned, and advertising purchases will be determined by majority
vote. Contributions will be determined by the members of each cooperative, and
will range from a required minimum of 1% of gross sales. Stores owned and
operated by the Company are required to contribute to the promotional funds and
to participate in advertising cooperatives on the same basis as franchised
stores within the same Designated Market Areas.
Each franchisee is responsible for developing local advertising and
promotional materials, all of which are subject to prior review and approval by
the Company.
36
<PAGE>
Government Regulation
The Company and its franchisees are required to comply with federal,
state, and local government regulations applicable to consumer food service
businesses generally, including those relating to the preparation and sale of
food, minimum wage requirements, overtime, working and safety conditions, and
citizenship requirements, as well as regulations relating to zoning,
construction, health, business licensing and employment. The Company believes
that it and its franchisees are in material compliance with these provisions.
Continued compliance with this broad federal, state and local regulatory network
is essential and costly and the failure to comply with such regulations may have
an adverse effect on the Company and its franchisees. See "Risk Factors --
Government Regulation."
The Company's franchise operations are subject to regulation by the
Federal Trade Commission ("FTC") in compliance with the FTC's rule entitled
"Disclosure Requirements and Prohibitions Concerning Franchising and Business
Opportunity Ventures," which requires, among other things, that the Company
prepare and update periodically a comprehensive disclosure document, known as
the Uniform Franchise Offering Circular ("UFOC"), in connection with the sale
and operation of its franchises. In addition, some states require a franchiser
to register its franchise with the state before it may offer the franchise. The
Company believes that its UFOC, together with any applicable state versions or
supplements, complies with both the FTC guidelines and all applicable state laws
regulating franchising in those states in which it has offered franchises.
In addition to the rules governing the offer and sale of franchises,
the Company is also subject to a number of state laws, as well as foreign laws
(to the extent it offers franchises outside of the United States), that regulate
substantive aspects of the franchiser-franchisee relationship, including, but
not limited to, those concerning termination and non-renewal. Currently, 18
states, the District of Columbia, Puerto Rico and the Virgin Islands, have
franchise termination and non-renewal laws. These laws govern the termination
and/or non-renewal of the franchise agreement and, by and large, require the
franchiser to have good cause, reasonable cause or just cause in order to
terminate the franchise agreement or not to renew the franchise agreement. In
addition, some of these laws provide for longer cure periods than currently
contemplated by the Company's franchise agreements.
Each store will be subject to regulation by federal agencies and to
licensing and regulation by state and local health, sanitation, safety, fire and
other departments. Difficulties in obtaining or the failure to obtain required
licenses or approvals could delay or prevent the opening of a new store. The
Company believes that it is in substantial compliance with the applicable laws
and regulations governing its operations.
While the Company intends to comply with all federal, state and foreign
laws and regulations, there can be no assurance that it will continue to meet
the requirements of such laws and regulations, which, in turn, could result in a
withdrawal of approval to franchise in one or more jurisdictions. Any such loss
of approval would have a material adverse effect upon the Company's ability to
successfully market its franchises. Violations of franchising laws and/or state
laws and regulations regulating substantive aspects of doing business in a
particular state could subject the Company and its affiliates to rescission
offers, monetary damages, penalties, imprisonment and/or injunctive proceedings.
The state laws and regulations concerning termination and non-renewal of
franchisees are not expected to have a material impact on the Company's
operations. In addition, under court decisions in certain states absolute
vicarious liability may be imposed upon franchisers based upon claims made
against franchisees. The Company currently does not carry insurance against such
claims although it intends to obtain coverage in the future. However, there can
be no assurance that the Company will be able to obtain such coverage or that
such coverage will be sufficient to cover claims against the Company. Further,
there can be no assurance that existing or future franchise regulations will not
have an adverse effect on the Company's ability to expand its franchise program.
37
<PAGE>
Properties
The Company's executive offices are located at 104 New Era Drive, South
Plainfield, New Jersey 07080. The Company first occupied this location on April
1, 1997. The headquarters consist of approximately 23,000 square feet. The
Company's lease on its headquarters location, bagel producing commissary and
warehouse commenced February 15, 1997 and expires on January 31, 2007. The lease
provides a renewal option of one five-year term. The commissary operates under
kosher supervision and produces bagels for all Company-owned and franchised
Sammy's stores. See "-- Kosher Certification and Supervision."
The Company purchases bagel bakery equipment from outside vendors for
distribution to Company-owned and franchised stores either directly from the
manufacturer or in one consolidated shipment from the Company's Lodi warehouse.
The Lodi facility currently is operating at full capacity, and management
expects that additional space will be needed for the Company to continue to
distribute equipment to its franchisees effectively.
The following table sets forth the location, size and certain
information pertaining to the lease, on each of the Company's Goldberg's stores,
Sammy's stores and its commissary.
<TABLE>
<CAPTION>
Lease Terms
Area --------------------------------------
Location Concept (Sq. Ft.) Commencement Expiration Renewals
-------- ------- --------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
1443 Queen Anne Road
Teaneck, NJ 07666................. Sammy's 750 8/1/91 7/31/03 None
40 North James Road
Columbus, OH 43213................ Sammy's 2600 11/1/93 10/31/03 None
197 Bleecker Street
New York, NY 10012................ Goldberg's 1260 11/1/94 10/31/03 None
121 Route 59 West
Nanuet, NY 10954.................. Goldberg's 1961 7/1/95 6/30/05 None
1408 Whalley Avenue
New Haven, CT 06515............... Goldberg's 3425 9/1/93 8/31/03 Ten Year
1865 2nd Avenue (96th Street)
New York, NY 10029................ Goldberg's 1,550 9/1/84 09/13/04 Five Year
7043 4th Street Three Year
St. Petersburg, FL 33702 Goldberg's 2,034 5/1/95 04/30/98 Option
249 Central Avenue
St. Petersburg, FL 33701 Goldberg's 1,100 3/1/90 03/01/96 Two Year
210 East Madison
Tampa, FL 33701................... Goldberg's 1,300 10/3/94 10/14/99 Five Year
4329 W. Kennedy Boulevard Two Two
Tampa, FL 33609................... Goldberg's 1,650 7/1/96 08/01/98 Year Terms
</TABLE>
38
<PAGE>
Employees
At October 21, 1997, the Company had 136 employees, consisting of 100
full-time and 36 part-time employees. The Company has never experienced a work
stoppage and no employees are represented by any labor union. The Company
believes that its employee relations are good.
Legal Proceedings
From time to time the Company is involved in litigation arising in the
ordinary course of its business. The Company is not currently engaged in any
legal proceedings which are expected, individually or in the aggregate, to have
a material adverse effect on the Company.
39
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Personnel
The current directors, executive officers and key personnel of the Company
are as follows:
Name Age Positions with the Company
---- --- --------------------------
Directors and Executive Officers
Andrew Thorburn.............. 54 Chairman of the Board and Chief
Executive Officer
Chris R. Decker.............. 50 Director, Executive Vice President,
Chief Financial and Administrative
Officer
John Chitvanni............... 48 Director
Anthony G. Foster............ 40 Director, President
Key Personnel
Raymond Johnson.............. 32 District Manager
Larry Wiese.................. 32 Director of Design and Equipment
Tom Lisker................... 65 Consulting Advertising Director
Leonard Allen................ 42 Director of Technical Services
Glenn Addis.................. 48 Regional Director Operations
Lloyd Allen.................. 47 Mid-West Regional Director Operations
Each director is elected to hold office until the next annual meeting
of shareholders and until his successor is elected and qualified or until his
earlier resignation or removal. All officers serve at the discretion of the
Board of Directors.
The following sets forth certain biographical information with respect
to the directors, executive officers and key personnel of the Company.
Directors and Executive Officers
Andrew Thorburn has been President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since October 1993. From 1987
until October 1993, he was President of All American Enterprises, Inc.,
Somerset, New Jersey, an unrelated company that was the franchiser of Treats
Bakery Stores ("Treats") and Perkits Frozen Yogurt ("Perkits"). From December
1994 to February 23, 1996, he served as Chairman of the Board (a non-executive
position) of Blue Chip Computerware, Inc. ("Blue Chip"), which became a
shareholder on July 1, 1994, but no longer is a shareholder of the Company. He
also has served as Chairman, President and Chief Executive Officer of Jutland
Enterprises Inc., founder of the Company, commencing in March 1988. He has been
in the food industry since 1985 and prior to that time was Chief Marketing
Officer of H.C. Copeland and Associates, Inc., a subsidiary of the Travelers
Insurance Company, which he helped to develop from a start-up venture into a
national sales company with 600 employees.
Chris R. Decker became Chief Financial and Administrative Officer of
the Company in May 1995, after serving for two years, first as a Divisional
Controller and later Assistant Corporate Controller, for Leslie Fay Corporation,
a leading apparel manufacturer. Previously, Mr. Decker, a certified public
accountant, worked with Mr. Thorburn as a consultant to various franchised food
operations, including Arby's and Schlotsky's. From 1988 to 1993, he and Mr.
Thorburn were chief operating officers and franchisers of Treats and Perkits.
Prior to that time, Mr. Decker had worked for eight years at Deloitte & Touche,
where he served as an audit supervisor during his last two years.
40
<PAGE>
John Chitvanni joined the Company's Board of Directors in March 1994.
He has been President of National Restaurant Search, a national search firm in
the hospitality industry, since 1981. He has 25 years of experience in the food
industry and previously was employed by Brigham's, Inc. and as a Regional
Manager for Dunkin Donuts Corp. Mr. Chitvanni attended Boston State College. He
has served as a guest speaker at industry conventions, written articles for
various industry publications and was a contributing author for the book "Dining
in Corporate America."
Anthony G. Foster has been Chief Operating Officer of the Company since
January 1, 1996. Prior to that time, he spent five years with Arby's Inc., where
he had most recently been Vice President of Franchising and he previously served
as National Franchise Director for McMaid, Inc. and United Consumers Club of
Mericille, Indiana. From 1982 to 1986, Mr. Foster was with the 7-Eleven Division
of Southland Corporation, where he was responsible for all franchise development
in New England and approximately 40% of the personnel function for the 425
stores and corporate offices in the Northeast Division. He received his BS in
Management and Industrial Relations from the University of Bridgeport.
Key Personnel
Raymond Johnson , former District Manager for All American, is Director
of the New England Region. Ray joined All American in March, 1996, after a three
year stint as general manager with Cornett management Co. His prior food service
experience includes the development and successful operation of restaurants
under the Rainbow Cafe (Charlotte, N.C.), T.G. Armadillos (Harrisonburg,
Virginia) and Ball Meade (Harrisonburg, Virginia) concepts between 1986 and
1995. Mr. Johnson attended James Madison University, where he majored in Hotel
and Restaurant Management.
Larry Wiese has been with the Company as Director of Design and
Equipment since its formation and, from 1990 until 1993 was employed by the
Howberg Equipment Company, one of the Company's predecessor companies, where he
was responsible for purchasing, shipping, and scheduling for construction and
installation of bagel equipment nationally.
Tom Lisker has been associated with the Company and its predecessors
since 1986 in his capacity as a principal of LGS, Inc., an advertising agency
located in New York City. Mr. Lisker serves as a consultant to the Company on
advertising and promotional campaigns, public relations and the development of
store design and concepts. He has extensive experience in the food service
industry and has provided advertising, public relations and promotional advice
for a number of clients within the industry, including General Foods, General
Mills, Howard Johnson's and Lum's Restaurants.
Leonard Allen joined All American as Director of Technical Services in
1997. He is responsible for supervising design, layout, equipment, and
construction of all new and existing stores. Prior to joining All American, Mr.
Allen worked out of Ft. Lauderdale, Florida, where he was a consultant for major
bagel equipment supply companies. He is a former bagel store owner, and his
hands-on experience is invaluable to All American's training program, commissary
operation and day-to-day contact with new and existing franchisees.
Glenn Addis, former manager of the corporate store in Columbus, Ohio,
has been with the Company since 1995. He is now Regional Director of the New
York/New Jersey Region. Prior to joining All American, Mr. Addis had worked for
ARA Services, where he was general manager of the Fine Dining Division of the
private clubs in Miami International Airport. He also served as Food and
Beverage Director for Doubletree Hotels, Hilton, and Holiday Inn. From 1978 to
1982, Mr. Addis was the owner of four restaurants in LaCrosse, Wisconsin.
41
<PAGE>
Lloyd Allen, formerly Director of Development, is Regional Director of
All American's Midwest Region. Before joining All American in 1996, Lloyd was
VP, Operations at Alexander the Great Pizza, and prior to that, Corporate VP of
Jagic Wok. From 1969-1975 he was a major league pitcher, having played for
California, Texas, and Chicago. He will continue to operate out of Toledo, Ohio.
Directors' Compensation
Directors of the Company currently receive no compensation for their
service as such.
Limitation of Liability and Indemnification Matters
As permitted pursuant to the corporate law of the State of New Jersey,
the Company's state of incorporation, the Charter and By-Laws require that the
Company indemnify its directors and officers against certain liabilities
incurred in their service in such capacities to the fullest extent permitted by
applicable law. These provisions would provide indemnification for liabilities
arising under the federal securities laws to the extent that such
indemnification is found to be enforceable under, and to be in accordance with
applicable law. In addition, as permitted by New Jersey law, the Charter
eliminates the personal liability of the directors and officers to the Company
or its shareholders for monetary damages for breaches of such director's or
officer's duty of care or other duties as a director or officer; except
liabilities for any breach of duty based upon an act or omission (a) in breach
of such person's duty of loyalty to the corporation or its shareholders, (b) not
in good faith or involving a knowing violation of law or (c) resulting in
receipt by such person of an improper personal benefit. This limitation on
liability could have the effect of limiting directors' and officers' liabilities
for violations of the federal securities laws.
Omnibus Stock Plan
The Company has adopted the All American Food Group, Inc. Amended and
Restated Omnibus Stock Plan (the "Plan") to promote the long-term growth and
profitability of the Company by (i) providing key directors, officers and
employees of the Company and its subsidiaries with incentives to improve
shareholder value and contribute to the growth and financial success of the
Company and (ii) enabling the Company to attract, retain and reward the best
available persons for positions of substantial responsibility. As described more
fully below, the Plan provides for grants of options to purchase specified
numbers of shares of Common Stock at predetermined prices.
The following discussion represents only a summary of certain of the
Plan terms and is qualified in its entirety by reference to the complete Plan, a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
Shares Available; Maximum Awards; Participants. A total of 350,000
shares of the Company's Common Stock has been reserved for issuance pursuant to
options granted pursuant to the Plan. The Plan allows the Company to grant
options to employees, officers and directors of the Company and its
subsidiaries; provided that only employees of the Company and its subsidiaries
may receive incentive stock options under the Plan. The Company has not granted
any options under the Plan.
Stock Option Features. Under the Plan, options to purchase the
Company's Common Stock may take the form of incentive stock options ("ISOs")
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
or nonqualified stock options ("NQSOs"). As required by Section 422 of the Code,
the aggregate fair market value (as defined in the Plan) of shares of Common
Stock (determined as of the date of grant of the ISO) with respect to which ISOs
granted to an employee are exercisable for the first time in any calendar year
may not exceed $100,000. The foregoing limitation does not apply to NQSOs.
42
<PAGE>
Initially, each option will be exercisable over a period, determined by
the Board of Directors or the Compensation Committee of the Board of Directors
of the Company, in its discretion, of up to ten years from the date of grant.
Options may be exercisable during the option period at such time, in such
amounts, and in accordance with such terms and conditions and subject to such
restrictions as are determined by the Board or the Compensation Committee and
set forth in option agreements evidencing the grant of such options; provided
that no option may be exercisable less than six months from its date of grant.
The exercise price of options granted pursuant to the Plan is
determined by the Board or the Compensation Committee, in its discretion;
provided that the exercise price of an ISO may not be less than 100% of the fair
market value (as defined in the Plan) of the shares of the Company Common Stock
on the date of grant. The exercise price of options granted pursuant to the Plan
is subject to adjustment as provided in the Plan to reflect stock dividends,
splits, other recapitalizations or reclassifications or changes in the market
value of the Company Common Stock. In addition, the Plan provides that, in the
event of a proposed change in control of the Company (as defined in the Plan),
the Board or the Compensation Committee is to take such actions as it deems
appropriate to effectuate the purposes of the Plan and to protect the grantees
of options, which action may include (i) acceleration or change of the exercise
dates of any option; (ii) arrangements with grantees for the payment of
appropriate consideration to them for the cancellation and surrender of any
option; and (iii) in any case where equity securities other than Common Stock
are proposed to be delivered in exchange for or with respect to Common Stock,
arrangements providing that any option shall become one or more options with
respect to such other equity securities. Further, in the event the Company
dissolves and liquidates (other than pursuant to a plan of merger or
reorganization), then notwithstanding any restrictions on exercise set forth in
the Plan or any grant agreement pursuant thereto (i) each grantee shall have the
right to exercise his option at any time up to ten days prior to the effective
date of such liquidation and dissolution; and (ii) the Board or the Compensation
Committee may make arrangements with the grantees for the payment of appropriate
consideration to them for the cancellation and surrender of any option that is
so canceled or surrendered at any time up to ten days prior to the effective
date of such liquidation and dissolution. The Board or the Compensation
Committee also may establish a different period (and different conditions) for
such exercise, cancellation, or surrender to avoid subjecting the grantee to
liability under Section 16(b) of the Exchange Act.
The shares purchased upon the exercise of an option are to be paid for
by the optionee in cash or cash equivalents acceptable to the Compensation
Committee. In addition, the Plan provides for broker-assisted cashless exercises
in the discretion of the Compensation Committee.
Except as permitted pursuant to Rule 16b-3 under the Exchange Act, and
in any event in the case of an ISO, an option is not transferable except by will
or the laws of descent and distribution. In no case may the options be exercised
later than the expiration date specified in the option agreement.
Plan Administration. The Plan is administered by the Board of Directors
of the Company.
The Board of Directors will decide when and to whom to make grants, the
number of shares to be covered by the grants, the vesting schedule, the type of
awards and the terms and provisions relating to the exercise of the awards. The
Board of Directors may interpret the Plan and may at any time adopt such rules
and regulations for the Plan as it deems advisable. The Board of Directors may
at any time amend or terminate the Plan and change its terms and conditions,
except that, without shareholder approval, no such amendment may (i) materially
increase the maximum number of shares as to which awards may be granted under
the Plan; (ii) materially increase the benefits accruing to Plan participants;
or (iii) materially change the requirements as to eligibility for participation
in the Plan.
Accounting Effects. Under current accounting rules, neither the grant
of options at an exercise price not less than the current fair market value of
the underlying Common Stock, nor the exercise of options under the Plan, is
expected to result in any charge to the earnings of the Company.
43
<PAGE>
Certain Federal Income Tax Consequences. The following is a brief
summary of certain Federal income tax aspects of awards under the Plan based
upon the Federal income tax laws in effect on the date hereof. This summary is
not intended to be exhaustive and does not describe state or local tax
consequences.
Incentive Stock Options. An optionee will not realize taxable income
upon the grant of an ISO. In addition, an optionee will not realize taxable
income upon the exercise of an ISO, provided that such exercise occurs no later
than three months after the optionee's termination of employment with the
Company (one year in the event of a termination on account of disability).
However, an optionee's alternative minimum taxable income will be increased by
the amount that the fair market value of the shares acquired upon exercise of an
ISO, generally determined as of the date of exercise, exceeds the exercise price
of the option. If an optionee sells the shares of Common Stock acquired upon
exercise of an ISO, the tax consequences of the disposition depend upon whether
the disposition is qualifying or disqualifying. The disposition of the shares is
qualifying if made more than two years after the date the ISO was granted and
more than one year after the date the ISO was exercised. If the disposition of
the shares is qualifying, any excess of the sale price of the shares over the
exercise price of the ISO would be treated as long-term capital gain taxable to
the option holder at the time of the sale. If the disposition is not qualifying,
i.e., a disqualifying disposition, the excess of the fair market value of the
shares on the date the ISO was exercised over the exercise price would be
compensation income taxable to the optionee at the time of the disposition, and
any excess of the sale price of the shares over the fair market value of the
shares on the date the ISO was exercised would be capital gain.
Unless an optionee engages in a disqualifying disposition, the Company
will not be entitled to a deduction with respect to an ISO. However, if an
optionee engages in a disqualifying disposition, the Company generally will be
entitled to a deduction equal to the amount of compensation income taxable to
the optionee.
Nonqualified Stock Options. An optionee will not realize taxable income
upon the grant of an NQSO. However, when the optionee exercises the NQSO, the
difference between the exercise price of the NQSO and the fair market value of
the shares acquired upon exercise of the NQSO on the date of exercise is
compensation income taxable to the optionee. The Company generally will be
entitled to a deduction equal to the amount of compensation income taxable to
the optionee.
Executive Compensation
Summary Compensation Table
The following summary compensation table sets forth certain information
regarding compensation paid during each of the indicated fiscal periods to the
person serving as the Company's Chief Executive Officer during the last year. No
executive officers received salary and bonus in an amount exceeding $100,000
during any of the fiscal periods.
44
<PAGE>
<TABLE>
<CAPTION>
Name and Fiscal Annual Other(2)
Principal Position Period(1) Salary
------------------ --------- ------- ---------
<S> <C> <C> <C>
Andrew Thorburn, Chief Executive Officer . . . . . . . . . 1997 $97,500 --
1996 $100,663 --
1995 $39,000 --
Chris Decker, Chief Financial and Administrative Officer . 1997 $92,000 --
1996 $102,500 --
1995 $46,000 --
Anthony Foster, Chief Operating Officer . . . . . . . . . . 1997 $96,500 $27,500(3)
1996 $101,763 $17,881(3)
1995 -- --
</TABLE>
- ----------
(1) The Company's 1997 fiscal period was from November 1, 1996 to July 31,
1997, its 1996 fiscal period was from November 1, 1995 to October 31,
1996, and its 1995 fiscal period was from February 1, 1995 to
October 31, 1995.
(2) Excludes perquisites and other personal benefits otherwise categorized
as salary which in the aggregate as for each of the named persons did
not exceed 10% of the total annual salary for each person.
(3) Consists solely of temporary housing allowance payments.
CERTAIN TRANSACTIONS
In March, 1995, the Company exchanged 825,000 shares of its Series C
Redeemable Convertible Preferred Stock for 412,500 shares of its Common Stock
owned by Blue Chip Computerware, Inc. ("Blue Chip"), which, at the time, was an
affiliate of the Company. Subsequently, during 1995, Blue Chip purchased an
additional 475,000 shares of the Series C Preferred Stock for which the Company
received aggregate consideration of $475,000. During 1996, the Company
voluntarily redeemed 402,000 shares of the Series C Preferred Stock held by Blue
Chip at a price of $1.00 per share.
Blue Chip has sold or otherwise disposed of all of its shares of the
Company's Common and Series C Preferred Stock and is no longer a shareholder of
the Company.
The Company believes that each of the foregoing transactions has been
on terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties. It is the Company's intent that, in the
future, transactions with affiliated parties will be approved by a majority of
the Company's disinterested directors or otherwise as permitted by applicable
law. Any such future transactions are expected to be on terms no less favorable
to the Company than could be obtained from unaffiliated parties.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of December 1, 1997, certain
information as to the beneficial ownership of Common Stock of each of the
Company's directors, all officers and directors as a group, and each person
known by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock.
45
<PAGE>
<TABLE>
<CAPTION>
Percentage
Amount and Nature of of Common Stock
Beneficial Ownership ---------------------
Name and Address of Immediately Before Before After
Beneficial Stockholder Offering(1) Offering Offering(2)
---------------------- --------------------- -------- -----------
<S> <C> <C> <C>
Andrew Thorburn........................... 470,101 7.97% 4.88%
104 New Eva Drive
South Plainfield, NJ 07080
Chris R. Decker........................... 150,211 2.5% 1.54%
104 New Eva Drive
South Plainfield, NJ 07080
John Chitvanni............................ 40,233(4) .68% .42%
910 West Lake Street
Roselle, IL 60172
Anthony G. Foster......................... 30,000(5) * *
104 New Eva Drive
South Plainfield, NJ 07080
All officers and directors as a group
(4 persons)............................... 690,545(9) 11.40% 7.05%
</TABLE>
- ----------
* Less than 1%.
(1) Except as otherwise indicated, each of the parties listed has sole
voting and investment power with respect to all shares of Common Stock
indicated. Beneficial ownership is calculated in accordance with Rule
13-d-3(d) under the Exchange Act. The ownership of the shares deemed to
be held by South Seas, a Selling Securityholder, due to its ownership
of $1,300,000 principal amount of Debentures and its right to acquire
an additional $1,300,000 principal amount of Debentures is not
reflected due to South Seas' contractual obligation to the Company
pursuant to which it is not entitled to convert any Debenture to the
extent that after such conversion the number of shares of Common Stock
beneficially owned by South Seas and its affiliates (excluding any
shares deemed beneficially owned through any continuing ownership of
Debentures) exceeds 4.9% of the outstanding Common Stock. The
conversion price will be adjusted and the number of shares beneficially
owned and being offered by the Selling Securityholder will vary in
accordance with the terms of the Debentures to reflect changes in the
Market Price of common stock, stock dividends, stock splits, and
certain other circumstances. See "Description of Securities."
(2) Assumes that the listed shareholders will continue to hold the shares
currently held thereby after completion of the Offering.
(3) Consists of 50,211 shares of Common Stock and currently exercisable
options (expiring December 31, 1998 and January 1, 2001) to purchase
50,000 shares of Common Stock at $3.125 per share, and 50,000 shares of
Common Stock at $2.00 per share, respectively.
(4) Consists of 233 shares of Common Stock and currently exercisable
options (expiring December 31, 1998 and November 1, 2000) to purchase
10,000 shares of Common Stock at a per share price of $3.125 and 25,000
shares of Common Stock at $2.00 per share, respectively, held by Mr.
Chitvanni and 5,000 shares of Common Stock held jointly by Mr.
Chitvanni and his spouse.
(5) Does not include 6,500 shares of Common Stock owned by Mr. Foster's
mother-in-law, who shares Mr. Foster's residence. Mr. Foster disclaims
beneficial ownership of these shares. Also includes currently
exercisable options (expiring December 31, 1998) to purchase 25,000
shares at a per share price of $3.125.
(6) Includes all shares reflected above as beneficially owned by Messrs.
Thorburn, Decker, Chitvanni and Foster.
46
<PAGE>
DESCRIPTION OF SECURITIES
General
The authorized capital stock of the Company consists of an aggregate of
24,000,000 shares of capital stock, consisting of 20,000,000 shares of Common
Stock, no par value, and 4,000,000 shares of Preferred Stock, no par value. As
of October 21, 1997, there were outstanding 5,897,339 shares of Common Stock no
shares of Series A Preferred Stock, 60,000 shares of Series B Preferred Stock
and 813,366 shares of Series C Preferred Stock and 300 shares of Series D
Preferred Stock, respectively.
Common Stock
Holders of Common Stock have one vote per share on each matter
submitted to a vote of the shareholders. Holders of the Common Stock do not have
preemptive rights to purchase additional shares of Common Stock or other
subscription rights. The Common Stock carries no conversion rights and is not
subject to redemption or to any sinking fund provisions. All shares of Common
Stock are entitled to share equally in dividends from legally available sources
as determined by the Board of Directors, subject to any preferential dividend
rights of the Preferred Stock (described below). Upon dissolution or liquidation
of the Company, whether voluntary or involuntary, holders of the Common Stock
are entitled to receive assets of the Company available for distribution to the
stockholders, subject to the preferential rights of the Preferred Stock. As of
October 21, 1997, there were 506 holders of record of the Company's Common
Stock.
6% Convertible Debentures
The Company's 6% Convertible Debentures ("Debentures") bear an interest
rate of six percent (6%) per annum and mature on September 30, 1999 as to the
$1,300,000 principal amount of Debentures currently outstanding and as of the
end of the first anniversary month of the issuance of the additional $1,300,000
treanche of Debentures that the Selling Shareholder has agreed to purchase. See
"Use of Proceeds from Sale of Debentures." The Debentures are issuable in
denominations of $100,000 and integral multiples thereof and, at the holder's
request, are exchangeable for an equal aggregate principal amount of debentures
of different authorized denominations. Upon maturity of the Debentures, payment
for principal and accrued interest will be made either in currency or in shares
of the Company's Common Stock, at the option of the holder.
The holder may convert the Debentures into Common Stock commencing on
the effective date of this Registration Statement. The conversion price per
share will be equal to the lesser of (a) $2.17, the Market Price as defined in
the Debentures as of September 16, 1997, or (b)(i) 82% of the Market Price on
the Conversion Date if such date is between sixty (60) and ninety (90) days from
September 16, 1997; (ii) 80% of the Market Price if the date is between
ninety-one (91) and one hundred twenty (120) days from September 16, 1997; (iii)
77.5% of the Market Price if the date is between one hundred twenty-one (121)
and one hundred fifty (150) days from September 16, 1997; or (iv) 75% of Market
Price thereafter. "Market Price," as used herein, means the average closing bid
price of the Common Stock on the five (5) trading days immediately preceding
September 17, 1997 or Conversion Date as may be applicable, as reported by the
National Association of Securities Dealers, or the closing bid price on the
over-the-counter market on such date or, in the event the Common Stock is listed
on a stock exchange or traded on NASDAQ, the Market Price means the closing
price on the exchange on such date, as reported in the Wall Street Journal. The
Company has the option to pay the interest accrued from the date of issuance to
the date of conversion either in cash or in shares of Common Stock.
The Company may redeem any Debentures for which a Notice of Conversion
has not been submitted by delivering a Notice of Redemption to the holder.
47
<PAGE>
The redemption price will be calculated so that the Holder will realize
the full economic benefit that the Holder would derive from converting the
securities into Common Stock and immediately selling same on the date of the
Notice of Redemption. The Company must pay the redemption price to the holder
within ten days from the date of the Notice of Redemption. If the Company fails
to make the redemption payment within these ten days, the Company forfeits its
right to redeem those Debentures.
If the Company merges or consolidates with another corporation or sells
or transfers all or substantially all of its assets to another person and, as a
condition of such merger, consolidation or sale, the holders of the Company's
Common Stock are entitled to receive stock or securities in another corporation
or to receive property in exchange for the Company's Common Stock, then the
Debenture may be converted into the kind and amount of stock, securities or
property receivable by the holders of the Company's Common Stock pursuant to the
transaction. If, within 15 days of the holder's receipt of a notice from the
Company advising of a proposed merger, consolidation or sale, the holder has not
submitted a Notice of Conversion, then the Company may prepay all outstanding
principal and accrued interest and thereby terminate the holder's conversion
rights.
Warrants
In connection with the Company's private placement of Debentures, the
Company also issued to the Debentureholder Warrants to purchase 130,000 shares
of Common Stock exercisable at 150% of the Market Price on September 16, 1997,
or $3.25, for a period of five (5) years. On September 19, 1997, the Company
issued to Trautman Kramer & Co. Warrants to purchase 175,000 shares of Common
Stock at $1.875 per share (the closing price of the Common Stock on such date)
and Warrants to purchase 175,000 shares of Common Stock at $2.4375 per share
(130% of the closing price of the Common Stock on such date). The Company has
agreed in principle to exchange the warrants it issued Trautman Kramer for
Warrants to purchase 187,500 shares of Common Stock at $.50 per share, warrants
to purchase 62,500 shares of Common Stock at $.65 per share, warrants to
purchase 125,000 shares of Common Stock at $.75 per share and warrants to
purchase 125,000 shares of Common Stock at $1.08 per share. The Company may
issue warrants to purchase up to an additional 1,500,000 shares of Common Stock
to Trautman Kramer and/or other third parties at prices above, below or at the
then current market price of the Common Stock in respect of services to be
rendered to the Company. The number of shares shown as being offered in the
table is based on a hypothetical grant of all such 1,500,000 additional warrants
to Trautman Kramer.
Preferred Stock
Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is authorized to determine the rights, preferences,
privileges and restrictions granted to, and imposed upon any series of Preferred
Stock and to fix the number of shares of any series of Preferred Stock and the
designation of any such series, subject, to the consent of the existing holders
of preferred stock, in certain instances. The issuance of Preferred Stock could
be used, under certain circumstances, as a method of preventing a takeover of
the Company and could permit the Board of Directors, without any action of the
holders of the Common Stock to issue Preferred Stock which could have a
detrimental effect on the rights of holders of the Common Stock, including loss
of voting control. Anti-takeover provisions that could be included in the
Preferred Stock when issued may depress the market price of the Company's
securities and may limit stockholders' ability to receive a premium on their
shares of Common Stock by discouraging takeover and tender offer bids.
The Company has issued four series Preferred Stock, designated Series
A Partially Redeemable Convertible Preferred Stock ("Series A Preferred Stock"),
Series B Redeemable Convertible Preferred Stock ("Series B Preferred Stock") and
Series C Convertible Preferred Stock ("Series C Preferred Stock" and,
collectively with the Series A Preferred Stock and the Series B Preferred Stock,
"Convertible Preferred Stock") and Series D Preferred Stock. The Series A
Preferred Stock was issued to Howard Goldberg in connection with the Company's
acquisition of the Goldberg Companies. The Series B Preferred Stock was issued
to the shareholders of the Sammy's Companies in connection with the Company's
acquisition of all of the outstanding shares of the Sammy's Companies. See
"Business -- History of the Company." The Series C Preferred Stock was issued by
the Company to a number of affiliated and unaffiliated purchasers in various
capital raising transactions. See "Certain Transactions." The Series D Preferred
Stock was issued to PSEF in connection with the Company's December 1997 private
placement.
Each share of Convertible Preferred Stock is convertible, at the
election of the holder thereof, into shares of the Common Stock of the Company
on a one-for-one basis, subject to adjustment in the event of certain events
including (i) stock dividends, splits and reverse splits; (ii)
reclassifications; (iii) issuances of warrants or rights to holders of Common
Stock at a price per share less than the then-current market price of the Common
Stock (as defined); (iv) other dividends or distributions to shareholders of
assets or evidences of indebtedness; and (v) mergers, consolidations, sales of
all or substantially all of the Company's assets, statutory exchanges of its
securities and similar transactions. Each share of Series A Preferred Stock and
Series B Preferred Stock is convertible into one share of Common Stock and each
share of Series C Preferred Stock is
48
<PAGE>
convertible into one-half share of Common Stock. The Convertible Preferred Stock
has no preference as to dividends, which are payable only as and when declared
by the Board of Directors, and need not be declared, notwithstanding the
declaration of dividends with respect to any other class or series of the
Company's capital stock. The Convertible Preferred Stock has no preference upon
liquidation of the Company, but instead participates pro rata, on a
share-for-share basis, with shares of Common Stock in respect of any funds
otherwise available for distribution to shareholders upon such liquidation.
Holders of Convertible Preferred Stock have no voting rights, except as required
by applicable law.
The Company is obligated to redeem 60,000 Series B shares (or such
lesser number of shares as is then outstanding) at a price of $5.00 per share no
later than December 12, 1998. The Company, at its election, also may redeem some
or all of the shares of Preferred Stock outstanding at any time upon payment of
a redemption price equal to $5.00 plus a premium thereon equal to 6% per annum
measured from September 1994 to the effective date of such redemption.
The Series C Preferred Stock is not subject to mandatory redemption by
either the Company or at the election of the holders thereof.
The Series D Preferred Stock (the "Preferred Shares") is non-voting and
accrues quarterly dividends at the rate of eight percent (8%) per annum. Any
dividend payable on the Preferred Shares may be paid, at the option of the
Company, either in cash or in Preferred Shares, if the shares of Common Stock
issuable upon conversion thereof have been registered for resale under the
Securities Act. In the event of any liquidation, dissolution or winding up of
the Company, the holders of the Preferred Shares will be entitled to receive,
prior and in preference to any distribution of any assets of the Company to
holders of any other class or series of shares, the amount of $1,000 per share
plus any and all accrued but unpaid dividends. The Preferred Shares are
convertible into Common Stock of the Company at a conversion price equal to 80%
of the closing price of the Common Stock for the five trading days preceding the
conversion date.
Except as required by New Jersey law, holders of Convertible Preferred
Stock have no voting rights.
Underwriter's Warrants
In connection with the Company's December 1996 initial public offering,
the Company granted to R.T.G. Richards & Company, Inc., ("R.T.G. Richards")
Underwriters warrants (the "Underwriter's Warrants") to purchase 110,000 shares
of Common Stock at an initial exercise price of $4.90 per share. The
Underwriter's Warrants are exercisable for a period of four years commencing
December 12, 1997. The shares of Common Stock issuable upon exercise of the
Underwriter's Warrants are identical to the Shares being registered by this
Prospectus. The Underwriter's Warrants contain anti-dilution provisions
providing for adjustment in the number of Warrants and the exercise price
thereof under certain circumstances. The Underwriter's Warrants also grant the
holders thereof certain rights of registration of the shares of Common Stock
issuable upon exercise of such Warrants.
Transfer Agent
The transfer agent for the Company's Common and Preferred Stock is
Continental Stock Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of Common Stock by the Company and its
stockholders could adversely affect the prevailing market price of the Common
Stock. There are currently 702,300 restricted shares and 5,195,039 shares of
Common Stock which are freely tradeable or eligible to have the restrictive
legend removed pursuant to Rule 144(k) promulgated under the Securities Act. Of
the 702,300 restricted shares, 187,500 shares have been held for at least one
year from the date of this Prospectus are currently eligible for resale under
Rule 144. Of the restricted shares, 530,545 shares held by certain of the
Company's officers and directors will be subject to certain lock-up agreements
through December 12, 1998. The Company has filed registration statements which
register up to 1,950,000 shares of Common Stock relating to certain options
and/or shares of Common Stock which have been or may be granted pursuant to
certain stock option plans (of which 900,000 shares have been issued to date and
options to purchase 100,000 shares are currently outstanding). Sales of
substantial amounts of Common Stock in the public market, or the perception that
such sales may occur, could have a material adverse
49
<PAGE>
effect on the market price of the Common Stock. Pursuant to its Certificate of
Incorporation, the Company has the authority to issue additional shares of
Common Stock and Preferred Stock. The issuance of such shares could result in
the dilution of the voting power of Common Stock purchased in this Offering. See
"Description of Securities," "Shares Eligible for Future Sale," and "Principal
Shareholders."
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for
the Company by the Law Offices of John L. Milling, Esq.
EXPERTS
The financial statements of the Company at October 31, 1995 and
October 31, 1996 and for the fiscal periods then ended, appearing in this
Prospectus and Registration Statement of which this Prospectus forms a part have
been audited by DelSanto and DeFreitas, Certified Public Accountants,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement
under the Securities Act with respect to the securities offered by this
Prospectus. As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement and the exhibits thereto, which may be examined without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 or at the Regional Offices of the Commission at 7
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from the Public Reference Section of the Commission in
Washington, D.C. upon payment of the prescribed fees. In addition, such
materials may be accessed electronically at the Commission's site on the World
Wide Web, located at http://www.sec.gov. Statements contained in this Prospectus
as to the contents of any contract or other documents referred to herein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
The Company will, upon completion of the Offering, be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
and, in accordance therewith, will file reports and other information with the
Commission. Such reports and other information may be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials can be obtained at prescribed
rates from the Commission at such address.
50
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements
<TABLE>
<S> <C>
Report of Delsanto & Defreitas, Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of October 31, 1996 and 1995 F-3
Consolidated Statement of Operations for the year ended
October 31, 1996 and for the Nine Months ended October 31, 1995 F-4
Consolidated Statement of Cash Flows for the Year ended
October 31, 1996 and for the Nine Months ended October 31, 1995 F-5
Consolidated Statement of Stockholders' Deficit for the Year Ended October 31,
1996 and for the Nine Months ended October 31, 1995 F-6
Notes to Consolidated Financial Statements F-7
Interim Financial Statements
(Unaudited)
Consolidated Balance Sheets at July 31, 1997 and 1996 F-20
Consolidated Statement of Operations for the three and nine
months ended July 31, 1997 and 1996 F-21
Consolidated Statement of Cash Flows for the nine
months ended July 31, 1997 and 1996 F-22
Consolidated Statement of Stockholders' Equity for the nine
months ended July 31, 1997 F-23
Notes to Consolidated Interim Financial Statements F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
All American Food Group, Inc.
Fairfield, New Jersey
We have audited the accompanying consolidated balance sheets of All American
Food Group, Inc. and Subsidiaries as of October 31, 1996 and 1995, and the
related consolidated statements of operations, cash flows and stockholders'
deficit for the year ended October 31, 1996 and the nine month period ended
October 31, 1995.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform our 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 the audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of All American Food
Group, Inc. and Subsidiaries as of October 31, 1996 and 1995, and their
consolidated results of operations and cash flows for the year ended October 31,
1996 and the nine month period ended October 31, 1995, in conformity with
generally accepted accounting principles.
DelSanto and DeFreitas
Closter, New Jersey
February 5, 1997
F-2
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
October 31, October 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 84,302 $ 53,703
Accounts receivable, net of allowances for possible losses of $12,000
and $15,000 respectively 127,490 107,641
Notes receivable, current portion 97,115 13,505
Inventories 66,580 123,649
Prepaid expenses 407,516 45,251
----------- -----------
Total Current Assets 783,003 343,749
Property, Plant and Equipment, at cost less accumulated depreciation
and amortization of $249,533 and $145,589 respectively 920,570 517,902
Intangible Assets, net of accumulated amortization of $418,460 and $270,663 respectively 293,319 407,544
Security Deposits 31,148 30,234
Notes receivable - long-term 160,434 39,365
----------- -----------
Total Assets $ 2,188,474 $ 1,338,794
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 194,899 $ --
Accounts payable and accrued expenses 1,345,372 1,054,721
Capitalized lease obligations - current maturities 75,517 75,653
Loans from stockholders - current maturities 14,727 34,049
Current maturities of long-term debt 1,932 6,041
Deferred franchising revenue, current portion 189,615 76,005
----------- -----------
Total Current Liabilities 1,822,062 1,246,469
Capitalized Lease Obligations 25,300 84,502
Loans from stockholders 5,454 15,041
Long-term Debt -- 1,590
Deferred franchising revenue 160,434 39,365
----------- -----------
Total Liabilities 2,013,250 1,386,967
----------- -----------
Commitments and contingencies
Redeemable preferred stock, no par value, Series A 115,000 shares issued and
outstanding, Series B, 120,000 shares issued and outstanding,
Redemption value of $625,000 562,678 --
----------- -----------
Stockholders' (Deficit):
Non-redeemable convertible preferred stock, no par value, Series A,
190,000 shares authorized, 75,000 and 190,000 shares issued and
outstanding respectively, Series B, 180,000 shares authorized, 60,000
shares and 80,000 shares issued and outstanding respectively, Series C,
1,600,000 shares authorized, 982,503 and 1,369,500 537,905 1,022,580
Common stock, no par value, 20,000,000 shares authorized, 1,867,661 and
945,650 shares issued and outstanding respectively 3,360,136 876,150
shares issued and outstanding respectively
Additional paid in capital -- 365,000
Accumulated deficit (4,285,495) (2,311,903)
----------- -----------
(387,454) (48,173)
----------- -----------
Total Liabilities and Stockholders' (Deficit) $ 2,188,474 $ 1,338,794
=========== ===========
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-3
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
October 31, October 31,
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Store sales $ 1,401,266 $ 1,422,341
Franchising revenue 277,854 377,201
Equipment and product sales 561,067 550,726
----------- -----------
2,240,187 2,350,268
----------- -----------
Operating expenses:
Cost of Sales - equipment and product costs and store operations, exclusive
of depreciation and amortization 1,572,185 1,739,147
Cost of Sales - franchising activities, exclusive of depreciation and
amortization -- 213,408
Selling, general and administrative expenses 2,132,072 1,146,365
Depreciation and amortization 251,741 211,463
Settlement Costs - Employment Contracts 224,341 170,352
----------- -----------
4,180,339 3,480,735
----------- -----------
Operating loss (1,940,152) (1,130,467)
Interest expense 33,440 21,078
----------- -----------
Net loss ($1,973,592) ($1,151,545)
=========== ===========
Adjusted net loss for net loss per common share calculation:
Net loss ($1,973,592) ($1,151,545)
Increase in carrying amount of redeemable preferred stock (562,678) --
----------- -----------
Net loss attributable to common stock ($2,536,270) ($1,151,545)
=========== ===========
Shares outstanding:
Weighted average number of common shares outstanding 943,150 943,150
Additional shares 430,558 430,558
----------- -----------
Adjusted shares outstanding 1,373,708 1,373,708
=========== ===========
Net loss per common share ($1.85) ($0.84)
=========== ===========
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-4
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARUES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Nine Months
Ended Ended
October 31, October 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ($1,973,592) ($1,151,545)
----------- -----------
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 251,741 211,463
Provision for possible losses on accounts receivable -- (35,000)
Gain on sale of subsidiary and retail store -- (34,369)
Issuance of common stock for services -- 1,750
Decrease (increase) in:
Accounts receivable (19,849) (26,661)
Inventories 57,069 58,715
Prepaid expenses (362,265) (15,251)
Security deposits (914) (16,800)
Increase (decrease) in:
Accounts payable and accrued expenses 290,651 524,937
Deferred franchise fee 30,000 62,500
----------- -----------
Total adjustments 246,433 731,284
----------- -----------
Net cash (used in) operating activities (1,727,159) (420,261)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (96,612) (43,503)
Acquisition of intangible assets (33,572) --
Proceeds from sale of subsidiary and retail store, net of cash balance of
subsidiary -- 64,953
----------- -----------
Net cash (used in) provided by investing activities (130,184) 21,450
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 2,003,986 --
Proceeds from issuance of preferred stock 200,000 541,480
Redemption of preferred stock (416,997) (100,000)
Proceeds from issuance of notes payable 194,899 --
Proceeds from capitalized lease obligations 10,900 17,843
Payments of capitalized lease obligations (70,238) (52,587)
Proceeds from loans from stockholders -- 33,250
Payments of loans from stockholders (28,909) (38,702)
Proceeds from issuance of long-term debt -- 3,250
Payments of long-term debt (5,699) (7,492)
----------- -----------
Net cash provided by financing activities 1,887,942 397,042
----------- -----------
Net increase (decrease) in cash 30,599 (1,769)
Cash - beginning of period 53,703 55,472
----------- -----------
Cash - end of period $ 84,302 $ 53,703
=========== ===========
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-5
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Non-redeemable
Common Stock Preferred Stock
------------------------- -------------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 31, 1995 1,355,650 $ 1,277,000 300,000 $ 54,000
Nine Months Ended October 31, 1995:
Conversion of common stock to
preferred stock (412,500) (402,600) 825,000 402,600
Common stock issuance for services 2,500 1,750 -- --
Preferred stock issuance -- -- 614,500 565,980
Preferred stock redemption -- -- (100,000) --
Other -- -- -- --
Net Loss -- -- -- --
---------- ----------- ---------- -----------
Balance at October 31, 1995 945,650 876,150 1,639,500 1,022,580
Year Ended October 31, 1996:
Conversion of preferred stock to
common stock 35,000 70,000 (70,000) (70,000)
Common stock issuance 887,011 2,413,986 -- --
Preferred stock issuance -- -- 200,000 200,000
Preferred stock redemption -- -- (416,997) (416,997)
Increase in carrying amount of redeemable
preferred stock -- -- (235,000) (197,678)
Net Loss -- -- -- --
---------- ----------- ---------- -----------
Balance at October 31, 1996 1,867,661 $ 3,360,136 1,117,503 $ 537,905
========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-In Retained
Capital (Deficit) Total
--------- ----------- -----------
<S> <C> <C> <C>
Balance at January 31, 1995 $ 365,000 ($1,122,646) $ 573,354
Nine Months Ended October 31, 1995:
Conversion of common stock to
preferred stock -- -- 0
Common stock issuance for services -- -- 1,750
Preferred stock issuance -- -- 565,980
Preferred stock redemption -- (100,000) (100,000)
Other -- 62,288 62,288
Net Loss -- (1,151,545) (1,151,545)
--------- ----------- -----------
Balance at October 31, 1995 365,000 (2,311,903) (48,173)
Year Ended October 31, 1996:
Conversion of preferred stock to
common stock -- -- 0
Common stock issuance -- -- 2,413,986
Preferred stock issuance -- -- 200,000
Preferred stock redemption -- -- (416,997)
Increase in carrying amount of redeemable
preferred stock (365,000) -- (562,678)
Net Loss -- (1,973,592) (1,973,592)
--------- ----------- -----------
Balance at October 31, 1996 $ -- ($4,285,495) ($ 387,454)
========= =========== ===========
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-6
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. Organization and Summary of Significant Accounting Policies:
(a) Organization --
The Company was incorporated under the name Jutland Food Group, Inc. on
September 27, 1993 under the laws of the State of New Jersey. On October 20,
1993, the Company acquired substantially all of the assets of Howberg Bakery
Equipment Co., Inc., Bagels of New Milford, Inc. and Goldberg's Famous Bagels of
Orangeburg, Inc., hereinafter referred to as the "Goldberg acquisition." The
assets acquired consisted of a bagel equipment business and two retail bagel
stores. On September 29, 1994, the Company acquired all of the outstanding stock
of four interrelated corporations all conducting business under the tradename
"Sammy's New York Bagels," hereinafter referred to as the "Sammy's acquisition."
The acquisition consisted of three certified kosher retail bagel stores and a
bagel production facility, all operating under rabbinical supervision. Both of
these acquisitions have been accounted for under the purchase method of
accounting in accordance with Accounting Principle Board Opinion No. 16.
Effective October 31, 1995 the company changed its fiscal year to October 31st.
The Company changed its name to All American Food Group, Inc. on October 24,
1995.
(b) Business --
The Company is principally engaged in the development of a retail chain of
franchised bagel stores, including the operation of a certain number of
Company-owned stores for training and marketing and promotional activities, and
the distribution of bagel bakery equipment and related products to the franchise
system. The Company markets both single unit and market development franchise
agreements. The Company, in the normal course of business, also markets stores
it acquires to individuals who operate as franchisees. The Company franchises
its concepts under the names "Goldberg's Original Old World Bagels" and "Sammy's
New York Bagels."
The Company no longer actively engages in the sales of bagel bakery equipment to
independent retail operators.
(c) Principles of Consolidation --
The consolidated financial statements include the accounts of All American Food
Group, Inc. and its subsidiaries. All significant inter-company balances and
transactions have been eliminated in consolidation.
(d) Cash and Cash Equivalents --
At October 31, 1996 cash represented monies on deposit in financial
institutions.
(e) Concentration of Credit Risk --
The Company maintains cash and cash equivalents with various financial
institutions. Company policy is designed to limit exposure with any one
institution. Credit risk with respect to trade accounts and notes receivable is
minimal, due to the terms under which the Company transacts its business.
(f) Fair Value of Financial Instruments --The Company estimates that the fair
value of all financial instruments at October 31, 1996 does not differ
materially from the aggregate carrying values of its financial instruments
recorded in the accompanying balance sheet based upon currently available
information.
F-7
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
OCTOBER 31, 1996
1. Organization and Summary of Significant Accounting Policies -- (continued)
(g) Inventories --
Inventories are stated at the lower of cost (first-in, first-out ("FIFO")) or
market.
(h) Property, Plant and Equipment --
Equipment, fixtures and leasehold improvements are recorded at cost. Equipment
under capital leases is recorded at the net present value of the associated
lease payments. Major replacements or improvements are capitalized. Maintenance
and repairs are charged to earnings as incurred. For financial statement
purposes, depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets which range from three to
ten years.
(i) Intangible Assets --
The values assigned to intangible assets result from the business combinations
described in Note 1(a) and are based on an independent appraisal and
management's estimates, and are being amortized on a straight-line basis over
their estimated useful lives, which range from three and one-half to five years.
(j) Franchise Revenue Recognition --
Franchise revenue includes the sale of single unit franchises, the sale of
Company-owned stores to franchisees, the sale of market development franchises
and ongoing royalty and advertising fees.
Single unit franchise agreements ("Single Unit Agreements") provide for payment
of a non-refundable initial franchise fee (an "Initial Franchise Fee"), a weekly
royalty on gross sales, and a weekly cooperative advertising fund contribution.
The Company's material obligations under the terms of all Single Unit Agreements
are assisting in site selection and franchisee training. Initial Franchise Fees
under Single Unit Agreements are recognized as revenues when the Company has no
further material obligations in respect of the establishment of such franchise,
which occurs upon the opening of the store.
Market Development Agreements provide for the payment, by the Market Developer,
of a non-refundable initial fee (a "Market Development Fee") based on the size,
population and overall market potential of the territory subject to the Market
Development Agreement (the "Market Area"). The Market Developer assumes
substantially all of the responsibilities that otherwise would be assumed by the
Company, as franchiser within the Market Area. In exchange, the Market Developer
receives (i) the exclusive right to build stores for the Market Developer's own
account or to seek third party franchisees within the Market Area and (ii) the
right to share with the Company, on a 50/50 basis, initial and ongoing single
store fees within the Market Area. Under Market Development Agreements, the
Company's obligations in respect of the development of single unit franchises
within the Market Area are limited to (i) approval of franchisees presented by
the Market Developer and (ii) approval of store sites. The Company has no
further material obligations in respect of a Market Development Agreement at the
time of execution of the Agreement. Market Development Fees paid in cash or by
promissory notes fully collateralized by liquid assets or as to which the
Company has obtained an independent third- party valuation, are recognized as
revenues by the Company upon execution of the Market Development Agreement and
F-8
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
OCTOBER 31, 1996
1. Organization and Summary of Significant Accounting Policies -- (continued)
(j) Franchise Revenue Recognition -- (continued)
payment of the fee. In the absence of such collateral or valuation, the Company
recognizes Market Development Fees on a cash basis as payments on such notes are
received. The Company records non-interest bearing notes with a term in excess
of one year at a discount for imputed interest thereon. As of October 31, 1996
and 1995, the Company had deferred the recognition of $257,549 and $52,870 of
revenues relating to notes from Market Developers. See notes 3 and 7.
The Company's portion of the Initial Franchise Fee on single unit franchises
sold within a Market Developer's Market Area is recognized as revenues when the
Company has no further material obligations in respect of the establishment of
such franchise, which occurs upon opening of the store. As of October 31, 1996,
the Company had no deferred revenue relating to stores in Market Developers'
Market Areas.
The Company recognizes revenues from the sale of Company-owned stores to
franchisees upon consummation of the sale transaction.
The Company recognizes franchise royalty revenue when it is earned.
Franchise revenue for the year ended October 31, 1996 of $277,854 consists of
initial non-recurring franchise and market development fees of $37,500 and
$177,878, respectively, and ongoing royalties of $62,476. Franchise revenue for
the nine months ended October 31, 1995 of $377,201 consists of initial
non-recurring franchise and market development fees of $7,500 and $117,824,
respectively, initial non-recurring revenue from the sale of Company-owned
stores of $247,777 and ongoing royalties of $4,100.
(k) Net Loss per Share --
Net loss per common share was determined by dividing net loss, as adjusted, by
the weighted average number of common shares outstanding, as adjusted. The net
loss for the year ended October 31, 1996 was adjusted by an increase of $562,678
representing the increase in the carrying amount of redeemable preferred stock.
(See Note 12). The weighted average number of common shares outstanding was
adjusted by an increase of 430,558 shares for all periods presented. These
additional shares represent the number of shares and options issued within the
twelve months prior to May 3, 1996, when the Company filed a registration
statement for an initial public offering (IPO), that were issued for
consideration per share or at an exercise per share less than the anticipated
IPO price of $3.50 per share. The treasury stock method has been used to
determine the net increase in the number of shares outstanding. As such the
computation of fully diluted net loss per share was anti-dilutive in each of the
periods presented; therefore, the amounts reported for primary and fully diluted
loss per share are the same.
(l) Long-Lived Assets --
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," effective February 1, 1994.
The Company records impairment losses on long-lived assets used in operations,
including goodwill and
F-9
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
OCTOBER 31, 1996
1. Organization and Summary of Significant Accounting Policies -- (continued)
(l) Long-Lived Assets --(continued)
intangible assets, when events and circumstances indicate that the assets might
be impaired and the discounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. The adoption of SFAS
No. 121 had no material impact on the Company's financial condition or results
of operations for the year ended October 31, 1996 or for the nine months ended
October 31, 1995.
(m) Stock Options --
The Company has granted stock options to an employee, a director, a key vendor
and a customer with an exercise price not less than fair market value per share
of common stock on the date the option was granted. The Company accounts for
stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and, accordingly, recognizes no compensation or other
expense for the stock option grants.
(n) Reclassifications --
Certain reclassifications have been made in the prior nine month financial
statements to conform with the presentation in the current-year financial
statements.
(o) Use of Estimates --
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Inventories:
Inventories at October 31, consist of the following:
1996 1995
-------- ---------
Food and paper products $ 37,774 $ 69,544
Equipment and parts 28,806 54,105
-------- ---------
Total inventories
$ 66,580 $ 123,649
======== =========
3. Notes Receivable:
Notes receivable at October 31, represent the present value of the unpaid
portion of the Market Development Fees due in connection with the sales of
Market Areas (including a sale to a shareholder of the Company).
The notes, which are non-interest bearing and have been discounted based on an
imputed interest rate of 9%, are as follows:
F-10
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
OCTOBER 31, 1996
3. Notes Receivable --(continued)
1996 1995
-------- -------
Notes receivable, paid by the application of 50%
of compensation due to Market Developer $ 48,230 $52,870
Notes receivable, due in quarterly installments of
$20,000 209,319 --
-------- -------
257,549 52,870
Less current portion 97,115 13,505
-------- -------
$160,434 $39,365
4. Fixed Assets:
Fixed assets and accumulated depreciation at October 31, consist of the
following:
<TABLE>
<CAPTION>
Estimated
1996 1995 Useful Lives
--------- -------- -------------
<S> <C> <C> <C>
Machinery and equipment - retail stores $ 495,182 $333,237 7 years
Office furniture and warehouse equipment 172,200 169,951 7 years
Trucks and delivery vehicle 31,370 26,370 3 to 5 years
Leasehold improvements - retail stores 243,155 133,933 Term of lease
Construction in progress 228,196 --
---------- --------
1,170,103 663,491
Accumulated depreciation (249,533) (145,589)
---------- --------
Fixed assets, net of accumulated
depreciation $ 920,570 $517,902
========== ========
</TABLE>
Depreciation expense aggregated $103,944 and $81,214 for the year ended October
31, 1996 and the nine months ended October 31, 1995, respectively. At October
31, 1996 certain debt is secured by approximately $270,000 of fixed assets.
5. Intangible Assets:
Intangible assets and accumulated amortization at October 31, are as following:
<TABLE>
<CAPTION>
Estimated
1996 1995 Useful Lives
--------- --------- ------------
<S> <C> <C> <C>
Kosher certification $ 165,771 $ 165,771 5 years
Non-compete agreements 216,789 216,789 4 years
Lease acquisition costs 33,572 -- 10 years
Favorable lease agreement 7,891 7,891 3 1/2 years
Customer lists 93,970 93,970 4 years
Proprietary formula 135,513 135,513 5 years
Drawings and blueprints 58,273 58,273 5 years
--------- ---------
711,779 678,207
Accumulated depreciation (418,460) (270,663)
--------- ---------
Intangible assets, net of accumulated
amortization $ 293,319 $ 407,544
========= =========
</TABLE>
F-11
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
OCTOBER 31, 1996
5. Intangible Assets --(continued)
Amortization expense aggregated $147,797 and $130,249 for the year ended October
31, 1996 and the nine months ended October 31, 1995, respectively.
6. Notes Payable:
Notes payable at October 31, 1996 consisted of $147,899 due to an officer and
$46,900 due to three unrelated individuals. The notes are due on demand and bear
interest at rates ranging from 6% to 10%.
7. Deferred Franchising Revenue:
Deferred franchising revenue at October 31, represents Initial Franchise Fees
received in connection with single store franchises where the stores have not
yet opened and the present value of the portion of the Market Development Fee
paid by means of non-interest bearing notes as to which the Company has not as
yet recognized revenue, and are as follows:
1996 1995
-------- --------
Single store, Initial Franchise Fees received,
stores not yet open $ 92,500 $ 62,500
Market development fees 257,549 52,870
-------- --------
350,049 115,370
Less current portion 189,615 76,500
-------- --------
Deferred franchising revenue, long-term $160,434 $ 39,365
8. Equipment Lease Obligations:
The Company and its subsidiaries are obligated under various equipment lease
arrangements which have been capitalized in the accompanying financial
statements. Property, plant, and equipment presented on the consolidated balance
sheet includes approximately $270,000 of assets capitalized under these leasing
arrangements. Accumulated depreciation recorded on these assets approximated
$86,000 at October 31, 1996. These lease obligations are due in monthly
installments including interest expense at annual interest rates ranging from
8.3% to 24.5%. The lease obligations are payable through dates ranging from
November 1996 through May 1999. The future minimum payments required under the
lease arrangements with their present value at October 31, 1996 are as follows:
Present Interest Minimum
Year Ended October 31, Value Expense Payments
-------- ------- --------
1997 $75,517 $13,733 $ 89,250
1998 22,781 2,210 24,991
1999 2,519 128 2,647
-------- ------- --------
$100,817 $16,071 $116,888
======== ======= ========
F-12
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
OCTOBER 31, 1996
9. Loans From Stockholders:
Loans from stockholders primarily consist of obligations assumed in the Sammy's
acquisition. These loans are due in monthly installments including interest
expense at annual rates ranging from 5.0% to 16.76%. The loans are payable
through dates ranging from November 1996 through February 1999.
The future minimum payments required under the loans, with their present value
at October 31, 1996, are as follows:
Present Interest Minimum
Year Ended October 31, Value Expense Payments
---------------------- ------- ------ -------
1997 $14,727 $879 $15,606
1998 4,057 180 4,237
1999 1,397 15 1,412
------- ------ -------
$20,181 $1,074 $21,255
======= ====== =======
10. Long-term Debt:
Long-term debt at October 31, is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Note payable to bank payable in monthly installments of $405 plus
interest at 1.5% above the prime rate, through
February 1997, secured by equipment $1,042 $6,041
------ ------
Note payable to individual in monthly installments of $153
including interest at the annual rate of 12.5%, payable
through April 1997 890 1,590
1,932 7,631
Less current portion 1,932 6,041
------ ------
Long-term debt $ -- $1,590
====== ======
</TABLE>
11. Income Taxes:
The Company has adopted SFAS No. 109 and is a C Corporation subject to federal
and state income taxes with a fiscal year ended October 31.
At October 31, the cumulative temporary differences resulted in net deferred
assets or liabilities consisting primarily of:
F-13
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
OCTOBER 31, 1996
11. Income Taxes --(continued)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets
Accounts receivable reserves $ 12,000 $ 15,000
Net operating loss carryovers 2,400,000 750,000
--------- ---------
2,412,000 765,000
Less valuation allowance 2,021,000 99,000
--------- ---------
Deferred tax asset, net 391,000 666,000
Deferred tax liabilities:
Difference between assigned value and the tax basis
assets and liabilities resulting from the Goldberg's and
Sammy's acquisitions 391,000 666,000
--------- ---------
Net deferred tax assets (liabilities) $ -- $ --
========= =========
</TABLE>
For income tax reporting, the Company has net operating loss carryfowards
available to reduce future federal and state income taxes of approximately
$2,400,000. These loss carryfowards will expire in the years 2003 and 2011,
respectively, for state and federal tax purposes.
12. Redeemable and Non-redeemable Preferred Convertible Preferred Stock:
The Company issued 190,000 shares of Series A (180,000 shares issued to Mr.
Goldberg and 10,000 shares to a third party) and 180,000 shares of Series B
Convertible Preferred Stock in connection with the Goldberg's and Sammy's
acquisitions, respectively. The Certificate of Designation stipulates that
certain of these shares are redeemable if certain events occur as follows:
Series A Shares:
In the event that the Company completes an underwritten initial public offering
of its common stock yielding net proceeds to the Company (after deduction of
offering costs, commissions, attorneys fees, or other costs and expenses in
connection with such offering) of more than $2,000,000, then within 30 days
following the closing of such offering, the Company will offer to redeem the
lesser of 40,000 shares or the number of shares of Series A Preferred Stock then
outstanding, at a redemption price of $5.00 per share. The holder of Series A
Preferred Stock can accept the offer or can convert the shares held into an
equal number of shares of common stock of the Company.
On August 12, 1996, the Company entered into a Modification and Settlement
Agreement which altered the redemption provision described above. Under the new
terms, Mr. Goldberg would convert 65,000 shares of his Series A Preferred Stock
to an equal number of shares of Common Stock and pursuant to which, among other
things, the Company would redeem his remaining 115,000 Series A shares for
$25,000.
F-14
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
OCTOBER 31, 1996
12. Redeemable and Non-redeemable Preferred Convertible Preferred
Stock--(continued)
Series B Shares:
In the event that the Company completes, in a single transaction, a capital
infusion of more than $1,000,000 (net of any offering costs, commissions,
attorneys fees, or other costs and expenses in connection with such equity
infusion), then within 30 days following the closing of such offering, the
Company shall offer to redeem the lesser of 60,000 shares or the number of
shares of Series B Preferred Stock then outstanding, at a redemption price of
$5.00 per share. The holder of Series B Preferred Stock can accept the offer or
can convert the shares held into an equal number of shares of the common stock
of the Company.
In the event that the Company completes an underwritten initial public offering
of its common stock and any shares of Series B Preferred Stock remain
outstanding 24 months following the effective date of the registration statement
filed with the Securities and Exchange Commission in respect of such initial
public offering, then within 3 days following the expiration of such 24 month
period, the Company shall offer to redeem the lesser of 60,000 shares, or the
number of shares of Series B Preferred Stock then outstanding, at a redemption
price of $5.00 per share. The holder of Series B Preferred Stock can accept the
offer or can convert the shares held into an equal number of shares of the
common stock of the Company.
At October 31, 1996 the present value of the amount necessary to redeem the
maximum number of shares of Series A and Series B Convertible Preferred Stock
has been reflected in the accompanying consolidated financial statements as
Redeemable Preferred Stock, Series A and Series B.
The following presents the previous carrying amounts of the Series A and Series
B Preferred Stock and the accretion (increase in the carrying amount) for the
year ended October 31, 1996, and the redemption amounts for the preferred
shares. At October 31, 1996, the accretion created a charge to paid in capital
of $365,000 and a charge to non-redeemable preferred stock of $197,678.
Carry Amounts
and
Accretion for the
For the Year Ended Redemption
Number of Shares October 31, 1996 Amount
---------------- ---------------- ----------
Series A 115,000 $ 24,439 $ 25,000
Series B 120,000 538,239 600,000
------- -------- --------
235,000 $562,678 $625,000
======= ======== ========
F-15
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
OCTOBER 31, 1996
12. Redeemable and Non-redeemable Preferred Convertible Preferred
Stock--(continued)
The maturity schedule of the redemptions is as follows:
Year Ended October 31, Amount
---------------------- ------
1997 $325,000
1999 300,000
--------
625,000
Less unrecognized accretion 62,322
--------
Carrying amount at October 31, 1996 $562,678
========
The unrecognized accretion will be recorded over the period to anticipated
redemption using the interest method.
Series C Preferred Stock:
The Company has also issued a total of 982,503 shares of Series C Non-redeemable
Convertible Preferred stock in a series of transactions. The Certificate of
Designation for this series provides that the Company may, at its sole option,
redeem all or part of the stock for $5.00 a share, subject to the holder's
election to convert the shares into an equal number of common shares of the
Company. The shares have no conditions under which the Company must redeem all
or portion of theses shares.
As discussed in Note 13, Related Party Transactions, the Company agreed to a
voluntary redemption of 416,997 shares of this stock during the six months ended
April 30, 1996. The Company does not intend to voluntarily redeem any additional
shares of non-redeemable preferred stock.
13. Related Party Transactions:
As described above, during the year the Company voluntarily redeemed 416,997
shares of Series C Preferred Stock. Of this total 401,997 shares were redeemed
from an affiliate, Blue Chip Computerware, Inc., for consideration of $1.00 per
share, equivalent to the price Blue Chip paid to acquire the shares. This was
done in connection with the financial reorganization of Blue Chip. As of October
31, 1996, the Company had borrowed $147,899 from an officer of the Company. See
Note 6.
14. Stock Options:
The Company has granted options to purchase 120,000 shares of the Company's
common stock, consisting of 40,000 options granted to a key vendor, 25,000
options granted to a director, 5,000 options granted to a customer and 50,000
options granted to the Company's Chief Financial Officer. The options are
exercisable at prices ranging from $1.00 to $2.00 per share and expire five
years after they were issued on dates ranging from January 31, 2000 through
January 31, 2001.
F-16
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
OCTOBER 31, 1996
14. Stock Options--(continued)
The options are exercisable at any time during the period they are outstanding.
The following summarized the activity during the periods presented.
Option Price
Shares Per Share
------ ---------
Options outstanding at February 1, 1995 None
Granted 40,000 $1.00
-------
Options outstanding at October 31, 1995 40,000 $1.00
Granted 80,000 $2.00
-------
Options outstanding at October 31, 1995 120,000 $1.00 to $2.00
=======
15. Supplemental Cash Flow Information:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Interest paid $32,648 $21,078
Income taxes paid -- --
Non-cash investing and financing activities:
Exchange of common stock for capital
assets $410,000 $ --
Sale of market area for note 209,289 52,870
Exchange of accounts receivable for note
payable -- 50,000
Issuance of preferred stock for debt -- 23,500
</TABLE>
16. Commitments and Contingencies:
(a) Sammy's franchising fees --
During the first sixty months after the Sammy's acquisition, the former
shareholders of the sellers are entitled to receive monthly payments equal to
10% of the single unit franchising fees paid to the Company, and during the
first twelve months after the acquisition and 20% of the fees collected on
international licensing or franchising. At October 31, 1996 there was no
outstanding liability under this provision.
(b) Leases --
The Company rents real and personal property under various non-cancelable leases
expiring at various dates through 2005. Certain of the leases include renewal
options and provisions for additional rental payments based on various formulas
such as cost of living adjustments, real estate tax and operating expense
escalations and escalations based on gross revenues. Total rent expense charged
to operations approximated $277,000 and $166,000 for the year end nine months
ended October 31, 1996 and 1995, respectively. These amounts included contingent
rental expense of approximately $21,000 and $7,000, respectively.
F-17
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
OCTOBER 31, 1996
(b) Leases--(continued)
Minimum annual rental commitments under leases in effect at October 31, 1996 are
summarized as follows:
Equipment
Year Ended October 31, Real Estate & Other
---------------------- ----------- -------
1997 $213,000 $18,000
1998 198,000 4,000
1999 197,000 --
2000 165,000 --
2001 155,000 --
Later years 550,000 --
---------- -------
Total minimum lease payments $1,478,000 $22,000
========== =======
16. Commitments and Contingencies --(continued)
(c) Employment Agreements --
The Company entered into employment contracts with the three principal former
shareholders of Sammy's as part of the acquisition. The employment contracts
provide for annual salaries through December 31, 1996 and include non-compete
covenants through December 31, 1998. The Company's aggregate obligation for
future payments under these agreements was $35,000 at October 31, 1996.
The total compensation expense under these agreements for the year ended October
31, 1996 and for the nine months ended October 31, 1995 was $224,341 and
$170,352, respectively, and such amounts have been reflected as Settlement Costs
- - Employment Contracts on the accompanying Statement of Operations.
(d) Contingencies --
Form time to time the Company is involved in litigation arising in the ordinary
course of its business. The Company is not currently engaged in any legal
proceedings which are expected, individually or in the aggregate, to have a
material adverse effect on the accompanying financial statements.
17. Private Placements:
During the year ended October 31, 1996, the Company completed private placements
(the "Private Placements") of its common stock pursuant to which it received an
aggregate of $2,413,986, net of expenses of $48,514. Included in the proceeds
was property consisting of two retail bagel stores in the final stages of
construction, valued at $410,000.
F-18
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
OCTOBER 31, 1996
18. Subsequent Events:
Reverse Stock Split --
As of December 5, 1996, the Company effected a one-for-two reverse split of the
Company's Common Stock, completion of which is a condition to the closing of the
Offering. As a consequence of the reverse stock split and certain related
adjustments, each share of Series A Preferred Stock and Series B Preferred Stock
remains convertible on a one-for-one basis and each share of Series C Preferred
Stock is convertible into one-half share of Common Stock. These financial
statements, including the notes thereto, give effect to this reverse stock
split.
Initial Public Offering --
On December 17, 1996, the Company completed a public offering of 1,100,000
shares of the Company's common stock for a public offering price of $3.50 per
share or an aggregate of $3,850,000. In January of 1997, the Company sold an
additional 165,000 shares on the same terms upon exercise of the underwriter's
overallotment option, for an aggregate of $577,500. Costs associated with this
offering totaled approximately $1,090,000.
The Company also sold to the Underwriter, for nominal consideration, warrants to
purchase 110,000 shares of the Company's common stock. These warrants have not
been exercised and expire in 2001.
Lease Obligation --
In December 1996, the Company entered into a ten year lease for 20,000 square
feet of combined office and manufacturing space. The Company intends to relocate
its executive offices and bagel producing commissary to this new facility on
April 1, 1997.
F-19
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
July 31, July 31,
----------- -----------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 458,384 $ 185,585
Accounts receivable, net of allowances for possible losses of $12,000
and $12,000 respectively 354,846 71,885
Notes receivable, current portion 153,215 89,722
Notes receivable - officer 97,000 --
Inventories 119,788 138,228
Deferred interest and financing costs 360,811 --
Prepaid expenses 468,896 234,387
----------- -----------
Total Current Assets 2,012,940 719,807
Property, Plant and Equipment, at cost less accumulated depreciation
and amortization of $323,754 and $227,745 respectively 1,290,018 927,434
Intangible Assets, net of accumulated amortization of $541,761 and $203,380 respectively 335,445 299,584
Security Deposits 94,479 31,148
Notes receivable - long-term 106,119 177,282
----------- -----------
Total Assets $ 3,839,001 $ 2,155,255
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable $ -- $ --
Accounts payable and accrued expenses 1,043,459 791,437
Capitalized lease obligations - current maturities 27,059 71,814
Loans from stockholders - current maturities 4,703 12,386
Current maturities of long-term debt 160,782 3,255
Deferred franchising revenue, current portion 173,215 114,722
----------- -----------
Total Current Liabilities 1,409,218 993,614
Capitalized Lease Obligations 4,753 33,304
Loans from stockholders 2,431 6,810
Convertible debentures 900,000 --
Long-term debt 152,704 --
Deferred franchising revenue 106,119 177,282
----------- -----------
Total Liabilities 2,575,225 1,211,010
----------- -----------
Commitments and contingencies
Redeemable preferred stock, no par value, Series A, 0 and 40,000 shares issued
and outstanding respectively, Series B, 60,000 and 120,000 shares
issued and outstanding respectively, Redemption value of $300,000 at
July 31, 1997 262,022 714,426
----------- -----------
Stockholders' Equity (Deficit):
Non-redeemable convertible preferred stock, no par value, Series A, 190,000 shares
authorized, 10,000 and 150,000 shares issued and outstanding respectively, Series B,
180,000 shares authorized 60,000 shares issued and outstanding, Series C,
1,600,000 shares authorized, 982,503 shares issued and outstanding 495,532 386,157
Common stock, no par value, 20,000,000 shares authorized, 3,735,161 and
1,867,661 shares issued and outstanding respectively 7,577,281 3,360,136
Accumulated deficit (7,071,059) (3,516,474)
----------- -----------
1,001,754 229,819
----------- -----------
Total Liabilities and Stockholders' Equity (Deficit) $ 3,839,001 $ 2,155,255
=========== ===========
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-20
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Store sales $ 460,456 $ 382,409 $ 1,180,635 $ 1,028,726
Franchising revenue 33,159 41,584 432,560 237,223
Equipment and product sales 124,808 149,593 481,251 446,592
----------- ----------- ----------- -----------
618,423 573,586 2,094,446 1,712,541
----------- ----------- ----------- -----------
Operating expenses:
Cost of Sales - equipment and product costs and
store operations, exclusive of depreciation and amortization 469,887 358,814 1,320,774 1,094,082
Cost of Sales - franchising activities, exclusive of
depreciation and amortization -- -- 190,473 --
Selling, general and administrative expenses 1,245,910 541,702 2,835,323 1,435,132
Loss on disposal of equipment 72,399 -- 72,399 --
Depreciation and amortization 92,145 63,521 241,086 190,113
Settlement Costs - Employment Contracts -- 56,784 47,010 170,352
----------- ----------- ----------- -----------
1,880,341 1,020,821 4,707,065 2,889,679
----------- ----------- ----------- -----------
Operating loss ######## (447,235) (2,612,619) (1,177,138)
Interest expense 154,693 4,382 172,945 27,433
----------- ----------- ----------- -----------
Net loss ######## ($ 451,617) ($2,785,564) ($1,204,571)
=========== =========== =========== ===========
Adjusted net loss for net loss per common share calculation:
Net loss ######## ($ 451,617) ($2,785,564) ($1,204,571)
Increase in carrying amount of redeemable preferred stock (10,392) (6,886) (42,373) (714,426)
----------- ----------- ----------- -----------
Net loss attributable to common stock ######## ($ 458,503) ($2,827,937) ($1,918,997)
=========== =========== =========== ===========
Shares outstanding:
Weighted average number of common shares outstanding 3,554,392 943,150 3,091,402 943,150
Additional shares -- 430,558 -- 430,558
----------- ----------- ----------- -----------
Adjusted shares outstanding 3,554,392 1,373,708 3,091,402 1,373,708
=========== =========== =========== ===========
Net loss per common share ($0.40) ($0.33) ($0.91) ($1.40)
=========== =========== =========== ===========
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-21
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ($2,785,564) ($1,204,571)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 241,086 190,113
Common stock issued for services 221,261 --
Loss on disposal of equipment 72,397 --
Amortization of discount on issuance of convertible debentures 109,825 --
Decrease (increase) in:
Accounts receivable (217,570) 65,262
Inventories (53,208) 26,164
Notes receivable - officer (97,000) --
Deferred interest and financing costs (84,922) --
Prepaid expenses 247,049 (81,249)
Security deposits (63,331) (200)
Increase (decrease) in:
Accounts payable and accrued expenses (351,913) (202,355)
Deferred franchising revenue (72,500) (26,200)
----------- -----------
Total adjustments (48,826) (28,465)
----------- -----------
Net cash (used in) operating activities (2,834,390) (1,233,036)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (227,129) (33,109)
Business acquired, net of cash received (62,349) --
----------- -----------
Net cash (used in) investing activities (289,478) (33,109)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 3,235,337 2,003,986
Proceeds from issuance of convertible debentures 900,000 --
Proceeds from issuance of preferred stock -- 200,000
Redemption of preferred stock (343,029) (416,997)
Payments of notes payable (194,899) --
Payments of capitalized lease obligations (69,005) (37,845)
Payments of loans from stockholders (13,047) (25,781)
Payments of current maturities of long-term debt (17,407) (2,885)
----------- -----------
Net cash provided by financing activities 3,497,950 1,720,478
----------- -----------
Net increase in cash 374,082 454,333
Cash - beginning of period 84,302 53,703
----------- -----------
Cash - end of period $ 458,384 $ 508,036
=========== ===========
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-22
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JULY 31, 1997
(Unuadited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------- ---------------------- Accumulated
Shares Amount Shares Amount Deficit Total
--------- ---------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1996: 1,867,661 $3,360,136 1,117,503 $537,905 ($4,285,495) ($ 387,454)
Common stock issuance - Initial public
offering 1,265,000 3,235,337 -- -- -- 3,235,337
Common stock issuance - acquisition
of business 25,000 53,906 -- -- -- 53,906
Conversion of preferred stock to common
stock 65,000 -- (65,000) -- -- --
Increase in carrying amount of redeemable
preferred stock -- -- (42,373) -- (42,373)
Common stock issuance for services 500,000 529,688 -- -- -- 529,688
Common stock issued for property 12,500 12,500 -- -- -- 12,500
Convertible debenture discount -- 385,714 -- -- -- 385,714
Net Loss -- -- -- -- (2,785,564) (2,785,564)
--------- ---------- ---------- -------- ----------- -----------
Balance at July 31, 1997 3,735,161 $7,577,281 1,052,503 $495,532 ($7,071,059) $ 1,001,754
========= ========== ========== ======== =========== ===========
</TABLE>
The Accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-23
<PAGE>
ALL AMERICAN FOOD GROUP, INC. & AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(1) GENERAL
The Company was formed in September 1993 under the name Jutland Food
Group, Inc., for the purpose of establishing a chain of franchised bagel stores.
In October 1993, the Company acquired substantially all of the assets of Howberg
Bakery Equipment Co., Inc., Bagels of New Milford, Inc. and Goldberg's Famous
Bagels of Orangeburg, Inc. The assets acquired consisted of a bagel equipment
business and two retail bagel stores. On September 29, 1994, the Company
acquired all of the outstanding stock of four interrelated corporations all
conducting business under the tradename "Sammy's New York Bagels," The
acquisition consisted of three certified kosher retail bagel stores and a bagel
production facility, all operating under rabbinical supervision. Effective
October 31, 1995 the company changed its fiscal year to October 31st. The
Company changed its name to All American Food Group, Inc. on October 24, 1995.
The Company is principally engaged in the development of a retail chain
of franchised bagel stores, including the operation of a certain number of
Company-owned stores for training, marketing and promotional activities, and the
distribution of bagel bakery equipment and related products to the franchise
system. The Company markets both single unit and market development franchise
agreements. The Company, in the normal course of business, also markets stores
it acquires to individuals who operate as franchisees. The Company franchises
its concepts under the names "Goldberg's New York Bagels" and "Sammy's New York
Bagels."
On December 17, 1996 the Company completed an initial public offering
of 1,100,000 shares of its Common Stock at a price to the public of $3.50 per
share, yielding net proceeds to the Company of $2,752,000. On January 9, 1997
the underwriters of the initial public offering exercised their over-allotment
option by purchasing an additional 165,000 shares at a price of $3.50 per share
yielding net proceeds to the Company of $483,000.
(2) BASIS OF PRESENTATION
The consolidated financial statements have been prepared by All
American Food Group, Inc. (the "Company") and are unaudited. The financial
statements have been prepared in accordance with SEC requirements and, therefore
do not necessarily include all information and footnotes required by generally
accepted accounting principles. In the opinion of the Company, all adjustments
(all of which were of a normal recurring nature) necessary to present fairly the
Company's financial position, results of operations and cash flows as of July
31, 1997 and for all periods presented have been made. A description of the
Company's accounting policies and other financial information is included in its
October 31, 1996 audited financial statements filed on Form 10-K. The
consolidated results of operations for the quarter and nine month periods ended
July 31, 1997 are not necessarily indicative of the results expected for the
full year.
F-24
<PAGE>
ALL AMERICAN FOOD GROUP, INC. & AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(3) NET LOSS PER COMMON SHARE
Net loss per common share was determined by dividing net loss, as
adjusted, by the weighted average number of common shares outstanding, as
adjusted. The net loss for each period ended July 31, 1997 was adjusted by the
increase in the carrying amount of redeemable preferred stock. The weighted
average number of common shares outstanding was adjusted by an increase of
430,558 shares for the three and nine months periods ended July 31, 1996. These
additional shares represent the number of shares and options issued within the
twelve months prior to May 3, 1996, when the Company filed a registration
statement for an initial public offering (IPO), that were issued for
consideration per share or at an exercise price per share less than the
anticipated IPO price of $3.50 per share. The treasury stock method was used to
determine the net increase in the number of shares outstanding. No adjustment
for these additional shares has been made in calculating the weighted average
number of common shares outstanding for the three and nine month periods ended
July 31, 1997.
(4) ACQUISITION
On March 17, 1997, the Company completed the acquisition of
substantially all of the assets of Bagel Connection, Inc., a private company
consisting of one company-owned and three franchised bagel stores operating
under the name Bagel Connection. The purchase price was 25,000 shares of Common
Stock and the assumption of approximately $379,000 of debt and was treated as a
purchase for accounting purposes.
(5) CONVERTIBLE DEBENTURES
During July 1997 the Company sold $900,000 of Convertible Debentures.
The debentures are due in July 2000, bear interest at the rate of 5% and are
payable at the Company's option in cash or common stock. The debentures are
convertible into shares of the Company's common stock at a price which is the
lesser of a 15% discount of the five day average closing price of the Company's
common stock prior to the date of funding or a 30% discount of the five day
average closing price of the Company's common stock prior to the date of
conversion. The discount based on the value of the common stock into which it is
converted, has been computed as of the funding dates and charged to paid in
capital and is being amortized using the interest method over the 41 day periods
which represents the first dates the debentures are convertible. The offering
was made to "non-U.S. persons" as defined in Regulation S. The sale of these
debentures has resulted in a non-cash charge of $109,825 for the three and nine
months ended July 31, 1997. The charge equals the discount that would be
incurred if the debentures were converted on the date they were funded.
F-25
<PAGE>
ALL AMERICAN FOOD GROUP, INC. & AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JULY 31, 1997
(6) ISSUANCE OF COMMON STOCK
During the three months ended July 31, 1997 the Company entered into a
series of consulting contracts relating to investment banking services,
financial public relations and franchisee advertising in payment of which the
Company issued a total of 500,000 shares of common stock pursuant to a
Registration Statement on Form S-8.
(7) SUBSEQUENT EVENTS
(a) Conversion of Convertible Debenture - On August 25, 1997 convertible
debentures in the amount of $250,000 were converted into 322,322 shares of
common stock.
(b) In August 1997 the Company issued 400,000 shares in accordance with two
consulting plans providing services in the design and implementation of the
Company's bagel production and distribution facility services in respect of the
identification and evaluation of potential acquisition candidates. These shares
of common stock were issued pursuant to a Registration Statement on Form S-8.
(c) On September 16, 1997, the Company completed a private placement of an issue
of 6% Convertible Debentures in the total amount of $2,600,000, payable in two
tranches. The first tranche of $1,300,000 was paid on September 16, 1997. The
terms of the Convertible Debentures provide for an annual interest rate of 6%
payable quarterly, provide for conversion into shares of common stock at the
option of the holder at the price of $2.19 per share, and include an obligation
on the part of the Company to file a Form SB-2 Registration Statement for the
shares underlying the Convertible Debentures. The effectiveness of this
Registration Statement is a prerequisite before the funding of the second
tranche of $1,300,000.
(6) ACQUISITION
On September 23, 1997, the Company acquired a six store retail bagel
chain located in St. Petersburg, Florida, four of which will be Company-owned
and the balance are intended to be franchised units. The purchase price
consisted of the issuance of 479,800 shares of restricted common stock and
$200,000 of cash.
F-26
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy, by any
person in any jurisdiction in which it is unlawful for such person to make such
offer or solicitation. Neither the delivery of this Prospectus nor any offer,
solicitation or sale made hereunder shall, under any circumstances create any
implication that the information herein is correct as of any time subsequent to
the date of the Prospectus.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 5
The Offering........................ 6
Current Financing................... 7
Summary of Financial Data........... 7
Risk Factors........................ 9
Common Stock........................ 15
Registration Rights................. 15
Use of Proceeds from Sale of
Debentures and Preferred Shares... 16
Selling Securityholders and Plan
of Distribution................... 16
Capitalization...................... 17
Dividend Policy..................... 18
Selected Financial Data............. 19
Management's Discussion and
Analysis or Plan of Operation..... 20
Business............................ 24
Management.......................... 40
Certain Transactions................ 45
Principal Shareholders.............. 45
Description of Securities........... 47
Shares Eligible for Future Sale..... 49
Legal Matters....................... 50
Experts............................. 50
Additional Information.............. 50
Index to Financial Statements....... F-1
</TABLE>
---------------
Until December 29, 1997 (25 days after the date of this Prospectus),
all dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
ALL AMERICAN FOOD GROUP, INC.
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 14A:3-5 of the New Jersey Business Corporation Act (the
"NJBCA") gives the Company power to indemnify each of its directors and officers
against expenses and liabilities in connection with any proceedings involving
him by reason of his being or having been a director or officer if (a) he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Company and (b) with respect to any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful.
However, in a proceeding by or in the right of the Company, there shall be no
indemnification in respect of any liabilities or expenses if the officer or
director shall have been adjudged liable to the Company unless the court in such
proceeding determines he is entitled to indemnification for such liabilities
and/or expenses. Furthermore, no indemnification shall be made to or on behalf
of a director or officer if a judgment or other final adjudication adverse to
such director or officer establishes that his acts or omissions (a) were in
breach of his duty of loyalty to the Company and its stockholders, (b) were not
in good faith or involved a knowing violation of law or (c) resulted in receipt
by the director or officer of an improper personal benefit. The NJBCA defines an
act or omission in breach of a person's duty of loyalty as an act or omission
which that person knows or believes to be contrary to the best interests of the
Company or its stockholders in connection with a matter in which he has a
material conflict of interest. If a director or officer is successful in a
proceeding, the statute mandates that the Company indemnify him against
expenses.
The Company's Restated Certificate of Incorporation, as permitted by
New Jersey law, eliminates the personal liability of the directors and officers
to the Company or its shareholders for monetary damages for breaches of such
director's or officer's duty of care or other duties as a director or officer;
except liabilities for any breach of duty based upon an act or omission (a) in
breach of such person's duty of loyalty to the corporation or its shareholders,
(b) not in good faith or involving a knowing violation of law or (c) resulting
in receipt by such person of an improper personal benefit. This limitation on
liability could have the effect of limiting directors' and officers' liability
for violations of the federal securities laws. In addition, the Company's
Restated Certificate of Incorporation and Restated By-Laws provide broad
indemnification rights to directors and officers so long as the director or
officer acted in a manner believed in good faith to be in or not opposed to the
best interest of the Company and with respect to criminal proceedings if the
director had no reasonable cause to believe his or her conduct was unlawful. The
Company believes that the protection provided by these provisions will help the
Company attract and retain qualified individuals to service as officers and
directors. These provisions would provide indemnification for liabilities
arising under the federal securities laws to the extent that such
indemnification is found to be enforceable under, and to be in accordance with,
applicable law and generally will limit the remedies available to a shareholder
who is dissatisfied with a Board decision protected by these provisions, and
such shareholder's only remedy may be to bring a suit to prevent the Board's
action.
Item 25. Other Expenses of Issuance and Distribution.
The following expenses will be incurred in connection with the proposed
offering hereunder. All of such expenses will be borne by the Company. With the
exception of the registration and listing fees, all amounts shown are estimates:
II-1
<PAGE>
SEC registration fees........................ $ 2,947.17
NASD listing fee............................. 7,500.00
Printing..................................... 20,000.00
Legal fees and expenses...................... 20,000.00
Accounting fees and expenses................. 7,500.00
Miscellaneous................................ 2,052.83
----------
Total........................................ $60,000.00
==========
Item 26. Recent Sales of Unregistered Securities.
The following sets forth certain information regarding sales of, and other
transactions with respect to, securities of the Company issued within the past
three years, which sales and other transactions were not registered pursuant to
the Securities Act of 1933, as amended (the "Securities Act"). All of such sales
and transactions were exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or as otherwise indicated
herein.
In September 1994 and October 1995, the Company issued 120,000 and
70,000 shares, respectively, of Series A Partially Redeemable Convertible
Preferred Stock to Howard Goldberg in connection with the Company's acquisition
of the assets of the Goldberg Companies and as part of the reconciliation of all
outstanding indebtedness and other obligations incurred in connection therewith.
In September 1994, as part of the consideration for the acquisition of
four corporations conducting business as "Sammy's New York Bagels," the Company
issued an aggregate of 180,000 shares of Series B Redeemable Convertible
Preferred Stock to the shareholders of the acquired corporations. Each share of
Preferred Stock currently is convertible into one share of Common Stock.
Effective February 1, 1995, the Company issued 825,000 shares of Series
C Convertible Preferred Stock to Blue Chip in exchange for 412,500 shares of
Common Stock held by Blue Chip. During the nine months ended October 31, 1995,
Blue Chip purchased 425,000 shares of Series C Convertible Preferred Stock at a
price of $1.00 per share. During the three-month period ended January 31, 1996,
Blue Chip purchased an additional 50,000 shares of Series C Convertible
Preferred Stock at the price of $1.00 per share.
In April 1995, Andrew Thorburn, the President of the Company purchased
70,000 shares of Series C Preferred Stock at a price of $1.00 per share.
On August 4 and December 4, 1995, the Company sold 21,500 and 25,000
shares, respectively, of Series C Preferred Stock to an unaffiliated investor at
a price of $1.00 per share.
On October 31, 1995, the Company issued 2,500 shares of Common Stock to
an employee in lieu of compensation in the amount of $1,750.
December 4, 1995, the Company sold 25,000 shares of Series C Preferred
Stock to an unaffiliated investor at a price of $1.00 per share.
Between January 24, 1996 and April 29, 1996, the Company sold an
aggregate of 886,951 shares of Common Stock in two separate private placements
at a purchase price of either $2.00 or $4.00 per share. In connection with the
private placements, the Company has received $2,414,000 (net of expenses of
$48,000) including cash and other consideration valued at $410,000 which was
accepted in the form of two retail bagel stores in the final stages of
construction.
Pursuant to an agreement to which the Company and the principal
shareholders of the corporation (the "Bleecker Corporation") that owned the
Goldberg's store on Bleecker Street in New York, New York were parties, and an
agreement between the Company and the corporation (the "Nanuet Corporation")
that owned the Goldberg's store in Nanuet, New York, the Company initially
agreed to issue a total of 60,000 shares of its Common Stock to such principal
shareholders of the Bleecker Corporation and a total of
II-2
<PAGE>
42,501 shares of its Common Stock to the Nanuet Corporation. At the request of
these holders, stock certificates representing an aggregate of 102,501 shares
were issued to the shareholders in the Bleecker Corporation and/or the Nanuet
Corporation.
In April 1997, the Company issued 10,000 shares of common stock to
Terry Schiffern in exchange for certain office furniture.
In April 1997, the Company issued 12,500 shares of common stock to Gary
Lengel and 12,500 shares of common stock to Jack Lengel in connection with the
Company's purchase of the Connecticut-based retail bagel store chain known as
The Bagel Connection.
In July-August 1997 the Company sold $950,000 of convertible debentures
to "non-U.S. persons" as defined in Regulation S. The debentures are due in July
2000, bear interest at the rate of 5% and are payable at the Company's option in
cash or common stock. The debentures were convertible into shares of the
Company's common stock at a price which is the lesser of a 15% discount of the
five day average closing price of the Company's common stock prior to the date
of funding or a 30% discount of the five day average closing price of the
Company's common stock prior to the date of conversion.
In September, 1997, the Company completed a private placement of an
issue of 6% Convertible Debentures in the total amount of $2,600,000, payable in
two tranches. The first tranche of $1,300,000 was paid on September 16, 1997.
The terms of the Convertible Debentures provide for an annual interest rate of
6% payable quarterly, provide for conversion into shares of common stock at the
option of the holder, and include an obligation on the part of the Company to
file a registration statement for the shares underlying the Convertible
Debentures. The effectiveness of this Registration Statement is a prerequisite
before the funding of the second tranche of $1,300,000.
In September 1997, the Company issued 191,823 shares of common stock to
Kurt Cuccaro and Mary Cuccaro, as tenants by the entireties, 239,900 shares of
its common stock to Kurt Cuccaro individually, and 48,077 shares of its common
stock to Cindy Richmond in connection with the Company's acquisition of the
Tampa, Florida-based retail bagel store chain known as St. Pete's Bagels.
In December, 1997, the Company completed a private placement of an
issue of Series D Preferred Stock in the total amount of $300,000. The terms of
the Preferred Shares provide for an annual dividend of 8%, provide for
conversion into shares of Common Stock at the option of the holder and include
an obligation on the part of the Company to file a registration statement for
the shares underlying the Preferred Shares.
Item 27. Exhibits.
The following exhibits are filed as part of this Registration
Statement:
3.1 Second Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.3 of the Company's Registration
Statement on Form SB-2 (File No. 333-4490), as amended (the "Registration
Statement")).
3.2 Certificate of Designations for Series A, B & C Preferred Stock
(incorporated herein by reference to Exhibit 3.2 of the Registration Statement).
3.3 Second Amended and Restated By-Laws of the Company (incorporated
herein by reference to Exhibit 3.3 of the Company's Annual Report on Form 10-KSB
for the fiscal year ended October 31, 1996 (the "Form 10-KSB Report").
*3.4 Resolution Establishing Rights and Preferences for Class D
Convertible Preferred Stock and Warrants Comprising Units.
4.1 Form of Specimen of Common Stock Certificate (incorporated herein
by reference to Exhibit 4.1 of the Registration Statement).
4.2 Form of Specimen of Preferred Stock Certificate(incorporated herein
by reference to Exhibit 4.1 of the Registration Statement).
4.3 Form of Underwriter's Warrant Agreement (incorporated herein by
reference to Exhibit 4.2 of the Registration Statement).
**4.4 Form of 6% Debenture (see Annex I to Item 10.12).
**4.5 Form of Warrant to South Seas Import-Export Corp. (see Annex VI to
Item 10.12).
**4.6 Warrant Certificate issued to Trautman, Kramer & Company, Inc.
dated September 19, 1997.
**4.7 Warrant Certificate issued to Trautman, Kramer & Company, Inc.
dated September 19, 1997.
*4.8 Warrant Certificate issued to ProFutures Special Equities Fund,
L.P. dated December 4, 1997.
*5.1 Opinion of Counsel re: legality of securities being registered.
10.1 Form of Goldberg's Franchise Agreement (incorporated herein by
reference to Exhibit 10.1 of the Registration Statement).
10.2 Form of Sammy's Franchise Agreement (incorporated herein by
reference to Exhibit 10.2
II-3
<PAGE>
of the Registration Statement).
10.3 Agreement dated January 12, 1993 with Kof-K Kosher Supervision
(incorporated herein by reference to Exhibit 10.3 of the Registration
Statement).
10.4 All American Food Group, Inc. Amended and Restated Omnibus Stock
Plan (incorporated herein by reference to Exhibit 10.4 of the Registration
Statement).
10.5 Market Development Agreement covering the State of Arizona
(incorporated herein by reference to Exhibit 10.5 of the Registration
Statement).
10.6 Market Development Agreement covering the State of Ohio
(incorporated herein by reference to Exhibit 10.6 of the Registration
Statement).
10.7 Market Development Agreement, as amended, covering portions of the
State of New York (incorporated herein by reference to Exhibit 10.7 of the
Registration Statement).
10.8 Form of Market Development Agreement (incorporated herein by
reference to Exhibit 10.8 of the Registration Statement).
10.9 Modification and Settlement Agreement between the Company and
Howard Goldberg (incorporated herein by reference to Exhibit 10.9 of the
Registration Statement).
10.10 Form of Development Agreement (incorporated herein by reference
to Exhibit 10.10 of the Company's Form 10-KSB Report).
10.11 Abstract of lease entered into by the Company in December 1996
(incorporated herein by reference to Exhibit 10.11 of the Company's Form 10-KSB
Report).
**10.12 Securities Purchase Agreement, dated September 16, 1997, between
the Registrant and South Seas Import-Export Corp.
10.13 Agreement and Plan of Merger, dated September 19, 1997, between
All American Food Group, Inc,. St. Pete Bagels Acquisition Corp., Sam & Son,
Inc., Bagel Man, Inc. and St. Pete Bagel Co., Inc. (incorporated herein by
reference to Exhibit 2.1 of the Company's Current Report on Form 8-K dated
October 7, 1997).
*10.14 Subscription Agreement with ProFutures Special Equities Fund,
L.P.
**11 Earnings per Share Calculation.
**21.1 Subsidiaries of the Company.
**23.1 Consent of DelSanto & DeFreitas.
23.2 Consent of Counsel (included in their opinion filed as Exhibit
5.1).
**27.1 Financial Data Schedule.
- ----------
* Filed herewith.
** Previously filed.
Item 28. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sales
securities, a post-effective amendment to this Registration Statement
to;
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended (the
"Act");
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information in the Registration Statement;
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Act, to treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the
II-4
<PAGE>
initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission (the
"Commission") such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
The undersigned registrant hereby undertakes:
(1) For determining any liability under the Act, to treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant under Rule 424(b)(1), or
(4), or 497(h) under the Act as part of this Registration Statement as
of the time the Commission declared it effective.
(2) For determining any liability under the Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and the offering of the securities at that time as the
initial bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Fairfield, New Jersey, on this 4th day of December, 1997.
ALL AMERICAN FOOD GROUP, INC.
By: /s/ Andrew Thorburn
-----------------------------------------------
Andrew Thorburn
Chairman and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ ANDREW THORBURN Chairman of the Board of December 4, 1997
- ----------------------------- Directors, and
Andrew Thorburn Chief Executive Officer
/s/ ANTHONY FOSTER Director, President December 4, 1997
- -----------------------------
Anthony Foster
/s/ CHRIS R. DECKER Director, Executive Vice December 4, 1997
- ----------------------------- President and Chief
Chris R. Decker Financial Officer
(Principal Financial and
Accounting Officer)
/s/ JOHN CHITVANNI Director December 4, 1997
- -----------------------------
John Chitvanni
</TABLE>
II-6
<PAGE>
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the reference to our firm under the captions
"Experts" and to the use of our report dated February 7, 1997 relating to the
consolidated financial statements for the fiscal year ended October 31, 1996
and the nine month period ended October 31, 1995 on Form SB-2 of All American
Food Group, Inc. and Subsidiaries to be filed with the Securities and Exchange
Commissions on or about November 12, 1997, and the related prospectus contained
therein.
/s/ DELSANTO AND DEFREITAS
------------------------------------
DelSanto and DeFreitas
Closter, New Jersey
- -------------------
November 12, 1997
II-7
<PAGE>
SCHEDULE I
ALL AMERICAN FOOD GROUP, INC.
RESOLUTION ESTABLISHING RIGHTS AND PREFERENCES
FOR CLASS D CONVERTIBLE PREFERRED STOCK AND WARRANTS
COMPRISING UNITS
RESOLVED, that there shall be a series of shares of the Corporation
designated "Class D Convertible Preferred Stock"; that the number of shares of
such series shall be 500 and that the rights and preferences of such series (the
"8% Preferred") and the limitations or restrictions thereon, shall be as set
forth herein;
FURTHER RESOLVED, that there shall be a series of warrants of the
Corporation (the "Warrants"), that the number of warrants shall be 500 and that
the rights and preferences of such series and the limitations or restrictions
thereon shall be as set forth herein; and
FURTHER RESOLVED, that the Corporation issue Units of the Corporation
(the "Units"); that the number of Units shall be 500 and that each Unit shall be
comprised of one share of 8% Preferred and one Warrant.
The following shall be adopted and incorporated by reference into the
foregoing resolutions as if fully set forth therein:
1. Dividends.
(a) The holders of the 8% Preferred shall be entitled to receive out of
any assets legally available therefor cumulative dividends at the rate of $80
per share per annum, accrued daily and payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year in preference and priority to
any payment of any dividend on the Common Stock or any other class or series of
stock of the Corporation. Such dividends shall accrue on any given share from
the day of original issuance of such share and shall accrue from day to day
whether or not earned or declared. If at any time dividends on the outstanding
8% Preferred at the rate set forth above shall not have been paid or declared
and set apart for payment with respect to all preceding periods, the amount of
the deficiency shall be fully paid or declared and set apart for payment, but
without interest, before any distribution, whether by way of dividend or
otherwise, shall be declared or paid upon or set apart for the shares of any
other class or series of stock of the Corporation.
(b) Any dividend payable on a dividend payment date may be paid, at the
option of the Corporation, either (i) in cash or (ii) in shares of 8% Preferred
valued at $1,000 per share, if the Common Stock issuable upon conversion of such
shares has been registered for resale under the Securities Act of 1933, as
amended (the "Act"), and the registration statement including a current
prospectus with respect thereto remains in effect at the date of delivery of
such shares, and if the Corporation shall have given written notice of its
intention to pay such dividend in stock to all holders of the 8% Preferred at
least ten (10) days before the record date for such dividend.
2. Liquidation Preference; Redemption.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the 8% Preferred
shall be entitled to receive, prior and in preference to any distribution of any
assets of the Corporation to the holders of any other class or series of shares,
the amount of $1,000 per share plus any and all accrued but unpaid dividends
(the "Liquidation Preference").
(b) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation (other than a sale or transfer to a wholly-owned subsidiary
of the Corporation), shall, at the option of the holders of the 8% Preferred, be
deemed a liquidation, dissolution or winding up
1
<PAGE>
within the meaning of this Section 2 if the shares of stock of the Corporation
outstanding immediately prior to such transaction represent immediately after
such transaction less than a majority of the voting power of the surviving
corporation (or of the acquirer of the Corporation's assets in the case of a
sale of assets). Such option may be exercised by the vote or written consent of
holders of a majority of the 8% Preferred at any time within thirty (30) days
after written notice (which shall be given promptly) of the essential terms of
such transaction shall have been given to the holders of the 8% Preferred in the
manner provided by law for the giving of notice of meetings of shareholders.
(c) The Corporation, at its option, may cause all outstanding shares of
the 8% Preferred to be redeemed at any time beginning two (2) years after the
Closing Date, provided the Corporation has given notice of its intention to
redeem to the holders of the 8% Preferred at least twenty (20) days prior to the
redemption date. On the redemption date, the Corporation shall pay such holders
by cashier's check or wire transfer in immediately available funds the amount of
$1,350 per share, plus all accrued but unpaid dividends and any amounts and
warrants due under Section 1 hereof. Promptly thereafter, the holders shall
surrender the certificate or certificates representing the 8% Preferred, duly
endorsed, at the office of the Corporation or of any transfer agent for such
shares, or at such other place designated by the Corporation.
3. 8% Preferred - Optional Conversion. The holders of the 8% Preferred
shall have optional conversion rights as follows:
(a) Right to Convert. Shares of 8% Preferred shall be convertible, at
the option of the holder thereof, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (x) the
Liquidation Preference of the 8% Preferred determined pursuant to Section 2
hereof on the date the notice of conversion is given, by (y) the Conversion
Price determined as hereinafter provided in effect on the applicable conversion
date.
(b) Mechanics of Conversion. To convert shares of 8% Preferred into
shares of Common Stock under Section 3(a), the holder shall give written notice
to the Corporation (which notice may be given by facsimile transmission) that
such holder elects (with the right to revoke) to convert the shares and shall
state therein date of the conversion, the number of shares to be converted and
the name or names in which such holder wishes the certificate or certificates
for shares of Common Stock to be issued. Promptly thereafter, the holder shall
surrender the certificate or certificates representing the shares to be
converted, duly endorsed, at the office of the Corporation or of any transfer
agent for such shares, or at such other place designated by the Corporation;
provided, that the holder shall not be required to deliver the certificates
representing such shares if the holder is waiting to receive all or part of such
certificates from the Corporation. The Corporation shall immediately issue and
deliver to or upon the order of such holder, against delivery of the
certificates representing the shares which have been converted, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled. The Corporation shall cause such issuance to be effected within
five (5) business days and shall transmit the certificates by messenger or
overnight delivery service to reach the address designated by such holder within
five (5) business days after the receipt of such notice. The notice of
conversion may be given by a holder at any time during the day up to 5:00 p.m.
South Plainfield, New Jersey time and such conversion shall be deemed to have
been made immediately prior to the close of business on the date such notice of
conversion is given. The person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock at the close of
business on such date.
(c) Conversion Required. The Corporation acknowledges and understands
that a delay in the issuance of the Common Stock pursuant to the provisions
hereof could result in economic loss to the holders of the 8% Preferred and
Warrants. As compensation to any holder when the Corporation has failed with
respect to such holder to comply with the Corporation's obligations under this
Section, and not as a penalty, the Corporation shall pay to such holder
liquidated damages of $500 per day plus an amount equal to two percent (2%) of
the total Purchase Price of Units for the first thirty (30) day period after the
date on which the Common Stock should have been issued by the Corporation (i.e.,
the end of the three (3) business day period described in Subsection (b)), plus
amount equal to three percent (3%) of the total Purchase Price of Units for each
subsequent thirty (30) day period thereafter. Amounts payable shall be pro-rated
daily as to a periods of less than thirty (30) days. Such amounts shall be paid
to the holder immediately by cashier's check or wire transfer in immediately
available funds to such account as shall be designated in writing by the holder.
2
<PAGE>
(d) Determination of Conversion Price.
(i) The "Conversion Price" shall be equal to eighty percent
(80%) of the average of the closing bid prices of the Common Stock as reported
by NASDAQ during the five (5) consecutive trading days preceding the conversion
date (but not including such date).
(ii) The "closing bid price" of the Common Stock on a trading
day shall be the closing bid price of the Common Stock on NASDAQ or any other
principal securities price quotation system or market on which prices of the
Common Stock are reported. The term "trading day" means a day on which trading
is reported on the principal quotation system or market on which prices of the
Common Stock are reported.
(iii) If, during the period of consecutive trading days
provided for above, the Corporation shall declare or pay any dividend on the
Common Stock payable in Common Stock or in rights to acquire Common Stock, or
shall effect a stock split or reverse stock split, or a combination,
consolidation or reclassification of the Common Stock, the Conversion Price
shall be proportionately decreased or increased, as appropriate, to give effect
to such event.
(e) Distributions. If the Corporation shall at any time or from time to
time make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation or any of its subsidiaries other than additional
shares of Common Stock, then in each such event provision shall be made so that
the holders of 8% Preferred shall receive, upon the conversion thereof, the
securities of the Corporation which they would have received had they been the
owners on the date of such event of the number of shares of Common Stock
issuable to them upon conversion.
(f) Certificates as to Adjustments. Upon the occurrence of any
adjustment or readjustment of the Conversion Price pursuant to this Section 3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and cause the independent
public accountants regularly employed to audit the financial statements of the
Corporation to verify such computation and prepare and furnish to each holder of
8% Preferred a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the reasonable written request at any time of any
holder of 8% Preferred, furnish or cause to be furnished to such holder a like
certificate prepared by the Corporation setting forth (i) such adjustments and
readjustments, and (ii) the number of other securities and the amount, if any,
of other property which at the time would be received upon the conversion of 8%
Preferred with respect to each share of Common Stock received upon such
conversion.
(g) Notice of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive additional
shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, the Corporation shall mail to each holder of 8%
Preferred at least ten (10) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution, security or right and the amount and character of
such dividend, distribution, security or right.
(h) Issue Taxes. The Corporation shall pay any and all issue and other
taxes, excluding any income, franchise or similar taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
shares of 8% Preferred pursuant hereto; provided, however, that the Corporation
shall not be obligated to pay any transfer taxes resulting from any transfer
requested by any holder in connection with any such conversion.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the 8% Preferred, such number of its shares of Common Stock as
shall from time to time be sufficient to
3
<PAGE>
effect the conversion of all outstanding shares of the 8% Preferred, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the 8%
Preferred, the Corporation will take such corporate action as may be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose, including, without limitation,
engaging in best efforts to obtain any requisite shareholder approval.
(j) Fractional Shares. No fractional shares shall be issued upon the
conversion of any share or shares of 8% Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
8% Preferred by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional share. If,
after the aforementioned aggregation, the conversion would result in the
issuance of a fraction of a share of Common Stock, the Corporation shall, in
lieu of issuing any fractional share, pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value of such fraction on the
date of conversion (as determined in good faith by the Board of Directors of the
Corporation or an authorized Committee thereof).
(k) Notices. Any notice required by the provisions of this Section to
be given to the holders of shares of 8% Preferred shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at its address appearing on the books of the Corporation.
(l) Reorganization or Merger. In case of any reorganization or any
reclassification of the capital stock of the Corporation or any consolidation or
merger of the Corporation with or into any other corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person (other than a sale or transfer to a wholly-owned subsidiary of the
Corporation), and the holders of 8% Preferred do not elect to treat such
transaction as a liquidation, dissolution or winding up as provided in Section 2
hereof, then, as part of such reorganization, consolidation, merger or sale,
provision shall be made so that each share of 8% Preferred shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of 8% Preferred would have been
entitled upon the record date of (or date of, if no record date is fixed) such
event and, in any case, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of the 8%
Preferred, to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as equivalent as is practicable, in relation to any shares
of stock or the securities or property (including cash) thereafter deliverable
upon the conversion of the shares of 8% Preferred.
4. Warrants - Optional Conversion. Each Warrant shall be convertible,
at the option of the holder thereof, into three hundred fifty (350) shares of
Common Stock at a price per share equal to one hundred ten percent (110%) of the
closing bid price of the Common Stock as reported by NASDAQ on the Closing Date
(the "Warrant Conversion Price"). Such right to convert Warrants shall expire at
midnight of the five (5) year period following the date of issuance of such
Warrants. The Warrant Agreement shall reflect the total number of warrants and
shares issued to each holder. Without limiting the applicability of other
provisions contained herein, the provisions of Section 3(c) hereof shall
specifically apply to the Warrants the same as such provisions apply to the 8%
Preferred. The standard terms of the Warrant Agreement shall include, without
limitation, a provision requiring the Warrant Conversion Price to be
proportionately decreased or increased, as appropriate, to give effect to such
events as the Corporation declaring or paying any dividend on the Common Stock
payable in Common Stock or in rights to acquire Common Stock, or effecting a
stock split or reverse stock split, or a combination, consolidation or
reclassification of the Common Stock.
5. Re-issuance of Certificates. In the event of a conversion (or, if
applicable, redemption) of 8% Preferred or Warrants in which less than all of
the shares of 8% Preferred or the Warrants of a particular certificate are
converted or redeemed, as the case may be, the Corporation shall promptly cause
to be issued and delivered to the holder of such certificate, a certificate
representing the remaining shares of 8% Preferred which have not been so
converted or redeemed.
6. Other Provisions. For all purposes of this Resolution, the term
"date of issuance" and the terms "Closing" or "Closing Date" shall mean the day
on which Units, comprised of shares of the 8% Preferred and Warrants, are first
4
<PAGE>
issued by the Corporation. Any provision herein which conflicts with or violates
any applicable usury law shall be deemed modified to the extent necessary to
avoid such conflict or violation. The term "NASDAQ" herein refers to the
principal market on which the Common Stock of the Corporation is traded. If the
Common Stock is listed on a securities exchange, or if another market becomes
the principal market on which the Common Stock is traded or through which price
quotations for the Common Stock are reported, the term "NASDAQ" shall be deemed
to refer to such exchange or other principal market.
7. Restrictions and Limitations. The Corporation shall not undertake
the following actions without the consent of the holders of a majority of the 8%
Preferred: (i) modify its Certificate of Incorporation or Bylaws so as to amend
or change any of the rights, preferences, or privileges of the 8% Preferred or
Warrants, (ii) authorize or issue any other preferred equity security senior to
or on a parity with the 8% Preferred as to dividends, liquidation preferences,
conversion rights, redemption rights or other rights, preferences or privileges
for a period of thirty (30) days after Closing, as applicable or (iii) purchase
or otherwise acquire for value any Common Stock or other equity security of the
Corporation either junior or senior to or on a parity with the 8% Preferred
while there exists any arrearage in the payment of cumulative dividends
hereunder.
8. Voting Rights. Except as provided herein or as provided for by law,
the 8% Preferred and Warrants shall have no voting rights.
9. Attorneys' Fees. Any holder of 8% Preferred or Warrants shall be
entitled to recover from the Corporation the reasonable attorneys' fees and
expenses incurred by such holder in connection with enforcement by such holder
of any obligation of the Corporation hereunder.
10. No Adverse Actions. The Corporation shall not in any manner,
whether by amendment of the Certificate of Incorporation (including, without
limitation, any Certificate of Designation), merger, reorganization,
re-capitalization, consolidation, sales of assets, sale of stock, tender offer,
dissolution or otherwise, take any action, or permit any action to be taken,
solely or primarily for the purpose of increasing the value of any class of
stock of the Corporation if the effect of such action is to reduce the value or
security of the 8% Preferred or Warrants.
5
<PAGE>
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE REOFFERED AND SOLD ONLY
IF SO REGISTERED OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH HEREIN.
EXERCISABLE AT ANY TIME UNTIL 5:00 P.M., NEW YORK CITY TIME, ON THE FIFTH
ANNIVERSARY OF THE EXPIRATION DATE OR, IF NOT A BUSINESS DAY, THE IMMEDIATELY
FOLLOWING BUSINESS DAY UNLESS EXTENDED PURSUANT TO THIS WARRANT CERTIFICATE.
No. 1
-
ALL AMERICAN FOOD GROUP, INC.
WARRANT CERTIFICATE
Warrant Certificate for One Warrant
to Purchase 175,000 shares of Common Stock
of All American Food Group, Inc.
This Warrant Certificate certifies that, for value received, Trautman
Kramer & Company, Inc., or registered assigns (the "Holder"), is the owner of
one Warrant (as defined below), which entitles the Holder to purchase at any
time from and after the date hereof and until 5:00 p.m., New York City time, on
the fifth anniversary of the issue date or, if not a business day, the
immediately following business day, at the purchase price equal to $1.875 (the
closing bid price of the Common Stock at the end of trading on September 19,
1997) (the "Exercise Price"), up to an aggregate of 175,000 shares of common
stock, par value $.01 per share (the "Common Stock"), of All American Food
Group, Inc., a New Jersey corporation (the "Company"). The number of shares
purchasable upon exercise of the Warrants and the Exercise Price shall be
subject to adjustment from time to time as herein provided. In this Warrant
Certificate, the right to purchase each share of Common Stock is referred to as
a "Warrant"; the shares of Common Stock or, pursuant to the
- -1-
<PAGE>
terms hereof, other securities, issuable upon exercise of the Warrants are
referred to as the "Warrant Shares."
The Warrants are subject to the following terms, conditions and
provisions:
SECTION 1. Registration; Transferability; Exchange of Warrant Certificate.
2
<PAGE>
1.1 Registration. The Company shall number and register each Warrant in
a register (the "Warrant Register") maintained at the office of the Company (the
"Office") as they are issued by the Company. The Company shall be entitled to
treat the Holder of any Warrant as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other person, and shall not be liable for any
registration of transfer of Warrants which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with knowledge of such facts that
its participation therein amounts to bad faith.
1.2 Transfer. Subject to compliance with the restrictions on transfer
set forth herein and in Section 3 hereof, the Warrants shall be transferable
only on the Warrant Register maintained at the Office upon delivery thereof duly
endorsed by the Holder or by his, her or its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. In all cases of transfer by an attorney, the original
power of attorney, duly approved, or a copy thereof, duly certified, shall be
deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and to remain with the Company in its discretion.
1.3 Exchange of Warrant Certificates. Subject to the provisions herein,
each Warrant Certificate may be exchanged for another Warrant Certificate(s)
entitling the Holder to purchase a like aggregate number of Warrant Shares as
this Warrant Certificate then entitles such Holder to purchase. If the Holder
desires to exchange this Warrant Certificate, it shall make such request in
writing and deliver it to the Company, and shall surrender, properly endorsed,
this Warrant Certificate. Thereupon, the Company shall sign and deliver to the
person entitled thereto a new Warrant Certificate as so requested.
SECTION 2. Terms of Warrants; Exercise of Warrants.
2.1 Terms of Warrants. Subject to the terms of this Warrant
Certificate, each Holder shall have the right, which may be exercised at any
time from the date hereof until 5:00 p.m., New York City
- -3-
<PAGE>
time, on the fifth anniversary of the issue date or, if not a business day, the
immediately preceding business day (the "Expiration Date") to purchase from the
Company (and the Company shall issue and sell to the Holder of the Warrant) up
to an aggregate of 175,000 fully paid and nonassessable Warrant Shares or such
other number of Warrant Shares which the Holder may at the time be entitled to
purchase in accordance with this Warrant Certificate. Each Warrant not exercised
prior to 5:00 p.m., New York City time, on the Expiration Date shall become
void, and all rights under this Warrant Certificate shall cease as of such time
except as set forth in Section 2.3 hereof.
2.2 Exercise of Warrants. The Warrants evidenced by this Warrant
Certificate may be exercised in whole or in part upon surrender to the Company,
at its Office, of this Warrant Certificate, with the Purchase Form attached
hereto duly completed and signed, and upon payment to the Company of the
Exercise Price for the number of Warrant Shares in respect of which such
Warrants are then exercised. Payment of the aggregate Exercise Price shall be at
the option of the Holder in cash or by bank check payable to the order of the
Company or a combination thereof.
Subject to Section 3 hereof, upon the surrender of this Warrant
Certificate, with the Purchase Form duly executed and payment of the Exercise
Price as aforesaid, the Company shall cause to be issued and delivered with all
reasonable dispatch to or upon the written order of the Holder and in such name
or names as the Holder may designate a certificate(s) for the number of Warrant
Shares so purchased, together, at the option of the Company as provided in
Section 7 hereof, with cash in respect of any fractional Warrant Shares
otherwise issuable upon such surrender. Such certificate(s) shall be deemed to
have been issued as of the date of the surrender of this Warrant Certificate and
payment of the Exercise Price, as aforesaid. The rights of purchase represented
by this Warrant Certificate shall be exercisable, at the election of the Holder,
either in full at any time or from time to time in part prior to the Expiration
Date. In the event that the Holder of this Warrant Certificate shall exercise
fewer than all the Warrants evidenced hereby at any time prior to the Expiration
Date, a new Warrant Certificate evidencing the remaining unexercised Warrant(s)
shall be issued.
2.3 Exercise Price. The price per share at which each Warrant Share
shall be purchased upon exercise of each Warrant shall be equal to $1.875 (the
closing bid price of the Common Stock at the end of trading on September 19,
1997), subject to adjustment pursuant to Section 6 hereof.
SECTION 3. Payment of Taxes. The Company covenants and agrees that it
will pay when due and payable all documentary, stamp and other taxes, if any,
which may be payable in respect of the issuance or delivery of any Warrant or of
the Warrant Shares purchasable upon the exercise of such Warrants; provided,
however, that the Company shall not be required to pay any tax or other
governmental charge which may be payable in respect of any transfer involved in
the transfer or delivery of any warrant or the issuance or delivery of
certificates for Warrant Shares in a name other than that of the Holder of such
Warrants.
SECTION 4. Mutilated or Missing Warrants. In the event this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver in exchange and substitution for
4
<PAGE>
and upon cancellation of the mutilated Warrant Certificate, or in lieu of and in
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent right or
interest, but only upon, in the event of a lost, stolen or destroyed
certificate, receipt of evidence satisfactory to the Company of such loss, theft
or destruction. An applicant for such a substitute Warrant Certificate shall
also comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
SECTION 5. Reservation and Availability of Warrant Shares; Purchase and
Cancellation of Warrants.
5.1 Reservation of Warrant Shares. (a) The Company shall at all times
reserve and keep available free from preemptive rights, out of the aggregate of
its authorized but unissued shares of Common Stock, for the purpose of enabling
it to satisfy any obligations to issue the Warrant Shares upon exercise of
Warrants, the full number of Warrant Shares deliverable upon the exercise of all
outstanding Warrants evidenced by this Warrant Certificate. The Company or, if
appointed, the transfer agent for the Common Stock and every subsequent transfer
agent for any shares of the Company's capital stock issuable upon the exercise
of any of the rights of purchase aforesaid (each, a "Transfer Agent") will be
irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Warrant Certificate on file with each Transfer Agent. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto which are transmitted to the Holder pursuant to
Section 6 hereof.
(b) The Company covenants that all Warrant Shares issuable upon
exercise of Warrants will, upon issuance, be fully paid, nonassessable and free
from preemptive rights and free from all taxes, liens, charges, and security
interests with respect to the issuance thereof.
(c) Before taking any action which would cause an adjustment pursuant
to Section 6 reducing the Exercise Price, the Company will take any and all
corporate action which may, in the opinion of its counsel (which may be counsel
employed by the Company), be necessary in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares at the Exercise Price
as so adjusted.
5.2 Warrant Shares Record Date. Each person in whose name any stock
certificate for Warrant Shares is issued shall for all purposes be deemed to
have become the holder of record of the Warrant Shares represented thereby on,
and such stock certificate shall be dated the date upon which this Warrant
Certificate was duly surrendered and payment of the Exercise Price (and any
applicable transfer taxes) was made.
- -5-
<PAGE>
5.3 Purchase of Warrants by the Company. The Company shall have the
right, except as limited by law, other agreements or herein, to purchase or
otherwise acquire in negotiated transactions Warrants evidenced hereby at such
times, in such manner and for such consideration as it may deem appropriate.
5.4 Cancellation of Warrants. Any Warrant Certificate surrendered for
exchange, substitution, transfer or exercise in whole or in part shall be
canceled by the Company and retired.
SECTION 6. Adjustment of Number of Warrant Shares and Exercise Price.
The number and kind of securities purchasable upon the exercise of each Warrant
and the Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter described.
6.1 Mandatory Adjustments. The number and kind of securities
purchasable upon the exercise of each Warrant and the Exercise Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) declare or pay a dividend on
its outstanding Common Stock in shares of Common Stock or make a
distribution to all holders of its outstanding Common Stock in shares
of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock or (iv) issue by reclassification of its shares of Common
Stock other securities of the Company (including any such
reclassification in connection with a consolidation, merger or other
business combination in which the Company is the surviving
corporation), the number and kind of Warrant Shares purchasable upon
exercise of each Warrant shall be adjusted so that the Holder of each
Warrant upon exercise thereof shall be entitled to receive the kind and
number of Warrant Shares or other securities of the Company that the
Holder would have owned or have been entitled to receive after the
happening of any of the events described above had such Warrant been
exercised immediately prior to the happening of such event or any
record date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective on the date of the dividend
payment, subdivision, combination or issuance retroactive to the record
date with respect thereto, if any, for such event. Such adjustment
shall be made successively whenever such an issuance is made.
(b) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of
Warrant Shares purchasable upon the exercise of each Warrant; provided,
however, that any adjustments which by reason of this Section 6.1(b)
are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations shall be made to
the nearest one-thousandth of a share. No adjustment need be made for a
change in the par value of the Warrant Shares.
6
<PAGE>
6.2 Voluntary Adjustment by the Company. The Company may at its
option, at any time during the term of the Warrants, reduce the then current
Exercise Price to any amount deemed appropriate by the Board of Directors of the
Company; provided that if the Company elects so to reduce the then current
Exercise Price, such reduction shall remain in effect for at least a 15-day
period, after which time the Company may, at its option, reinstate the Exercise
Price in effect prior to such reduction.
6.3 Notice of Adjustment. Upon any adjustment of the number of Warrant
Shares purchasable upon the exercise of each Warrant or the Exercise Price of
such Warrant, as herein provided, the Company shall promptly mail within 10 days
thereafter by first class mail, postage prepaid, to each Holder a notice of such
adjustment(s) and a certificate of the Chief Financial Officer of the Company,
accompanied by the report thereon by a firm of independent public accountants
selected by the Board of Directors of the Company (who may be the regular
accountants for the Company), setting forth in reasonable detail (i) the number
of Warrant Shares purchasable upon the exercise of each Warrant and the Exercise
Price of such Warrant after such adjustment(s), (ii) a brief statement of the
facts requiring such adjustment(s) and (iii) the computation by which such
adjustment(s) was made.
6.4 No Adjustment for Dividends. Except as provided in Section 6.1
hereof, no adjustment in respect of any dividends or other payments or
distributions made to holders of securities issuable upon exercise of Warrants
shall be made during the term of a Warrant or upon the exercise of a Warrant.
6.5 Preservation of Purchase Rights Upon Merger, Consolidation, etc. In
case of any consolidation of the Company with or merger of the Company into
another person (whether or not the Company is the surviving corporation), or in
the case of any sale, transfer or lease to another person of all or
substantially all the property of the Company, the Company or such successor or
purchasing person, as the case may be, shall deliver to the Holder an
undertaking that the Holder shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of securities, cash and property
which the Holder would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, transfer or lease had such
Warrant been exercised immediately prior to such action, and if the successor or
purchasing person is not a corporation, such person shall provide appropriate
tax indemnification with respect to such shares and other securities and
property so that, upon exercise of the Warrants, the Holder thereof would have
the same benefits he otherwise would have had if such successor or purchasing
person were a corporation. Such undertaking shall provide for adjustments, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 6. The provisions of this Section 6.5 shall similarly apply
to successive consolidations, mergers, sales, transfers or leases.
- -7-
<PAGE>
6.6 Statement on Warrants. Irrespective of any adjustments in the
number or kind of securities purchasable upon the exercise of the Warrants or
the Exercise Price, any Warrant Certificate theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in this Warrant Certificate.
SECTION 7. Fractional Interests. The Company shall issue, upon request
of the Holder, fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by a
Holder, the exercise thereof shall be computed on the basis of the aggregate
number of Warrant Shares purchasable on exercise of the Warrants so presented.
If any fraction of a Warrant Share would be issuable on the exercise of any
Warrant (or specified portion thereof), the Company may, in its sole discretion,
issue such fraction of a Warrant Share or pay to the Holder of the Warrant an
amount in cash equal to the then current market price per share of Common Stock
computed as of the trading day immediately preceding the date the Warrant is
presented for exercise, multiplied by such fraction (but in no event less than
an amount equal to such fraction multiplied by the Exercise Price in effect at
such time) or if the Common stock is not then currently traded such amount as
the Board of Directors of the Company shall in good faith determine.
SECTION 8. Registration Rights.
8.1 General. The Company has agreed that after the 60th day following
the date hereof, the Company shall file a registration statement with the
Securities and Exchange Commission (the "Commission") under the Securities Act
providing for the public sale of all of the Warrant Shares.
8.2 Procedures. The following provisions shall also be applicable to
any such registration statement utilized pursuant to this Section 8:
(i) The registered holders whose shares of Warrant Shares are
to be included in any such registration statement (the "Sellers") shall
furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company
shall reasonably request in writing. Following the effective date of
the registration statement, the Company shall upon the request of any
Seller forthwith supply such reasonable number of prospectuses meeting
the requirements of the Securities Act as shall be requested by such
Seller to permit such Seller to make a public offering of all the
securities of such Seller included therein. The Company shall use
reasonable efforts (i) to keep such registration statement current
until resales of such securities are permitted pursuant to Rule 144
under the Securities Act (or, if earlier, until all such securities are
sold pursuant to the registration statement); (ii) to qualify such
securities for sale in such states as the Sellers shall reasonably
designate at the cost and expense
8
<PAGE>
of the Company provided that no such qualification shall be required in
any jurisdiction where, as a result thereof, the Company would be
subject to service of general process or to taxation as a foreign
corporation doing business in such jurisdiction to which it is not then
subject; and (iii) to qualify such offering, at the cost and expense of
the Company with the National Association of Securities Dealers, Inc.,
if applicable.
(ii) The Company shall indemnify and hold harmless each Seller and
each underwriter, within the meaning of the Securities Act, who may
purchase from or sell for any Seller any Warrant Shares from and
against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim
whatsoever) arising out of any untrue statement or alleged untrue
statement of a material fact contained in the registration statement or
any amendment thereto or any prospectus included therein required to be
filed or furnished by reason of this Section 8, or caused by any
omission or alleged omission to state therein a material fact requiring
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading,
except insofar as such loss, liability, claim, damage or expense is
caused by any such untrue statement or alleged untrue statement or
omission or alleged omission based upon information furnished in
writing to the Company by such Seller or underwriter expressly for use
therein, which indemnification shall include each person, if any, who
controls any such Seller or underwriter within the meaning of the
Securities Act; provided, however, that the indemnity agreement by the
Company set forth in this Section 8 with respect to any such prospectus
which shall be subsequently amended prior to the written confirmation
of the sale of any such Shares, shall not inure to the benefit of any
Seller or underwriter from whom the person asserting any such loss,
liability, claim, damage or expense purchased the Shares which are the
subject thereof (or to the benefit of any person controlling such
Seller or underwriter), if such Seller or underwriter failed to send or
give a copy of the prospectus as so amended to such person at or prior
to the written confirmation of the sale of such Shares to such person
and if the amended prospectus did not contain any untrue statement or
alleged untrue statement or omission or alleged omission giving rise to
such loss, liability, claim, damage or expense.
(iii) Such Seller and underwriter shall at the same time
indemnify the Company, their respective directors, each officer signing
the related registration statement and each person, if any, who
controls the Company, within the meaning of the Securities Act, from
and against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim
whatsoever) arising out of any untrue statement of a material fact
contained in any registration statement or any prospectus required to
be filed or furnished by reason of this Section 8 or caused by any
omission or alleged omission to state therein a material fact to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, insofar
as such loss, liability, claim, damage or expense is caused by any
untrue statement or alleged untrue statement or omission or alleged
omission based upon information furnished in writing to the Company by
any such seller or underwriter expressly for use therein.
- -9-
<PAGE>
SECTION 9. No Rights as Stockholders; Notices to Holder. Nothing
contained in this Warrant Certificate shall be construed as conferring upon the
Holder or its transferees the right to vote or to receive dividends (except as
provided in Section 6 hereof) or to consent or to receive notice as stockholders
in respect of any meeting of stockholders of the Company for the election of the
directors of the Company or any other matter, or any rights whatsoever as
stockholders of the Company. If, however, at any time prior to the expiration of
the Warrants and prior to their exercise, any of the following events shall
occur:
(a) the Company shall declare any dividend payable in cash or
in any securities upon its shares of Common Stock or make any
distribution to the holders of its shares of Common Stock;
(b) the Company shall offer to all holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any
right to subscribe for or purchase any thereof;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer
or lease of all or substantially all of its property, assets and
business as an entirety) shall be proposed; or
(d) any consolidation or merger to which the Company is a
party and for which approval of the holders of Common Stock is
required, or of the conveyance or transfer of the properties and assets
of the Company as, or substantially as, an entirety, or of any
reclassification or change of outstanding shares of Common Stock
issuable upon exercise of the Warrants (other than a change in par
value to no par value, or from no par value to par value) or as a
result of a subdivision or combination.
then in any one or more of said events, the Company shall give to the
Holder by registered mail (return receipt requested) at least 20 days prior to
the applicable record date hereinafter specified, a written notice stating (i)
the date as of which the holders of record of shares of Common Stock to be
entitled to receive any such dividends, distributions, rights or warrants are to
be determined or (ii) the date on which any such dissolution, liquidation,
winding up, consolidation, merger, conveyance or transfer is expected to become
effective and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation, or winding up. Failure to mail or receive such notice or any defect
therein or in the mailing thereof shall not affect the validity of any action
taken in connection with such dividend, distribution or subscription rights, or
such proposed dissolution, liquidation, winding up, consolidation, merger,
conveyance, transfer or reclassification.
SECTION 10. Identity of Transfer Agent. Forthwith upon the appointment
of any Transfer Agent for the Common Stock, or any other shares of the Company's
capital stock issuable upon the exercise of the Warrants, the Company shall
promptly notify the Holder of the name and address of such Transfer Agent.
10
<PAGE>
SECTION 11. Notices. Any notice, except as provided in Section 9 of
this Warrant Certificate, or demand authorized by this Warrant Certificate to be
given by the Holder to the Company, shall be in writing and shall be delivered
in person or by facsimile transmission, or mailed by first class mail, postage
prepaid, to the Company, at 104 New Era Drive, South Plainfield, New Jersey
07080. The Company may change the address to which notices to it are to be
delivered or mailed hereunder by notice to the Holder.
Any notice pursuant to this Warrant Certificate by the Company to the
Holder shall be in writing and shall be mailed by first class mail, postage
prepaid, or otherwise delivered, to the Holder at its address on the books of
the Warrant Register.
Notices delivered personally shall be effective at the time delivered
by hand, notices sent by mail shall be effective two days after mailing, notices
sent by facsimile transmission shall be effective when receipt is acknowledged
and notices sent by courier guaranteeing next day delivery shall be effective on
the next business day after timely delivery to the courier.
SECTION 12. Supplements and Amendments. This Warrant Certificate may
not be supplemented, amended or otherwise modified without the prior written
consent of the Holder.
SECTION 13. Successors. All the covenants and provisions of this
Warrant Certificate by or for the benefit of the Company shall bind and inure to
the benefit of its respective successors and assigns hereunder.
SECTION 14. Merger or Consolidation of the Company. The Company will
not merge or consolidate with or into, or sell, transfer or lease all or
substantially all of its property to, any other corporation unless the
successor, transferee or lessee corporation, as the case may be (if not the
Company), shall expressly assume that due and punctual performance and
observance of each and every covenant and condition of this Warrant Certificate
to be performed and observed by the Company.
SECTION 15. Applicable Law. This Warrant Certificate and the Warrants
evidenced hereby shall be governed by and construed in accordance with the laws
of the State of New York, without giving effect to principles of conflict of
laws. The Company and the Holder agree to submit to the jurisdiction of the
courts of the State of New York in any action or proceeding arising out of or
relating to this Warrant Certificate and the Warrants evidenced hereby.
- -11-
<PAGE>
SECTION 16. Benefits of this Warrant Certificate. Nothing in this
Warrant Certificate shall be construed to give to any person or entity other
than the Company and the Holder any legal or equitable right, remedy or claim
under this Warrant Certificate; and this Warrant Certificate shall be for the
sole and exclusive benefit of the Company and the Holder.
SECTION 17. Captions. The captions of the Sections and paragraphs of
this Warrant Certificate have been inserted for convenience only and shall have
no substantive effect.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of this 19th day of September, 1997.
ALL AMERICAN FOOD GROUP, INC.
By:__________________________
Name:
Title:
12
<PAGE>
PURCHASE FORM
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase __________ shares of Common
Stock as provided for herein and herewith tenders in payment for such shares of
Common Stock payment of the purchase price in full in the form of cash or a bank
check payable to the order of All American Food Group, Inc. or a combination
thereof in the amount of $________, all in accordance with the terms hereof. The
undersigned requests that a certificate for such shares of Common Stock be
registered in the name of _________________________ whose address is
______________________________________ and that such certificate shall be
delivered to ____________________ whose address is
________________________________________. If said number of shares of Common
Stock is less than all of the shares of Common Stock purchasable hereunder, the
undersigned requests that a new Warrant Certificate representing the right to
purchase the remaining balance of the shares of Common Stock be registered in
the name of ______________________ whose address is
________________________________ and that such certificate shall be delivered to
_____________________ whose address is
_________________________________________.
Dated: __________________________
__________________________
(Insert social security or other
identifying number of holder)
Signature. . . . . . . . . . . . . . . .
Note: Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant Certificate in every
particular, without alteration
or enlargement or any change
whatsoever, unless this Warrant
Certificate has been assigned.
<PAGE>
ASSIGNMENT
(To be executed only upon assignment of the Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________________________________________ (Name and Address of Assignee
Must Be Printed or Typewritten) the within Warrant Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint ______________________, Attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated: ___________________, 19__
------------------------------
Signature of Registered Holder
Note: The above signature must
correspond with the name as
written on the face of this
Warrant Certificate in every
particular, without alteration
or enlargement or any change
whatever.
14
<PAGE>
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE REOFFERED AND SOLD ONLY
IF SO REGISTERED OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH HEREIN.
EXERCISABLE AT ANY TIME UNTIL 5:00 P.M., NEW YORK CITY TIME, ON THE FIFTH
ANNIVERSARY OF THE EXPIRATION DATE OR, IF NOT A BUSINESS DAY, THE IMMEDIATELY
FOLLOWING BUSINESS DAY UNLESS EXTENDED PURSUANT TO THIS WARRANT CERTIFICATE.
No. 2
ALL AMERICAN FOOD GROUP, INC.
WARRANT CERTIFICATE
Warrant Certificate for One Warrant
to Purchase 175,000 shares of Common Stock
of All American Food Group, Inc.
This Warrant Certificate certifies that, for value received, Trautman
Kramer & Company, Inc., or registered assigns (the "Holder"), is the owner of
one Warrant (as defined below), which entitles the Holder to purchase at any
time from and after the date hereof and until 5:00 p.m., New York City time, on
the fifth anniversary of the issue date or, if not a business day, the
immediately following business day, at the purchase price equal to $2.4375 (130%
of the closing bid price of the Common Stock at the end of trading on September
19, 1997) (the "Exercise Price"), up to an aggregate of 175,000 shares of common
stock, par value $.01 per share (the "Common Stock"), of All American Food
Group, Inc., a New Jersey corporation (the "Company"). The number of shares
purchasable upon exercise of the Warrants and the Exercise Price shall be
subject to adjustment from time to time as herein provided. In this Warrant
Certificate, the right to purchase each share of Common Stock is referred to as
a "Warrant"; the shares of Common Stock or,
- -1-
<PAGE>
pursuant to the terms hereof, other securities, issuable upon exercise of the
Warrants are referred to as the "Warrant Shares."
The Warrants are subject to the following terms, conditions and
provisions:
2
<PAGE>
SECTION 1. Registration; Transferability; Exchange of Warrant
Certificate.
1.1 Registration. The Company shall number and register each Warrant in
a register (the "Warrant Register") maintained at the office of the Company (the
"Office") as they are issued by the Company. The Company shall be entitled to
treat the Holder of any Warrant as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other person, and shall not be liable for any
registration of transfer of Warrants which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with knowledge of such facts that
its participation therein amounts to bad faith.
1.2 Transfer. Subject to compliance with the restrictions on transfer
set forth herein and in Section 3 hereof, the Warrants shall be transferable
only on the Warrant Register maintained at the Office upon delivery thereof duly
endorsed by the Holder or by his, her or its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. In all cases of transfer by an attorney, the original
power of attorney, duly approved, or a copy thereof, duly certified, shall be
deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and to remain with the Company in its discretion.
1.3 Exchange of Warrant Certificates. Subject to the provisions herein,
each Warrant Certificate may be exchanged for another Warrant Certificate(s)
entitling the Holder to purchase a like aggregate number of Warrant Shares as
this Warrant Certificate then entitles such Holder to purchase. If the Holder
desires to exchange this Warrant Certificate, it shall make such request in
writing and deliver it to the Company, and shall surrender, properly endorsed,
this Warrant Certificate. Thereupon, the Company shall sign and deliver to the
person entitled thereto a new Warrant Certificate as so requested.
SECTION 2. Terms of Warrants; Exercise of Warrants.
2.1 Terms of Warrants. Subject to the terms of this Warrant
Certificate, each Holder shall have the right, which may be exercised at any
time from the date hereof until 5:00 p.m., New York City
3
<PAGE>
time, on the fifth anniversary of the issue date or, if not a business day, the
immediately following business day (the "Expiration Date") to purchase from the
Company (and the Company shall issue and sell to the Holder of the Warrant) up
to an aggregate of 175,000 fully paid and nonassessable Warrant Shares or such
other number of Warrant Shares which the Holder may at the time be entitled to
purchase in accordance with this Warrant Certificate. Each Warrant not exercised
prior to 5:00 p.m., New York City time, on the Expiration Date shall become
void, and all rights under this Warrant Certificate shall cease as of such time.
2.2 Exercise of Warrants. The Warrants evidenced by this Warrant
Certificate may be exercised in whole or in part upon surrender to the Company,
at its Office, of this Warrant Certificate, with the Purchase Form attached
hereto duly completed and signed, and upon payment to the Company of the
Exercise Price for the number of Warrant Shares in respect of which such
Warrants are then exercised. Payment of the aggregate Exercise Price shall be at
the option of the Holder in cash or by bank check payable to the order of the
Company or a combination thereof.
Subject to Section 3 hereof, upon the surrender of this Warrant
Certificate, with the Purchase Form duly executed and payment of the Exercise
Price as aforesaid, the Company shall cause to be issued and delivered with all
reasonable dispatch to or upon the written order of the Holder and in such name
or names as the Holder may designate a certificate(s) for the number of Warrant
Shares so purchased, together, at the option of the Company as provided in
Section 7 hereof, with cash in respect of any fractional Warrant Shares
otherwise issuable upon such surrender. Such certificate(s) shall be deemed to
have been issued as of the date of the surrender of this Warrant Certificate and
payment of the Exercise Price, as aforesaid. The rights of purchase represented
by this Warrant Certificate shall be exercisable, at the election of the Holder,
either in full at any time or from time to time in part prior to the Expiration
Date. In the event that the Holder of this Warrant Certificate shall exercise
fewer than all the Warrants evidenced hereby at any time prior to the Expiration
Date, a new Warrant Certificate evidencing the remaining unexercised Warrant(s)
shall be issued.
2.3 Exercise Price. The price per share at which each Warrant Share
shall be purchased upon exercise of each Warrant shall be equal to $2.4375 (130%
of the closing bid price of the Common Stock at the end of trading on September
19, 1997), subject to adjustment pursuant to Section 6 hereof.
SECTION 3. Payment of Taxes. The Company covenants and agrees that it
will pay when due and payable all documentary, stamp and other taxes, if any,
which may be payable in respect of the issuance or delivery of any Warrant or of
the Warrant Shares purchasable upon the exercise of such Warrants; provided,
however, that the Company shall not be required to pay any tax or other
governmental charge which may be payable in respect of any transfer involved in
the transfer or delivery of any warrant or the issuance or delivery of
certificates for Warrant Shares in a name other than that of the Holder of such
Warrants.
SECTION 4. Mutilated or Missing Warrants. In the event this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver in exchange and substitution for
4
<PAGE>
and upon cancellation of the mutilated Warrant Certificate, or in lieu of and in
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent right or
interest, but only upon, in the event of a lost, stolen or destroyed
certificate, receipt of evidence satisfactory to the Company of such loss, theft
or destruction. An applicant for such a substitute Warrant Certificate shall
also comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
SECTION 5. Reservation and Availability of Warrant Shares; Purchase and
Cancellation of Warrants.
5.1 Reservation of Warrant Shares. (a) The Company shall at all times
reserve and keep available free from preemptive rights, out of the aggregate of
its authorized but unissued shares of Common Stock, for the purpose of enabling
it to satisfy any obligations to issue the Warrant Shares upon exercise of
Warrants, the full number of Warrant Shares deliverable upon the exercise of all
outstanding Warrants evidenced by this Warrant Certificate. The Company or, if
appointed, the transfer agent for the Common Stock and every subsequent transfer
agent for any shares of the Company's capital stock issuable upon the exercise
of any of the rights of purchase aforesaid (each, a "Transfer Agent") will be
irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Warrant Certificate on file with each Transfer Agent. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto which are transmitted to the Holder pursuant to
Section 6 hereof.
(b) The Company covenants that all Warrant Shares issuable upon
exercise of Warrants will, upon issuance, be fully paid, nonassessable and free
from preemptive rights and free from all taxes, liens, charges, and security
interests with respect to the issuance thereof.
(c) Before taking any action which would cause an adjustment pursuant
to Section 6 reducing the Exercise Price, the Company will take any and all
corporate action which may, in the opinion of its counsel (which may be counsel
employed by the Company), be necessary in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares at the Exercise Price
as so adjusted.
5.2 Warrant Shares Record Date. Each person in whose name any stock
certificate for Warrant Shares is issued shall for all purposes be deemed to
have become the holder of record of the Warrant Shares represented thereby on,
and such stock certificate shall be dated the date upon which this Warrant
Certificate was duly surrendered and payment of the Exercise Price (and any
applicable transfer taxes) was made.
- -5-
<PAGE>
5.3 Purchase of Warrants by the Company. The Company shall have the
right, except as limited by law, other agreements or herein, to purchase or
otherwise acquire in negotiated transactions Warrants evidenced hereby at such
times, in such manner and for such consideration as it may deem appropriate.
5.4 Cancellation of Warrants. Any Warrant Certificate surrendered for
exchange, substitution, transfer or exercise in whole or in part shall be
canceled by the Company and retired.
SECTION 6. Adjustment of Number of Warrant Shares and Exercise Price.
The number and kind of securities purchasable upon the exercise of each Warrant
and the Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter described.
6.1 Mandatory Adjustments. The number and kind of securities
purchasable upon the exercise of each Warrant and the Exercise Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) declare or pay a dividend on
its outstanding Common Stock in shares of Common Stock or make a
distribution to all holders of its outstanding Common Stock in shares
of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock or (iv) issue by reclassification of its shares of Common
Stock other securities of the Company (including any such
reclassification in connection with a consolidation, merger or other
business combination in which the Company is the surviving
corporation), the number and kind of Warrant Shares purchasable upon
exercise of each Warrant shall be adjusted so that the Holder of each
Warrant upon exercise thereof shall be entitled to receive the kind and
number of Warrant Shares or other securities of the Company that the
Holder would have owned or have been entitled to receive after the
happening of any of the events described above had such Warrant been
exercised immediately prior to the happening of such event or any
record date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective on the date of the dividend
payment, subdivision, combination or issuance retroactive to the record
date with respect thereto, if any, for such event. Such adjustment
shall be made successively whenever such an issuance is made.
(b) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of
Warrant Shares purchasable upon the exercise of each Warrant; provided,
however, that any adjustments which by reason of this Section 6.1(b)
are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations shall be made to
the nearest one-thousandth of a share. No adjustment need be made for a
change in the par value of the Warrant Shares.
6
<PAGE>
6.2 Voluntary Adjustment by the Company. The Company may at its
option, at any time during the term of the Warrants, reduce the then current
Exercise Price to any amount deemed appropriate by the Board of Directors of the
Company; provided that if the Company elects so to reduce the then current
Exercise Price, such reduction shall remain in effect for at least a 15-day
period, after which time the Company may, at its option, reinstate the Exercise
Price in effect prior to such reduction.
6.3 Notice of Adjustment. Upon any adjustment of the number of Warrant
Shares purchasable upon the exercise of each Warrant or the Exercise Price of
such Warrant, as herein provided, the Company shall promptly mail within 10 days
thereafter by first class mail, postage prepaid, to each Holder a notice of such
adjustment(s) and a certificate of the Chief Financial Officer of the Company,
accompanied by the report thereon by a firm of independent public accountants
selected by the Board of Directors of the Company (who may be the regular
accountants for the Company), setting forth in reasonable detail (i) the number
of Warrant Shares purchasable upon the exercise of each Warrant and the Exercise
Price of such Warrant after such adjustment(s), (ii) a brief statement of the
facts requiring such adjustment(s) and (iii) the computation by which such
adjustment(s) was made.
6.4 No Adjustment for Dividends. Except as provided in Section 6.1
hereof, no adjustment in respect of any dividends or other payments or
distributions made to holders of securities issuable upon exercise of Warrants
shall be made during the term of a Warrant or upon the exercise of a Warrant.
6.5 Preservation of Purchase Rights Upon Merger, Consolidation, etc. In
case of any consolidation of the Company with or merger of the Company into
another person (whether or not the Company is the surviving corporation), or in
the case of any sale, transfer or lease to another person of all or
substantially all the property of the Company, the Company or such successor or
purchasing person, as the case may be, shall deliver to the Holder an
undertaking that the Holder shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of securities, cash and property
which the Holder would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, transfer or lease had such
Warrant been exercised immediately prior to such action, and if the successor or
purchasing person is not a corporation, such person shall provide appropriate
tax indemnification with respect to such shares and other securities and
property so that, upon exercise of the Warrants, the Holder thereof would have
the same benefits he otherwise would have had if such successor or purchasing
person were a corporation. Such undertaking shall provide for adjustments, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 6. The provisions of this Section 6.5 shall similarly apply
to successive consolidations, mergers, sales, transfers or leases.
- -7-
<PAGE>
6.6 Statement on Warrants. Irrespective of any adjustments in the
number or kind of securities purchasable upon the exercise of the Warrants or
the Exercise Price, any Warrant Certificate theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in this Warrant Certificate.
SECTION 7. Fractional Interests. The Company shall issue, upon request
of the Holder, fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by a
Holder, the exercise thereof shall be computed on the basis of the aggregate
number of Warrant Shares purchasable on exercise of the Warrants so presented.
If any fraction of a Warrant Share would be issuable on the exercise of any
Warrant (or specified portion thereof), the Company may, in its sole discretion,
issue such fraction of a Warrant Share or pay to the Holder of the Warrant an
amount in cash equal to the then current market price per share of Common Stock
computed as of the trading day immediately preceding the date the Warrant is
presented for exercise, multiplied by such fraction (but in no event less than
an amount equal to such fraction multiplied by the Exercise Price in effect at
such time) or if the Common stock is not then currently traded such amount as
the Board of Directors of the Company shall in good faith determine.
SECTION 8. Registration Rights.
8.1 General. The Company has agreed that after the 60th day following
the date hereof, the Company shall file a registration statement with the
Securities and Exchange Commission (the "Commission") under the Securities Act
providing for the public sale of all of the Warrant Shares.
8.2 Procedures. The following provisions shall also be applicable to
any such registration statement utilized pursuant to this Section 8:
(i) The registered holders whose shares of Warrant Shares are
to be included in any such registration statement (the "Sellers") shall
furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company
shall reasonably request in writing. Following the effective date of
the registration statement, the Company shall upon the request of any
Seller forthwith supply such reasonable number of prospectuses meeting
the requirements of the Securities Act as shall be requested by such
Seller to permit such Seller to make a public offering of all the
securities of such Seller included therein. The Company shall use
reasonable efforts (i) to keep such registration statement current
until resales of such securities are permitted pursuant to Rule 144
under the Securities Act (or, if earlier, until all such securities are
sold pursuant to the registration statement); (ii) to qualify such
securities for sale in such states as the Sellers shall reasonably
designate at the cost and expense
8
<PAGE>
of the Company provided that no such qualification shall be required in
any jurisdiction where, as a result thereof, the Company would be
subject to service of general process or to taxation as a foreign
corporation doing business in such jurisdiction to which it is not then
subject; and (iii) to qualify such offering, at the cost and expense of
the Company with the National Association of Securities Dealers, Inc.,
if applicable.
(ii) The Company shall indemnify and hold harmless each Seller
and each underwriter, within the meaning of the Securities Act, who may
purchase from or sell for any Seller any Warrant Shares from and
against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim
whatsoever) arising out of any untrue statement or alleged untrue
statement of a material fact contained in the registration statement or
any amendment thereto or any prospectus included therein required to be
filed or furnished by reason of this Section 8, or caused by any
omission or alleged omission to state therein a material fact requiring
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading,
except insofar as such loss, liability, claim, damage or expense is
caused by any such untrue statement or alleged untrue statement or
omission or alleged omission based upon information furnished in
writing to the Company by such Seller or underwriter expressly for use
therein, which indemnification shall include each person, if any, who
controls any such Seller or underwriter within the meaning of the
Securities Act; provided, however, that the indemnity agreement by the
Company set forth in this Section 8 with respect to any such prospectus
which shall be subsequently amended prior to the written confirmation
of the sale of any such Shares, shall not inure to the benefit of any
Seller or underwriter from whom the person asserting any such loss,
liability, claim, damage or expense purchased the Shares which are the
subject thereof (or to the benefit of any person controlling such
Seller or underwriter), if such Seller or underwriter failed to send or
give a copy of the prospectus as so amended to such person at or prior
to the written confirmation of the sale of such Shares to such person
and if the amended prospectus did not contain any untrue statement or
alleged untrue statement or omission or alleged omission giving rise to
such loss, liability, claim, damage or expense.
(iii) Such Seller and underwriter shall at the same time
indemnify the Company, their respective directors, each officer signing
the related registration statement and each person, if any, who
controls the Company, within the meaning of the Securities Act, from
and against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim
whatsoever) arising out of any untrue statement of a material fact
contained in any registration statement or any prospectus required to
be filed or furnished by reason of this Section 8 or caused by any
omission or alleged omission to state therein a material fact to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, insofar
as such loss, liability, claim, damage or expense is caused by any
untrue statement or alleged untrue statement or omission or alleged
omission based upon information furnished in writing to the Company by
any such seller or underwriter expressly for use therein.
- -9-
<PAGE>
SECTION 9. No Rights as Stockholders; Notices to Holder. Nothing
contained in this Warrant Certificate shall be construed as conferring upon the
Holder or its transferees the right to vote or to receive dividends (except as
provided in Section 6 hereof) or to consent or to receive notice as stockholders
in respect of any meeting of stockholders of the Company for the election of the
directors of the Company or any other matter, or any rights whatsoever as
stockholders of the Company. If, however, at any time prior to the expiration of
the Warrants and prior to their exercise, any of the following events shall
occur:
(a) the Company shall declare any dividend payable in cash or
in any securities upon its shares of Common Stock or make any
distribution to the holders of its shares of Common Stock;
(b) the Company shall offer to all holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any
right to subscribe for or purchase any thereof;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer
or lease of all or substantially all of its property, assets and
business as an entirety) shall be proposed; or
(d) any consolidation or merger to which the Company is a
party and for which approval of the holders of Common Stock is
required, or of the conveyance or transfer of the properties and assets
of the Company as, or substantially as, an entirety, or of any
reclassification or change of outstanding shares of Common Stock
issuable upon exercise of the Warrants (other than a change in par
value to no par value, or from no par value to par value) or as a
result of a subdivision or combination.
then in any one or more of said events, the Company shall give
to the Holder by registered mail (return receipt requested) at least 20 days
prior to the applicable record date hereinafter specified, a written notice
stating (i) the date as of which the holders of record of shares of Common Stock
to be entitled to receive any such dividends, distributions, rights or warrants
are to be determined or (ii) the date on which any such dissolution,
liquidation, winding up, consolidation, merger, conveyance or transfer is
expected to become effective and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange their
shares of Common Stock for securities or other property, if any, deliverable
upon such reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation, or winding up. Failure to mail or receive such notice
or any defect therein or in the mailing thereof shall not affect the validity of
any action taken in connection with such dividend, distribution or subscription
rights, or such proposed dissolution, liquidation, winding up, consolidation,
merger, conveyance, transfer or reclassification.
SECTION 10. Identity of Transfer Agent. Forthwith upon the appointment
of any Transfer Agent for the Common Stock, or any other shares of the Company's
capital stock issuable upon the exercise of the Warrants, the Company shall
promptly notify the Holder of the name and address of such Transfer Agent.
10
<PAGE>
SECTION 11. Notices. Any notice, except as provided in Section 9 of
this Warrant Certificate, or demand authorized by this Warrant Certificate to be
given by the Holder to the Company, shall be in writing and shall be delivered
in person or by facsimile transmission, or mailed by first class mail, postage
prepaid, to the Company, at 104 New Era Drive, South Plainfield, New Jersey
07080. The Company may change the address to which notices to it are to be
delivered or mailed hereunder by notice to the Holder.
Any notice pursuant to this Warrant Certificate by the Company to the
Holder shall be in writing and shall be mailed by first class mail, postage
prepaid, or otherwise delivered, to the Holder at its address on the books of
the Warrant Register.
Notices delivered personally shall be effective at the time delivered
by hand, notices sent by mail shall be effective two days after mailing, notices
sent by facsimile transmission shall be effective when receipt is acknowledged
and notices sent by courier guaranteeing next day delivery shall be effective on
the next business day after timely delivery to the courier.
SECTION 12. Supplements and Amendments. This Warrant Certificate may
not be supplemented, amended or otherwise modified without the prior written
consent of the Holder.
SECTION 13. Successors. All the covenants and provisions of this
Warrant Certificate by or for the benefit of the Company shall bind and inure to
the benefit of its respective successors and assigns hereunder.
SECTION 14. Merger or Consolidation of the Company. The Company will
not merge or consolidate with or into, or sell, transfer or lease all or
substantially all of its property to, any other corporation unless the
successor, transferee or lessee corporation, as the case may be (if not the
Company), shall expressly assume that due and punctual performance and
observance of each and every covenant and condition of this Warrant Certificate
to be performed and observed by the Company.
SECTION 15. Applicable Law. This Warrant Certificate and the Warrants
evidenced hereby shall be governed by and construed in accordance with the laws
of the State of New York, without giving effect to principles of conflict of
laws. The Company and the Holder agree to submit to the jurisdiction of the
courts of the State of New York in any action or proceeding arising out of or
relating to this Warrant Certificate and the Warrants evidenced hereby.
- -11-
<PAGE>
SECTION 16. Benefits of this Warrant Certificate. Nothing in this
Warrant Certificate shall be construed to give to any person or entity other
than the Company and the Holder any legal or equitable right, remedy or claim
under this Warrant Certificate; and this Warrant Certificate shall be for the
sole and exclusive benefit of the Company and the Holder.
SECTION 17. Captions. The captions of the Sections and paragraphs of
this Warrant Certificate have been inserted for convenience only and shall have
no substantive effect.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of this 19th day of September, 1997.
ALL AMERICAN FOOD GROUP, INC.
By:__________________________
Name:
Title:
12
<PAGE>
PURCHASE FORM
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase __________ shares of Common
Stock as provided for herein and herewith tenders in payment for such shares of
Common Stock payment of the purchase price in full in the form of cash or a bank
check payable to the order of All American Food Group, Inc. or a combination
thereof in the amount of $________, all in accordance with the terms hereof. The
undersigned requests that a certificate for such shares of Common Stock be
registered in the name of _________________________ whose address is
______________________________________ and that such certificate shall be
delivered to ____________________ whose address is
________________________________________. If said number of shares of Common
Stock is less than all of the shares of Common Stock purchasable hereunder, the
undersigned requests that a new Warrant Certificate representing the right to
purchase the remaining balance of the shares of Common Stock be registered in
the name of ______________________ whose address is
________________________________ and that such certificate shall be delivered to
_____________________ whose address is
_________________________________________.
Dated: __________________________
--------------------------
(Insert social security or other
identifying number of holder)
Signature. . . . . . . . . . . . . . . .
Note: Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant Certificate in every
particular, without alteration
or enlargement or
any change whatsoever, unless
this Warrant Certificate has
been assigned.
<PAGE>
ASSIGNMENT
(To be executed only upon assignment of the Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________________________________________ (Name and Address of Assignee
Must Be Printed or Typewritten) the within Warrant Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint ______________________, Attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated: ___________________, 19__
------------------------------
Signature of Registered Holder
Note: The above signature must
correspond with the name as
written on the face of this
Warrant Certificate in every
particular, without alteration
or enlargement or any change
whatever.
14
<PAGE>
SCHEDULE II
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES
LAWS (THE "ACTS"). NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
PURCHASABLE HEREUNDER MAY BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THIS WARRANT OR COMMON
STOCK PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
ALL AMERICAN FOOD GROUP, INC.
WARRANT AGREEMENT
Issue Date: December __, 1997
1. Basic Terms. This Warrant Agreement (the "Warrant") certifies
that, for value received, the registered holder specified below or its
registered assigns ("Holder"), is the owner of __________________________(_____)
warrants of All American Food Group, Inc., a New Jersey corporation (the
"Corporation") and is entitled, subject to the terms and conditions of this
Warrant, including adjustments as provided herein, to purchase _______________
(____) shares of the Common Stock (the "Common Stock") of the Corporation from
the Corporation at the price per share shown below (the "Exercise Price").
Holder:
Exercise Price per share: _____ Dollars and ___________ Cents ($____) per share
Except as specifically provided otherwise, all references in this Warrant to the
Exercise Price and the number of shares of Common Stock purchasable hereunder
shall be to the Exercise Price and number of shares after any adjustments are
made thereto pursuant to this Warrant.
2. Corporation's Representations/Covenants. The Corporation represents
and covenants that the shares of Common Stock issuable upon the exercise of this
Warrant shall at delivery be fully paid and non-assessable and free from taxes,
liens, encumbrances and charges with respect to their purchase. The Corporation
shall take any necessary actions to assure that the par value per share of the
Common Stock is at all times equal to or less than the then current Exercise
Price per share of Common Stock issuable pursuant to this Warrant. The
Corporation shall at all times reserve and hold available sufficient shares of
Common Stock to satisfy all conversion and purchase rights of outstanding
convertible securities, options and warrants of the Corporation, including this
Warrant.
3. Method of Exercise; Fractional Shares. This Warrant is exercisable
at the option of the Holder in whole at any time or in part from time to time by
surrendering this Warrant, on any business day during the period (the "Exercise
Period") beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (South Plainfield, New Jersey time) five (5) years after the issue
date. To exercise this Warrant, the Holder shall surrender this Warrant at the
principal office of the Corporation or that of the duly authorized and acting
transfer agent for its Common Stock, together with the executed exercise form
(substantially in the form of that attached hereto) and together with payment
for the Common Stock purchased under this Warrant. The principal office of the
Corporation is located at the address specified on the signature page of this
Warrant; provided, however, that the Corporation may change its principal office
upon notice to the Holder. At the option of the Holder payment shall be made
either by check payable to the order of the Corporation or by wire transfer, or
the Holder may elect to receive shares of Common Stock calculated pursuant to
paragraph 4. Upon the partial exercise of this Warrant, the Corporation shall
issue to the Holder a new Warrant of the same tenor and date, and for the
balance of the number of shares of Common Stock not purchased upon such partial
exercise and any previous exercises. This Warrant is not exercisable with
respect to a
- 1 -
<PAGE>
fraction of a share of Common Stock. In lieu of issuing a fraction
of a share remaining after exercise of this Warrant as to all full shares
covered by this Warrant, the Corporation shall either at its option (a) pay for
the fractional share cash equal to the same fraction at the fair market price
for such share; or (b) issue scrip for the fraction in the registered or bearer
form which shall entitle the Holder to receive a certificate for a full share of
Common Stock on surrender of scrip aggregating a full share.
4. Cashless Exercise.
(a) The Holder may, upon any full or partial exercise of this
Warrant, pay the Exercise Price applicable to such exercise by delivering this
Warrant and receiving from the Corporation in return therefor the number of
shares of Common Stock as to which the Warrant is being exercised which have a
fair market value on the date of exercise equal to the fair market value of the
Warrant as established in paragraph 4(b).
(b) The fair market value of this Warrant shall mean the fair
market value of the Common Stock purchasable under this Warrant minus the
Exercise Price of this Warrant.
(c) The fair market value of the Common Stock is, if the
Common Stock is traded on a national securities exchange or in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), the average of the daily market
prices of such stock on the ten (10) trading days immediately preceding the date
as of which such value is to be determined. The market price for each such
trading day shall be average of the closing prices on such day of the Common
Stock on all domestic exchanges on which the Common Stock is then listed, or if
there have not been sales on any such exchange on such day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if the Common Stock is not so listed, the average of the high and low
bid and asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization. If at any time the Common Stock is not listed on any
domestic exchange or quoted in the NASDAQ System or the domestic
over-the-counter market, the fair market value shall be the higher of (i) the
book value thereof, as determined by any firm of independent public accountants
of recognized standing selected by the Corporation (which may be the
Corporation's regular independent accountants), as of the last day of any month
ending within sixty days preceding the date as of which the determination is to
be made; or (ii) the fair market value thereof, which shall be reasonably
determined by the Corporation and the Holder as of a date which is within
fifteen days of the date as of which the determination is to be made.
5. Protection Against Dilution. The number of shares of Common Stock
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth as follows. If at any time or from time to time after the date of this
Warrant, the Corporation:
(i) takes a record of the holders of its outstanding
shares of Common Stock for the purposes of entitling them to receive a dividend
payable in, or other distribution of, Common Stock, or
(ii) subdivides its outstanding shares of Common
Stock into a larger number of shares of Common Stock. or
(iii) combines its outstanding shares of Common Stock
into a smaller number of shares of Common Stock;
then, and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event by a fraction (A) the numerator of which is the total number of
outstanding shares of Common Stock immediately prior to such event and (B) the
denominator of which is the total number of outstanding shares of Common Stock
immediately after such event.
Upon each adjustment in the Exercise Price under this Warrant
such number of shares of Common Stock purchasable under this Warrant shall be
adjusted by multiplying the number of shares of Common Stock by a fraction, the
numerator of which is the Exercise Price immediately prior to such adjustment
and the denominator of which is the Exercise Price in effect upon such
adjustment.
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<PAGE>
6. Adjustment for Reorganization, Consolidation, Merger, Etc.
(a) During the Exercise Period, the Corporation shall, prior to
consummation of a consolidation with or merger into another corporation, or
conveyance of all or substantially all of its assets to any other corporation or
corporations, whether affiliated or unaffiliated (any such corporation being
included within the meaning of the term "successor corporation"), or agreement
to so consolidate, merge or convey assets, require the successor corporation to
assume, by written instrument delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock, securities or property as, in
accordance with the provisions of paragraph 6(b), the Holder shall be entitled
to purchase or receive
(b) In the case of any capital reorganization or reclassification of
the Common Stock of the Corporation (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
during the Exercise Period or in case, during the Exercise Period, the
Corporation (or any such other corporation) shall consolidate with or merge into
another corporation or convey all or substantially all its assets to another
corporation, the Holder, upon exercise, at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the Common Stock of the Corporation (or such other
corporation), the proportionate share of all stock, securities or other property
issued, paid or delivered for or on all of the Common Stock of the Corporation
(or such other corporation) as is allocable to the shares of Common Stock then
called for by this Warrant as if the Holder had exercised the Warrant
immediately prior thereto, all subject to further adjustment as provided in
paragraph 4 of this Warrant.
7. Notice of Adjustment. On the happening of an event requiring an
adjustment of the Exercise Price or the shares purchasable under this Warrant,
the Corporation shall immediately give written notice to the Holder stating the
adjusted Exercise Price and the adjusted number and kind of securities or other
property purchasable under this Warrant resulting from the event and setting
forth in reasonable detail the method of calculation and the facts upon which
the calculation is based.
8. Dissolution, Liquidation. In case the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation (other than in
connection with a reorganization, consolidation, merger, or other transaction
covered by paragraph 5 above) is at any time proposed, the Corporation shall
give at least thirty days prior written notice to the Holder. Such notice shall
contain: (a) the date on which the transaction is to take place; (b) the record
date (which shall be at least thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction; (c) a brief description of the transaction, (d) a
brief description of the distributions to be made to holders of Common Stock as
a result of the transaction; and (d) an estimate of the fair value of the
distributions. On the date of the transaction, if it actually occurs, this
Warrant and all rights under this Warrant shall terminate.
9. Rights of Holder. The Corporation shall deliver to the Holder all
notices and other information provided to its holders of shares of Common Stock
or other securities which may be issuable hereunder concurrently with the
delivery of such information to the holders. This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions, any
other rights as a shareholder of the Corporation. No dividends are payable or
will accrue on this Warrant or the Shares purchasable under this Warrant until,
and except to the extent that, this Warrant is exercised. Upon the surrender of
this Warrant and payment of the Exercise Price as provided above, the person or
entity entitled to receive the shares of Common Stock issuable upon such
exercise shall be treated for all purposes as the record holder of such shares
as of the close of business on the date of the surrender of this Warrant for
exercise as provided above. Upon the exercise of this Warrant, the Holder shall
have all of the rights of a shareholder in the Corporation.
10. Exchange for Other Denominations. This Warrant is exchangeable, on
its surrender by the Holder to the Corporation, for a new Warrant of like tenor
and date representing in the aggregate the right to purchase the balance of the
number of shares purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.
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<PAGE>
11. Substitution. Upon receipt by the Corporation of evidence
satisfactory (in the exercise of reasonable discretion) to it of the ownership
of and the loss, theft or destruction or mutilation of the Warrant, and (in the
case or loss, theft or destruction) of indemnity satisfactory (in the exercise
of reasonable discretion) to it, and (in the case of mutilation) upon the
surrender and cancellation thereof, the Corporation will issue and deliver, in
lieu thereof, a new Warrant of like tenor.
12. Restrictions on Transfer. Neither this Warrant nor the shares of
Common Stock issuable on exercise of this Warrant have been registered under the
Securities Act or any other securities laws (the "Acts"). Neither this Warrant
nor the shares of Common Stock purchasable hereunder may be sold, transferred,
pledged or hypothecated in the absence of (a) an effective registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts, or (b) an opinion of counsel reasonably satisfactory to the
Corporation that registration is not required under such Acts. If the Holder
seeks an opinion as to transfer without registration from Holder's counsel, the
Corporation shall provide such factual information to Holder's counsel as
Holder's counsel reasonably request for the purpose of rendering such opinion.
Each certificate evidencing shares of Common Stock purchased hereunder will bear
a legend describing the restrictions on transfer contained in this paragraph
unless, in the opinion of counsel reasonably acceptable to the Corporation, the
shares need no longer to be subject to the transfer restrictions.
13. Transfer. Except as otherwise provided in this Warrant, this
Warrant is transferable only on the books of the Corporation by the Holder in
person or by attorney, on surrender of this Warrant, properly endorsed.
14. Recognition of Holder. Prior to due presentment for registration of
transfer of this Warrant, the Corporation shall treat the Holder as the person
exclusively entitled to receive notices and otherwise to exercise rights under
this Warrant. All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the Holder at the address of the Holder appearing in the records of the
Corporation.
15. Payment of Taxes. The Corporation shall pay all taxes and other
governmental charges, other than applicable income taxes, that may be imposed
with respect to the issuance of shares of Common Stock pursuant to the exercise
of this Warrant.
16. Headings. The headings in this Warrant are for purposes of
convenience in reference only, shall not be deemed to constitute a part of this
Warrant and shall not affect-the meaning or construction of any of the
provisions of this Warrant.
17. Miscellaneous. This Warrant may not be changed, waived, discharged
or terminated except by an instrument in writing signed by the Corporation and
the Holder. This Warrant shall inure to the benefit of and shall be binding upon
the successors and assigns of the Corporation and the Holder.
18. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to its
principles governing conflicts of law.
ALL AMERICAN FOOD GROUP, INC.,
a New Jersey corporation
By:____________________________________
Authorized Officer
Printed Name:__________________________
Title:_________________________________
104 New Era Drive
South Plainfield, New Jersey 07080
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<PAGE>
ALL AMERICAN FOOD GROUP, INC.
Form of Transfer
(To be executed by the Holder to transfer the Warrant)
For value received the undersigned registered holder of the attached Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named
below:
Names of Number of shares
Assignee Address Taxpayer ID No. subject to transferred
- -------- ------- --------------- -------------------------
Warrant
-------
The undersigned registered holder further irrevocably appoints ______________
__________________________________________________ attorney (with full power
of substitution) to transfer this Warrant as aforesaid on the books of the
Corporation.
Date:______________________ __________________________________________
Signature
- 5 -
<PAGE>
ALL AMERICAN FOOD GROUP, INC.
Exercise Form
(To be executed by the Holder to purchase
Common Stock pursuant to the Warrant)
The undersigned holder of the attached Warrant hereby: (1) irrevocably
elects to exercise purchase rights represented by such Warrant for, and to
purchase, ___________ shares of Common Stock of All American Food Group, Inc., a
New Jersey corporation, and encloses a check or has wired payment of
$___________________________ therefor; (2) requests that a certificate for the
shares be issued in the name of the undersigned; and (3) if such number of
shares is not all of the shares purchasable under this Warrant, that a new
Warrant of like tenor for the balance of the remaining shares purchasable under
this Warrant be issued.
Date:______________________ __________________________________________
Signature
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<PAGE>
[LETTERHEAD OF MILLING LAW OFFICES]
December 4, 1997
All American Food Group, Inc.
9 Law Drive
Fairfield, New Jersey 07006
Gentlemen:
We are members of the bar of the State of New Jersey. For that reason, you
have requested our opinion for the use of All American Food Group, Inc., a New
Jersey corporation (the "Company"), in connection with your Registration
Statement under the Securities Act of 1933, as amended, and the Rules and
Regulations promulgated thereunder. Your Registration Statement is intended to
register 3,736,767 shares of the common stock of the Company issuable upon the
conversion of $2,600,000 principal amount of its 6% convertible debentures,
2,235,000 shares of common stock of the Company issuable upon the exercise of
its common stock purchase warrants and 638,462 shares of common stock of the
Company issuable upon conversion of its Series D Preferred Stock.
We have examined the Company's Registration Statement on Form SB-2 in the
form to be filed with the Securities and Exchange Commission on or about
December 4, 1997 (the "Registration Statement"). We further have examined such
corporate records of the Company as we deemed relevant to the opinion hereafter
expressed.
Based on the foregoing examination, we are of the opinion that, under New
Jersey law, upon issuance and receipt by the Company of the consideration in the
amount and in the manner described in the Registration Statement, the shares of
common stock covered by the Registration Statement will be legally issued, fully
paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
MILLING LAW OFFICES
By: /s/ John L. Milling
JOHN L. MILLING
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between ALL AMERICAN FOOD
GROUP, INC., a New Jersey corporation, with headquarters located at 104 New Era
Drive, South Plainfield, New Jersey 07080 ("Company"), and the undersigned (the
"Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded, inter alia, by Rule 506 under Regulation
D ("Regulation D" as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and
subject to the conditions of this Agreement, 6% Convertible Debentures (the
"Debentures"), of the Company which will be convertible into shares of Common
Stock, $.01 par value per share of the Company (the "Common Stock"), upon the
terms and subject to the conditions of such Debentures (the Common Stock and the
Debentures sometimes referred to herein as the "Securities"), and subject to
acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase. The undersigned hereby agrees to initially
purchase from the Company, the Debentures of the Company, in the principal
amount set forth on the signature page of this Agreement, out of a total
offering of $2,600,000 in Debentures as more specifically set forth in P. 4(h),
and having the terms and conditions and being in the form attached hereto as
Annex I. The purchase price for the Debentures shall be as set forth on the
signature page hereto and shall be payable in United States Dollars.
b. Form of Payment. The Buyer shall pay the purchase price for
the Debentures by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as Annex II (the "Joint Escrow Instructions") as
set forth below. Promptly following payment by the Buyer to the Escrow Agent of
the purchase price of the Debentures, the Company shall deliver the Debentures
duly executed on behalf of the Company to the Escrow Agent. By signing this
Agreement, the Buyer and the Company, and subject to acceptance by the Escrow
Agent, each
<PAGE>
agrees to all of the terms and conditions of, and becomes a party to, the Joint
Escrow Instructions, all of the provisions of which are incorporated herein by
this reference as if set forth in full.
c. Method of Payment. Payment into escrow of the purchase
price for the Debentures shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: 637-1657450
Not later than 1:00 p.m., New York time, on the date which is two (2) New York
Stock Exchange trading days after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit with the Escrow Agent the aggregate purchase
price for the Debentures, in currently available funds. Time is of the essence
with respect to such payment, and failure by the Buyer to make such payment,
shall allow the Company to cancel this Agreement.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock
pursuant to the Registration Statement, the Buyer is purchasing the Debentures
and will be acquiring the shares of Common Stock issuable upon conversion of the
Debenture for its own account for investment only and not with a view towards
the public sale or distribution thereof and not with a view to or for sale in
connection with any distribution thereof;
b. The Buyer is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), and (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its investment
in the Securities;
c. All subsequent offers and sales of the Debentures and the
shares of Common
2
<PAGE>
Stock issuable upon conversion of, or issued as dividends on, the Debentures
(the "Shares" or "Common Stock") by the Buyer shall be made pursuant to
registration of the Shares under the 1933 Act or pursuant to an exemption from
registration;
d. The Buyer understands that the Debentures are being offered
and sold, and the Shares are being offered, to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgements and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Debentures and to receive an offer of the Shares;
e. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Debenture and the
offer of the Shares which have been requested by the Buyer, including Annex V
hereto. The Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company and have received complete and satisfactory
answers to any such inquiries. Without limiting the generality of the foregoing,
the Buyer has also had the opportunity to obtain and to review the Company's (1)
Annual Report on Form 10-K for the fiscal year ended October 31, 1997, (2)
Quarterly Report on Form 10-Q for the fiscal quarters ended January 31, 1997,
and April 30, 1997, (3) Forms 8-K dated July 24, 1997 and August 14, 1997, and
(4) Form S-B2 dated December 12, 1996 (the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities
involves a high degree of risk;
g. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities;
h. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
i. Neither the Buyer, nor any affiliate of the Buyer, has any
present intention of entering into, any put option, short position, or other
similar position with respect to the Debentures or the Shares.
j. Notwithstanding the provisions hereof or of the Debentures,
in no event (except with respect to an Event of Mandatory Conversion upon the
maturity of the Debentures) shall the holder be entitled to convert any
Debenture to the extent after such conversion, the sum
3
<PAGE>
of (1) the number of shares of Common Stock beneficially owned by the Buyer and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debenture), and (2) the number of shares of Common Stock issuable upon the
conversion of the Debenture with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Buyer and its
affiliates of more than 4.99% of the outstanding shares of Common Stock. For
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), except as otherwise provided
in clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
a. Concerning the Shares. There are no preemptive rights of
any stockholder of the Company, as such, to acquire the Common Stock.
b. Reporting Company Status. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey, and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary other than those jurisdictions in which the failure to
so qualify would not have a material and adverse effect on the business,
operations, properties, prospects or condition (financial or otherwise) of the
Company. The Company has registered its Common Stock pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Common Stock is listed and traded on the NASDAQ/Small Cap Market. The Company
has received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such listing, and the Company has maintained
all requirements for the continuation of such listing.
c. Authorized Shares. The Company has sufficient authorized
and unissued Shares as may be reasonably necessary to effect the conversion of
the Debenture. The Shares have been duly authorized and, when issued upon
conversion of, or as interest on, the Debentures, will be duly and validly
issued, fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder.
d. Securities Purchase Agreement; Registration Rights
Agreement and Stock. This Agreement and the Registration Rights Agreement, the
form of which is attached hereto as Annex IV (the "Registration Rights
Agreement"), and the transactions contemplated thereby, have been duly and
validly authorized by the Company, this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the Registration Rights
Agreement, when executed and delivered by the Company, will be, valid and
binding agreements
4
<PAGE>
of the Company enforceable in accordance with their respective terms, subject as
to enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally; and the Debentures will be duly and validly authorized and,
when executed and delivered on behalf of the Company in accordance with this
Agreement, will be a valid and binding obligation of the Company in accordance
with its terms, subject to general principles of equity and to bankruptcy,
insolvency, moratorium, or other similar laws affecting the enforcement of
creditors' rights generally.
e. Non-contravention. The execution and delivery of this
Agreement and the Registration Rights Agreement by the Company, the issuance of
the Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Debentures do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under (i)
the articles of incorporation or by-laws of the Company, (ii) any indenture,
mortgage, deed of trust, or other material agreement or instrument to which the
Company is a party or by which it or any of its properties or assets are bound,
including any listing agreement for the Common Stock except as herein set forth,
(iii) to its knowledge, any existing applicable law, rule, or regulation or any
applicable decree, judgment, or (iv) to its knowledge, order of any court,
United States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its properties
or assets, except such conflict, breach or default which would not have a
material adverse effect on the transactions contemplated herein.
f. Approvals. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the Stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the Buyer
as contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. None of the SEC Filings contained, at the time
they were filed, any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
made therein in light of the circumstances under which they were made, not
misleading. Except as set forth on Annex V hereto, the Company has since [13
Months] timely filed all requisite forms, reports and exhibits thereto with the
Securities and Exchange Commission.
h. Absence of Certain Changes. Since April 30, 1997, there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, or results of operations
of the Company, except as disclosed in Annex V or in the documents referred to
in Section 2(e) hereof.
i. Full Disclosure. There is no fact known to the Company
(other than general economic conditions known to the public generally) or as
disclosed in the documents referred to in Section 2(e), that has not been
disclosed in writing to the Buyer that (i) would
5
<PAGE>
reasonably be expected to have a material adverse effect on the business or
financial condition of the Company or (ii) would reasonably be expected to
materially and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement.
j. Absence of Litigation. Except as set forth in Annex V
hereto, and in the documents referred to in Section 2(e), which the Buyer has
reviewed, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the business
or financial condition of the Company or the transactions contemplated by this
Agreement or any of the documents contemplated hereby or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, this Agreement or any of such other
documents.
k. Absence of Events of Default. Except as set forth in Annex
V hereto and Section 3(e), no Event of Default, as defined in the respective
agreement to which the Company is a party, and no event which, with the giving
of notice or the passage of time or both, would become an Event of Default (as
so defined), has occurred and is continuing, which would have a material adverse
effect on the Company's financial condition or results of operations.
l. Prior Issues. Except as set forth in Annex V, during the
twelve (12) months preceding the date hereof, the Company has not issued any
convertible securities. The presently outstanding unconverted principal amount
of each such issuance as at June 30, 1997 are set forth in Annex V.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the
Debentures have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
6
<PAGE>
b. Restrictive Legend. The Buyer acknowledges and agrees that
the Debentures, and, until such time as the Common Stock has been registered
under the 1933 Act as contemplated by the Registration Rights Agreement and sold
in accordance with an effective registration statement ("Registration
Statement"), the Shares issued to the Holder upon conversion of the Debentures
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Debentures and such
Shares):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to
enter into the Registration Rights Agreement, in substantially the form attached
hereto as Annex IV, on or before the Closing Date.
d. Filings. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Debentures to the Buyer
under any United States laws and regulations, or by any domestic securities
exchange or trading market, and to provide a copy thereof to the Buyer promptly
after such filing.
e. Reporting Status. So long as the Buyer beneficially owns
any of the Debentures, the Company shall file all reports required to be filed
with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
permit such termination.
f. Use of Proceeds. The Company will use the proceeds from the
sale of the Debentures (excluding amounts paid by the Company for legal fees and
finder's fees in connection with the sale of the Debentures) for internal
working capital purposes, and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership
enterprise or other person.
g. Option. At the option of the Company, the Buyer agrees to
purchase up to an additional $1,300,000 principal amount of Debentures (the
"Additional Debentures") in one tranche of $1,300,000, occurring not later than
the 30th day after the Effective Date (as defined below) and upon 15 days
written demand by the Company, upon the same terms and conditions as those
applicable to the Debentures issued pursuant to this Agreement (the "Additional
Closing
7
<PAGE>
Date"). Buyer's obligation to purchase the Additional Debentures on the
Additional Closing Date shall be contingent upon the satisfaction of the
following conditions: On each Additional Closing Date (i) the Registration
Statement required to be filed under the Registration Rights Agreement is
effective (the "Effective Date"), (ii) the representations and warranties of the
Company contained in Section 3 are true and correct in all material respects,
and (iii) the Market Price on the Additional Closing Date (as defined in the
Debenture) exceeds $1.25 per share. Each such Debenture shall mature on the last
day of the twenty-fourth month following its issuance,
h. Available Shares. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock sufficient to yield the number of shares of Common Stock issuable
at conversion as may be required to satisfy the conversion rights of the Buyer
pursuant to the terms and conditions of the Debentures.
i. Warrants. The Company agrees to issue to Buyer within
thirty (30) days after the Closing Date and each Additional Closing Date,
transferable divisible warrants with cashless exercise provisions (the
"Warrants") for 50,000 shares of Common Stock for each $1,000,000 principal
amount of Debentures. Such Warrants shall bear an exercise price per share of
Common Stock equal to 150% of the Market Price, as defined in the Debentures, on
the Closing Date, and shall be immediately exercisable and for a period of five
(5) years thereafter, in the form annexed hereto as Annex VI, together with
piggy-back registration rights, and demand registration rights.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the
aggregate purchase price for the Debentures in accordance with Section 1(c)
hereof, the Company will irrevocably instruct its transfer agent to issue Common
Stock from time to time upon conversion of the Debentures in such amounts as
specified from time to time by the Company to the transfer agent, bearing the
restrictive legend specified in Section 4(b) of this Agreement prior to
registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each conversion of the Debentures. The Company warrants that no
instruction other than such instructions referred to in this Section 5 and stop
transfer instructions to give effect to Section 4(a) hereof prior to
registration and sale of the Shares under the 1933 Act will be given by the
Company to the transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Securities. If the Buyer provides the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of a resale by the
Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a)
of this Agreement is not required under the 1933 Act, the Company shall (except
as provided in
8
<PAGE>
clause (2) of Section 4(a) of this Agreement) permit the transfer of the
Securities and, in the case of the Shares, promptly instruct the Company's
transfer agent to issue one or more certificates for Common Stock without legend
in such name and in such denominations as specified by the Buyer.
b. Subject to the completeness and accuracy of the Buyer's
representations and warranties herein, upon the conversion of any Debenture by a
person who is a non-U.S. Person, and following the expiration of any applicable
Restricted Period, the Company, shall, at its expense, take all necessary action
(including the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates without restrictive legend or stop
orders in the name of Buyer (or its nominee (being a non-U.S. Person) or such
non-U.S. Persons as may be designated by Buyer) and in such denominations to be
specified at conversion representing the number of shares of Common Stock
issuable upon such conversion, as applicable. Nothing in this Section 4,
however, shall affect in any way Buyer's or such nominee's obligations and
agreement to comply with all applicable securities laws upon resale of the
Securities.
c. The Company will permit the Buyer to exercise its right to
convert the Debentures by telecopying an executed and completed Notice of
Conversion to the Company and delivering within three business days thereafter,
the original Notice of Conversion and the Debentures representing the Shares to
the Company by express courier, with a copy to the transfer agent. Each date on
which a Notice of Conversion is telecopied to and received by the Company in
accordance with the provisions hereof shall be deemed a Conversion Date. The
Company will transmit the certificates representing the Shares issuable upon
conversion of any Debenture (together with the Debentures representing the
Shares not so converted) to the Buyer via express courier, by electronic
transfer or otherwise, within three business days after receipt by the Company
of the original Notice of Conversion and the Debenture representing the Shares
to be converted (the "Delivery Date").
d. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date could result in economic loss to
the Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the following schedule (where "No. Business Days Late" is
defined as the number of business days beyond five (5) business days from
Delivery Date:
Late Payment For Each
$10,000 of Debenture
No. Business Days Late Principal Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
9
<PAGE>
7 $700
8 $800
9 $900
10 $1,000
[Greater than] 10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Furthermore, in addition to any other remedies
which may be available to the Buyer, in the event that the Company fails for any
reason to effect delivery of such shares of Common Stock within five business
days after the Delivery Date, the Buyer will be entitled to revoke the relevant
Notice of Conversion by delivering a notice to such effect to the Company
whereupon the Company and the Buyer shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion.
e. Delivery of Common Stock Upon Conversion. Upon receipt of a
Notice of Conversion, the Company shall, no later than the later of the (a)
third business day following the Conversion Date, and (b) the date of such
receipt (the "Delivery Period"), issue and deliver to the Buyer (x) that number
of shares of Common Stock issuable upon conversion of that portion of Preferred
Stock being converted. In lieu of delivering physical certificates representing
the Common Stock issuable upon conversion, provided the Company's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Buyer and its compliance with
the provisions contained in this paragraph, so long as the certificates therefor
do not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
6. DELIVERY INSTRUCTIONS.
The Debentures shall be delivered by the Company to the Escrow
Agent pursuant to Section 1(b) hereof, or a delivery against payment basis on
the Closing Date and on each Additional Closing Date.
7. CLOSING DATE.
The date and time of the issuance and sale of the Debentures
(the "Closing Date" and "Additional Closing Date") shall occur no later than
12:00 Noon, New York time on the first NYSE trading day after the fulfillment or
waiver of all closing conditions pursuant to Sections 8 and 9, or such other
mutually agreed to time. The closing shall occur on such date at the offices of
the Escrow Agent. Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the funds representing the Purchase
Price for the Debentures,
10
<PAGE>
and the Debentures only upon satisfaction of the conditions set forth in Section
8 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Debentures on the Closing Date and Additional Closing Date to the Buyer
pursuant to this Agreement is conditioned upon:
a. The receipt and acceptance by the Company of such Agreement
as evidenced by execution of this Agreement by the Company for at least One
Million Five Hundred Thousand ($1,500,000.00) Dollars in Debentures (or such
lesser amount as the Company, in its sole discretion, shall determine);
b. Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the purchase price for the Debentures in
accordance with Section 1(c) hereof;
c. The accuracy on the Closing Date and Additional Closing
Date of the representations and warranties of the Buyer contained in this
Agreement as if made on the Closing Date and the performance by the Buyer on or
before the Closing Date and Additional Closing Date of all covenants and
agreements of the Buyer required to be performed on or before the Closing Date
and Additional Closing Date;
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Debentures on the Closing Date and Additional Closing Date is
conditioned upon:
a. Acceptance by Buyer of an Agreement for the sale of
Debentures, as indicated by execution of this Agreement;
b. Delivery by the Company to the Escrow Agent of the
Debenture in accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date
and Additional Closing Date of the representations and warranties of the Company
contained in this Agreement as if made on the Closing Date and Additional
Closing Date and the performance by the Company on or before the Closing Date
and Additional Closing Date of all covenants and agreements of the Company
required to be performed on or before the Closing Date and Additional Closing
Date;
11
<PAGE>
and
d. On the Closing Date and Additional Closing Date, the Buyer
having received an opinion of counsel for the Company, dated the Closing Date
and Additional Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in Annex III attached hereto,
and the Registration Rights Agreement annexed hereto as Annex IV.
10. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
11. NOTICES. Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall be deemed
effectively given, (i) on the date delivered, (a) by personal delivery, or (b)
if advance copy is given by fax, (ii) seven business days after deposit in the
United States Postal Service by regular or certified mail, or (iii) three
business days mailing by international express courier, with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days advance written notice to each of the other parties hereto.
COMPANY: ALL AMERICAN FOOD GROUP, INC.
104 New Era Drive
South Plainfield, New Jersey 07080
ATT: Mr. Andrew Thorburn
Telecopier No.: (908) 757-8857
12
<PAGE>
with a copy to:
Lehman & Eilen, Esqs.
50 Charles Lindbergh Blvd.
Uniondale, New York 11553
Attention: Hank Gracin, Esq.
Telecopier No.: (516) 222-0948
PURCHASER: At the address set forth on the signature page of this
Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Company's
representations and warranties shall survive the execution and delivery hereof
of this Agreement and the delivery of the Debentures and the Purchase Price, and
shall inure to the benefit of their respective successors and assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer or one of its officers thereunto duly authorized as of the date set
forth below.
AGGREGATE INITIAL PURCHASE PRICE OF SUCH DEBENTURE: $ 1,300,000
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the
foregoing statements are true and correct and that it has caused this Securities
Purchase Agreement to be duly executed on its behalf this 16th day of
September, 1997.
111 Arlosorov Street SOUTH SEAS IMPORT-EXPORT CORP.
- ------------------------------------ ------------------------------------
Address Printed Name of Subscriber
Tel Aviv, Israel
- ------------------------------------
By:
---------------------------------
Telecopier No. __________________ (Signature of Authorized Person)
------------------------------------
British Virgin Islands Printed Name and Title
- ------------------------------------
Jurisdiction of Incorporation
or Organization
This Agreement has been accepted as of the date set forth below.
ALL AMERICAN FOOD GROUP, INC.
By: /s/ Andrew Thorburn
------------------------------------
Title: Chairman & CEO
----------------------------------
Date: September 16, 1997
----------------------------------
14
<PAGE>
ANNEX I FORM OF DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI FORM OF WARRANT
<PAGE>
ANNEX I
-------
FORM OF DEBENTURE
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
No. 97-1 US $ 1,300,000
------------ ----------------
ALL AMERICAN FOOD GROUP, INC.
6% CONVERTIBLE DEBENTURE DUE SEPTEMBER 30, 1999
THIS DEBENTURE is one of a duly authorized issue up to $2,600,000 in
Debentures of ALL AMERICAN FOOD GROUP, INC., a corporation duly organized and
existing under the laws of the State of New Jersey (the "Company") designated as
its 6% Convertible Debenture Due September 30,1999.
FOR VALUE RECEIVED, the Company promises to pay to SOUTH SEAS
IMPORT-EXPORT CORP., the registered holder hereof (the "Holder"), the principal
sum of ONE MILLION THREE HUNDRED THOUSAND and 00/100 (US $1,300,000) Dollars on
September 30, 1999 (the "Maturity Date") and to pay interest on the principal
sum outstanding from time to time in arrears upon conversion as provided herein
on September 30, 1999 at the rate of 6% per annum accruing from the date of
initial issuance. Accrual of interest shall commence on the first such business
day to occur after the date hereof until payment in full of the principal sum
has been made or duly provided for. Subject to the provisions of Paragraph 4
below, the principal of, and interest on, this Debenture are payable at the
option of the Holder, in shares of Common Stock $.01 par value per share of the
Company ("Common Stock"), or in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder from time to time. The Company
will pay the principal of and interest upon this Debenture on the Maturity Date,
less any amounts required by law to be deducted, to the registered holder of
this Debenture as of the tenth day prior to the Maturity Date and addressed to
such holder as the last address appearing on the Debenture Register. The
forwarding of such check shall constitute a payment of principal and interest
hereunder and shall satisfy and discharge the liability for principal and
interest on this Debenture to the extent of the sum represented by such check
plus any amounts so deducted.
<PAGE>
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Fifty Thousand
Dollars (US$50,000) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holders surrendering the same. No
service charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including opinions that the issuance of the Debenture in such
other name does not and will not cause a violation of the Act or any applicable
state or foreign securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
4. A. Subject to Section 4B and 4C, the Holder of this Debenture is
entitled, at its option, to convert at any time commencing the earlier of (a)
sixty (60) days after the Issuance Date, or (b) the effective date of the
Registration Statement filed pursuant to the Registration Rights Agreement
between the Company and the Holder, or the Holder's predecessor in interest, the
principal amount of this Debenture, provided that the principal amount is at
least US $10,000 (unless if at the time of such election to convert the
aggregate principal amount of all Debentures registered to the Holder is less
that Ten Thousand Dollars (US $10,000), then the whole amount thereof) into
shares of Common Stock of the Company at a conversion price for each share of
Common Stock equal to the lesser of (a) 100% of the Market Price on the Issuance
Date, and (b) (i) 82% of the Market Price on the Conversion Date if such date is
between sixty (60) and ninety (90) days from the date hereof; (ii) 80% of the
Market Price if the date is between ninety-one (91) and one hundred twenty (120)
days from the date hereof; (iii) 77.5% of the Market Price if the date is
between one hundred twenty-one (121) and one hundred fifty (150) days from the
date hereof; or (iv) 75% of the Market Price thereafter. For purposes of this
Section 4, the Market Price shall be the average closing bid price of the Common
Stock on the five (5) trading days immediately preceding the Closing Date or
Conversion Date, as may be applicable, as reported by the National Association
of Securities Dealers, or the closing bid price on the over-the-counter market
on such date or, in the event the Common Stock is listed on a stock exchange,
the Market Price shall be the closing price on the exchange on such date, as
reported in the Wall Street Journal. Conversion
<PAGE>
shall be effectuated by surrendering the Debentures to be converted to the
Company with the form of conversion notice attached hereto as Exhibit A,
executed by the Holder of the Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion (as above provided) hereof, and
accompanied, if required by the Company, by proper assignment hereof in blank.
Interest accrued or accruing from the date of issuance to the date of conversion
shall, at the option of the Company, be paid in cash or Common Stock upon
conversion at the Conversion Rate. No fraction of Shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The date on which notice
of conversion is given (the "Conversion Date") shall be deemed to be the date on
which the Holder has delivered this Debenture, with the conversion notice duly
executed, to the Company or, the date set forth in such facsimile delivery of
the notice of conversion if the Debenture is received by the Company within
three (3) business days therefrom. Facsimile delivery of the conversion notice
shall be accepted by the Company at telephone number (908-575-8857); ATTN: A.
Thornbury). Certificates representing Common Stock upon conversion will be
delivered within three (3) business days from the date the notice of conversion
with the original Debenture is delivered to the Company.
B. (i) The Company shall have the right to redeem
any Debentures for which a Notice of
Conversion has not theretofore been
submitted by delivering a Notice of
Redemption to the Holder of the Debenture.
(ii) The redemption price shall be calculated so
that the Holder will realize the full
economic benefit that the Holder would
derive from converting the securities into
Common Stock and immediately selling the
Common Stock on the date of delivery of the
Notice of Redemption, and shall be paid to
the Holder within ten (10) days from the
date of the Notice of Redemption, except
with respect to any Debentures for which a
Notice of Conversion is submitted to the
Company, within five (5) business days of
the Holder's receipt of the Company's Notice
of Redemption. Furthermore, in the event
such payment is not timely made, any rights
of the Company to redeem the Debenture shall
terminate, and the Notice of Redemption
shall be null and void.
C. The Company shall have the right to require, by written
notice to the Holder of this Debenture at least ten (10) days prior to the
Maturity Date, that the Holder of this Debenture exercise its right of
conversion with respect to all or that portion of the principal amount and
interest outstanding on the Maturity Date.
5. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
and interest on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company.
<PAGE>
6. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
7. In the event that an Event of Default occurs pursuant to Section 12
hereof, then, provided the Holder is not a U.S. Person as that term is defined
under the Regulation S of the Act, the Holder may, at is option, convert the
principal amount and accrued interest under this Debenture into shares of Common
Stock in accordance with the terms of this Debenture. In such event, the shares
of Common Stock shall be issued pursuant to Regulation S and shall be
transferable in accordance with the provisions of Regulation S as set forth
below. Upon the conversion of any Debenture pursuant to this provision, the
Company shall instruct its transfer agent to issue in the name of the holder, or
such non-U.S. Person as the Holder designates, a certificate or certificates
representing the shares issuable upon such conversion. The certificates issued
shall either be without legend, or may contain a self-liquidating legend at the
end of the restricted period under Regulation S (the "Restricted Period"). The
Company warrants that the only restriction it will impose in the certificate(s)
with its transfer agent will be to monitor the Restricted Period and that
following the Restricted Period, to the full extent permitted by applicable law,
the shares will otherwise be freely transferable on the books and records of the
Company. Nothing in this Section 9 shall affect in any way the Holder's, or the
Holder's nominee's, obligation and agreements to comply with all applicable
securities laws upon resale of the Common Stock.
8. If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially all of the
assets of the Company (a "Sale"), the Holder hereof shall have the right to
convert by delivering a Notice of Conversion to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company. In the event the Holder
hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture, less all amounts required by
law to be deducted, upon which tender of payment following such notice, the
right of conversion shall terminate.
9. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under
<PAGE>
circumstances which will not result in a violation of the Act or any applicable
state Blue Sky or foreign laws or similar laws relating to the sale of
securities.
10. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions.
11. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
12. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal
or interest on this Debenture and such default shall
remain unremedied for five (5) business days after
the Company has been notified of the default in
writing by a Holder; or
b. Any of the representations or warranties made by the
Company herein, in the Securities Purchase Agreement,
or in any certificate or financial or other written
statements furnished by the Company in connection
with the execution and delivery of this Debenture or
the Securities Purchase Agreement shall be false or
misleading in any material respect at the time made;
or
c: The Company fails to issue shares of Common Stock to
the Holder or to cause its Transfer Agent to issue
shares of Common Stock upon exercise by the Holder of
the conversion rights of the Holder in accordance
with the terms of this Debenture, fails to transfer
or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture and when
required by this Debenture or the Registration Rights
Agreement, or fails to remove any restrictive legend
or to cause its Transfer Agent to transfer on any
certificate or any shares of Common Stock issued to
the Holder upon conversion of this Debenture as and
when required by this Debenture, the Securities
Purchase Agreement or the Registration Rights
Agreement and any such failure shall continue uncured
for five (5) business days after the Company has been
notified of such failure in writing by Holder.
<PAGE>
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of the
Company under this Debenture and such failure shall
continue uncured for a period of thirty (30) days
after written notice from the Holder of such failure;
or
e. The Company shall (1) admit in writing its inability
to pay its debts generally as they mature; (2) make
an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (3)
apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial
part of its property or business; or
f. A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within sixty (60) days after such
appointment; or
g. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within sixty (60) days thereafter; or
h. Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Thousand
($200,000) Dollars in the aggregate shall be entered
or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty(60) days
or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
i. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within sixty (60) days after such
institution or the Company shall by any action or
answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding; or
j. The Company shall have its Common Stock suspended or
delisted from an exchange or over-the-counter market
from trading for in excess of five trading days.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest
<PAGE>
or notice of any kinds, all of which are hereby expressly waived, anything
herein or in any note or other instruments contained to the contrary
notwithstanding, and the Holder may immediately enforce any and all of the
Holder's rights and remedies provided herein or any other rights or remedies
afforded by law.
13. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: , 1997
-------------------
ALL AMERICAN FOOD GROUP, INC.
By:
---------------------------------------
------------------------------------------
(Print Name)
-----------------------------------------
(Title)
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________
of the principal amount of the above Debenture No. ___ into shares of Common
Stock of ALL AMERICAN FOOD GROUP, INC. (the "Company") according to the
conditions hereof, as of the date written below. In converting the Debenture No.
______________, the undersigned hereby confirms and acknowledges that the shares
of Common Stock are being acquired solely for the account of the undersigned and
not a nominee for any other party, and that the undersigned will not offer, sell
or otherwise dispose of any such shares of Common Stock, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended.
Date of Conversion* ___________________________________________________________
Applicable Conversion Price __________________________________________________
Signature _____________________________________________________________________
[Name]
Address: ______________________________________________________________________
______________________________________________________________________
* This original Debenture and Notice of Conversion must be received by
the Company by the third business date following the Date of
Conversion.
<PAGE>
ANNEX IV
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of September
_____, 1997 (this "Agreement"), is made by and between ALL AMERICAN FOOD GROUP,
INC., a New Jersey corporation (the "Company"), and the entity named on the
signature page hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of September ______, 1997, between the
Initial Investor and the Company (the "Securities Purchase Agreement"), the
Company has agreed to issue and sell to the Initial Investor one or more 6%
Convertible Debentures of the Company, in an aggregate principal amount not
exceeding $2,600,000 (collectively, the "Debentures"), and warrants to purchase
up to 100,000 shares of Common Stock, which Debentures will be convertible into
shares of the common stock, $.01 par value (the "Common Stock"), of the Company
(the "Conversion Shares") upon the terms and subject to the conditions of such
Debentures, and the Warrants will be exercisable for shares of Common Stock (the
"Warrant Shares"); and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agrees as follows:
1. Definitions.
(1) As used in this Agreement, the
following terms shall have the following
meanings:
(i) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
<PAGE>
(iii) "Potential Material Event" means any of the following:
(a) the possession by the Company of material information not ripe for
disclosure in a registration statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company that
disclosure of such information in the registration statement would be
detrimental to the business and affairs of the Company; or (b) any material
engagement or activity by the Company which would, in the good faith
determination of the Board of Directors of the Company, be adversely affected by
disclosure in a registration statement at such time, which determination shall
be accompanied by a good faith determination by the Board of Directors of the
Company that the registration statement would be materially misleading absent
the inclusion of such information.
(iv) "Registrable Securities" means the Conversion Shares and
the Warrant Shares.
(v) "Registration Statement" means a registration statement of
the Company under the Securities Act.
(2) Capitalized terms used herein and
not otherwise defined herein shall have the
respective meanings set forth in the
Securities Purchase Agreement.
2. Registration.
(1) Mandatory Registration. The Company
shall prepare and file with the SEC, no
later than forty-five (45) days following
the initial Closing Date under the
Securities Purchase Agreement, either a
Registration Statement on Form SB-2
registering for resale by the Investor a
sufficient number of shares of Common Stock
for the Initial Investors (or such lesser
number as may be required by the SEC, but in
no event less than the number of shares into
which the Debentures would be convertible
and the Warrants exercisable at the time of
filing of the Form SB-2, or an amendment to
any pending Company Registration Statement
on Form SB-2, which Registration Statement
shall be declared effective no later than 90
days after the Closing Date. If at any time
the number of shares of Common Stock into
which the Debentures may be converted
exceeds the aggregate number of shares of
Common Stock then registered, the Company
shall, within ten (10) business days after
receipt of a written notice from any
Investor, either (i) amend the Registration
<PAGE>
Statement filed by the Company pursuant to
the preceding sentence, if such Registration
Statement has not been declared effective by
the SEC at that time, to register all shares
of Common Stock into which the Debentures
may be converted, or (ii) if such
Registration Statement has been declared
effective by the SEC at that time, file with
the SEC an additional Registration Statement
on Form SB-2 to register the shares of
Common Stock into which the Debentures may
be converted that exceed the aggregate
number of shares of Common Stock already
registered.
(2) Payments by the Company. If the
Registration Statement covering the
Registrable Securities required to be filed
by the Company pursuant to Section 2(a)
hereof is not effective within the earlier
of (a) 5 days after notice by the SEC that
it may be declared effective or (b) ninety
(90) days following the initial Closing Date
(the Required Effective Date"), or after a
Suspension Period (except as provided by the
last sentence of section 2a), then the
Company will make payments to the Initial
Investor in such amounts and at such times
as shall be determined pursuant to this
Section 2(b). The amount to be paid by the
Company to the Initial Investor shall be
determined as of each Computation Date, and
such amount shall be equal to two (2%)
percent of the purchase price paid by the
Initial Investor for all Debentures then
purchased and outstanding pursuant to the
Securities Purchase Agreement for any period
from the Required Effective Date and three
(3%) percent to each Computation Date
thereafter, until the Registration Statement
is declared effective by the SEC (the
"Periodic Amount"). The full Periodic Amount
shall be paid by the Company in immediately
available funds within three business days
after each Computation Date. Notwithstanding
the foregoing, the amounts payable by the
Company pursuant to this provision shall not
be payable to the extent any delay in the
effectiveness of the Registration Statement
occurs because of an act of, or a failure to
act or to act timely by the Initial Investor
or its counsel, or in the event all of the
Registrable Securities may be sold pursuant
to Rule 144 or another available exemption
<PAGE>
under the Act.
As used in this Section 2(b), the following terms shall have
the following meanings:
"Computation Date" means the date which is thirty (30) days
after the Required Effective Date (except as provided by the last sentence of
section 2(a)), and, if the Registration Statement required to be filed by the
Company pursuant to Section 2(a) has not theretofore been declared effective by
the SEC, each date which is thirty (30) days after the previous Computation Date
(pro rated for partial periods) until such Registration Statement is so declared
effective.
3. Obligations of the Company. In connection
with the registration of the Registrable Securities,
the Company shall do each of the following.
(1) Prepare promptly, and file with the
SEC by forty-five (45) days after the
initial Closing Date, a Registration
Statement with respect to not less than the
number of Registrable Securities provided in
Section 2(a), above, and thereafter use its
reasonable best efforts to cause each
Registration Statement relating to
Registrable Securities to become effective
the earlier of (a) 5 days after notice by
the SEC that it may be declared effective or
(b) ninety (90) days following the initial
Closing Date, and keep the Registration
Statement effective at all times until the
earliest (the "Registration Period") of (i)
the date that is two years after the Closing
Date (ii) the date when the Investors may
sell all Registrable Securities under Rule
144 or (iii) the date the Investors no
longer own any of the Registrable
Securities, which Registration Statement
(including any amendments or supplements
thereto and prospectuses contained therein)
shall not contain any untrue statement of a
material fact or omit to state a material
fact required to be stated therein or
necessary to make the statements therein, in
light of the circumstances in which they
were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
<PAGE>
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC, and not file any document in a form to which such counsel
reasonably objects.
(d) Furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to the
Company, (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one (1) copy of the Registration
Statement, each preliminary prospectus and prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of a prospectus, and all
amendments and supplements thereto and such other documents, as such Investor
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor;
(e) As promptly as practicable after becoming aware of such
event, notify each Investor of the happening of any event of which the Company
has knowledge, as a result of which the prospectus included in the 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, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of a Notice of Effectiveness or any notice of effectiveness
or any stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(g) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investors in writing of the existence of a Potential
Material Event, the Investors shall not offer or sell any Registrable Shares, or
engage in any other transaction involving or relating to the Registrable Shares,
from the time of the giving of notice with respect to a Potential Material Event
until such Investor receives written notice from the Company that such Potential
Material Event either has been disclosed tot he public or no longer constitutes
a Potential Material Event; provided, however, that the Company may not so
suspend the right to such holders of Registrable Shares for more than two twenty
(20) day period in the aggregate during any 12-month period ("Suspension
Period") with at least a ten (10) business day interval between such periods,
during the periods the Registration Statement is required to be in effect.
(h) Use its reasonable efforts to secure designation of all
the Registrable Securities covered by the Registration Statement as a National
Association of Securities Dealers Automated
<PAGE>
Quotations System ("NASDAQ") "Small Capitalization" within the meaning of Rule
11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the quotation of the Registrable Securities on the NASDAQ
Small Cap Market; or if, despite the Company's reasonable efforts to satisfy the
preceding clause, the Company is unsuccessful in doing so, to secure NASDAQ/OTC
Bulletin Board authorization and quotation for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register with the National Association of Securities Dealers,
Inc. ("NASD") as such with respect to such Registrable Securities;
(i) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(j) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request, and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) an appropriate instruction and opinion
of such counsel; and
(k) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. Obligations of the Investors. In connection
with the registration of the Registrable Securities,
the Investors shall have the following obligations:
(1) It shall be a condition precedent
to the obligations of the Company to
complete the registration pursuant to this
Agreement with respect to the Registrable
Securities of a particular Investor that
such Investor shall furnish to the Company
such information regarding itself, the
Registrable Securities held by it, and the
intended method of disposition of the
Registrable Securities held by it, as shall
be reasonably required to effect the
registration of such Registrable Securities
and shall execute such documents in
connection with such registration as the
Company may reasonably request. At least
five (5) days prior to the first anticipated
filing date of the Registration Statement,
the Company shall notify each Investor of
the information the Company
<PAGE>
requires from each such Investor (the
"Requested Information") if such Investor
elects to have any of such Investor's
Registrable Securities included in the
Registration Statement. If at least two (2)
business days prior to the filing date the
Company has not received the Requested
Information from an Investor (a
"Non-Responsive Investor"), then the Company
may file the Registration Statement without
including Registrable Securities of such
Non-Responsive Investor;
(2) Each Investor by such Investor's
acceptance of the Registrable Securities
agrees to cooperate with the Company as
reasonably requested by the Company in
connection with the preparation and filing
of the Registration Statement hereunder,
unless such Investor has notified the
Company in writing of such Investor's
election to exclude all of such Investor's
Registrable Securities from the Registration
Statement; and
(3) Each Investor agrees that, upon
receipt of any notice from the Company of
the happening of any event of the kind
described in Section 3(e) or 3(f), above,
such Investor will immediately discontinue
disposition of Registrable Securities
pursuant to the Registration Statement
covering such Registrable Securities until
such Investor's receipt of the copies of the
supplemented or amended prospectus
contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor
shall deliver to the Company (at the expense
of the Company) or destroy (and deliver to
the Company a certificate of destruction)
all copies in such Investor's possession, of
the prospectus covering such Registrable
Securities current at the time of receipt of
such notice.
5. Expenses of Registration. All reasonable
expenses, other than underwriting discounts and
commissions incurred in connection with
registrations, filings or qualifications pursuant to
Section 3, but including, without limitation, all
registration, listing, and qualifications fees,
printers and accounting fees, the fees and
disbursements of counsel for the Company, and a fee
for a single counsel for the Investor not
<PAGE>
exceeding $3,500 shall be borne by the Company.
6. Indemnification. In the event any
Registrable Securities are included in a Registration
Statement under this Agreement:
(1) To the extent permitted by law, the
Company will indemnify and hold harmless
each Investor who holds such Registrable
Securities, the directors, if any, of such
Investor, the officers, if any, of such
Investor, each person, if any, who controls
any Investor within the meaning of the
Securities Act or the Exchange Act (each, an
"Indemnified Person" or "Indemnified
Party"), against any losses, claims,
damages, liabilities or expenses (joint or
several) incurred (collectively, "Claims")
to which any of them may become subject
under the Securities Act, the Exchange Act
or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of
or are based upon any of the following
statements, omissions or violations in the
Registration Statement, or any
post-effective amendment thereof, or any
prospectus included therein: (i) any untrue
statement or alleged untrue statement of a
material fact contained in the Registration
Statement or any post-effective amendment
thereof or 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, (ii) any
untrue statement or alleged untrue statement
of a material fact contained in the final
prospectus (as amended or supplemented, if
the Company files any amendment thereof or
supplement thereto with the SEC) or the
omission or alleged omission to state
therein any material fact necessary to make
the statements made therein, in light of the
circumstances under which the statements
therein were made, not misleading or (iii)
any violation or alleged violation by the
Company of the Securities Act, the Exchange
Act, any state securities law or any rule or
regulation under the Securities Act, the
Exchange Act or any state securities law
(the matters in the foregoing clauses (i)
through (iii) being, collectively,
"Violations").
<PAGE>
Subject to clause (b) of this Section 6, the
Company shall reimburse the Investors,
promptly as such expenses are incurred and
are due and payable, for any legal fees or
other reasonable expenses incurred by them
in connection with investigating or
defending any such Claim. Notwithstanding
anything to the contrary contained herein,
the indemnification agreement contained in
this Section 6(a) shall not (I) apply to a
Claim arising out of or based upon a
Violation which occurs in reliance upon and
in conformity with information furnished in
writing to the Company by or on behalf of
any Indemnified Person expressly for use in
connection with the preparation of the
Registration Statement or any such amendment
thereof or supplement thereto, (II) be
available to the extent such Claim is based
on a failure of the Investor to deliver or
cause to be delivered the prospectus made
available by the Company; or (III) apply to
amounts paid in settlement of any Claim if
such settlement is effected without the
prior written consent of the Company, which
consent shall not be unreasonably withheld.
Each Investor will indemnify the Company and
its officers, directors and agents against
any claims arising out of or based upon a
Violation which occurs in reliance upon and
in conformity with information furnished in
writing to the Company, by or on behalf of
such Investor, expressly for use in
connection with the preparation of the
Registration Statement, subject to such
limitations and conditions as are applicable
to the Indemnification provided by the
Company to this Section 6. Such indemnity
shall remain in full force and effect
regardless of any investigation made by or
on behalf of the Indemnified Person and
shall survive the transfer of the
Registrable Securities by the Investors
pursuant to Section 9.
(2) Promptly after receipt by an
Indemnified Person or Indemnified Party
under this Section 6 of notice of the
commencement of any action (including any
governmental action), such Indemnified
Person or Indemnified Party shall, if a
Claim in respect thereof is to be made
against any indemnifying party under this
Section 6, deliver to the indemnifying party
a written notice of the commencement thereof
and the
<PAGE>
indemnifying party shall have the right to
participate in, and, to the extent the
indemnifying party so desires, jointly with
any other indemnifying party similarly
noticed, to assume control of the defense
thereof with counsel mutually satisfactory
to the indemnifying party and the
Indemnified Person or the Indemnified Party,
as the case may be. In case any such action
is brought against any Indemnified Person or
Indemnified Party, and it notifies the
indemnifying party of the commencement
thereof, the indemnifying party will be
entitled to participate in, and, to the
extent that it may wish, jointly with any
other indemnifying party similarly notified,
assume the defense thereof, subject to the
provisions herein stated and after notice
from the indemnifying party to such
Indemnified Person or Indemnified Party of
its election so to assume the defense
thereof, the indemnifying party will not be
liable to such Indemnified Person or
Indemnified Party under this Section 6 for
any legal or other reasonable out-of-pocket
expenses subsequently incurred by such
Indemnified Person or Indemnified Party in
connection with the defense thereof other
than reasonable costs of investigation,
unless the indemnifying party shall not
pursue the action of its final conclusion.
The Indemnified Person or Indemnified Party
shall have the right to employ separate
counsel in any such action and to
participate in the defense thereof, but the
fees and reasonable out-of-pocket expenses
of such counsel shall not be at the expense
of the indemnifying party if the
indemnifying party has assumed the defense
of the action with counsel reasonably
satisfactory to the Indemnified Person or
Indemnified Party. The failure to deliver
written notice to the indemnifying party
within a reasonable time of the commencement
of any such action shall not relieve such
indemnifying party of any liability to the
Indemnified Person or Indemnified Party
under this Section 6, except to the extent
that the indemnifying party is prejudiced in
its ability to defend such action. The
indemnification required by this Section 6
shall be made by periodic payments of the
amount thereof during the course of the
investigation or defense, as such expense,
loss, damage or liability is incurred and is
due and
<PAGE>
payable.
7. Contribution. To the extent any
indemnification by an indemnifying party is
prohibited or limited by law, the
indemnifying party agrees to make the
maximum contribution with respect to any
amounts for which it would otherwise be
liable under Section 6 to the fullest extent
permitted by law; provided, however, that
(a) no contribution shall be made under
circumstances where the maker would not have
been liable for indemnification under the
fault standards set forth in Section 6; (b)
no seller of Registrable Securities guilty
of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from
any seller of Registrable Securities who was
not guilty of such fraudulent
misrepresentation; and (c) contribution by
any seller of Registrable Securities shall
be limited in amount to the net amount of
proceeds received by such seller from the
sale of such Registrable Securities.
8. Reports under Exchange Act. With a view to
making available to the Investors the benefits of
Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may
at any time permit the Investors to sell securities
of the Company to the public without registration
("Rule 144"), the Company agrees to:
(1) make and keep public information
available, as those terms are understood and
defined in Rule 144;
(2) file with the SEC in a timely
manner all reports and other documents
required of the Company under the Securities
Act and the Exchange Act; and
(3) furnish to each Investor so long as
such Investor owns Registrable Securities,
promptly upon request, (i) a written
statement by the Company that it has
complied with the reporting requirements of
Rule 144, the Securities Act and the
Exchange Act, (ii) a copy of the most recent
annual or quarterly report of the Company
and such other reports and documents so
filed by the Company and (iii) such other
information as may be reasonably requested
to permit the Investors to sell such
securities pursuant to
<PAGE>
Rule 144 without registration.
9. Assignment of the Registration Rights. The
rights to have the Company register Registrable
Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any
transferee of the Registrable Securities (or all or
any portion of any Debenture of the Company which is
convertible into such securities) only if: (a) the
Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a
reasonable time after such assignment, (b) the
Company is, within a reasonable time after such
transfer or assignment, furnished with written notice
of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to
which such registration rights are being transferred
or assigned, (c) immediately following such transfer
or assignment the further disposition of such
securities by the transferee or assignee is
restricted under the Securities Act and applicable
state securities laws, and (d) at or before the time
the Company received the written notice contemplated
by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be
bound by all of the provisions contained herein. In
the event of any delay in filing or effectiveness of
the Registration Statement as a result of such
assignment, the Company shall not be liable for any
damages arising from such delay, or the payments set
forth in Section 2(c) hereof.
10. Amendment of Registration 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 Investors who hold an eighty (80%)
percent interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and
the Company.
11. Miscellaneous.
(1) A person or entity is deemed to be
a holder of Registrable Securities whenever
such person or entity owns of record such
Registrable Securities. If the Company
receives conflicting instructions, notices
or
<PAGE>
elections from two or more persons or
entities with respect to the same
Registrable Securities, the Company shall
act upon the basis of instructions, notice
or election received from the registered
owner of such Registrable Securities.
(2) Notices required or permitted to be
given hereunder shall be in writing and
shall be deemed to be sufficiently given
when personally delivered (by hand, by
courier, by telephone line facsimile
transmission, receipt confirmed, or other
means) or sent by certified mail, return
receipt requested, properly addressed and
with proper postage pre-paid (i) if to the
Company, ALL AMERICAN FOOD GROUP, INC., 104
New Era Drive, South Plainfield, New Jersey
07080, ATT: Mr. Andrew Thorburn, Telecopier
No.: (908) 757-8857; with a copy to Lehman &
Eilen, Esqs., 50 Charles Lindbergh Blvd.,
Uniondale, New York 11553, Attention: Hank
Gracin, Esq., Telecopier No.: (516)
222-0948; (ii) if to the Initial Investor,
at the address set forth under its name in
the Securities Purchase Agreement, with a
copy to Samuel Krieger, Esq., Krieger &
Prager, 319 Fifth Avenue, Third Floor, New
York, NY 10016 and (iii) if to any other
Investor, at such address as such Investor
shall have provided in writing to the
Company, or at such other address as each
such party furnishes by notice given in
accordance with this Section 11(b), and
shall be effective, when personally
delivered, upon receipt and, when so sent by
certified mail, four (4) calendar days after
deposit with the United states Postal
Service.
(3) Failure of any party to exercise
any right or remedy under this Agreement or
otherwise, or delay by a party in exercising
such right or remedy, shall not operate as a
waiver thereof.
(4) This Agreement shall be governed by
and interpreted in accordance with the laws
of the State of New York. Each of the
parties consents to the jurisdiction of the
federal courts whose districts encompass any
part of the City of New York or the state
courts of the State of New York sitting in
the
<PAGE>
City of New York in connection with any
dispute arising under this Agreement and
hereby waives, to the maximum extent
permitted by law, any objection, including
any objection based on forum non coveniens,
to the bringing of any such proceeding in
such jurisdictions. A facsimile transmission
of this signed Agreement shall be legal and
binding on all parties hereto. This
Agreement may be signed in one or more
counterparts, each of which shall be deemed
an original. The headings of this Agreement
are for convenience of reference and shall
not form part of, or affect the
interpretation of, this Agreement. If any
provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such
invalidity or unenforceability shall not
affect the validity or enforceability of the
remainder of this Agreement or the validity
or enforceability of this Agreement in any
other jurisdiction. This Agreement may be
amended only by an instrument in writing
signed by the party to be charged with
enforcement. This Agreement supersedes all
prior agreements and understandings among
the parties hereto with respect to the
subject matter hereof.
(5) This Agreement constitutes the
entire agreement among the parties hereto
with respect to the subject matter hereof.
There are no restrictions, promises,
warranties or undertakings, other than those
set forth or referred to herein. This
Agreement supersedes all prior agreements
and understandings among the parties hereto
with respect to the subject matter hereof.
(6) Subject to the requirements of
Section 9 hereof, this Agreement shall inure
to the benefit of and be binding upon the
successors and assigns of each of the
parties hereto.
(7) All pronouns and any variations
thereof refer to the masculine, feminine or
neuter, singular or plural, as the context
may require.
(8) The headings in this Agreement are
for convenience of reference only and shall
not limit or
<PAGE>
otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
(j) Neither party shall be liable for consequential damages.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
ALL AMERICAN FOOD GROUP, INC.
By:
--------------------------------------
Name:
Title:
SOUTH SEAS IMPORT-EXPORT CORP.
By:
--------------------------------------
Name:
Title:
<PAGE>
ANNEX VI
FORM OF WARRANT
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE REOFFERED AND SOLD ONLY
IF SO REGISTERED OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH HEREIN.
EXERCISABLE AT ANY TIME UNTIL 5:00 P.M., NEW
YORK CITY TIME, ON THE FIFTH ANNIVERSARY
OF THE EXPIRATION DATE OR, IF NOT A BUSINESS DAY,
THE IMMEDIATELY FOLLOWING BUSINESS DAY
UNLESS EXTENDED PURSUANT TO THIS WARRANT CERTIFICATE.
No. 2
ALL AMERICAN FOOD GROUP, INC.
WARRANT CERTIFICATE
Warrant Certificate for One Warrant
to Purchase 175,000 shares of Common Stock
of All American Food Group, Inc.
This Warrant Certificate certifies that, for value received,
South Seas Import-Export Corp., or registered assigns (the "Holder"), is the
owner of one Warrant (as defined below), which entitles the Holder to purchase
at any time from and after the date hereof and until 5:00 p.m., New York City
time, on the fifth anniversary of the issue date or, if not a business day, the
immediately following business day, at the purchase price equal to $______ (130%
of the closing bid price of the Common Stock at the end of trading on September
__, 1997) (the "Exercise Price"), up to an aggregate of _______ shares of common
stock, par value $.01 per share (the "Common Stock"), of All American Food
Group, Inc., a New Jersey corporation (the "Company"). The number of shares
purchasable upon exercise of the Warrants and the Exercise Price shall be
subject to adjustment from time to time as herein provided. In this Warrant
Certificate, the right to purchase each share of Common Stock is referred to as
a "Warrant"; the shares of Common Stock or, pursuant to the terms hereof, other
securities, issuable upon exercise of the Warrants are referred to as the
"Warrant Shares."
<PAGE>
The Warrants are subject to the following terms, conditions and
provisions:
SECTION 1. Registration; Transferability; Exchange of Warrant
Certificate.
1.1 Registration. The Company shall number and register each Warrant in
a register (the "Warrant Register") maintained at the office of the Company (the
"Office") as they are issued by the Company. The Company shall be entitled to
treat the Holder of any Warrant as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other person, and shall not be liable for any
registration of transfer of Warrants which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with knowledge of such facts that
its participation therein amounts to bad faith.
1.2 Transfer. Subject to compliance with the restrictions on transfer
set forth herein and in Section 3 hereof, the Warrants shall be transferable
only on the Warrant Register maintained at the Office upon delivery thereof duly
endorsed by the Holder or by his, her or its duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. In all cases of transfer by an attorney, the original
power of attorney, duly approved, or a copy thereof, duly certified, shall be
deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and to remain with the Company in its discretion.
1.3 Exchange of Warrant Certificates. Subject to the provisions herein,
each Warrant Certificate may be exchanged for another Warrant Certificate(s)
entitling the Holder to purchase a like aggregate number of Warrant Shares as
this Warrant Certificate then entitles such Holder to purchase. If the Holder
desires to exchange this Warrant Certificate, it shall make such request in
writing and deliver it to the Company, and shall surrender, properly endorsed,
this Warrant Certificate. Thereupon, the Company shall sign and deliver to the
person entitled thereto a new Warrant Certificate as so requested.
SECTION 2. Terms of Warrants; Exercise of Warrants.
2.1 Terms of Warrants. Subject to the terms of this Warrant
Certificate, each Holder shall have the right, which may be exercised at any
time from the date hereof until 5:00 p.m., New York City time, on the fifth
anniversary of the issue date or, if not a business day, the immediately
following business day (the "Expiration Date") to purchase from the Company (and
the Company shall issue and sell to the Holder of the Warrant) up to an
aggregate of _______ fully paid and nonassessable Warrant Shares or such other
number of Warrant Shares which the Holder may at the time be entitled to
purchase in accordance with this Warrant Certificate. Each Warrant not exercised
prior to 5:00 p.m., New York City time, on the Expiration Date shall become
void, and all rights under this Warrant Certificate shall cease as of such time.
<PAGE>
2.2 Exercise of Warrants. The Warrants evidenced by this Warrant
Certificate may be exercised in whole or in part upon surrender to the Company,
at its Office, of this Warrant Certificate, with the Purchase Form attached
hereto duly completed and signed, and upon payment to the Company of the
Exercise Price for the number of Warrant Shares in respect of which such
Warrants are then exercised. Payment of the aggregate Exercise Price shall be at
the option of the Holder in cash or by bank check payable to the order of the
Company or a combination thereof.
Subject to Section 3 hereof, upon the surrender of this Warrant
Certificate, with the Purchase Form duly executed and payment of the Exercise
Price as aforesaid, the Company shall cause to be issued and delivered with all
reasonable dispatch to or upon the written order of the Holder and in such name
or names as the Holder may designate a certificate(s) for the number of Warrant
Shares so purchased, together, at the option of the Company as provided in
Section 7 hereof, with cash in respect of any fractional Warrant Shares
otherwise issuable upon such surrender. Such certificate(s) shall be deemed to
have been issued as of the date of the surrender of this Warrant Certificate and
payment of the Exercise Price, as aforesaid. The rights of purchase represented
by this Warrant Certificate shall be exercisable, at the election of the Holder,
either in full at any time or from time to time in part prior to the Expiration
Date. In the event that the Holder of this Warrant Certificate shall exercise
fewer than all the Warrants evidenced hereby at any time prior to the Expiration
Date, a new Warrant Certificate evidencing the remaining unexercised Warrant(s)
shall be issued.
2.3 Exercise Price. The price per share at which each Warrant Share
shall be purchased upon exercise of each Warrant shall be equal to $______ (130%
of the closing bid price of the Common Stock at the end of trading on September
__, 1997), subject to adjustment pursuant to Section 6 hereof.
SECTION 3. Payment of Taxes. The Company covenants and agrees that it
will pay when due and payable all documentary, stamp and other taxes, if any,
which may be payable in respect of the issuance or delivery of any Warrant or of
the Warrant Shares purchasable upon the exercise of such Warrants; provided,
however, that the Company shall not be required to pay any tax or other
governmental charge which may be payable in respect of any transfer involved in
the transfer or delivery of any warrant or the issuance or delivery of
certificates for Warrant Shares in a name other than that of the Holder of such
Warrants.
SECTION 4. Mutilated or Missing Warrants. In the event this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company shall
issue and deliver in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent right or interest, but only upon, in the event of
a lost, stolen or destroyed certificate, receipt of evidence satisfactory to the
Company of such loss, theft or destruction. An applicant for such a substitute
Warrant Certificate shall also comply with such other reasonable regulations and
pay such other reasonable charges as the Company may prescribe.
<PAGE>
SECTION 5. Reservation and Availability of Warrant Shares; Purchase and
Cancellation of Warrants.
5.1 Reservation of Warrant Shares. (a) The Company shall at all times
reserve and keep available free from preemptive rights, out of the aggregate of
its authorized but unissued shares of Common Stock, for the purpose of enabling
it to satisfy any obligations to issue the Warrant Shares upon exercise of
Warrants, the full number of Warrant Shares deliverable upon the exercise of all
outstanding Warrants evidenced by this Warrant Certificate. The Company or, if
appointed, the transfer agent for the Common Stock and every subsequent transfer
agent for any shares of the Company's capital stock issuable upon the exercise
of any of the rights of purchase aforesaid (each, a "Transfer Agent") will be
irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Warrant Certificate on file with each Transfer Agent. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto which are transmitted to the Holder pursuant to
Section 6 hereof.
(b) The Company covenants that all Warrant Shares issuable upon
exercise of Warrants will, upon issuance, be fully paid, nonassessable and free
from preemptive rights and free from all taxes, liens, charges, and security
interests with respect to the issuance thereof.
(c) Before taking any action which would cause an adjustment pursuant
to Section 6 reducing the Exercise Price, the Company will take any and all
corporate action which may, in the opinion of its counsel (which may be counsel
employed by the Company), be necessary in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares at the Exercise Price
as so adjusted.
5.2 Warrant Shares Record Date. Each person in whose name any stock
certificate for Warrant Shares is issued shall for all purposes be deemed to
have become the holder of record of the Warrant Shares represented thereby on,
and such stock certificate shall be dated the date upon which this Warrant
Certificate was duly surrendered and payment of the Exercise Price (and any
applicable transfer taxes) was made.
5.3 Purchase of Warrants by the Company. The Company shall have the
right, except as limited by law, other agreements or herein, to purchase or
otherwise acquire in negotiated transactions Warrants evidenced hereby at such
times, in such manner and for such consideration as it may deem appropriate.
5.4 Cancellation of Warrants. Any Warrant Certificate surrendered for
exchange, substitution, transfer or exercise in whole or in part shall be
canceled by the Company and retired.
SECTION 6. Adjustment of Number of Warrant Shares and Exercise Price.
The number and kind of securities purchasable upon the exercise of each Warrant
and the Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter described.
<PAGE>
6.1 Mandatory Adjustments. The number and kind of securities
purchasable upon the exercise of each Warrant and the Exercise Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) declare or pay a dividend on
its outstanding Common Stock in shares of Common Stock or make a
distribution to all holders of its outstanding Common Stock in shares
of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock or (iv) issue by reclassification of its shares of Common
Stock other securities of the Company (including any such
reclassification in connection with a consolidation, merger or other
business combination in which the Company is the surviving
corporation), the number and kind of Warrant Shares purchasable upon
exercise of each Warrant shall be adjusted so that the Holder of each
Warrant upon exercise thereof shall be entitled to receive the kind and
number of Warrant Shares or other securities of the Company that the
Holder would have owned or have been entitled to receive after the
happening of any of the events described above had such Warrant been
exercised immediately prior to the happening of such event or any
record date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective on the date of the dividend
payment, subdivision, combination or issuance retroactive to the record
date with respect thereto, if any, for such event. Such adjustment
shall be made successively whenever such an issuance is made.
(b) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of
Warrant Shares purchasable upon the exercise of each Warrant; provided,
however, that any adjustments which by reason of this Section 6.1(b)
are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations shall be made to
the nearest one-thousandth of a share. No adjustment need be made for a
change in the par value of the Warrant Shares.
6.2 Voluntary Adjustment by the Company. The Company may at its option,
at any time during the term of the Warrants, reduce the then current Exercise
Price to any amount deemed appropriate by the Board of Directors of the Company;
provided that if the Company elects so to reduce the then current Exercise
Price, such reduction shall remain in effect for at least a 15-day period, after
which time the Company may, at its option, reinstate the Exercise Price in
effect prior to such reduction.
6.3 Notice of Adjustment. Upon any adjustment of the number of Warrant
Shares purchasable upon the exercise of each Warrant or the Exercise Price of
such Warrant, as herein provided, the Company shall promptly mail within 10 days
thereafter by first class mail, postage prepaid, to each Holder a notice of such
adjustment(s) and a certificate of the Chief Financial Officer of the Company,
accompanied by the report thereon by a firm of independent public accountants
selected by the Board of Directors of the Company (who may be the regular
accountants for the Company), setting forth in reasonable detail (i) the number
of Warrant Shares purchasable upon the exercise of each Warrant and the Exercise
Price of such Warrant after such adjustment(s), (ii) a brief statement of the
facts requiring such adjustment(s) and (iii) the computation by which such
adjustment(s) was made.
<PAGE>
6.4 No Adjustment for Dividends. Except as provided in Section 6.1
hereof, no adjustment in respect of any dividends or other payments or
distributions made to holders of securities issuable upon exercise of Warrants
shall be made during the term of a Warrant or upon the exercise of a Warrant.
6.5 Preservation of Purchase Rights Upon Merger, Consolidation, etc. In
case of any consolidation of the Company with or merger of the Company into
another person (whether or not the Company is the surviving corporation), or in
the case of any sale, transfer or lease to another person of all or
substantially all the property of the Company, the Company or such successor or
purchasing person, as the case may be, shall deliver to the Holder an
undertaking that the Holder shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of securities, cash and property
which the Holder would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, transfer or lease had such
Warrant been exercised immediately prior to such action, and if the successor or
purchasing person is not a corporation, such person shall provide appropriate
tax indemnification with respect to such shares and other securities and
property so that, upon exercise of the Warrants, the Holder thereof would have
the same benefits he otherwise would have had if such successor or purchasing
person were a corporation. Such undertaking shall provide for adjustments, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 6. The provisions of this Section 6.5 shall similarly apply
to successive consolidations, mergers, sales, transfers or leases.
6.6 Statement on Warrants. Irrespective of any adjustments in the
number or kind of securities purchasable upon the exercise of the Warrants or
the Exercise Price, any Warrant Certificate theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in this Warrant Certificate.
SECTION 7. Fractional Interests. The Company shall issue, upon request
of the Holder, fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by a
Holder, the exercise thereof shall be computed on the basis of the aggregate
number of Warrant Shares purchasable on exercise of the Warrants so presented.
If any fraction of a Warrant Share would be issuable on the exercise of any
Warrant (or specified portion thereof), the Company may, in its sole discretion,
issue such fraction of a Warrant Share or pay to the Holder of the Warrant an
amount in cash equal to the then current market price per share of Common Stock
computed as of the trading day immediately preceding the date the Warrant is
presented for exercise, multiplied by such fraction (but in no event less than
an amount equal to such fraction multiplied by the Exercise Price in effect at
such time) or if the Common stock is not then currently traded such amount as
the Board of Directors of the Company shall in good faith determine.
SECTION 8. Registration Rights.
8.1 General. The Company has agreed that after the 60th day following
the date hereof, the Company shall file a registration statement with the
Securities and Exchange Commission (the "Commission") under the Securities Act
providing for the public sale of all of the Warrant Shares.
<PAGE>
8.2 Procedures. The following provisions shall also be applicable to
any such registration statement utilized pursuant to this Section 8:
(i) The registered holders whose shares of Warrant Shares are
to be included in any such registration statement (the "Sellers") shall
furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company
shall reasonably request in writing. Following the effective date of
the registration statement, the Company shall upon the request of any
Seller forthwith supply such reasonable number of prospectuses meeting
the requirements of the Securities Act as shall be requested by such
Seller to permit such Seller to make a public offering of all the
securities of such Seller included therein. The Company shall use
reasonable efforts (i) to keep such registration statement current
until resales of such securities are permitted pursuant to Rule 144
under the Securities Act (or, if earlier, until all such securities are
sold pursuant to the registration statement); (ii) to qualify such
securities for sale in such states as the Sellers shall reasonably
designate at the cost and expense of the Company provided that no such
qualification shall be required in any jurisdiction where, as a result
thereof, the Company would be subject to service of general process or
to taxation as a foreign corporation doing business in such
jurisdiction to which it is not then subject; and (iii) to qualify such
offering, at the cost and expense of the Company with the National
Association of Securities Dealers, Inc., if applicable.
(ii) The Company shall indemnify and hold harmless each Seller
and each underwriter, within the meaning of the Securities Act, who may
purchase from or sell for any Seller any Warrant Shares from and
against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim
whatsoever) arising out of any untrue statement or alleged untrue
statement of a material fact contained in the registration statement or
any amendment thereto or any prospectus included therein required to be
filed or furnished by reason of this Section 8, or caused by any
omission or alleged omission to state therein a material fact requiring
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading,
except insofar as such loss, liability, claim, damage or expense is
caused by any such untrue statement or alleged untrue statement or
omission or alleged omission based upon information furnished in
writing to the Company by such Seller or underwriter expressly for use
therein, which indemnification shall include each person, if any, who
controls any such Seller or underwriter within the meaning of the
Securities Act; provided, however, that the indemnity agreement by the
Company set forth in this Section 8 with respect to any such prospectus
which shall be subsequently amended prior to the written confirmation
of the sale of any such Shares, shall not inure to the benefit of any
Seller or underwriter from whom the person asserting any such loss,
liability, claim, damage or expense purchased the Shares which are the
subject thereof (or to the benefit of any person controlling such
Seller or underwriter), if such Seller or underwriter failed to send or
give a copy of the prospectus as so amended to such person at or prior
to the written confirmation of the sale of such Shares to such person
and if the amended prospectus did not contain any untrue statement or
alleged untrue statement or omission or alleged omission giving rise to
such loss, liability, claim, damage or expense.
<PAGE>
(iii) Such Seller and underwriter shall at the same time
indemnify the Company, their respective directors, each officer signing
the related registration statement and each person, if any, who
controls the Company, within the meaning of the Securities Act, from
and against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim
whatsoever) arising out of any untrue statement of a material fact
contained in any registration statement or any prospectus required to
be filed or furnished by reason of this Section 8 or caused by any
omission or alleged omission to state therein a material fact to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, insofar
as such loss, liability, claim, damage or expense is caused by any
untrue statement or alleged untrue statement or omission or alleged
omission based upon information furnished in writing to the Company by
any such seller or underwriter expressly for use therein.
SECTION 9. No Rights as Stockholders; Notices to Holder. Nothing
contained in this Warrant Certificate shall be construed as conferring upon the
Holder or its transferees the right to vote or to receive dividends (except as
provided in Section 6 hereof) or to consent or to receive notice as stockholders
in respect of any meeting of stockholders of the Company for the election of the
directors of the Company or any other matter, or any rights whatsoever as
stockholders of the Company. If, however, at any time prior to the expiration of
the Warrants and prior to their exercise, any of the following events shall
occur:
(a) the Company shall declare any dividend payable in cash or
in any securities upon its shares of Common Stock or make any
distribution to the holders of its shares of Common Stock;
(b) the Company shall offer to all holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any
right to subscribe for or purchase any thereof;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer
or lease of all or substantially all of its property, assets and
business as an entirety) shall be proposed; or
(d) any consolidation or merger to which the Company is a
party and for which approval of the holders of Common Stock is
required, or of the conveyance or transfer of the properties and assets
of the Company as, or substantially as, an entirety, or of any
reclassification or change of outstanding shares of Common Stock
issuable upon exercise of the Warrants (other than a change in par
value to no par value, or from no par value to par value) or as a
result of a subdivision or combination.
then in any one or more of said events, the Company shall give to the Holder by
registered mail (return receipt requested) at least 20 days prior to the
applicable record date hereinafter specified, a written notice stating (i) the
date as of which the holders of record of shares of Common Stock to be
<PAGE>
entitled to receive any such dividends, distributions, rights or warrants are to
be determined or (ii) the date on which any such dissolution, liquidation,
winding up, consolidation, merger, conveyance or transfer is expected to become
effective and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation, or winding up. Failure to mail or receive such notice or any defect
therein or in the mailing thereof shall not affect the validity of any action
taken in connection with such dividend, distribution or subscription rights, or
such proposed dissolution, liquidation, winding up, consolidation, merger,
conveyance, transfer or reclassification.
SECTION 10. Identity of Transfer Agent. Forthwith upon the appointment
of any Transfer Agent for the Common Stock, or any other shares of the Company's
capital stock issuable upon the exercise of the Warrants, the Company shall
promptly notify the Holder of the name and address of such Transfer Agent.
SECTION 11. Notices. Any notice, except as provided in Section 9 of
this Warrant Certificate, or demand authorized by this Warrant Certificate to be
given by the Holder to the Company, shall be in writing and shall be delivered
in person or by facsimile transmission, or mailed by first class mail, postage
prepaid, to the Company, at 104 New Era Drive, South Plainfield, New Jersey
07080. The Company may change the address to which notices to it are to be
delivered or mailed hereunder by notice to the Holder.
Any notice pursuant to this Warrant Certificate by the Company to the
Holder shall be in writing and shall be mailed by first class mail, postage
prepaid, or otherwise delivered, to the Holder at its address on the books of
the Warrant Register.
Notices delivered personally shall be effective at the time delivered
by hand, notices sent by mail shall be effective two days after mailing, notices
sent by facsimile transmission shall be effective when receipt is acknowledged
and notices sent by courier guaranteeing next day delivery shall be effective on
the next business day after timely delivery to the courier.
SECTION 12. Supplements and Amendments. This Warrant Certificate may
not be supplemented, amended or otherwise modified without the prior written
consent of the Holder.
SECTION 13. Successors. All the covenants and provisions of this
Warrant Certificate by or for the benefit of the Company shall bind and inure to
the benefit of its respective successors and assigns hereunder.
SECTION 14. Merger or Consolidation of the Company. The Company will
not merge or consolidate with or into, or sell, transfer or lease all or
substantially all of its property to, any other corporation unless the
successor, transferee or lessee corporation, as the case may be (if not the
Company), shall expressly assume that due and punctual performance and
observance of each and every covenant and condition of this Warrant Certificate
to be performed and observed by the Company.
<PAGE>
SECTION 15. Applicable Law. This Warrant Certificate and the Warrants
evidenced hereby shall be governed by and construed in accordance with the laws
of the State of New York, without giving effect to principles of conflict of
laws. The Company and the Holder agree to submit to the jurisdiction of the
courts of the State of New York in any action or proceeding arising out of or
relating to this Warrant Certificate and the Warrants evidenced hereby.
SECTION 16. Benefits of this Warrant Certificate. Nothing in this
Warrant Certificate shall be construed to give to any person or entity other
than the Company and the Holder any legal or equitable right, remedy or claim
under this Warrant Certificate; and this Warrant Certificate shall be for the
sole and exclusive benefit of the Company and the Holder.
SECTION 17. Captions. The captions of the Sections and paragraphs of
this Warrant Certificate have been inserted for convenience only and shall have
no substantive effect.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of this 19th day of September, 1997.
ALL AMERICAN FOOD GROUP, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
PURCHASE FORM
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase __________ shares of Common
Stock as provided for herein and herewith tenders in payment for such shares of
Common Stock payment of the purchase price in full in the form of cash or a bank
check payable to the order of All American Food Group, Inc. or a combination
thereof in the amount of $________, all in accordance with the terms hereof. The
undersigned requests that a certificate for such shares of Common Stock be
registered in the name of _________________________ whose address is
______________________________________ and that such certificate shall be
delivered to ____________________ whose address is
________________________________________. If said number of shares of Common
Stock is less than all of the shares of Common Stock purchasable hereunder, the
undersigned requests that a new Warrant Certificate representing the right to
purchase the remaining balance of the shares of Common Stock be registered in
the name of ______________________ whose address is
________________________________ and that such certificate shall be delivered to
_____________________ whose address is
_________________________________________.
Dated:
--------------------------
--------------------------
(Insert social security or other
identifying number of holder)
Signature. . . . . . . . . . . . . . . . . .
Note: Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant Certificate in every
particular, without alteration or
enlargement or any change
whatsoever, unless this Warrant
Certificate has been assigned.
<PAGE>
ASSIGNMENT
(To be executed only upon assignment of the Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________________________________________ (Name and Address of Assignee
Must Be Printed or Typewritten) the within Warrant Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint ______________________, Attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated: ___________________, 19__
. . . . . . . . . . . . . . . . . . . . . .
Signature of Registered Holder
Note: The above signature must correspond
with the name as written on the
face of this Warrant Certificate in
every particular, without
alteration or enlargement or any
change whatever.
<PAGE>
SUBSCRIPTION AGREEMENT
ALL AMERICAN FOOD GROUP, INC.
THE SECURITIES WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR UNDER THE APPLICABLE SECURITIES LAWS OF ANY STATE AND WILL
BE OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS
OF THESE LAWS BY VIRTUE OF THE ALL AMERICAN FOOD GROUP, INC.'S INTENDED
COMPLIANCE WITH SECTIONS 3(b), 4(2) AND 4(6) OF THE SECURITIES ACT, THE
PROVISIONS OF REGULATION D UNDER SUCH ACT AND SIMILAR EXEMPTIONS UNDER STATE
LAW. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("SEC"), ANY STATE SECURITIES COMMISSION OR ANY OTHER
REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The undersigned purchaser (hereafter "the Undersigned" or "the
Purchaser") hereby offers to purchase certain Units (defined herein) of All
American Food Group, Inc. (the "Company"), a publicly held corporation formed
under the laws of the State of New Jersey. This offer to purchase may, for any
reason whatsoever, be revoked by the Undersigned or rejected by the Company
prior to acceptance of this offer by the Company.
Section 1.1 Purchase and Sale of Units. Upon the following terms and
conditions, the Company shall issue and sell to the Purchaser, and the Purchaser
shall purchase from the Company, Units of the Company (the "Units") having the
rights, designations and preferences set forth in Schedule I hereto. In
accordance with Schedule I, each Unit shall consist of one (1) share of Series D
Convertible Preferred Stock (referred to herein as a "Share" or collectively as
"Shares"), and one (1) warrant for the purchase of three hundred fifty (350)
shares of the Company's Common Stock (referred to herein as a "Warrant" or
collectively as "Warrants"). The form of the Warrant Agreement representing the
Warrants is attached hereto as Schedule II.
Section 1.2 Purchase Price. The purchase price for the Units (the
"Purchase Price") shall be $1,000 per Unit, to be issued in $50,000 increments.
Section 1.3 The Closing.
(a) The closing of the purchase and sale of the Units (the "Closing"),
shall take place at the offices of Lehman & Eilen, 50 Charles Lindbergh Blvd. --
Suite 505, Uniondale, NY 11553, at 5:00 p.m., local time on the later of the
following: (i) the date on which the last to be fulfilled or waived of the
conditions set forth in Section 4.1 and 4.2 hereof and applicable to the Closing
shall be fulfilled or waived in accordance herewith, or (ii) such other time and
place and/or on such other date as the Purchaser and the Company may agree. The
date on which the Closing occurs is referred to herein as the "Closing Date."
(b) On the Closing Date, the Company shall deliver to the Purchaser
certificates representing the Shares and the Warrants registered in the name of
the Purchaser (or deposit such Shares and Warrants into accounts designated by
the Purchaser), and the Purchaser shall deliver to the Company the Purchase
Price for all the Units by cashier's check or wire transfer in immediately
available funds to such account as shall be designated in writing by the
Company. In addition, each party shall deliver all documents, instruments and
writings required to be delivered by such party pursuant to this Agreement at or
prior to the Closing.
Section 1.4 Covenant to Register.
(a) For purposes of this Section, the following definitions shall
apply:
(i) The terms "register," "registered," and "registration"
refer to a registration under the Securities Act of 1933, as amended (the
"Act"), effected by preparing and filing a registration statement or similar
document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement, document or amendment thereto.
<PAGE>
(ii) The term "Registrable Securities" means the shares of
common stock of the Company issuable upon conversion of the Shares or the
Warrants comprising the Units, or upon conversion of any stock issued in payment
of dividends on the Shares, and any securities of the Company or securities of
any successor corporation issued as, or issuable upon the conversion or exercise
of any warrant, right or other security that is issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
Shares or Warrants.
(iii) The term "holder of Registrable Securities" means the
Purchaser and any permitted assignee of registration rights pursuant to Section
1.4(h).
(b) (i) The Company shall no later than five (5) days following
the Closing amend its currently filed registration statement on Form SB-2 to
cover all the Registrable Securities, and shall use its best efforts to cause
such registration statement to become effective as soon as possible, but no
later than December 15, 1997 (the "Initial Registration"). In the event such
registration is not so declared effective or does not include all Registrable
Securities, holders of a majority of Registrable Securities, by giving notice in
writing, shall have the right to require that the Company register all or any
part of the Registrable Securities held by such holder (a "Demand Registration")
and the Company shall thereupon effect such registration in accordance herewith
(which may include adding such shares to an existing shelf registration). The
parties agree that if the holder of Registrable Securities demands registration
of less than all of the Registrable Securities, the Company, at its option, may
nevertheless file a registration statement covering all of the Registrable
Securities. If such registration statement is declared effective with respect to
all Registrable Securities and the Company is in compliance with its obligations
under Subsection (d) of this Section 1.4, the demand registration rights granted
pursuant to this Subsection (b)(i) shall cease, terminate and be of no further
force or effect. If such registration statement is not declared effective with
respect to all Registrable Securities or if the Company is not in compliance
with such obligations, the demand registration rights described herein shall
remain in effect. The Company shall provide holders of Registrable Securities
reasonable opportunity to review any such registration statement or amendment or
supplement thereto prior to the filing thereof.
(ii) The Company shall not be obligated to effect a Demand
Registration under Subsection (b)(i) above: (A) if all of the Registrable
Securities held by the holder of Registrable Securities which are demanded to be
covered by the Demand Registration are, at the time of such demand, included in
an effective registration statement and the Company is in compliance with its
obligations under Subsection (d) of this Section 1.4; (B) if all of the
Registrable Securities may be sold under Rule 144(k) of the Act and the
Company's transfer agent has accepted an instruction from the Company to such
effect; or (C) at any time after two (2) years from the Closing Date.
(iii) Subject to Subsection (iv)(B) hereof, the Company may
suspend the effectiveness of any such registration effected pursuant to this
Subsection (b) in the event and for such period of time as, such a suspension is
required by the rules and regulations of the Securities and Exchange Commission
("SEC"). The Company will use its best efforts to cause such suspension to
terminate at the earliest possible date.
(iv) (A) If a registration statement covering all
Registrable Securities is not effective by December 15, 1997 (the "Target
Date"), the Company shall pay Purchaser as liquidated damages an amount equal to
three percent (3%) of the total Purchase Price of the Units for each thirty (30)
day period following the Target Date until such time as the registration
statement is declared effective. The payment set forth above shall be pro-rated
daily as to any period of less than thirty (30) days. Such payment shall be made
to the Purchaser by cashier's check or wire transfer in immediately available
funds to such account as shall be designated in writing by the Purchaser and
shall be paid irrespective of the amount of Registrable Securities held by
Purchaser on the Target Date and thereafter.
(B) If, following effectiveness of a registration,
either the effectiveness of the registration statement is suspended or a current
prospectus meeting the requirements of Section 10 of the Act is not available
for delivery by the Purchaser (either referred to herein as a "suspension"), the
Company shall thereupon pay to Purchaser as liquidated damages an amount equal
to three percent (3%) of the Purchase Price of the Units for each thirty (30)
day period of the suspension. The payment set forth above shall be pro-rated
daily as to periods of less than thirty (30) days. Such payment shall be made to
the Purchaser by cashier's check or wire transfer in immediately available funds
to such account as shall be designated in writing by the Purchaser, and shall be
paid irrespective of the amount of Registrable Securities held by Purchaser on
or after the date following the suspension.
<PAGE>
(C) Any amount payable and Penalty Warrants
deliverable pursuant to the foregoing provisions of this subsection (iv) shall
be delivered on or before the fifth (5th) day following the end of the calendar
month in which such payment or delivery obligation arose.
(D) The rights and remedies in this subsection shall
be in addition to the provisions of Section 7.2(a) hereof.
(c) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Purchaser)
any of its common stock under the Act in connection with a public offering of
such securities (other than a registration on Form S-4, Form S-8 or other
limited purpose form) and all Registrable Securities have not theretofore been
included in a registration statement under Subsection (b) of this Section 1.4
which remains effective, the Company shall, at such time, promptly give all
holders of Registrable Securities written notice of such registration. Upon the
written request of any holder of Registrable Securities given within fifteen
(15) days after receipt of such notice by the holder of Registrable Securities,
the Company shall use its best efforts to cause to be registered under the Act
all Registrable Securities that such holder of Registrable Securities requests
to be registered. However, the Company shall have no obligation under this
Subsection (c) if (i) the Registrable Securities may be sold without
registration under Rule 144(k) and the Company's transfer agent has accepted an
instruction from the Company to such effect, (ii) the Registration Statement is
filed more than three years after the Closing Date, or (iii) to the extent that,
with respect to any underwritten offering initiated by the Company later than
one calendar year following the Closing, the managing underwriter of such
offering reasonably notifies such holder(s) in writing of its determination that
the Registrable Securities or a portion thereof shall be excluded therefrom.
(d) Whenever required under this Section 1.4 to effect the registration
of any Registrable Securities including, without limitation, the Initial
Registration, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement or
amendment thereto with respect to such Registrable Securities and use its best
efforts to cause such registration to become effective as provided in Section
1.4(b)(i) hereof, and keep such registration statement effective for so long as
any holder of Registrable Securities desires to dispose of the securities
covered by such registration statement; provided, however, that in no event
shall the Company be required to keep the Registration Statement effective for a
period greater than three (3) years from the Closing Date;
(ii) 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 Act with respect to the disposition of all securities covered
by such registration statement and notify the holders of the filing and
effectiveness of such Registration Statement and any amendments or supplements;
(iii) Furnish to each holder of Registrable Securities such
numbers of copies of a current prospectus, including a preliminary prospectus,
conforming with the requirements of the Act, copies of the registration
statement any amendment or supplement to any thereof and any documents
incorporated by reference therein and such other documents as such holder of
Registrable Securities may reasonably require in order to facilitate the
disposition of Registrable Securities owned by such holder of Registrable
Securities;
(iv) 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
holder of Registrable Securities;
(v) Notify each holder of Registrable Securities immediately
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
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and use its best efforts to promptly update and/or
correct such prospectus;
<PAGE>
(vi) Furnish, at the request of any holder of Registrable
Securities, (A) an opinion of counsel of the Company, dated the effective date
of the registration statement, in form and substance reasonably satisfactory to
the holder and its counsel and covering, without limitation, such matters as the
due authorization and issuance of the securities being registered and (B) a
"comfort" letter or letters of the Company's independent public accountants
provided at the Company's expense in form and substance reasonably satisfactory
to the holder and its counsel;
(vii) Use its best efforts to list the Registrable Securities
covered by such registration statement with any national market or securities
exchange on which such securities are then listed;
(viii) Make available for inspection by the holder of
Registrable Securities, upon request, all SEC Documents (as defined below) filed
subsequent to the Closing and require the Company's officers, directors and
employees to supply all information reasonably requested by any holder of
Registrable Securities in connection with such registration statement; and
(ix) Furnish to each holder of Registrable Securities prompt
notice of the commencement of any stop-order proceedings under the Act, together
with copies of all relevant documents in connection therewith, and use its best
efforts to obtain withdrawal of any such stop order as soon as possible.
(e) Upon request of the Company, each holder of Registrable Securities
will furnish to the Company in connection with any registration under this
Section such information regarding itself, the Registrable Securities and other
securities of the Company held by it, and the intended method of disposition of
such securities as shall be reasonably required to effect the registration of
the Registrable Securities held by such holder of Registrable Securities. The
intended method of disposition (Plan of Distribution) of such securities as so
provided by Purchaser shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed without
written consent of the Purchaser.
(f) (i) To the fullest extent permitted by law, the Company shall
indemnify, defend and hold harmless each holder of Registrable Securities which
are included in a registration statement pursuant to the provisions of
Subsections (b) or (c) and each of its officers, directors, employees, agents,
partners or controlling persons (within the meaning of the Act) (each, an
"indemnified party") from and against, and shall reimburse such indemnified
party with respect to, any and all claims, suits, demands, causes of action,
losses, damages, liabilities, costs or expenses ("Liabilities") to which such
indemnified party may become subject under the Act or otherwise, arising from or
relating to (A) any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that the Company shall not be liable in
any such case to the extent that any such Liability arises out of or is based
upon an untrue statement or omission so made in strict conformity with
information furnished by such indemnified party in writing specifically for use
in the registration statement.
(ii) In the event of any registration under the Act of
Registrable Securities pursuant to Subsections (b) or (c), each holder of such
Registrable Securities hereby severally agrees to indemnity, defend and hold
harmless the Company, and its officers, directors, employees, agents, partners,
or controlling persons (within the meaning of the Act) (each, an "indemnified
party") from and against, and shall reimburse such indemnified party with
respect to, any and all Liabilities to which such indemnified party may become
subject under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or (B) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, that such holders will be liable in any such case to the extent and
only to the extent, that any such Liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, prospectus or amendment or supplement
thereto in reliance upon and in conformity with written information furnished by
such holder specifically for use in the preparation thereof.
<PAGE>
(iii) Promptly after receipt by any indemnified party of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against another party (the "indemnifying
party") hereunder, notify such party in writing thereof, but the omission so to
notify such party shall not relieve such party from any Liability which it may
have to the indemnified party other than under this Section and shall only
relieve it from any Liability which it may have to the indemnified party under
this Section if and to the extent an indemnifying party is materially prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and such indemnified party shall notify an indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and, after notice from the indemnifying party to the indemnified party of its
election so to assume and undertake the defense thereof, the indemnifying party
shall not be liable to the indemnified party under this Section for any legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected; provided, however, that if the defendants in any such
action include both parties and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to them which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of one such separate counsel and other reasonable expenses
related to such participation to be reimbursed by the indemnifying party as
incurred.
(g) (i) With respect to the inclusion of Registrable Securities
in a registration statement pursuant to Subsections (b) or (c), all fees, costs
and expenses of and incidental to such registration, inclusion and public
offering shall be borne by the Company; provided, however, that any
securityholders participating in such registration shall bear their pro-rata
share of the underwriting discounts and commissions, if any, incurred by them in
connection with such registration.
(ii) The fees, costs and expenses of registration to be borne
by the Company as provided in this Subsection (g) shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, and all legal fees and
disbursements and other expenses of complying with state securities or Blue Sky
laws of any jurisdiction or jurisdictions in which securities to be offered are
to be registered and qualified. Subject to appropriate agreements as to
confidentiality, the Company shall make available to the holders of Registrable
Securities and their counsel its documents and personnel for due diligence
purposes, and will pay the reasonable fees and expenses of counsel designated by
a majority in interest of the holders of Registrable Securities included in the
Registration Statement, if such counsel is so designated. Except as otherwise
provided herein, fees and disbursements of counsel and accountants for the
selling security holders shall be borne by the respective selling security
holders.
(h) The rights to cause the Company to register all or any portion of
Registrable Securities pursuant to this Section l.4 may be assigned by Purchaser
to a proper transferee or assignee as described herein. Within a reasonable time
after such transfer, the Purchaser shall notify the Company of the name and
address of such transferee or assignee, and the securities with respect to which
such registration rights are being assigned. Such assignment shall be effective
only if, (i) the Purchaser agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such transfer or assignment (subject to the
purchase price of the being kept confidential by the Purchaser and such
transferee or assignee, (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (A) the name and
address of such transferee or assignee, (B) the Registrable Securities with
respect to which such registration rights are being assigned, (iii) following
such transfer or assignment, the further disposition of the Registrable
Securities by the transferee or assignee is restricted under the Securities Act
and applicable state securities laws, (iv) at or before the time that the
Company receives the written notice contemplated by clause (ii) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein, and (v) such transfer shall have been made
in accordance with the applicable requirements of the purchase agreement
covering the transaction and (vi) such transferee shall be an "accredited
investor", as that term is defined in Rule 501 of Regulation D, promulgated
under the Securities Act.
<PAGE>
(i) The Company shall not agree to allow the holders of any securities
of the Company to include any of their securities in any registration statement
filed by the Company pursuant to Subsection (b) unless such inclusion will not
reduce the amount of the Registrable Securities included therein.
Section 2.1 Representations and Warranties of the Purchaser. The
Purchaser makes the following representations and warranties to the Company.
(a) Accredited Investor. The Purchaser is an
"accredited investor", as such term is defined in Rule 501(a) of Regulation D,
promulgated under the Act.
(b) Speculative Investment. The Purchaser is aware
that an investment in the Units is highly speculative and subject to substantial
risks. The Undersigned is capable of bearing the high degree of economic risk
and the burden of this venture, including, but not limited to, the possibility
of complete loss of the Undersigned's investment in the Units and underlying
securities which make liquidation of this investment impossible for the
indefinite future.
(c) Disposition. The Purchaser understands that (i)
except as provided for in Section 1.4, the Units, Shares or Warrants and
underlying common stock of the Company (the "Securities"), have not been and are
not being registered under the Securities Act or any applicable state securities
laws, and may not be transferred unless (A) subsequently registered thereunder,
or (B) the Securities may be sold or transferred pursuant to an exemption from
securities registration under the Securities Act and any applicable state
securities laws or (C) sold pursuant to Rule 144, promulgated under the
Securities Act (or any successor Rule), or (ii) any sale of such Securities made
in reliance on Rule 144 may be made only in accordance with the terms of such
Rule and further, if such Rule is not applicable, any resale of such Securities
under circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the
Securities Act) may require compliance with another exemption under the
Securities Act or the rules of the SEC thereunder.
(d) Privately Offered. The offer to acquire the Units
was directly communicated to the Undersigned in such manner that the Purchaser
and its advisors were able to ask questions of and receive what Purchaser
considers satisfactory answers concerning the terms and conditions of this
transaction. At no time was the Undersigned presented with or solicited by or
through any leaflet, public promotional meeting, television advertisement, or
any other form of general advertising.
(e) Purchase for Investment. The Securities are being
acquired solely for the Undersigned's own account, for investment, and are not
being purchased with view to the resale, distribution, subdivision or
fractionalization thereof without a valid registration with applicable
governmental authorities.
(f) Reliance on Exemptions. The Purchaser understands
that the Securities are being offered and sold to Purchaser in reliance upon
specific exemptions from the registration requirements of federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Purchaser's compliance with, the representations, warranties and
agreements of the Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to acquire
the Securities.
Section 2.2 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization and Qualification. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of New Jersey and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company and
each such subsidiary, if any, is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary other than those in which the failure so to qualify would not have a
Material Adverse Effect. "Material Adverse Effect" means any adverse effect on
the business, operations, properties or financial condition of the entity with
respect to which such term is used and which is material to such entity and
other entities controlled by such entity taken as a whole.
(b) Authorization; Enforcement. (i) The Company has
the requisite corporate power and
<PAGE>
authority to enter into and perform this Agreement and to issue the Units,
including the Shares and Warrants, in accordance with the terms hereof, (ii) the
execution and delivery of this Agreement by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required, (iii) this
Agreement has been duly executed and delivered by the Company, (iv) this
Agreement constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application) and (v) prior to the Closing Date, any necessary Certificate of
Amendment to the Company's Charter authorizing Company to issue all of the
Shares and Registerable Securities, in accordance with Schedule I, will have
been filed with the New Jersey Secretary of State and will be in full force and
effect, enforceable against the Company in accordance with its terms.
(c) Authorization; Enforcement Capitalization. The
authorized capital stock of the Company consists of 20,000,000 shares of Common
Stock and 4,000,000 shares of Preferred Stock; there are 5,897,339 shares of
Common Stock and 873,366 shares of such Preferred Stock issued and outstanding;
and, upon issuance of the Shares in accordance with the terms hereof, there will
be 5,897,339 shares of Common Stock and a maximum of 873,866 shares of Preferred
Stock issued and outstanding.
All of the outstanding shares of the Company's Common
Stock have been validly issued and are fully paid and nonassessable. Except as
set forth in the Company's Form SB-2 originally filed with the SEC and its
currently-filed Form SB-2, no shares of Common Stock are entitled to preemptive
rights or registration rights and there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company, or contracts, commitments, understandings, or arrangements
by which the Company is or may become bound to issue additional shares of
capital stock of the Company or options, warrants, scrip, rights to subscribe
to, or commitments to purchase or acquire, any shares, or securities or rights
convertible into shares, of capital stock of the Company. The Company has
furnished to the Purchaser true and correct copies of the Company's Certificate
of Incorporation as in effect on the date hereof (the "Charter"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
(d) Issuance of Shares. The issuance of the Units has
been duly authorized and, when paid for and issued in accordance with the terms
hereof, the Shares and Warrants underlying the Units shall be validly issued,
fully paid and non-assessable and entitled to the rights and preferences set
forth in Schedule I hereto. The Common Stock issuable upon conversion of the
Shares and Warrants will be duly authorized and reserved for issuance and, upon
conversion, will be validly issued, fully paid and non-assessable and the
holders shall be entitled to all rights and preferences accorded to a holder of
Common Stock.
(e) No Conflicts. The execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby do not and will not (i) result in a
violation of the Company's Charter or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any federal, state, local or foreign law, rule, regulation,
order, judgment or decree (including Federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or assets of the Company or any of its subsidiaries is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect); provided that, for purposes of such
representation as to Federal, state, local or foreign law, rule or regulation,
no representation is made herein with respect to any of the same applicable
solely to the Purchaser and not to the Company. The business of the Company is
not being conducted in violation of any law, ordinance or regulations of any
governmental entity, except for violations which either singly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under Federal, state or local law, rule or regulation in the United
States to obtain any consent, authorization or order of, or make any filing
(other than any filing of a Certificate of Amendment with the New Jersey
Secretary of State) or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Shares in accordance with the terms hereof
(other than any SEC, NASD or state securities filings which may be required to
be made by the Company subsequent to the Closing, and any registration statement
which may be filed pursuant
<PAGE>
hereto); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchaser herein.
(f) SEC Documents, Financial Statements. The Common
Stock of the Company is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the Company has filed
on a timely basis all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act, including material filed pursuant to Section 13(a) or
15(d), in addition to one or more registration statements and amendments thereto
heretofore filed by the Company with the SEC under the Act (all of the foregoing
including filings incorporated by reference therein being referred to herein as
the "SEC Documents"). The Company, through its agent, has delivered to the
Purchaser true and complete copies of the SEC Documents (except for exhibits and
incorporated documents). The Company has not provided to the Purchaser any
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by the Company but which has not been so disclosed,
other than with respect to the transactions contemplated by this Agreement.
As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Act or the
Exchange Act as the case may be and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) No Material Adverse Change. Since the date
through which the most recent quarterly report of the Company on Form 10-Q has
been prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no Material Adverse Effect has occurred or exists with respect to the
Company or any of its subsidiaries.
(h) No Undisclosed Liabilities. The Company and its
subsidiaries have no material liabilities or obligations not disclosed in the
SEC Documents, other than those incurred in the ordinary course of the Company's
or any of its subsidiaries' respective businesses since the date of the most
recently filed SEC Documents which, individually or in the aggregate, do not or
would not have a Material Adverse Effect on the Company or any of its
subsidiaries.
(i) No Undisclosed Events or Circumstances. No event
or circumstance has occurred or exists with respect to the Company or any of its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
(j) No General Solicitation. Neither the Company, nor
any of its affiliates, or, to its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) in connection with the offer
or sale of the Shares.
(k) No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Shares under the Act.
<PAGE>
Section 3.1 Securities Compliance. The Company shall notify the SEC and
NASD, in accordance with their requirements, of the transactions contemplated by
this Agreement, and shall take all other necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Units, Shares and Warrants, and the common stock of
the Company issuable upon conversion thereof, to the Purchaser.
Section 3.2 Registration and Listing. Until at least two (2) years
after all Shares and Warrants have been converted into Common Stock, the Company
will cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under such Exchange Act, will comply with all requirements
related to any registration statement filed pursuant to this Agreement and will
not take any action or file any document (whether or not permitted by the Act or
the Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Acts, except as permitted herein. Until at least two (2) years after
all Shares and Warrants have been converted into Common Stock, the Company will
take all action within its power to continue the listing or trading of its
Common Stock on the NASDAQ Small Cap Market and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the NASD and NASDAQ. The covenants set forth in this Section 3.2 shall not be
deemed to prohibit a merger, sale of all assets or other corporate
reorganization if the entity surviving or succeeding to the Company is bound by
this Agreement with respect to its securities issued in exchange for or in
replacement of the Units or Common Stock or the consideration received for or in
replacement of the Units or Common Stock is cash.
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Units. The obligation hereunder of the Company to issue and/or sell the
Units to the Purchaser is subject to the satisfaction, at or before the Closing,
of each of the conditions set forth below. These conditions may be waived by the
Company at any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Purchaser. The Purchaser shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) Legal action. No legal action, suit or proceeding shall be pending
or threatened which seeks to restrain or prohibit the transactions contemplated
by this Agreement.
(e) Execution. The Purchaser shall have executed this Agreement, and
delivered such Agreement to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
Purchase the Units. The obligation hereunder of the Purchaser to acquire and pay
for the Shares is subject to the satisfaction, at or before the Closing, of each
of the conditions set forth below. These conditions may be waived by the
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.
(c) NASDAQ. From the date hereof to the Closing Date, trading in the
Company's Common Stock shall not
<PAGE>
have been suspended by the SEC or the NASDAQ Small Cap Market (except for any
suspension of trading of limited duration agreed to between the Company and the
NASDAQ Small Cap Market solely to permit dissemination of material information
regarding the Company), and trading in securities generally as reported by
NASDAQ shall not have been suspended or limited or minimum prices shall not have
been established on securities whose trades are reported by NASDAQ.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(e) Opinion of Counsel, Etc. The Purchaser shall have received before
or at the Closing an opinion of counsel to the Company (covering, without
limitation, the matters set forth in Section 2.2(a) through (e)), in form and
substance reasonably satisfactory to the Purchaser and its counsel, and such
other certificates and documents as the Purchaser or its counsel shall
reasonably require incident to the Closing.
(e) Execution. The Company shall have executed this Agreement, and
delivered such Agreement to the Purchaser.
Section 5.1 Legend on Stock. Each certificate representing the Shares,
Warrants and, if necessary, Common Stock issued upon conversion thereof, shall
be stamped or otherwise imprinted with a legend substantially in the following
form:
THESE SECURITIES [AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
CONVERSION HEREOF] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 , AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW OR, IN THE
OPINION OF COUNSEL, REGISTRATION UNDER SUCH ACT OR APPLICABLE STATE
SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH SUCH SALE OR OFFER,
AND SUCH OPINION IS REASONABLY SATISFACTORY TO THE COMPANY.
The Company agrees to reissue certificates representing the Shares,
Warrants or, if applicable, the Common Stock issued upon conversion thereof
without the legend set forth above at such time as (a) the holder thereof is
permitted to dispose of such Shares (or securities issued upon conversion
thereof) pursuant to Rule 144(k) under the Act, (b) the securities are sold to a
purchaser or purchasers who (in the opinion of counsel to such purchasers, in
form and substance reasonably satisfactory to the Company and its counsel) are
able to dispose of such securities publicly without registration under the Act,
or (c) such securities are registered under the Act.
Section 6.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Purchaser.
Section 6.2 Other Termination. This Agreement may be terminated by
action of the Board of Directors or other governing body of the Purchaser or the
Company at any time if the Closing shall not have been consummated by the fifth
(5th) business day following the date of this Agreement, provided that the party
seeking to terminate the Agreement is not in breach of the Agreement.
Section 6.3 Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the seventh (7th) business day following the date of this
Agreement, provided, however, that any such termination shall not terminate the
liability of any party which is then in breach of the Agreement.
Section 7.1 Fees and Expenses. Except as otherwise set forth in Section
1.4 hereof with respect to the registration of Registrable Securities, the
Company shall pay the fees, commissions and expenses of its advisers, brokers,
finders, counsel, accountants and other experts, if any, and all other expenses
associated therewith, and shall promptly upon Closing reimburse ProFutures
Special Equities Fund, L.P. up to $2,500 for the reasonable fees and expenses of
its counsel for the preparation, negotiation and coordination of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Units and Common Stock pursuant hereto.
<PAGE>
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) The Company and the Purchaser each (i) hereby irrevocably submits
to the jurisdiction of the United States District Court and other courts of the
United States sitting in Texas for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement and (ii) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. The Company and the Purchaser each
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this paragraph
shall affect or limit any right to serve process in any other manner permitted
by law.
Section 7.3 Entire Agreement: Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein, neither the Company nor the
Purchaser makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the party against whom enforcement
of any such amendment or waiver is sought.
Section 7.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second (2nd) business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
to the Company: All American Food Group, Inc.
104 New Era
South Plainfield, New Jersey 07080
Attn: Andrew Thorburn, President and CEO
to the Purchaser: At the address set forth at the foot of this
Agreement or as specified in writing by Purchaser.
Any party hereto may from time to time change its address for notices by giving
at least ten (10) days' written notice of such changed address to the other
party hereto.
Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
Section 7.6 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
<PAGE>
Section 7.7 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Texas without regard to such state's principles of conflict of laws.
Section 7.8 Survival. The representations and warranties of the Company
and the Purchaser contained in herein and the agreements and covenants set forth
in Sections 1.1 through 1.5, 3.1 and 3.2, and 7.1 through 7.16 shall survive the
Closing.
Section 7.9 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser
without its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Section 7.10 NASDAQ. The term "NASDAQ" or "NASDAQ Small Cap Market"
herein refers to the principal market on which the Common Stock of the Company
is traded. If the Common Stock is listed on a securities exchange, or if another
market becomes the principal market on which the Common Stock is traded or
through which price quotations for the Common Stock are reported, the term
"NASDAQ" or "NASDAQ Small Cap Market" shall be deemed to refer to such exchange
or other principal market.
Section 7.11 Acceptance Execution and delivery of this Agreement shall
constitute an offer to purchase the Units, which offer, unless previously
revoked by the Undersigned, may be accepted or rejected by the Company, in its
sole discretion for any cause or for no cause and without liability to the
Undersigned. The Company shall indicate acceptance of this Agreement by signing
as indicated on the signature page hereof.
Section 7.12 Binding Agreement Upon acceptance of this Agreement by the
Company, the Undersigned agrees that he may not cancel, terminate or revoke any
agreement of the Undersigned made hereunder, and that this Agreement shall
survive the death or disability of the Undersigned and shall be binding upon
heirs, successors, assigns, executors, administrators, guardians, conservators
or personal representatives of the Undersigned.
Section 7.13 Incorporation by Reference All information set forth on
the signature page is incorporated as integral terms of this Agreement.
Section 7.14 Counterparts. This Agreement may be signed in multiple
counterparts, which counterparts shall constitute one and the same original
instrument.
Section 7.15 Severability. If any portion of this Agreement shall be
held illegal, unenforceable, void or voidable by any court, each of the
remaining terms hereof shall nevertheless remain in full force and effect as a
separate contract.
Section 7.16 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.
THE SIGNATURE PAGE FOLLOWS.
<PAGE>
IN WITNESS WHEREOF, the Undersigned Purchaser has executed this Agreement on the
date set forth below.
For the purchase price of $1,000 per Unit, the Purchaser tenders herewith the
full purchase price of:
$_________________________________________ (Increments of $50,000 only)
The exact name(s) (Including correct, legible spelling) and the information
under which title to the Shares and Warrants will be taken is as follows (Please
print or type):
_______________________________________________________________________________
Address of Purchaser
_______________________________________________________________________________
Social Security or IRS Employer Identification Number(s):
Signature of Purchaser:
By: _____________________________________________ Dated: ____________________
Print Name
and Title (if applicable): ______________________
Accepted by:
ALL AMERICAN FOOD GROUP, INC., a New Jersey corporation
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
<PAGE>
EXHIBIT 11
ALL AMERICAN FOOD GROUP, INC. (FORMERLY JUTLAND FOOD GROUP, INC.) AND
SUBSIDIARIES SCHEDULE OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
Nine Months Ended July 31, October 31, October 31,
-------------------------- ------------ -----------
Primary 1997 1996 1996 1995
------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Loss ($2,785,564) ($1,204,571) ($1,973,592) ($1,151,545)
Loss - increase in carrying amount
of redeemable preferred stock (42,373) (714,426) 562,678 --
----------- ----------- ----------- -----------
(2,872,937) ($1,918,997) ($2,536,270) ($1,151,545)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 3,091,402 943,150 943,150 943,150
Add - common shares (determined
using the "treasury stock" (method)
representing additional shares (1)
as if those shares were outstanding
for all periods) -- 430,558 430,558 430,558
----------- ----------- ----------- -----------
Weighted average number of shares
used in calculation of primary
loss per share 3,091,402 1,373,708 1,373,708 1,373,708
=========== =========== =========== ===========
Primary net loss per common shares ($0.91) ($1.40) ($1.85) ($0.84)
=========== =========== =========== ===========
FULLY DILUTED
-------------
Net loss for primary loss per common
shares and for fully diluted per
share amounts (2,872,937) ($1,918,997) ($2,536,270) ($1,151,545)
=========== =========== =========== ===========
Weighted average number of shares
used in calculating primary loss
per share 3,901,402 1,373,708 1,373,708 1,373,708
Add incremental shares representing:
Shares issuable upon conversion
of convertible preferred stock 465,202 712,500 712,500 713,782
Shares issuable upon exercise of
stock options 15,000 15,000 15,000 15,000
----------- ----------- ----------- -----------
Weighted average number of shares
used in calculation of fully
diluted loss per share 3,571,604 2,101,208 2,101,208 2,102,490
=========== =========== =========== ===========
Fully diluted net loss per common
share ($0.79) ($0.91) ($1.21) ($0.55)
=========== =========== =========== ===========
</TABLE>
____________________________
(1) Additional shares represent the number of shares and options issued within
the twelve months prior to the company filing a registration statement on May 3,
1996 for an initial public offering (IPO) that were issued for consideration per
share or at an exercise price per share less than the IPO price of $3.50 per
share.
<PAGE>
Exhibit 21.1
ALL AMERICAN FOOD GROUP, INC.
LIST OF SUBSIDIARIES
NAME OF SUBSIDIARY STATE OF INCORPORATION
- ------------------ ----------------------
Queene Anne Distributors, Inc. New Jersey
G.I.D Distributors, Inc. New Jersey
Sammy's N.Y. Bagels, Inc. Ohio
Bagels Acquisitions, Corp. Connecticut
St. Pete Bagel Acquisition, Inc. Florida
Bleeker Street Bagels, Inc. New York
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 458,834
<SECURITIES> 0
<RECEIVABLES> 723,180
<ALLOWANCES> 12,000
<INVENTORY> 119,788
<CURRENT-ASSETS> 2,012,940
<PP&E> 1,613,772
<DEPRECIATION> 323,754
<TOTAL-ASSETS> 3,839,001
<CURRENT-LIABILITIES> 1,409,218
<BONDS> 0
262,022
495,532
<COMMON> 7,577,281
<OTHER-SE> (7,071,059)
<TOTAL-LIABILITY-AND-EQUITY> 3,839,001
<SALES> 1,661,886
<TOTAL-REVENUES> 2,094,446
<CGS> 1,320,774
<TOTAL-COSTS> 4,707,065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172,945
<INCOME-PRETAX> (2,785,564)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,785,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,785,564)
<EPS-PRIMARY> (.91)
<EPS-DILUTED> (.76)
</TABLE>
