AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1996
Registration No. 33-____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
CAFE LA FRANCE, INC.
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(Name of small business issuer in its charter)
DELAWARE 5812
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(State or other jurisdiction (Primary Standard Industrial
of incorporation or organization) Classification Code Number)
05-0486226
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(I.R.S. Employer
Identification No.)
THOMAS W. DEJORDY
CAFE LA FRANCE, INC.
216 WEYBOSSET STREET
PROVIDENCE, RHODE ISLAND 02903
(401) 453-2233
(Address and telephone number of principal
executive offices and name, address and
telephone number of agent for service)
COPIES TO:
MICHAEL F. SWEENEY, ESQ. WILLIAM M. PRIFTI, ESQ.
DUFFY & SWEENEY LYNNFIELD WOODS OFFICE PARK
300 TURKS HEAD BUILDING 220 BROADWAY, SUITE 204
PROVIDENCE, RHODE ISLAND 02903 LYNNFIELD, MASSACHUSETTS 01940
(401) 455-0700 (617) 593-4525
-------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
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 effective registration statement
for the same offering. [ ] ____________.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) AGGREGATE OFFERING REGISTRATION
FEE
====================================================================================================================================
<S> <C> <C> <C> <C>
Common Stock.......................................... 1,322,500(2) $4.25 $5,620,625.00 $1,703.22
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Redeemable Warrants to Purchase Common Stock.......... 1,322,500(3) $0.10 $ 132,250.00 $ 40.08
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Common Stock Underlying Redeemable Warrants........... 1,322,500 $5.525 $7,306,812.50 $2,214.18
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Underwriter's Warrants................................ 115,000 - - -
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Common Stock Underlying Underwriter's Warrants........ 115,000 $5.95 $ 684,250.00 $ 207.35
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Redeemable Warrants Underlying Underwriter's Warrants. 115,000 $0.14 $ 16,100.00 $ 4.89
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Common Stock Underlying Redeemable Warrants Underlying
Underwriter's Warrants................................ 115,000 $7.735 $ 889,525.00 $ 269.55
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TOTAL REGISTRATION FEE................................ $ 4,439.27
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended (the
"Securities Act").
(2) Includes 172,500 shares subject to the Underwriter's over-allotment option.
(3) Includes 172,500 Redeemable Warrants subject to the Underwriter's
over-allotment option.
--------------------------------------
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 SUCH SECTION 8(A),
MAY DETERMINE.
[CAFE LOGO/MENU SAMPLE/PHOTOS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1996
PROSPECTUS
1,150,000 SHARES OF COMMON STOCK
1,150,000 REDEEMABLE WARRANTS
[LOGO]
Cafe La France, Inc., a Delaware corporation (the "Company"), hereby
offers (the "Offering") 1,150,000 shares of common stock, $.01 par value per
share (the "Shares"), and 1,150,000 redeemable common stock purchase warrants
(the "Redeemable Warrants"). The Shares and the Redeemable Warrants offered
hereby (sometimes hereinafter collectively referred to as the "Securities") may
be purchased in this Offering only together on the basis of one Share and one
Redeemable Warrant. Each Redeemable Warrant is separately transferable
immediately upon issuance and entitles the holder to purchase one share of the
Company's common stock, $.01 par value per share ("Common Stock"), at a price of
$5.525 per share (130% of the Offering price of the Shares) for a period
beginning 90 days after the date of this Prospectus and ending five years after
the date of this Prospectus, unless the Redeemable Warrants are redeemed as
provided herein. The Redeemable Warrants are redeemable by the Company at a
redemption price of $.10 per Redeemable Warrant at any time commencing 13 months
after the date of this Prospectus upon 30 days' prior written notice, provided
that the average closing bid price of the Common Stock equals or exceeds $6.80
per share (160% of the Offering price of the Shares) for 20 consecutive trading
days ending within 10 days prior to the notice of redemption. See "DESCRIPTION
OF SECURITIES."
Prior to this Offering, no public market for the Securities has existed
and no assurance can be given that any such market will develop or, if
developed, that it will be sustained. For the method of determining the initial
public offering price of the Securities, see "RISK FACTORS -- Arbitrary
Determination of Offering Price" and "UNDERWRITING." The Company has applied for
listing of the Shares and the Redeemable Warrants on the NASDAQ SmallCap
MarketSM under the trading symbols CLAF and CLAFW, respectively, upon notice of
issuance.
-------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" (BEGINNING ON PAGE 5).
-------------------------
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.
<TABLE>
<CAPTION>
=========================================================================================================
Price to Underwriting Proceeds to
Public Discounts(1) Company(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ($4.25/Share)............................ $ 4,887,500 $ 488,750 $ 4,398,750
- ---------------------------------------------------------------------------------------------------------
Per Redeemable Warrant ($0.10/Warrant)............. $ 115,000 $ 11,500 $ 103,500
- ---------------------------------------------------------------------------------------------------------
Total(3) .......................................... $ 5,002,500 $ 500,250 $ 4,502,250
=========================================================================================================
</TABLE>
(1) Does not include additional compensation to be received in the form of (a) a
3% non-accountable expense allowance in the amount of $150,075 and a
consulting fee payable to Schneider Securities, Inc. (the "Underwriter") in
the amount of $108,000 and (b) a warrant (the "Underwriter's Warrant") to
purchase up to 115,000 shares of Common Stock and 115,000 Redeemable
Warrants at 140% of the public offering price of the Shares and the
Redeemable Warrants, respectively. In addition, the Company has agreed to
indemnify the Underwriter against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "UNDERWRITING."
(2) Before deducting additional expenses of the Offering payable by the Company,
estimated at $497,000, including the Underwriter's non-accountable expense
allowance and the consulting fee payable to the Underwriter.
(3) The Company has granted the Underwriter an option to purchase up to an
additional 172,500 shares of Common Stock and/or 172,500 Redeemable Warrants
on the same terms and conditions set forth above, solely to cover
over-allotments, if any. If the over-allotment option is exercised in full,
the total "Price to Public," "Underwriting Discounts" and "Proceeds to
Company" will be $5,752,875, $575,288 and $5,177,587, respectively, and the
estimated additional expenses of the Offering would be $520,000 instead of
$497,000. See "UNDERWRITING."
The Securities are being offered on a "firm commitment basis" by the
Underwriters, when, as, and if delivered to and accepted by the Underwriters and
subject to prior sale, withdrawal or cancellation of the offer without notice.
It is expected that delivery of certificates representing the Securities will be
made at the clearing offices of Schneider Securities, Inc., Providence, Rhode
Island, on or about , 1997.
------------------------
SCHNEIDER SECURITIES, INC.
------------------------
The date of this Prospectus is___________, 1997.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto included elsewhere in
this Prospectus. Unless otherwise specified, all information in this Prospectus
assumes no exercise of the Underwriter's over-allotment option or the
Underwriter's Warrant.
See "UNDERWRITING."
THE COMPANY
Cafe La France, Inc. (the "Company"), through its operating
subsidiaries, consists of a chain of 17 cafes, 11 of which are owned and
operated by the Company and six of which are operated as franchises by
independent third parties who have entered into franchise agreements with the
Company. The Company's menu features coffee beverages including espresso and
cappuccino, muffins, croissants, brownies and cookies baked on the premises,
made-to-order sandwiches, hot soups, salads and cold beverages. Target customers
include urban office employees, students and other adults who are time-sensitive
yet desire a higher quality breakfast and lunch experience than is typically
found at quick service restaurants. The Company seeks to locate its cafes in
high visibility, heavily-trafficked office or shopping areas that are easily
accessible to its target clientele. See "BUSINESS -- Site Selection and Design."
The Company's strategy is to create distinctive food offerings at reasonable
prices that are fresher, of higher quality and in greater variety than those
offered by competitors. See "BUSINESS -- Competition." The Company's founder,
Thomas W. DeJordy, opened his first Cafe La France retail store in 1989. Over
the next few years, additional Cafe La France outlets were established,
including the first franchise in August 1994. See "BUSINESS -- Company History."
The majority of the Company's 17 cafes are situated in urban locations, occupy
800-1300 square feet of leased space, and are open Monday through Friday. With
the exception of its Baltimore, Maryland franchise, all cafes are currently
clustered in and around Providence, Rhode Island. See "BUSINESS -- Properties"
and "BUSINESS -- Franchise Operations -- Locations."
The Company specializes in four sectors of the cafe business: (1)
coffee products, including six varieties of freshly ground and brewed coffees,
espresso drinks, gourmet teas, and iced coffees; (2) baked goods, including
bagels, biscotti, muffins, scones, and croissants; (3) lunch products, including
several varieties of sandwiches, soups and salads; and (4) catered products,
including baked goods and beverages appropriate for breakfast meetings, business
lunches and other professional gatherings. The Company's percentage of revenues
from each of its four major product categories, based on a representative
sampling of sales from Company owned cafes for the most recent fiscal year, are
approximately as follows: coffee products (40%); baked goods (18%); lunch
products (40%); and catering sales (2%). See "BUSINESS -- Products."
The Company's expansion strategy will initially focus on opening new
stores in urban areas which cater to working professionals. Management believes
that significant expansion opportunities exist in the Boston, Massachusetts
area, in particular, and that expansion into an area geographically close to its
Providence, Rhode Island corporate headquarters can be achieved without adding
additional management or training personnel at the corporate level. Management
is also exploring opportunities in highly visible residential areas. Unlike
urban locations, cafes in residential settings would typically remain open seven
days a week and may operate under a different trade name. The Company expects to
open and/or acquire approximately nine new Company-owned locations and to
establish approximately four new franchise locations from the date of this
Prospectus through September 1997, and to open and/or acquire approximately 20
additional new Company-owned locations and to establish approximately 31
additional new franchise locations from October 1997 through September 1998. See
"BUSINESS -- Expansion Strategy" and "USE OF PROCEEDS."
The Company's executive offices are located at 216 Weybosset Street,
Providence, Rhode Island. Its telephone number is (401) 453-2233.
-2-
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Risk Factors............................................. The Securities offered hereby are speculative in nature
and involve a high degree of risk. See "RISK FACTORS."
Securities Offered by the Company........................ 1,150,000 Shares of Common Stock and 1,150,000
Redeemable Warrants.
Redeemable Warrants...................................... Each Redeemable Warrant entitles the holder to purchase
one (1) share of Common Stock at a price of $5.525 per
share (130% of the Offering price of the Shares) for a
period commencing 90 days from the date of this
Prospectus and ending five years from the date of this
Prospectus. The Redeemable Warrants are redeemable by
the Company at a redemption price of $.10 per Redeemable
Warrant at any time commencing 13 months after the date
of this Prospectus upon 30 days' prior written notice,
provided that the average closing bid price of the
Common Stock equals or exceeds $6.80 per share (160% of
the Offering price of the Shares) for 20 consecutive
trading days ending within 10 days prior to the notice
of redemption. See "DESCRIPTION OF SECURITIES."
Shares of Common Stock Outstanding
Before the Offering...................................... 1,293,302 shares1
Shares of Common Stock Outstanding
After the Offering....................................... 2,443,302 shares1, 2
Use of Proceeds.......................................... The net proceeds of the Offering will be used (i) to
finance the expansion and development of additional
restaurants, (ii) to repay outstanding indebtedness to
certain noteholders and (iii) for general corporate
purposes. See "USE OF PROCEEDS."
Proposed NASDAQ Symbols3:
Common Stock...................................... CLAF
Redeemable Warrants............................... CLAFW
</TABLE>
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(1) Excludes (i) 400,000 shares of Common Stock reserved for issuance under
the Company's 1996 Stock Incentive Plan, of which 65,250 options are
outstanding as of the date of this Prospectus at an exercise price of
$3.45 per share, (ii) 58,000 shares of Common Stock reserved for issuance
upon exercise of certain outstanding non-qualified options at an exercise
price of $3.45 per share, and (iii) 105,882 shares of common stock
reserved for issuance upon exercise of certain warrants issued in the
Company's 1996 private offering of notes and warrants. See "DESCRIPTION
OF SECURITIES," "RISK FACTORS -- Substantial Shares Reserved for Warrants
and Options; Future Financing and Market Overhang" and "MANAGEMENT --
1996 Stock Incentive Plan."
(2) Does not give effect to shares of Common Stock reserved for issuance as
described in the preceding footnote or shares reserved for issuance upon
exercise of: (i) the Redeemable Warrants (1,150,000 shares); (ii) the
Underwriter's over-allotment option (345,000 shares, including shares
underlying the Redeemable Warrants included therein); and (iii) the
Underwriter's Warrant (230,000 shares, including shares underlying the
Redeemable Warrants included therein). See "RISK FACTORS -- Substantial
Shares Reserved for Warrants and Options; Future Financing and Market
Overhang" and "UNDERWRITING."
(3) No assurance can be given that an active trading market will develop for
the Common Stock or the Redeemable Warrants or, if developed, that it
will be sustained. See "RISK FACTORS -- Absence of Public Market;
Possible Volatility of Stock Price."
-3-
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 29, 1996 OCTOBER 1, 1995
------------------ ------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA1:
<S> <C> <C>
Total Revenues............................................. $2,198,753 $1,467,162
Operating loss............................................. (616,601) (488,012)
Net loss before income taxes............................... (672,557) (516,858)
Net loss................................................... (673,307) (517,358)
Net loss per share 2....................................... (.47)
Shares used in computing loss per share 2.................. 1,422,135
CAFE OPERATING DATA:
System-Wide sales 3........................................ $3,244,613 $1,927,386
Company owned cafes 4...................................... 2,046,638 1,311,538
</TABLE>
<TABLE>
<CAPTION>
Number of cafes open: At end For full At end For full
of period period of Period period
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Company owned...................................... 10 8 10 4
Franchised......................................... 7 4 5 5
--- --- --- ---
Total.............................................. 17 12 15 9
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 29, 1996
---------------------
CONSOLIDATED BALANCE SHEET DATA: Pro Forma
Actual as Adjusted5
------ ------------
<S> <C> <C>
Working capital (deficit).............................................. $ (640,351) $ 2,982,649
Total assets........................................................... 885,654 4,130,654
Total liabilities6..................................................... 1,204,332 867,332
Stockholders' equity (deficit)......................................... (318,678) 3,686,322
</TABLE>
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(1) Prior to October 2, 1995, each of the existing operating subsidiaries
included in the Company (CLF2, Inc. and CLF Franchise Corporation) had
elected those provisions of the Internal Revenue Code (Subchapter S) and
state laws which provide for the income of the Company to be taxed at the
stockholder level. The Company terminated the S-corporation elections
effective October 2, 1995, resulting in a nine month fiscal year for fiscal
1995 and the commencement of a new fiscal year beginning October 2, 1995
and ending September 29, 1996.
(2) Prior to October 2, 1995, the Company elected S-corporation status and
therefore was not subject to federal and state corporate income taxes.
Accordingly, earnings per share data has been presented only for the fiscal
year ended September 29, 1996.
(3) Reflects total sales of Company owned cafes and commissary sales to
franchisees and initial franchise fees, and sales of franchised restaurants
as reported by franchisees or derived by the Company from other data
reported by franchisees. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
(4) Reflects total sales of Company owned cafes. Excludes commissary sales of
$54,645 for the fiscal year ended September 29, 1996 and $118,158 for the
nine months ended October 1, 1995.
(5) Adjusted to give effect to the sales of shares of Common Stock and
Redeemable Warrants being offered by the Company hereby and the application
of the net proceeds therefrom as described in "USE OF PROCEEDS."
(6) These amounts do not include $600,000 of bridge financing incurred after
September 29, 1996. See ""USE OF PROCEEDS."
-4-
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE INFORMATION PRESENTED BELOW.
RECENT LOSSES; LIMITED OPERATING HISTORY; NO ASSURANCE OF FUTURE
PROFITS. For the fiscal year ended September 29, 1996 and the nine months ended
October 1, 1995, the Company had net losses of $673,307 and $517,358
respectively. Although the Company's losses can be in part attributed to the
hiring of additional management personnel in preparation for implementing its
expansion plan, there can be no assurance when, if ever, the Company will
achieve profitable operations. In addition, although the first Cafe La France
store opened in 1989 and the Company has grown steadily ever since, the Company
did not prepare financial statements on a consolidated basis prior to the nine
months ended October 1, 1995. See "BUSINESS -- Company History." As a result,
the Company has a limited combined operating history as a multi-store
operator/franchiser upon which investors may evaluate the Company's performance.
See "BUSINESS -- Company History" and "BUSINESS -- Expansion Strategy."
POSSIBLE NEED FOR ADDITIONAL CAPITAL; SUBSTANTIALLY ALL ASSETS PLEDGED.
In order to achieve and maintain the Company's geographic expansion through new
store openings and/or acquisition of existing cafes, the Company believes that
it may need to obtain additional bank financing or sell additional equity and/or
debt (or hybrid) securities in future public and/or private financings. The
issuance of such debt or equity financings may cause additional dilution to
purchasers in this Offering. The Company currently has no commitments for any
such financings and there can be no assurance that any such financings can be
obtained on terms acceptable to the Company. In addition, the lender under the
Company's existing line of credit has a first priority security interest on
substantially all of the assets of the Company which may limit the Company's
ability to obtain additional financing. See "DILUTION" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Liquidity and Capital Resources."
GEOGRAPHIC CONCENTRATION. All 11 of the cafes currently owned by the
Company and five of the Company's six franchises are located in and around
Providence, Rhode Island. As a result, the Company's results of operations may
be materially affected by changes in the Rhode Island economy. Although the
Company anticipates the establishment of new cafes in Massachusetts and other
states in the Northeast and adjacent areas, there can be no assurance that the
Company will successfully expand into such markets or that the Company's
business concept will be successful in such new areas. In addition, the Company
is operating a recently acquired cafe under the name "The Village Bean" and may
seek to acquire and operate additional cafes under other names. There can be no
assurance that the Company's expansion plan will be successful under any such
trade names. See "BUSINESS -- Competition" and BUSINESS -- Expansion Strategy."
RAPID GROWTH; POSSIBLE ACQUISITIONS. The Company has grown from four
Company owned cafes and four independently operated franchises in 1994 to 11
Company owned cafes and six independently operated franchises as of the date of
this Prospectus, and anticipates additional growth. The Company's growth
strategy contemplates the establishment of new stores as well as acquisitions of
existing cafe-style coffee restaurants in desired locations as well as the
development of additional franchises. Such acquisitions, if any, may involve
potentially dilutive issuances of equity securities, the incurrence of
additional debt and/or the amortization of significant expenses related to
goodwill and other intangible assets acquired. The continued growth of the
Company in general will depend on a number of factors, including the
availability of suitable locations, the negotiation of favorable lease or site
acquisition terms, the identification, training and retention of skilled
management personnel, the availability of adequate capital, general economic and
business conditions, and other factors, some of which are beyond the control of
the Company. There can be no assurance that the Company will achieve its
expansion goals or manage its growth effectively, and such failure could have a
material adverse effect on the Company's results of operations. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "BUSINESS -- Company History" and "BUSINESS -- Expansion Strategy."
-5-
COMPETITION. The coffee, sandwich and baked goods industry is highly
competitive. Many of the Company's competitors are well established and have
substantially greater financial, marketing and other resources than the Company.
In addition, certain national and regional companies such as Au Bon Pain and
Starbucks have recently expanded into the greater Providence, Rhode Island area,
while other chain store operators/franchisers such as Dunkin Donuts have been
upgrading their menu selections to include more baked goods such as fat-free
muffins, bagels and sandwiches. The expansion and menu modification by such
chains or other similar competitors may adversely affect the Company's future
profitability or its ability to compete successfully in the future. See
"BUSINESS -- Competition."
DEPENDENCE ON KEY PERSONNEL. The Company's success will depend on the
continued efforts and abilities of Thomas W. DeJordy, Chairman of the Board,
Chief Executive Officer and President, and Robert G. King, Vice President -
Finance, Treasurer and Director. The Company has entered into an employment
agreement with Mr. DeJordy which provides for a term of 3 years and contains
non-competition provisions, and the Company has entered into an employment
agreement with Mr. King which also provides for a term of 3 years and contains
non-competition provisions, contingent upon the success of this Offering. The
loss of services of any of its senior management personnel could adversely
affect the Company. In addition, as the Company's expansion occurs, the success
of the Company will depend in part on the Company's ability to attract and
retain additional qualified personnel. There is no assurance that the Company
will be able to hire or retain such personnel in the future. See "MANAGEMENT --
Employment Agreements."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to
this Offering, there has been no public market for the Securities offered
hereby, and there can be no assurance that an active trading market will develop
subsequent to the Offering or, if developed, that it will be sustained.
Moreover, no assurance can be given that the market price of the Securities will
not fall below the initial public offering prices. General stock market and
economic conditions, as well as fluctuations in financial results which may be
caused by a variety of factors including changes in consumer tastes, increased
food and labor costs, delays in establishing new cafes and competition, may
cause the market price of the Securities to fluctuate, perhaps substantially.
See "SHARES AVAILABLE FOR FUTURE SALE."
SUBSTANTIAL SHARES RESERVED FOR WARRANTS AND OPTIONS; FUTURE FINANCING
AND MARKET OVERHANG. The Company has reserved 1,150,000 shares of Common Stock
for issuance upon exercise of the Redeemable Warrants (excluding 345,000 shares
if the over-allotment option is exercised and the Redeemable Warrants contained
therein are also exercised), 230,000 shares of Common Stock for issuance upon
exercise of the Underwriter's Warrant (including shares acquirable upon exercise
of Redeemable Warrants included in the Underwriter's Warrant), and 105,882
shares of Common Stock for issuance upon exercise of certain nontransferable
warrants (the "Bridge Warrants") issued to investors in the Company's 1996
private offering of $600,000 of notes and warrants (collectively, the
"Warrants"). In addition, the Company has reserved 400,000 shares of Common
Stock for issuance under the Company's 1996 Stock Incentive Plan, of which
options to purchase 65,250 shares previously granted to employees of the Company
are currently outstanding, and 58,000 shares of Common Stock for issuance upon
exercise of certain outstanding non-qualified options granted to consultants of
the Company (collectively, the "Options"). The existence of the Warrants and the
Options may prove a hindrance to future financing by the Company, as such
holders may exercise such securities at a time when the Company could obtain
equity capital on terms more favorable to the Company. The Company has also
agreed to register for resale the shares of Common Stock issuable upon exercise
of the Bridge Warrants under federal and state securities laws, which
registration could involve substantial expense to the Company and may adversely
affect the terms upon which the Company may obtain additional financing. In
addition, for as long as the Redeemable Warrants remain outstanding (which could
be until five years after the date of this Prospectus), their existence may
prevent a rise in the price of the Common Stock.
See "DESCRIPTION OF SECURITIES" and "SHARES AVAILABLE FOR FUTURE SALE."
POSSIBLE LIMIT ON EXERCISE OF REDEEMABLE WARRANTS. In order for a
holder to exercise a Redeemable Warrant, there must be a current registration
statement on file with the Securities and Exchange Commission (the "Commission")
and various state securities commissions to register the shares of Common Stock
underlying the Redeemable Warrants for sale to the holder of the Redeemable
Warrant. The Company has agreed, so long as the Redeemable Warrants are
outstanding, to use its best efforts to keep a registration statement effective
under the Securities Act and state securities laws to permit the issuance of the
shares of Common Stock upon exercise or
-6-
exchange of the Redeemable Warrants. Nevertheless, although the Company intends
to do so, no assurance can be given that the registration statement will be kept
current, the failure of which may result in the Redeemable Warrants not being
exercisable or exchangeable and therefore worthless. See "DESCRIPTION OF
SECURITIES -- Redeemable Warrants."
POSSIBLE REDEMPTION OF REDEEMABLE WARRANTS. Beginning 13 months after
the date of this Prospectus, the Redeemable Warrants are redeemable by the
Company at $0.10 per Redeemable Warrant on 30 days' prior written notice,
provided that the average closing bid price of the Common Stock equals or
exceeds $6.80 per share (160% of the public offering price per share) for 20
consecutive trading days ending within 10 days prior to the notice of
redemption. See "DESCRIPTION OF SECURITIES." The Redeemable Warrants can only be
redeemed if they are then exercisable and a current registration statement
covering the Redeemable Warrants and the shares of Common Stock issuable
thereunder is then in effect. Redemption of the Redeemable Warrants may force
the holders to (i) exercise the Redeemable Warrants and pay the exercise price
at a time when it may be disadvantageous for them to do so or (ii) sell the
Redeemable Warrants at the current market price when they might otherwise wish
to hold the Redeemable Warrants. See "DESCRIPTION OF SECURITIES -- Redeemable
Warrants."
ARBITRARY DETERMINATION OF OFFERING PRICE. The initial public offering
price of the Securities has been arbitrarily determined by negotiation between
the Company and the Representative and does not necessarily bear any
relationship to the Company's assets, book value or financial condition, or to
any other recognized criteria of value. See "UNDERWRITING."
LACK OF DIVIDENDS. The Company currently intends to retain any future
earnings for use in its business and does not expect to pay any cash dividends
on any shares of Common Stock for the foreseeable future. In addition, the
Company's agreement with its primary bank lender prohibits the payment of all
dividends without the bank's prior written consent. See "DIVIDEND POLICY."
CONTROL BY THE CEO. As of the date of this Prospectus, Mr. DeJordy, the
Company's Chairman, Chief Executive Officer and President, owns approximately
71.4% of the Company's 1,293,302 shares of issued and outstanding Common Stock,
and is able to control virtually all aspects of the Company's operations.
Following the Offering, Mr. DeJordy will continue to own approximately 37.8% of
the outstanding Common Stock of the Company (assuming no exercise of existing
Warrants or Options), and will have the potential to continue to control
virtually all aspects of the Company's operations. Mr. DeJordy's ownership of
common stock is subject to an escrow agreement which could reduce his ownership
in the Company by 300,000 shares if certain net earnings targets are not reached
in fiscal years 1998 - 2000. See "PRINCIPAL STOCKHOLDERS," "MANAGEMENT --
Employment Agreements" and "DESCRIPTION OF SECURITIES -- Common Stock Options."
DEPENDENCE ON SUPPLIERS. The Company currently purchases all its coffee
products from a single supplier and most of its food products from several other
suppliers. The Company does not have any written supply agreements with any of
its suppliers, and believes that alternative sources are available. Although the
Company believes its suppliers have sufficient capacity to meet any increase in
demand resulting from the Company's proposed expansion strategy, a disruption in
supply or degradation in quality could have an adverse impact on the Company's
business and financial results, particularly at a time when the Company is
attempting to build brand identity and customer loyalty. In addition, an
increase in prices from its suppliers, particularly with respect to coffee and
food products, could also have an adverse impact on the Company's business and
financial results.
FUTURE SALES OF COMMON STOCK. Upon completion of this Offering, there
will be 2,443,302 shares of Common Stock outstanding (assuming no exercise of
existing Options or Warrants), of which 1,150,000 shares of Common Stock sold in
this Offering (excluding an additional 172,500 shares of Common Stock and
172,500 Redeemable Warrants to purchase 172,500 shares of Common Stock if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable in the United States without restriction under the Securities Act, by
persons other than "affiliates" of the Company, as defined under the Securities
Act. Of the remaining 1,293,302 shares outstanding, (i) 289,902 shares were
issued pursuant to Rule 504 of Regulation D in the Company's 1995-1996 private
offering of Common Stock (See "CERTAIN TRANSACTIONS") and would be freely
tradable under federal securities laws after this Offering but for a 13 month
post-Offering "lock-up" provision contained in the subscription agreements
executed by investors in such offering, and (ii) 1,003,400 shares have not been
registered under the
-7-
Securities Act and constitute "restricted securities" under Rule 144 of the
Securities Act ("Rule 144"). Ordinarily, under Rule 144, a person holding
restricted securities for a period of two years may, every three months, sell in
ordinary brokerage transactions or in transactions directly with a market maker
an amount equal to the greater of one percent of the Company's then outstanding
Common Stock or the average weekly trading volume during the four calendar weeks
prior to such sale. Rule 144 also permits sales by a person who is not an
affiliate of the Company and who has satisfied a three-year holding period
without any quantity limitation. The Company's Chairman and Chief Executive
Officer (Mr. DeJordy) has agreed not to sell any of his 923,650 shares of Common
Stock, all of which constitute restricted securities, for a period of 13 months
from the date of this Prospectus without the prior written consent of the
Underwriter. Thereafter, except for 300,000 shares which are subject to an
escrow agreement (See "PRINCIPAL STOCKHOLDERS"), Mr. DeJordy would be eligible
to resell such shares, subject to volume limitations and other conditions
imposed by Rule 144. With respect to the remaining 79,750 shares of Common Stock
which constitute restricted securities, 55,100 shares held by non-affiliates
would become eligible for resale under Rule 144 on October 2, 1997 and 24,650
shares held by non-affiliates would become eligible for resale on May 30, 1998,
subject to volume limitations and other conditions imposed by Rule 144. Future
sales under Rule 144 may have a depressive effect on the market price of the
Common Stock should a public market develop for such stock, as to which there
can be no assurance. In addition, the Bridge Warrants will become exercisable
for 105,882 shares of Common Stock 13 months after this Offering. Following
registration thereof, which the Company is obligated to undertake, resales of
such shares could also have a depressive effect on the market price of the
Common Stock. See "SHARES ELIGIBLE FOR FUTURE SALE."
GOVERNMENT REGULATION. The Company is subject to a variety of federal,
state and local laws. Each of the Company's cafes is subject to licensing and
regulation by a number of government authorities, including health, safety,
sanitation, building and fire agencies in the area in which the cafe is located.
Difficulties in obtaining or failure to obtain required licenses or approvals
could delay or prevent the development of a new cafe in a particular area. The
Company's cafe operations are also subject to federal and state laws governing
such matters as the minimum hourly wage, unemployment tax rates, sales tax and
similar matters over which the Company has no control. Significant numbers of
the Company's service, food preparation, and other personnel are paid at rates
related to the federal minimum wage, and increases in the minimum wage could
increase the Company's labor costs. Management believes that the Company is in
material compliance with all such government regulations as of the date of this
Prospectus, although it is in the process of updating and filing its "Uniform
Franchise Offering Circular" in Rhode Island and elsewhere and may not sell
franchises in any states until approval has been granted by state regulators to
such updated Offering Circular. See "BUSINESS -- Franchise Operations --
Registration" and "BUSINESS -- Government Regulation."
ANTI-TAKEOVER MEASURES. The Company has expressly elected to be
governed by Section 203 of the Delaware General Corporation Law (the "DGCL").
Section 203 is an anti-takeover law which, in general, restricts the ability of
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder. As a
result, potential acquirers of the Company may be discouraged from attempting to
effect an acquisition transaction with the Company, thereby possibly depriving
holders of the Company's securities of certain opportunities to sell or
otherwise dispose of such securities at above-market prices pursuant to such
transactions. In addition, the Company's Certificate of Incorporation authorizes
the Company's Board of Directors to issue Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, liquidation preferences and the number of shares
constituting any series or designation of such series, without further vote or
action by stockholders. Finally, the Company's By-Laws require a certain advance
notice procedure with regard to nomination of directors and other matters to be
brought before an annual meeting of stockholders other than by or at the
direction of the Board of Directors. As a result of the application of Section
203, the existence of "blank check" Preferred Stock, the advance notice
procedure in the By-Laws, and certain change in control provisions contained in
the employment contract of the Company's President and Chief Executive Officer,
potential acquirers of the Company may find it more difficult or be discouraged
from attempting to effect an acquisition transaction with or a change of control
of the Company, thereby possibly depriving holders of the Company's securities
of certain opportunities to sell or otherwise dispose of such securities at
above-market prices pursuant to such transactions. See "MANAGEMENT -- Employment
Agreements" and "DESCRIPTION OF SECURITIES -- Delaware Law and Certain Charter
and By-Law Provisions."
-8-
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES UNDER DELAWARE LAW.
Pursuant to the Company's Certificate of Incorporation, as authorized under the
DGCL, directors of the Company are not liable for monetary damages for breach of
fiduciary duty, except in connection with a breach of the duty of loyalty, for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for dividend payments or stock repurchases illegal
under Delaware law or for any transaction in which a director has derived an
improper personal benefit. In addition, the Company's Certificate of
Incorporation provides that the Company must indemnify its officers and
directors to the fullest extent permitted by Delaware law for all expenses
incurred in the settlement of any actions against such persons in connection
with their having served as officers or directors of the Company. See
"MANAGEMENT -- Limitation on Liability of and Indemnification of Directors and
Officers."
IMMEDIATE AND SUBSTANTIAL DILUTION. Investors who purchase Securities
in the Offering will incur immediate and substantial dilution in the net
tangible book value of the Common Stock of approximately $2.86 per share
(includes the purchase price of $0.10 per Redeemable Warrant) or approximately
66% of the public offering price per share. See "DILUTION."
REQUIRED DISCLOSURE CONCERNING TRADING OF PENNY STOCKS OR LOW-PRICED
SECURITIES. The Securities and Exchange Commission (the "SEC") has adopted
regulations that define a "penny stock" to be any equity security that has a
market price (as defined) of less than $5.00 per share or an exercise price of
less than $5.00 per share, subject to certain exceptions. Effective July 15,
1992, for any transaction involving a penny stock, unless exempt, the rules
require the delivery, prior to the transaction, of a disclosure schedule
prepared by the SEC relating to the penny stock market. Commencing January 1,
1993, the broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.
While many NASDAQ-listed securities would be covered by the definition
of penny stock, transactions in a NASDAQ-listed security would be exempt from
all but the sole market-maker provision for (i) issuers who have $2,000,000 in
tangible assets ($5,000,000 if the issuer has not been in continuous operation
for three years), (ii) transactions in which the customer is an institutional
accredited investor, and (iii) transactions that are not recommended by the
broker-dealer. In addition, transactions in a NASDAQ security directly with a
NASDAQ market-maker for such securities would be subject only to the sole
market-maker disclosure, and the disclosure with respect to commissions to be
paid to the broker-dealer and the registered representative. Finally, all NASDAQ
securities would be exempt if NASDAQ raised its requirements for continued
listing so that any issuer with less than $2,000,000 in net tangible assets or
stockholders' equity may be subject to delisting. These criteria are more
stringent than the current NASDAQ maintenance requirements, although the NASDAQ
has proposed new requirements which are expected to become effective in the
first quarter of 1997 that raise the net tangible asset test for continued
listing to $2 million, unless certain market capitalization or net income tests
are met. Consequently, these rules may restrict the ability of broker-dealers to
sell the Company's securities and may affect the ability of purchasers to sell
the Company's securities in the secondary market.
-9-
THE COMPANY
Cafe La France, Inc. (the "Company"), through its operating
subsidiaries, consists of a chain of 17 cafes, 11 of which are owned and
operated by the Company and six of which are operated as franchises by
independent third parties who have entered into franchise agreements with the
Company. The Company's menu features coffee beverages including espresso and
cappuccino, muffins, croissants, brownies and cookies baked on the premises,
made-to-order sandwiches, hot soups, salads and cold beverages. Target customers
include urban office employees, students and other adults who are time-sensitive
yet desire a higher quality breakfast and lunch experience than is typically
found at quick service restaurants. The Company seeks to locate its cafes in
high visibility, heavily-trafficked office or shopping areas that are easily
accessible to its target clientele. See "BUSINESS -- Site Selection and Design."
The Company's strategy is to create distinctive food offerings at reasonable
prices that are fresher, of higher quality and in greater variety than those
offered by competitors. See "BUSINESS -- Competition." The Company's founder,
Thomas W. DeJordy, opened his first Cafe La France retail store in 1989. Over
the next few years, additional Cafe La France outlets were established,
including the first franchise in August 1994. See "BUSINESS -- Company History."
The majority of the Company's 17 cafes are situated in urban locations, occupy
800-1300 square feet of leased space, and are open Monday through Friday. With
the exception of its Baltimore, Maryland franchise, all cafes are currently
clustered in and around Providence, Rhode Island. See "BUSINESS -- Properties"
and "BUSINESS -- Franchise Operations -- Locations."
The Company specializes in four sectors of the cafe business: (1)
coffee products, including six varieties of freshly ground and brewed coffees,
espresso drinks, gourmet teas, and iced coffees; (2) baked goods, including
bagels, biscotti, muffins, scones, and croissants; (3) lunch products, including
several varieties of sandwiches, soups and salads; and (4) catered products,
including baked goods and beverages appropriate for breakfast meetings, business
lunches and other professional gatherings. The Company's percentage of revenues
from each of its four major product categories based on a representative
sampling of sales from Company owned cafes for the most recent fiscal year, are
approximately as follows: coffee products (40%); baked goods (18%); lunch
products (40%); and catering sales (2%). See "BUSINESS -- Products."
The Company's expansion strategy will initially focus on opening new
stores in urban areas which cater to working professionals. Management believes
that significant expansion opportunities exist in the Boston, Massachusetts
area, in particular, and that expansion into an area geographically close to its
Providence, Rhode Island corporate headquarters can be achieved without adding
additional management or training personnel at the corporate level. Management
is also exploring opportunities in highly visible residential areas. Unlike
urban locations, cafes in residential settings would typically remain open seven
days a week and may operate under a different trade name. The Company expects to
open and/or acquire approximately nine new Company-owned locations and to
establish approximately four new franchise locations from the date of this
Prospectus through September 1997, and to open and/or acquire approximately 20
additional new Company-owned locations and to establish approximately 31
additional new franchise locations from October 1997 through September 1998. See
"BUSINESS -- Expansion Strategy" and "USE OF PROCEEDS."
The Company's executive offices are located at 216 Weybosset Street,
Providence, Rhode Island. Its telephone number is (401) 453-2233.
-10-
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares and
Redeemable Warrants offered hereby is expected to be approximately $4,005,000
(approximately $4,658,000 if the Underwriter exercises the over-allotment option
in full), assuming an initial public offering price of $4.25 per share and $.10
per Redeemable Warrant, and after deduction of approximately $500,000 for
underwriting discounts and approximately $497,000 for other estimated expenses
of the Offering (approximately $520,000 if the Underwriter exercises the
over-allotment option in full) including the Underwriter's non-accountable
expense allowance and consulting fee. See "UNDERWRITING." The Company intends to
use such net proceeds (i) to finance the expansion and development of additional
cafes, (ii) to retire outstanding indebtedness to certain Noteholders and (iii)
for general corporate purposes.
ADDITIONAL CAFES. It is not possible to estimate precisely the amounts
that will be expended in developing or acquiring additional cafes. Nevertheless,
management expects to use approximately 79% of the net proceeds of the Offering
to support the opening and/or acquisition of approximately nine Company owned
cafes and four franchises from the date of this Prospectus through September
1997, and approximately 20 additional Company owned cafes and 31 additional
franchises from October 1997 through September 1998. The Company estimates that
each new cafe will cost approximately $100,000 to $150,000 to open, in addition
to acquisition costs which will depend on a variety of factors, including
whether the Company is merely building-out a suitable location or acquiring an
ongoing coffee restaurant business with goodwill and other additional costs
inherent in a business acquisition. The Company has been preparing for the
expansion of its business during the past year by hiring additional management
personnel, including its Vice-President-Finance, Robert G. King, and its
Director of Operations, Daniel B. Forlasto, and upgrading its accounting
systems, and believes that it has sufficient management and accounting personnel
and financial and accounting systems in place to support its expansion strategy
as described herein through September 1997 (which would result in the Company
being comprised of approximately 20 Company owned stores and 10 franchises by
the end of September 1997). See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS."
REPAYMENT OF INDEBTEDNESS. Approximately 16% of the net proceeds of the
Offering will be used to repay outstanding indebtedness. Such indebtedness
includes the principal amount of $600,000 in the form of promissory notes (the
"Notes") issued to investors in the Company's $600,000 private offering of notes
and Common Stock purchase warrants in 1996. See `CERTAIN TRANSACTIONS." The
Notes mature on the earlier of one year from the date thereof or within 10 days
after the completion of this Offering and bear interest at the rate of 12% per
annum. The Company will use approximately $618,000 of the proceeds for this
Offering to repay the Notes and accrued interest thereon. The Company also
expects to repay approximately $24,000 in short-term debt in the form of a
promissory note to a financial institution with the proceeds of this Offering.
GENERAL CORPORATE. Approximately 5% of the net proceeds from the
Offering will be used for general working capital purposes, including
approximately $60,000 to upgrade management information systems. See "BUSINESS
- -- Management Information Systems."
Pending such uses, the net proceeds of the Offering will be invested in
short term, interest bearing securities. The actual amount expended for each
purpose described above, and the timing of such expenditures, could vary
depending on numerous factors, including general business conditions.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since its
inception and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. The Company currently intends to reinvest earnings,
if any, in the development and expansion of its business. Any future
determination with respect to the payment of dividends will be subject to the
discretion of the Company's Board of Directors and will depend upon the
earnings, capital requirements, and financial position of the Company, general
economic conditions, and other pertinent factors. In
-11-
addition, the Company's agreement with its primary bank lender prohibits the
payment of dividends without the bank's prior written consent.
CAPITALIZATION
The following table sets forth the actual capitalization of the Company
at September 29, 1996 (after giving effect to the reorganization and
recapitalization of the Company which was approved by the stockholders on
September 26, 1996) and as adjusted as of such date to reflect the issuance of
1,150,000 Shares of Common Stock offered hereby by the Company at an initial
public offering price of $4.25 per share and $.10 per Redeemable Warrant and the
application of the estimated net proceeds from the sale of the Shares and the
Redeemable Warrants.
<TABLE>
<CAPTION>
SEPTEMBER 29, 1996
------------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Long-term debt and capital lease obligations,
less current portion................................................... $395,874 395,874
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none outstanding, actual or as adjusted...............
Common stock, $.01 par value, 9,000,000 shares
authorized; 1,293,302 outstanding, actual; 2,443,3021
shares outstanding, as adjusted................................... 12,933 24,433
Additional paid-in capital.......................................... 935,258 4,928,758
Accumulated deficit................................................ (1,266,869) (1,266,869)
Total stockholders' equity (deficit)..................................... (318,678) 3,686,322
---------- ---------
Total capitalization..................................................... 77,196 4,082,196
======= =========
</TABLE>
- --------------------------
1Does not give effect to: (i) 1,150,000 shares issuable upon exercise of the
Redeemable Warrants; (ii) 345,000 shares issuable upon exercise of the
Underwriter's over-allotment and exercise of the Redeemable Warrants included
therein; (iii) 230,000 shares issuable upon exercise of the Underwriter's
Warrant and exercise of the Redeemable Warrants included therein; (iv) 105,882
shares issuable upon exercise of the Bridge Warrants; (v) 400,000 shares
reserved for issuance under the Company's 1996 Stock Incentive Plan, of which
options to purchase 65,250 shares are currently outstanding, and (vi) 58,000
shares reserved for issuance pursuant to certain outstanding non-qualified
options. See `UNDERWRITING," DESCRIPTION OF SECURITIES" and "MANAGEMENT -- 1996
Stock Incentive Plan."
-12-
DILUTION
At September 29, 1996, the Company had a net tangible book value of
$(353,529) or $(0.27) per share based on 1,293,302 shares of Common Stock
outstanding. See "DESCRIPTION OF SECURITIES." Net tangible book value per share
represents the amount of the Company's total assets less intangible assets and
total liabilities, divided by the number of shares of Common Stock outstanding.
Without taking into account any changes in the net tangible book value after
September 29, 1996 other than to give effect to the net proceeds from the sale
of the Securities offered hereby at an assumed public offering price of $4.351,
the pro forma net tangible book value of the Common Stock at September 29, 1996
would have been $3,651,471 or $1.49 per share.2 This represents an immediate
increase in net tangible book value of $1.76 to existing holders of Common
Stock, and an immediate dilution of $2.86 per share from the Offering price on a
per share of Common Stock basis to investors in this Offering. Dilution per
share represents the difference between the offering price per share of Common
Stock and the pro forma tangible book value per share of Common Stock
immediately after the Offering. The following table illustrates this per share
dilution:
Offering Price per share of Common Stock (1) $ 4.35
Net tangible book value per share before Offering $(0.27)
Increase in net tangible book value per
share attributed to the estimated net
proceeds of the Offering $ 1.76
Pro forma net tangible book value per share
after the Offering $ 1.49
Dilution of net tangible book value per share
of Common Stock to subscribers
in the Offering $ 2.86
- ----------------------
(1)includes the purchase price of $.10 per Redeemable Warrant
(2)The computations in the foregoing table exclude: (i) 1,150,000 shares
issuable upon exercise of the Redeemable Warrants; (ii) 345,000 shares issuable
upon exercise of the Underwriter's over-allotment option and exercise of the
Redeemable Warrants included therein; (iii) 230,000 shares issuable upon
exercise of the Underwriter's Warrant and the Redeemable Warrants included
therein; (iv) 105,882 shares issuable upon exercise of the Bridge Warrants; (v)
400,000 shares reserved for issuance under the Company's 1996 Stock Incentive
Plan, of which 65,250 shares are issuable upon exercise of outstanding incentive
stock options granted to employees; and (vi) 58,000 shares issuable upon
exercise of outstanding non-qualified options granted to certain consultants of
the Company. See "DESCRIPTION OF SECURITIES."
The following table sets forth, at September 29, 1996 and as adjusted
to give effect to the sale of the Common Stock offered hereby, the number of
shares of Common Stock purchased, the percentage of Common Stock purchased, the
total consideration paid, the percentage of total consideration paid and the
average price per share paid by the existing stockholders of the Company and the
investors in the Offering, assuming a public offering price of $4.25 per share
and $.10 per Redeemable Warrant.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------- -------------------
Average Price
Number Percentage Amount Percentage Per Share
------ ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C>
New Investors............................... 1,150,000 47.07% $5,002,500(1) 81.46% $4.35(1)
Existing Stockholders....................... 1,293,302 52.93% $1,138,753(2) 18.54% $ .88
--------- -------- ----------- --------
2,443,302 100.00% $6,141,253 100.00%
</TABLE>
- --------------------------
(1)includes the purchase price of $.10 per Redeemable Warrant.
(2)includes: (i) $1,000,000 in cash for the purchase of 289,902 shares from
investors in the Company's 1995-1996 private offering of Common Stock at a price
per share of $3.45; (ii) $85,042 in services in exchange for 24,650 shares
issued to a consultant of the Company in 1996; and (iii) $53,711 for 978,750
shares (923,650 of which are held by the Company's founder).
-13-
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the Company for
the fiscal year ended September 29, 1996 and the nine months ended October 1,
1995 and as of September 29, 1996 are derived from the Consolidated Financial
Statements of the Company which have been audited by KPMG Peat Marwick, LLP,
independent certified public accountants, and which are included elsewhere in
this Prospectus. The selected consolidated financial data should be read in
conjunction with, and is qualified in its entirety by, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of the Company and the Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 29, 1996 OCTOBER 1, 1995
------------------ ---------------
<S> <C> <C>
Income:
Sales from Company owned restaurants......................... $2,101,283 $1,429,696
Franchise revenues........................................... 97,470 37,466
------------- -------------
Total revenues........................................... 2,198,753 1,467,162
----------- -----------
Costs and Expenses:
Costs of sales............................................... 884,068 607,995
Restaurant operating expenses................................ 1,220,888 792,720
General and administrative expenses.......................... 641,879 510,895
Depreciation and amortization................................ 68,519 43,564
------------- -------------
Total costs and expenses................................. 2,815,354 1,955,174
Loss from operations..................................... (616,601) (488,012)
Other Income (Expense):
Interest income.............................................. 6,945 5,207
Interest expense............................................. (62,901) (34,053)
-------------- ---------------
Net loss before income taxes............................ (672,557) (516,858)
Income Taxes..................................................... 750 500
--------------- ---------------
Net loss.................................................... $ (673,307) (517,358)
============ ============
Loss per share(1)........................................... $ (.47)
==============
Weighted Average Shares Outstanding(1)............................ 1,422,135
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 29, 1996
---------------------
CONSOLIDATED BALANCE SHEET DATA: Pro Forma
Actual as Adjusted2
------ ------------
<S> <C> <C>
Working capital (deficit).............................................. $ (640,351) $ 2,982,649
Total assets........................................................... 885,654 4,130,654
Total liabilities3..................................................... 1,204,332 867,332
Stockholders' equity (deficit)......................................... (318,678) 3,686,322
</TABLE>
1Prior to October 2, 1995, the Company elected S-corporation status and
therefore was not subject to federal and state corporate income taxes.
Accordingly, earnings per share data has been presented only for the fiscal year
ended September 29, 1996.
2Adjusted to give effect to the sales of shares of Common Stock and Redeemable
Warrants being offered by the Company hereby and the application of the net
proceeds therefrom as described in "USE OF PROCEEDS."
3These amounts do not include $600,000 of bridge financing incurred after
September 29, 1996. See "Use of Proceeds."
-14-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company opened its first restaurant in 1989, and the profits from
the first location were used to open two more locations in 1990 and another
three in 1991 and 1992. By 1992, the Company owned and was operating six cafes
in Providence, Rhode Island. In August, 1994, the Company sold its first
franchise (an existing Company store) and by December, 1994 Cafe La France
comprised a chain of eight cafes, of which four were Company owned and four were
franchised, all of which were operating in the state of Rhode Island. By
securing a $350,000 bank loan, the Company purchased a chain of five locations
in January, 1995 and converted them to the Cafe La France concept during the
year. Another location was opened in September, 1995, and by October 1, 1995 the
Company comprised 15 locations, of which ten were Company owned and five were
franchised.
On October 1, 1995, Cafe La France, through its two companies CLF2,
Inc. and CLF Franchise Corporation, was owned 100% by Thomas W. DeJordy, the
Company's Founder. Both companies were Sub-chapter S Corporations. On October 2,
1995, the Company adopted a new fiscal year ending the Sunday closest to
September 30, and Cafe La France was re-organized so that a holding company,
Cafe La France, Inc., a Rhode Island corporation, was incorporated to own 100%
of the stock of CLF2, Inc. and CLF Franchise Corporation. Thomas W. DeJordy
exchanged 100% of his stock in CLF2, Inc. and CLF Franchise Corporation for 100%
of the stock in Cafe La France, Inc., the newly formed parent company. The 1995
year was ended on October 1, 1995 (fiscal 1995 was a nine month year). The 1996
fiscal year began on October 2, 1995, and the Company elected to be taxed as a
Sub-chapter C corporation beginning in fiscal 1996.
At the beginning of fiscal 1996, with a growing company now comprising
15 locations, but with limited capital, Mr. DeJordy embarked upon a plan to
raise $1,000,000 of equity financing to provide the necessary capital for
expansion, to renovate existing locations, to increase working capital, and to
build an overhead structure to support a growing concept and provide the
necessary support and controls with the expectation of taking the Company public
in fiscal 1997. The Company raised $1,000,000 of private equity financing in
fiscal 1996, hired experienced operations and finance personnel to create a more
experienced corporate office to support a growing concept, and began the
necessary preparation for a public offering. During fiscal 1996, the Company
opened two Company locations and three franchise locations. In the last quarter
of fiscal 1996, the Company signed a letter of intent with the Underwriter to
take it public in fiscal 1997.
The Company's revenues are derived from sales by Company owned
restaurants and commissary sales to franchise restaurants, and franchise
revenues which consist of royalties from franchised restaurants as well as
franchise and development fees. Initial franchise and development fees are
recognized as revenue when the Company performs substantially all initial
services required by the franchise agreement, which generally occurs shortly
after restaurant opening. Continuing royalties are recognized as earned. Initial
franchise and development fees received applicable to restaurants for which
substantially all initial services required by the franchise agreements have not
been performed are recorded as deferred franchise fees.
Cost of sales includes food, paper, and beverage costs associated with
Company-owned restaurants and the commissary. Restaurant operating expenses
consist primarily of labor costs, rent, advertising, utilities, maintenance and
insurance associated with Company owned restaurants and the commissary. General
and administrative expenses include corporate and administrative salaries,
accounting, legal and direct costs associated with franchise operations.
The Company's financial statements are based upon a 13 week quarter, in
which the first and second months of the quarter are four week months, and the
third month of the quarter is a five week month. The Company closes its books
each fiscal month at the close of business on Sunday, and the Company's year end
is the Sunday closest to September 30. Prior to 1995, the Company's year end was
a calendar year, and each monthly close occurred at the end of the calendar
month.
-15-
As of September 29, 1996, the Company comprised 17 locations, of which
ten were Company-owned and seven were franchised. All of the locations, with the
exception of one franchise location in Baltimore, Maryland, are situated in
Rhode Island.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATION
The following table sets forth the percentage relationship of certain
operating data to total revenues, except as otherwise indicated.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 29, 1996 October 1, 1995
------------------ ---------------
<S> <C> <C>
Revenues
Sales from Company owned restaurants(1) 95.6% 97.4%
Franchise revenues 4.4 2.6
-------- --------
Total Revenues 100.0% 100.0%
Costs and Operating Expenses
Cost of Sales2 42.1% 42.5%
Restaurant operating expenses2 58.1 55.4
General and administrative expenses 29.2 34.8
Depreciation and amortization 3.1 3.0
-------- -------
Total costs and operating expenses 128.1% 133.2%
-------- -------
Loss from operations (28.1%) (33.2%)
Other Expenses
Interest expense, net 2.5% 2.0%
Loss before income taxes (30.6%) (35.2%)
Income taxes - - - -
Net Loss (30.6%) (35.2%)
</TABLE>
- ------------------------------
(1) Includes commissary sales to franchisees of $54,645 in fiscal 1996 and
$118,158 in the 1995 nine month period.
(2) As a percentage of sales from Company owned restaurants and commissary
sales to franchisees.
FISCAL YEAR ENDED SEPTEMBER 29, 1996 COMPARED TO NINE MONTHS ENDED OCTOBER 1,
1995
Revenues
For the year ended September 29, 1996, total revenues increased
$731,951 to $2,198,753, an increase of 49.9% over the nine month 1995 period.
The increase reflects the addition of six Company owned restaurants and two
franchised restaurants. Although comparable store sales declined 2.5% for the
year, the yearly numbers were negatively affected by one time events, such as
the extremely harsh winter experienced throughout the Northeast in 1996 and the
closing of our cafes for renovation in the second, third and fourth fiscal
quarters of 1996. With the introduction of our new express lunch program in May
1996, and the retraining of our managers to improve customer service, Cafe La
France experienced large comparable sales increases in many of its locations
beginning in May 1996, and comparable sales were up 4.2% in June 1996, and up
12% in the quarter ended September 1996. Franchise revenues increased $60,004 as
the Company opened three franchise locations in fiscal 1996 versus one franchise
-16-
opening in the 1995 period. In addition, the higher royalty income earned in
fiscal 1996 was principally due to more franchise locations operating in fiscal
1996. The Company had seven franchise locations operating on September 29, 1996
versus five franchise locations operating on October 1, 1995.
Costs and Operating Expenses
Cost of Sales. For the year ended September 29, 1996, cost of sales
which represent food and beverage costs were $884,068 or 42.1% of net restaurant
sales, a decrease from the 42.5% figure for the nine month period ended October
1, 1995. The improvement in food and beverage costs occurred as the Company
instituted a new store procedure in the third quarter of fiscal 1996 to improve
food cost control, along with a program to retrain restaurant managers to reduce
store waste. As a result of these programs, the Company improved its restaurant
gross margins during the third and fourth quarters of fiscal 1996, reducing its
restaurant food costs to 39.5% in the third quarter, and further reducing its
fourth quarter restaurant food costs to 39.3%. Prices of the Company's
commodities (coffee, baked goods and lunch items) generally remained stable
during fiscal 1996. The Company did not raise prices in fiscal 1996 except to
offset the increase in food costs due to inflation.
Restaurant Operating Expenses. Restaurant operating expenses comprise
labor expenses and occupancy and other expenses. Labor expenses amounted to
$698,625 in fiscal 1996 versus $488,377 in the 1995 nine month period, an
increase of $210,248 or 43.1%. Occupancy and other expenses amounted to $522,263
in fiscal 1996 versus $303,343 in the 1995 nine month period, an increase of
$217,920 or 71.6%.
Labor Expenses. Opening a new restaurant requires the hiring and
training of new employees, both before and after opening. During the
initial months of operation immediately after a new restaurant opens, the
Company intentionally schedules more hourly employees per shift than it
would in an established restaurant with a staff experienced in Company
procedures. As a new restaurant's staff gains experience, the Company
adjusts hourly employee work schedules for maximum efficiency. During
fiscal year 1996, labor costs declined as a percentage of sales from
Company owned restaurants due primarily to improved hourly employee
scheduling controls, and the increase in labor efficiency in 1996 resulting
from the opening of six restaurants in fiscal 1995. For the year ended
September 29, 1996, labor costs were $698,625, or 33.2% of sales from
Company owned restaurants, an improvement from the 34.2% of sales from
Company owned restaurants experienced in the 9 month period ended October
1, 1995.
Labor cost is primarily a function of four factors: wages rates
and salary levels; scheduling efficiency; the net restaurant sales over
which restaurant management salaries are spread; and most importantly, the
motivation of the staff. Although the Company is subject to changes in laws
and regulations which it cannot control, such as hourly wage and proposed
national health insurance, the Company strives to continue to improve
scheduling efficiency and to offer salaried and hourly employees
appropriate motivation.
Occupancy and Other Expenses. Occupancy and other expenses
increased 3.1% as a percentage of total revenues in fiscal 1996 versus
fiscal 1995, increasing from 20.7% in fiscal 1995 to 23.8% in fiscal 1996.
Repairs and maintenance increased 1.4% due to additional emphasis on store
managers to keep the stores cleaner and to perform preventive maintenance
on equipment to minimize the nonfunctioning of equipment during normal
store hours. Advertising and discount promotion increased 1.2% as the
Company's strategy in the third and fourth quarters of fiscal 1996 was to
increase customer awareness of new product offerings and the express lunch
program.
General and Administrative Expenses. General and administrative
expenses increased by $130,984 or 25.6% to $641,879 in fiscal 1996 from $510,895
in the nine months ended October 1995. As a percentage of total revenues,
general and administrative expenses decreased from 34.8% in fiscal 1995 to 29.2%
in fiscal 1996. The decrease of 5.6% was attributed to 1995 expense of $213,691,
or 14.6% of total revenues, for a corporate identity package by a marketing
consulting firm. The Company's 1996 comparable expense for the corporate
identity package was only $7,798, or .4% of total revenues. Offsetting this
decrease in corporate identity package in fiscal 1996, the Company increased its
salary expense from $61,551 in fiscal 1995 to $391,670 in fiscal 1996. As a
percentage of total revenues, salary expense increased from 4.2% to 17.8%. This
increase of 13.6% resulted from the hiring of more experienced operations and
finance personnel to build a more structured corporate office to support a
growing
-17-
concept and prepare the Company for the additional demands of a public company.
In addition, the Company's Founder and CEO, Thomas W. DeJordy, was paid a salary
in fiscal 1996 totaling $117,000, versus receiving Subchapter S distributions of
$32,327 in the 1995 nine month period. Bad debt expense, as a percentage of
total revenues, decreased from 5.3% in 1995 to .8% in 1996. In 1995, the Company
wrote off $68,409 of notes receivable resulting from loans the Company made to
two franchisees and a former officer of the Company.
Depreciation and Amortization.
The Company amortizes the pre-opening costs of new restaurants
(including pre-opening hiring and training expenses) over the 52 week period
immediately following an opening. Leasehold improvements are amortized over the
lesser of their useful life (usually 15 years) or the term of the lease, with an
average expected lease term of at least 10 years (assuming exercise of renewal
options). Store fixtures and equipment is depreciated over an average of 10
years. Office computers are depreciated over 5 years. For the year ended
September 29, 1996, depreciation and amortization increased by $24,955 to
$68,519, increasing to 3.1% of total revenues in fiscal 1996 versus 3.0% of
total revenues in the 1995 nine-month period. The increase is attributed to
additional capital spent in fiscal 1996 to renovate existing restaurants.
Interest Expense, Net
In the year ended September 29, 1996, interest expense net of interest
income increased by $27,110 to $55,956, and increased as a percentage of total
revenues to 2.5% in fiscal 1996 from 2.0% in the 1995 nine month period. The
increase in interest expense is attributed to higher debt outstanding during the
1996 fiscal year, as the Company financed the renovation of existing locations
with the sale and leaseback of equipment, financed the purchase of new office
computers through a capital lease, and financed the purchase of a new location
with debt maturing on October 15, 1996. During the year, the Company refinanced
its short term bank loan with another bank which provided a ten year maturity on
$350,000 of bank debt.
Income Taxes
Prior to October 2, 1995, the Company was treated as an S Corporation
for tax purposes. As a result, the Company paid no federal income taxes and paid
minimum state taxes of $500 in 1995. On October 2, 1995, the Company elected to
be taxed as a Subchapter C Corporation. As a result of a loss in fiscal 1996
totaling $673,307, the Company has no federal income taxes payable for fiscal
1996, and for state tax purposes, the Company will only be required to pay the
minimum state taxes of $750.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for the development of new
restaurants, to fund operating losses, to acquire new locations, and to remodel
existing Company owned restaurants. Capital expenditures totaled $371,291 in
fiscal 1996 and $225,296 in fiscal 1995. The Company has historically funded its
capital expenditures with cash provided by operations, bank borrowings, and
equipment leases.
At September 29, 1996, the Company had outstanding bank borrowings of
$342,923 which is being amortized over ten years at an interest rate of prime
plus 2.75%, and matures on March 1, 2006. The outstanding bank indebtedness is
secured by substantially all of the assets of the Company. The Company presently
has no additional line of credit, but expects to arrange a bank line of credit
after the Offering. At September 29, 1996, the Company had additional long term
debt totaling $26,216 which matures in January 1999 at interest rates ranging
from 10% to 15%. Also at September 29, 1996, the Company had short term debt of
$123,477 at interest rates ranging from 10% to 15%, of which $100,000 has been
paid subsequent to fiscal year-end, and the balance of $23,477 will be paid from
the proceeds of the Offering.
Subsequent to September 29, 1996, the Company incurred indebtedness in
the form of promissory notes in the principal amount of $600,000 in connection
with a private offering of promissory notes and warrants to purchase Common
Stock which closed in October and November 1996. Such notes bear interests at
the rate of 12% per annum and are due upon the earlier of one year from the date
thereon or 10 days after the successful completion of this
-18-
Offering. The Company intends to use approximately $618,000 from the proceeds of
this Offering to repay such notes and accrued interest thereon. See Note 10 of
Notes to Consolidated Financial Statements.
Based on its contemplated expansion plans, the Company estimates that
its total capital expenditures will be approximately $1,483,000 in fiscal 1997
and $2,480,000 in fiscal 1998. These estimates include the estimated costs of
developing new restaurants and renovating existing Company owned restaurants.
The Company expects that the net proceeds of this Offering (excluding any
proceeds from the Underwriter's over-allotment option) and cash provided by
operating activities will provide sufficient funds to finance its capital
expenditures through September 1998.
On December 1, 1996, the Company closed its commissary which has been
providing certain baked goods and supplies to Company owned cafes and
franchisees during the fiscal year ended September 29, 1996 and the nine months
ended October 1, 1995. The Company determined that it could obtain such goods
from other suppliers at less net cost to the Company.
OTHER INFORMATION
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," becomes effective for fiscal years
beginning after December 15, 1995. SFAS No. 121 provides guidance for
recognition of impairment losses related to long-lived assets (for example,
property and equipment), and certain intangibles and related goodwill for (i)
assets to be held and used, and (ii) assets to be disposed of. Specifically, any
impairment loss to be recognized must be recorded in continuing operations. The
Company must adopt the provisions of SFAS No. 121 in fiscal 1997. The Company
does not expect any material impact from implementation of this statement.
SFAS No. 123, "Accounting for Stock-Based Compensation," becomes
effective for fiscal years beginning after December 15, 1995. SFAS No. 123
introduces a fair value-based method of accounting for stock-based compensation.
Under SFAS No. 123, the Company may either adopt the new fair value-based method
or provide pro forma disclosure of net income (loss) as if the accounting
provisions of SFAS No. 123 had been adopted. The Company intends to retain the
intrinsic method of accounting for stock-based employee compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and provide the required pro forma disclosure in fiscal 1997. SFAS
No. 123 is not expected to have any effect on the Company's financial position
or results of operations.
-19-
BUSINESS
OVERVIEW AND BUSINESS CONCEPT
The Company consists of a chain of 17 cafes operating under the trade
name "cafe la france," 11 of which are owned and operated by the Company and six
of which are operated as franchises by independent third parties who have
entered into franchise agreements with the Company. The Cafe La France menu
features coffee beverages, including espresso and cappuccino, muffins,
croissants, cookies and brownies baked on the premises, and made-to-order
sandwiches, hot soups, salads and cold beverages. Target customers at all cafes
are urban office employees, students and other adults who are time-sensitive yet
desire a higher quality breakfast and lunch experience than is typically found
at quick service restaurants. The Company's strategy is to create distinctive
food offerings at reasonable prices that are fresher, of higher quality and in
greater variety than those offered by competitors. The Company believes its
quality menu selection, operating efficiency and convenient locations combined
with the natural look and feel of a true European cafe further differentiates
cafe la france from its competitors.
INDUSTRY TRENDS
Until the late 1980's U. S. consumers were not fully acquainted with
the popular gourmet cafes of Europe. With increased travel and globalization of
consumer taste, and the intense media focus on healthy meals, the 1980's
witnessed a growing awareness of and demand for gourmet cafes featuring upscale
coffees and fresh, healthy foods. Shifting tastes (especially of baby boomers),
and the need for an open setting for conversation and interaction which could
replace bars or specialty places drove consumers to eagerly accept a new cafe
concept which specialized in high quality coffees and fresh, nutritional soups
and sandwiches.
The largest company to grow the cafe concept in the Northeast is Au Bon
Pain, headquartered in Boston, Massachusetts. Additional competition for the
cafe market also includes Starbucks and Dunkin Donuts which both specialize in
coffees and to a lesser extent baked goods and sandwich items.
The Company believes that the mood and trend of the 1990's, inspired by
the globally-conscious American consumer's image of a European cafe, is to
capture the natural look and feel of a true cafe without being "flashy," and
that this mood is better reflected by a comfortable, friendly atmosphere created
through the abundant use of wood, simple but elegant paraphernalia on walls, and
incandescent hanging lights. The Company's cafes, accordingly, are places where
people gather and talk, and enjoy specially brewed hot coffee, healthy
sandwiches and soups, cold beverages and fresh baked goods.
COMPANY HISTORY
The first Cafe La France coffee restaurant was opened in Providence,
Rhode Island in December 1989 by Thomas W. DeJordy, the Company's Chairman and
Chief Executive Officer. Over the next few years, additional Cafe La France
outlets were established in the Providence area and operated by separate
corporations owned by Mr. DeJordy. By December 1993, Mr. DeJordy's companies
owned and were operating a total of six cafes.
Recognizing the franchise potential of his business concept resulting
from a modest initial capital investment, limited hours of operation (generally
7:00 a.m. to 4:00 p.m.), an appealing but simple menu and the prospect for a
favorable rate of return on investment, Mr. DeJordy sold the first Cafe La
France franchise, an existing cafe, in August 1994, and by the end of that year,
a total of four franchises were operating in the Providence area. A separate
corporation, CLF Franchise Corporation, a Rhode Island corporation, was
organized in 1993 for the purpose of entering into the franchise agreements and
receiving all royalty income from the franchisees. By December 1994, the cafe la
france business consisted of four cafes owned and operated by corporations
controlled by Mr. DeJordy and four franchises.
In January 1995, CLF2, Inc., a Rhode Island corporation wholly-owned by
Mr. DeJordy, purchased the assets and existing leases of a chain of five cafe
locations, and during the year the locations were converted to the Cafe La
France concept. On February 9, 1995, three separate corporations owned by Mr.
DeJordy and each operating a single cafe la france store were merged into CLF2,
Inc. As a result, CLF2, Inc. became the sole corporate
-20-
entity under which all Company owned cafes were to operate, and CLF Franchise
Corporation continued to be the corporation under which the franchises were sold
and the franchise income was received. By October 1, 1995, the Company had grown
to 15 locations, of which 10 were owned by CLF2, Inc. and 5 were operated by
independent franchisees.
On July 14, 1995, a new corporation, Cafe la france, Inc. (the
"Predecessor"), was organized in Rhode Island to function as a holding company
to own 100% of the stock of the existing companies, CLF2, Inc. and CLF Franchise
Corporation. On October 2, 1995 Mr. DeJordy exchanged the stock of the two
existing companies for the stock of the Predecessor, and as a result became the
owner of 100% of the outstanding common stock of the Predecessor. The Subchapter
"S" federal income tax elections of the two subsidiaries were thereby terminated
and the Predecessor adopted a new fiscal year beginning October 2, 1995 and
ending September 29, 1996. The Predecessor was taxed as a regular Subchapter "C"
corporation and will file a consolidated return with the two subsidiaries for
the fiscal year ended September 29, 1996.
The Company was organized as a Delaware corporation on September 25,
1996. On September 26, 1996, the shareholders of the Predecessor approved a
merger of the Predecessor with and into the Company. The merger was effected on
October 25, 1996 and was structured to qualify as a tax-free reorganization
pursuant to the provisions of Section 368 of the Internal Revenue Code of 1986,
as amended (the "Reorganization"). In connection with the Reorganization, each
existing stockholder in the Predecessor received 290 shares of Common Stock in
the Company in exchange for each outstanding share of common stock of the
Predecessor owned thereby.
As has been the case since early 1995, CLF2, Inc. will continue to be
the operating company for all Company owned cafes and will provide all general
and administrative support to the Company, and CLF Franchise Corporation will
continue to enter into the franchise agreements and collect the franchise fees
and royalty income from all franchisees.
PRODUCTS
The Company specializes in four sectors of the cafe business: (1)
coffee products, including six varieties of freshly ground and brewed coffees,
espresso drinks, gourmet teas, and iced coffees; (2 baked goods, including
bagels, biscotti, muffins, scones, and croissants; (3) lunch products, including
several varieties of sandwiches, soups and salads; and (4) catered products,
including baked goods and beverages appropriate for breakfast meetings, business
lunches and other professional gatherings through a program called "Catering
Express," as described below. The Company's percentage of revenues from each of
its four major product categories, based on a representative sampling from
Company owned cafes for the most recent fiscal year, are approximately as
follows: coffee products (40%); baked goods (18%); lunch products (40%); and
catering sales (2%).
The Company's menu emphasizes "freshness and consistency". The Company
has certain baked goods delivered fresh to its stores by local vendors each day.
Prior to December 1, 1996, the Company operated a commissary within one of its
Company owned stores, which also provided baked goods to Company owned stores
and franchises. The commissary was closed on December 1, 1996. Each cafe also
bakes muffins, croissants, cookies and brownies on the premises, which allows
for the freshest product to be served to the customer, and minimizes waste due
to stale products. The stores feature an extensive coffee presence as well as a
full complement of baked goods to include bagels, biscotti, scones, and other
baked goods in a display cabinet for maximum customer eye appeal. The aroma of
several varieties of coffee brewing, in addition to the sound of milk frothing
through the cappuccino machine, heightens the coffee aura that encompasses the
Cafe La France coffee restaurant.
The demographic profile of the Company's target customer base is
educated, white collar, health conscious, young and mature adults. Management
believes that the Company's target customer chooses healthier muffins over deep
fried donuts for breakfast, a good quality gourmet coffee, and fresh healthy
sandwiches at competitive prices. The fresh lean meats, the aroma of fresh
breads, the choice of two kinds of chicken salad, five varieties of fat free
muffins and "just made" cookies helps to make lunch at a cafe la france cafe an
enjoyable experience.
The Company's Catering Express program involves the sale of coffee and
other beverages and breakfast and luncheon items by any Cafe La France coffee
restaurant to local businesses and organizations. Selections appropriate for
corporate functions, including baked goods, sandwiches, and cheese and crackers,
are detailed on the Company's
-21-
"Les Ordres Speciaux" menu and delivered on attractive platters and baskets.
Customers call their orders in directly by telephone or by facsimile machine to
Company headquarters and deliveries are arranged through the nearest cafe
location.
The Company believes it competes on the basis of quality of food and
service rather than price, although pricing is structured to give customers a
sense of good value at its cafes. The average customer purchase is approximately
$1.50 to $2.00 at breakfast and $4.00 to $5.00 at lunch. Approximately 45% of
sales occur in the morning before 11:00 a.m., and approximately 55% of sales
occur thereafter. Most stores are open for breakfast and lunch, and close by
4:00 p. m. Increases in the average guest check are accomplished through menu
development, promotions, and suggestive selling by employees. The Company
believes that it enjoys a high degree of repeat business. Management believes
that the Company's menu items are priced to be industry competitive while
insuring that customers receive quality and value for their money.
EXPANSION STRATEGY
Although the Company has locations in both residential and urban areas,
it is the intent of management to concentrate on the expansion of its urban
locations which cater to working professionals. The majority of the Company's 17
stores (including 6 franchise locations) are in urban locations and many are
typical of the format stores which management wants to develop with the proceeds
of this Offering. These stores are projected to occupy 1200 square feet, cost
approximately $100,000 to build and produce store contribution margins of 20% on
sales of $250,000. These store economics combined with a simple Monday through
Friday (7:00 a.m. to 4:00 p.m.) operation makes the urban Cafe La France concept
not only financially attractive but also a desirable concept for restaurant
managers and franchise owners who want "normal" working hours.
Cafe La France's management is also currently exploring opportunities
in highly visible residential areas. Unlike urban locations, these stores would
serve as a destination for consumers looking for baked goods, luncheon items,
and coffee seven days a week. To help gain market share and develop separate
brand awareness, management is looking to possibly acquire or develop a retail
operation which may operate under a different trade name than Cafe La France,
such as "The Village Bean" which the Company is currently using in Scituate,
Rhode Island and "The Coffee Bean" which the Company is currently using in
Cranston, Rhode Island.
The Company initially intends to focus on the development of Company
owned cafes and franchises in the greater Boston, Massachusetts market, and has
engaged the services of a Boston commercial realtor to serve as the Company's
exclusive agent to locate up to 20 suitable properties available for lease in
the area over the next 12-18 months. Management believes that expansion into the
greater Boston, Massachusetts market can be accomplished with existing
management based in its Providence corporate offices because of the short travel
time to the Boston area and because of available capacity of its training
personnel based in Providence. During the past fiscal year, management believes
that it has secured the necessary management and accounting personnel and put
into place the necessary accounting and financial systems to open and/or acquire
approximately nine new Company owned locations and to establish approximately
four more Franchise locations from the date of this Prospectus through September
1997 without substantially increasing its current fixed overhead expenses. From
October 1997 through September 1998, the Company expects to open and/or acquire
approximately 20 new Company owned cafes and to establish approximately 31 new
franchises. Management also believes that it made significant progress in
reducing the Company's cost of sales during the last six months of fiscal 1996
and expects to continue the procedures that resulted in such progress in all new
stores. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION and
RESULTS OF OPERATIONS -- Fiscal Year Ended September 29, 1996 Compared To Nine
Months Ended October 1, 1995 -- Costs and Operating Expenses" and "USE OF
PROCEEDS."
COMPETITION
The Company believes that its major competitor in the Northeast (aside
from single-unit, family-owned stores) with an established market for both
morning and lunch business is Au Bon Pain, headquartered in Boston,
Massachusetts. Au Bon Pain has grown the number of its cafes to over 200 units
located predominantly in the
-22-
Northeast, including 4 locations in Rhode Island. Additional competition arises
from companies which specialize in gourmet coffee, with Starbucks the nationally
recognized leader with over 700 locations and growing rapidly each year. Dunkin
Donuts is also a major competitor with over 2000 locations nationwide and with a
particular concentration in the Northeast, including over 50 locations in Rhode
Island. Moreover, Dunkin Donuts has continued to upgrade the quality and variety
of its coffee, pastries and sandwiches as consumers have become more discerning
about coffee and food products generally. See "RISK FACTORS -- Competition."
The Cafe La France concept was developed as a mix between the gourmet
coffee cafe of Starbucks and the bakery cafe concept of Au Bon Pain. The concept
was designed to be simple in both menu design and interior physical design, with
a small physical area and a modest capital investment to open. Management
believes that the capital investment to open a Cafe La France franchise location
(approximately $100,000 to $150,000 depending on size, location, etc.) is lower
than an Au Bon Pain or a Starbucks (approximately $350,000 to $600,000). See
"RISK FACTORS -- Competition."
CUSTOMER SERVICE AND CAFE OPERATIONS
The Company believes that its quality of customer service and
operational efficiency at each cafe is a competitive advantage. The entire Cafe
La France organization is focused on executing the Company's philosophy of 100%
customer satisfaction to insure that each customer is completely satisfied in
product quality, price, and speed of service, and will become a frequent repeat
customer. Consistent with this philosophy, quality standards have been
established for all food and beverage products, the speed and friendliness of
the service, and the cleanliness and physical environment of the cafes. The
Company believes that speed of service is especially integral to its success.
Cafe operating systems are being designed to achieve a three minute elapsed time
between a customer's arrival in line and receipt of the customer's order. The
systems are capable of handling significant lunch time volumes, preparing up to
150 custom-made sandwiches per hour.
SITE SELECTION AND DESIGN
The Company seeks to locate its cafes in high visibility, heavily
trafficked, office or shopping areas that are easily accessible to its target
customers. With the exception of its Baltimore, Maryland franchisee, all stores
are currently clustered in and around Providence, Rhode Island. Management
believes that clustering its cafes increases name recognition and provides
significant operational efficiencies. Management also believes that Cafe La
France's menu, and cafe decor enable the Company to obtain access to future
sites that are not available to traditional quick service restaurants because of
space considerations and the venting/cooking requirements of such restaurants.
Each cafe relies on a substantial volume of repeat business. In
evaluating a potential new urban location, the Company studies the area within a
radius of two blocks. Information is obtained regarding quick service breakfast
or lunch competitors within the area. Detailed office occupancy, demographic and
pedestrian traffic count information is also collected. Based on this
information, sales, construction and equipment costs, and return on investment
are projected. In evaluating a potential residential or suburban location, the
Company studies the area within a radius of 5 miles, and evaluates such factors
as parking, demographics (including population density and pedestrian and
automobile traffic), visibility, zoning requirements (including setback and
signage) and neighboring retail outlets.
In its cafe design, the Company attempts to create a comfortable,
home-like and friendly atmosphere through the use of wooden fixtures, simple
wall decorations, and incandescent hanging lights to reflect the ambiance of the
true European cafes. The design visually reinforces the distinctive difference
between Cafe La France and other quick service restaurants serving breakfast and
lunch. The Company recently completed a design program under the direction of a
nationally recognized marketing firm to develop a uniform decor protocol for its
new stores that will emphasize the Company's French cafe atmosphere. Over the
last year, the Company has renovated its current stores to utilize the same
decor features. Management believes that maximum use of natural light and an
abundance of wood craftsmanship combined with simple yet comfortable furniture
and fixtures results in a friendly, enjoyable and comfortable setting which
contributes to a loyal, satisfied and growing customer base.
The Company utilized the services of Leonard/Monahan, Inc. of
Providence, Rhode Island in early 1995 to create the Company's identity package.
Leonard/Monahan, Inc. has created designs for Polaroid Corporation and H.
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P. Hood Company. Their services for the Company have included interior and
exterior store design, as well as design of packaging materials, sales
literature, manuals, uniforms, public relations, media consulting, and franchise
brochures.
PROPERTIES
All Company-owned cafes, in addition to the corporate offices, are
located in leased premises with lease terms typically for five years and a five
year renewal period thereafter. Lease costs are typically triple net leases,
with a minimum base occupancy charge and a charge for common area maintenance
costs, insurance and real estate taxes. The following is a list of leases under
which the Company's operating subsidiary, CLF2, Inc., is obligated:
<TABLE>
<CAPTION>
Approx. Initial Lease Renewal
LOCATION Sq. Feet Term Term
- -------- -------- ---- ----
<S> <C> <C> <C>
Corporate Offices (a) 800 1/96-3/99 None
216 Weybosset St. (b) 800 9/96-11/99 None
Providence, RI Total = 1600
Company Owned Cafes:
Arcade Building 1137 2/94-2/99 5 Yrs
Westminster St.
Providence, RI
73 Empire St. 800 5/91-5/98 10 Yrs
Providence, RI
228 Weybosset St. 1200 12/91-12/96 7 Yrs (this renewal option has been
Providence, RI exercised by the Company)
One Citizens Plaza 2067 7/95-6/00 5 Yrs
Providence, RI
University Heights 3045 5/93-4/98 5 Yrs
North Main St.
Providence, RI
483 Hope St. 2100(1) 1/95-1/00 5 Yrs
Bristol, RI
1255 Reservoir Ave. 3100(2) 6/96-6/01 5 Yrs
Cranston, RI
Prince's Hill Marketplace3 1786 8/95-8/00 15 Yrs
County Road
Barrington, RI
</TABLE>
- -------------------------
1The Company has subleased approximately 800 square feet of this leasehold to an
unaffiliated Rhode Island limited liability company d/b/a "Daily Bread," a
retailer of European-style gourmet breads.
2The Company has subleased approximately 800 square feet of this leasehold to
an unaffiliated Rhode Island limited liability company d/b/a "Daily Bread," a
retailer of gourmet breads of European origin.
3This location was formerly operated as a franchise. The Company, which
subleased this location to the Franchisee, revoked the franchise on November 30,
1996 for failure to meet Franchise Agreement obligations, and is currently
operating this location as a Company-owned location with the consent of the
franchisee.
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258 Thayer St. 1900 7/96-7/01 5 Yrs
Providence, RI
Amtrak Station 860 9/95-9/98 None
Providence, RI
138 Danielson Pike 1300 8/96-8/01 10 Yrs
Scituate, RI
CLF2, Inc. is also the lessee on leases for the following franchise
locations and has entered into subleases with such franchisees on the same terms
and conditions as the original leases:
Approx. Initial Lease Renewal
LOCATION Sq. Feet Term Term
- -------- -------- ---- ----
100 Fountain St. 700 7/94-7/99 10 Yrs
Providence, RI
One Old Stone Square 554 1/95-1/00 5 Yrs
Providence, RI
The Company considers its physical properties to be in good operating
condition and suitable for the purposes for which they are used. The Company
believes that its facilities are adequate for the reasonably foreseeable future.
MARKETING AND ADVERTISING
In general, the Company has relied on limited radio advertising,
word-of-mouth and customer satisfaction to entice new customers into its coffee
restaurants. In addition, the Company has conducted local advertising and
promotions for new store openings. Typically, the Company will target all
potential customers within the immediate area of a new store by distributing
flyers announcing the grand opening of a store. In addition, the Company's store
manager will visit with local business persons to make an introduction and to
acquaint them with Cafe La France by providing sample menus and "Catering
Express" brochures.
As the Company expands the number of outlets in the existing market,
management intends to develop an advertising campaign to increase the number of
visits by new customers. The cost of the advertising campaign will be funded by
the Company and by a weekly contribution from franchisees equal to up to 2% of
gross receipts pursuant to an advertising expense-sharing provision in the
Company's franchise agreements. Advertising in new markets will begin when the
number of total locations in a new geographical area provide sufficient
economies of scale to fund an advertising program.
TRAINING AND DEVELOPMENT
The Company has developed a three-step training program to assure a
smooth opening for each new Company-owned and each franchise location. The
training program covers three to four weeks, with each step covering one week
and an additional week between Step 2 and Step 3 in order to prepare for the
grand opening of a cafe, as outlined below.
Step 1: Orientation
In this classroom-style training session, new managers learn to
understand the basics of the restaurant business, management's philosophy of
operating a successful cafe, and the techniques of implementing the Company's
business concept. Topics in this one week session include company history,
customer service, cost
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controls, accounting, vendor relations, staffing, menu knowledge, sanitation
procedures, quality assurance, system standards, government regulation, loss
prevention, and human resources.
Step 2: Operations
The objective of Operations training is to familiarize the manager with
every aspect of operating a store within the system guidelines. During this one
week step, training is on-site at a designated Company training store where the
trainee manager follows an experienced manager through his or her daily tasks
and responsibilities. In addition, a member of the control team works as a
coordinator to assure that all topics are thoroughly covered. A complete
understanding is required in areas such as daily opening procedures, sandwich
preparation, coffee and espresso preparation, sanitation, cash register
operations, ordering, inventory, safety, and banking procedures.
Step 3: Support
The third week of training coincides with the grand opening of the new
cafe. During this training period, a Company support person actually works side
by side with the trainee manager, assisting with daily management duties as
necessary. As the week progresses, the trainee manager requires less support, so
that the support person leaves the store by the end of the first week but
continues to be available to offer the new manager assistance on an as-needed
basis.
EMPLOYEES
The Company as of December 3, 1996 has 88 employees, including 42
full-time employees, and 46 part-time employees. Nine of the Company's
employees, including its two executive officers, are employed at the Company's
executive offices located at 216 Weybosset Street in downtown Providence, Rhode
Island. Each store is staffed with a restaurant manager and a number of hourly
employees, both full time and part time, based upon the sales volumes of the
store. None of the Company's employees is covered by a collective bargaining
agreement. The Company provides health insurance to approximately 20 of its
full-time employees. The Company considers its employee relations to be good.
MANAGEMENT INFORMATION SYSTEMS
Each Cafe La France store uses a computerized cash register to collect
point of sale information including: sales by menu item, department, and major
category (coffee, food, other beverage, other); sales by hour, day and week;
customer count; and average guest check. This detailed sales information, which
is currently gathered manually and assembled in spread-sheet form, allows the
Company to spot significant sales trends by store, provides data to help keep
the cafe menus fresh, highlights slow selling items, and allows management to
analyze the effect of marketing promotions and advertising. The Company expects
to use a portion of the proceeds of this Offering to upgrade its cash register
system to provide additional information and to upgrade its software to enable
the Company to electronically compile and analyze the sales information
described herein on a daily basis at its central office location.
The corporate general ledger system is a network-based software package
which includes all general ledger functions, accounts payable, accounts
receivable, inventory control, payroll, and order entry. The Company uses all
the above functions, with the exception of payroll processing, which is
currently performed by an outside company.
Each month the Company generates computerized profit and loss reports
by store to track individual store profitability and spot unfavorable trends for
immediate follow-up. In addition, the Company tracks store sales daily and
weekly for comparison to the prior year and the current year's budget, and
tracks cost of goods sold weekly by store.
TRADEMARKS/SERVICEMARKS
The Company's logo consists of a coffee cup with an accent mark above
and the words "cafe la france" below. The Company registered its logo with the
United States Patent and Trademark Office and received
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servicemark protection in the 50 states on January 2, 1996, under Registration
Number 1,945,392. The Company has also registered the servicemark "cafe la
france" in Massachusetts and Rhode Island.
GOVERNMENT REGULATION
Each Company-owned and franchised cafe is subject to licensing and
regulation by state and local health, sanitation, fire and other departments,
and to the regulations of certain federal agencies, including the Occupational
Safety and Health Administration. Difficulties or failures in obtaining the
required licensing or approvals could result in delays or cancellations in the
opening of cafes.
In addition, the Company is subject to the Fair Labor Standards Act and
various state laws governing such matters as minimum wages, overtime and other
working conditions.
The Company is also subject to federal and a substantial number of
state laws regulating the offer and sale of franchises. Such laws impose
registration and disclosure requirements on franchisers in the offer and sale of
franchises and may apply substantive standards to the relationship between
franchiser and franchisee. See "FRANCHISE OPERATIONS -- Registration" below.
FRANCHISE OPERATIONS
Locations
The Company seeks to locate both its Company owned cafes and its
franchises in areas of high walk-by consumer traffic in urban areas ( for
example, street corners), in or near office buildings with a significant
white-collar workforce in suburban areas, or on "main street" in upscale
communities. Currently, the Company has six franchise locations as follows:
Date Approx. Gross Sales
Franchisee Opened Square Ft. Royalty Rate
---------- ------ ---------- ------------
Washington Highway 8/94 1280 4%
Lincoln, RI
100 Fountain Street 10/94 700 5%
Providence, RI
One Old Stone Square 10/94 554 5%
Providence, RI
327 Putnam Pike 10/95 650 5%
Smithfield, RI
1 North Charles Street 11/95 1000 5%
Baltimore, MD
49 Exchange Street 12/95 1300 5%
Pawtucket, RI
In October, 1995, the Company entered into an area development
agreement with its Baltimore franchisee to have 7 locations operating in the
Baltimore, Maryland area by May 1999. The Baltimore franchisee opened his first
location in November 1995, and is actively seeking a second location as of the
date of this Prospectus.
Franchise Growth Potential and Cost
The Company has developed its cafe concept to maximize the future
growth of franchise locations, and believes that the following key attributes
will contribute to such growth: (i) a low initial franchise fee of $15,000,
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coupled with a low royalty rate of 5% of gross sales and a low
advertising/promotional rate of 2% of gross sales, to allow for affordability by
people who are losing jobs through attrition or seek productive investment in an
entrepreneurial business; (ii) a limited and simple menu for ease of operation;
(iii) reduced hours of operation, as most urban locations are open five days a
week for breakfast and lunch, and close by 4:00 P. M. each afternoon; (iv) a
modest initial capital investment of approximately $100,000 to $150,000
depending on the location and facility size; and (v) a concept and menu which
management believes will capture the growing demand in the United States for
healthier food in a convenient and comfortable setting at a reasonable price.
All franchisees are required to send their managers through the
Company's training program, as discussed above in the "Training and Development"
section.
Registration
The Company initially prepared a Franchise Offering Circular for
Prospective Franchisees dated April 28, 1995 pursuant to applicable Federal
Trade Commission rules and Rhode Island law which originally qualified the
Company to sell franchises under the name "cafe la france" in 37 states.
However, the Company may not sell additional franchises until its recently
revised Offering Circular dated December 6, 1996 (which includes updated
financial information from the Company's most recent fiscal year and other
required information) is approved by state regulators in the states in which the
Company desires to sell additional franchises. The Company intends to acquire
regulatory approval of its Offering Circular to enable it to target franchise
growth over the next three years in the New England states, New York, New
Jersey, Maryland, Washington, D. C., Pennsylvania and contiguous areas of the
Midwest. The Company anticipates attracting additional franchisees through
advertisement in journals, newspapers, magazines, and franchise trade shows. The
Company plans to concentrate on area development franchise agreements rather
than on single franchise locations to optimize franchise growth and reduce
related expenses.
Recent Franchise Revocations
During the fiscal year ended September 29, 1996, the Company revoked a
franchise located in East Greenwich, Rhode Island, and on November 30, 1996 the
Company revoked a franchise operating in Barrington, Rhode Island. The Company
is currently operating the Barrington location, which it had subleased to the
Franchisee, as a Company owned cafe.
LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation or
proceeding which is required to be disclosed under Item 103 of Regulation S-B.
-28-
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key employees of the Company are
as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Thomas W. DeJordy 33 Chairman of the Board, President, Chief Executive
Officer and Director
Robert G. King 50 Vice President - Finance, Treasurer and Director
Richard LaFrance 49 Director
Daniel B. Forlasto 35 Director of Operations
</TABLE>
Thomas W. DeJordy, Chairman of the Board, President and Chief Executive
Officer, founded the Company in 1989 and has worked in every capacity for the
Company since inception. Prior to organizing the Company, Mr. DeJordy was
self-employed as a stockbroker. Mr. DeJordy is a 1985 graduate of Holy Cross
College.
Robert G. King, Vice President - Finance, Treasurer, and Director,
joined the Company in January 1996. Prior to that time, Mr. King served as Chief
Financial Officer of Olde World Bakeries, Ltd. from September 1994 through July
1995, and as Chief Financial Officer for The Coffee Connection from November
1993 through July 1994 (during which period he coordinated the sale of this
chain to Starbucks in April 1994). From 1985 through September 1992, Mr. King
served as Senior Vice President and Chief Financial Officer of The Ground Round
and was instrumental in taking this 210 unit chain public in 1991. From 1975 to
1985, Mr. King worked for the Howard Johnson Company in various financial
positions, including Vice President from 1982 to 1985. Mr. King is a Certified
Public Accountant, and holds a BS/BA degree and a MBA degree from Babson College
and a Masters of Science in Taxation from Bentley College.
Richard LaFrance, a Director, has served as the Chief Executive Officer
of LaFrance Bros., Inc., a company which owns and operates White's of Westport
(a 1600 seat full service function facility and restaurant), since 1991. Since
1989, he has served as the President of LaFrance Hospitality Corp. and since
1995 as the President of Fairhaven Hospitality Corp., operators of Hampton Inn
Hotels located in southeastern Massachusetts. Mr. LaFrance is a 1968 graduate of
the University of Notre Dame, and is a director of Fall River 5(cent) Savings
Bank and a former director of the Massachusetts Restaurant Association. The
Company's name is not derived from or related to Mr.
LaFrance.
Daniel B. Forlasto, Director of Operations, joined the Company in May
1996. From January 1996 to April 1996 Mr. Forlasto served as General Manager for
Northeast Restaurants, Inc. (Chilis) and from September 1995 to January 1996 Mr.
Forlasto served as Vice President of Operations, North East, for Stacey's
Buffet, Inc. and was responsible for all operations of eight restaurants in the
New England area. From September 1992 to September 1995, Mr. Forlasto served as
Lead General Manager for Old Country Buffet/Buffet Inc. Mr. Forlasto also served
as Training General Manager for Ponderosa Steakhouse (a division of Metromedia
Steakhouse, Inc.) from 1987 to 1992.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no additional
compensation for attendance at Board meetings. Non-employee directors receive a
per diem fee of $150 and are reimbursed for their expenses in connection with
attending Board meetings. Non-employee directors may also participate in the
1996 Stock Incentive Plan or a directors' stock option plan, if established by
the Board of Directors.
-29-
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid by the Company to
its Chief Executive Officer for services rendered in all capacities to the
Company during the fiscal year ended September 29, 1996, the fiscal year (9
months) ended October 1, 1995, and the fiscal year ended December 31, 1994. No
other executive officers earned in excess of $100,000 of salary and bonus for
the periods indicated. See "Employment Agreements" below.
SUMMARY COMPENSATION TABLE
Annual
Compensation
Name and
Principal Position Year Salary ($) Bonus
- ------------------ ---- ---------- -----
Thomas W. DeJordy, 1996 $117,000 $0
Chairman and Chief 1995 $* $*
Executive Officer 1994 $* $*
- --------------------------
*No salary or bonus was received by Mr. DeJordy for the calendar year 1994 and
for the nine month period ended October 1, 1995. Mr. DeJordy received Subchapter
S distribution of $32,795 for the calendar year 1994 and $32,327 for the nine
month period ending October 1, 1995.
EMPLOYMENT AGREEMENTS
The Company and Mr. DeJordy have entered into an employment agreement
which provides for a term of three years at an initial base annual salary of
$132,000, adjusted upwards by 5% annually. In addition, Mr. DeJordy is entitled
to receive annual bonuses of $15,000, $20,000 and $25,000, respectively, in
fiscal years ending 1997, 1998 and 1999, and an annual performance bonus in
fiscal 1998 and fiscal 1999 if the Company achieves net income objectives
approved by the Board of Directors. Under the terms of the agreement, Mr.
DeJordy is entitled to receive an option to purchase 200,000 shares of Common
Stock pursuant to the Company's 1996 Stock Incentive Plan upon the successful
completion of this Offering. Such option will have an exercise price equal to
the price per share of the Common Stock offered hereby to the public, and shall
vest over 5 years, subject to modification as a result of applicable incentive
stock option rules. Mr. DeJordy's employment agreement also contains change-of
control provisions that require the Company to pay Mr. DeJordy 1.5 or 2.5 times
his annual salary in the event of a change-of-control during the term of the
Agreement, subject to certain conditions. Mr. DeJordy's Agreement also provides
for health insurance benefits and contains non-competition provisions that
prohibit him from competing with the Company and acquiring any new interests in
the cafe business. The period covered by the non-competition provisions will end
upon the later of the expiration of the agreement or one year after Mr.
DeJordy's resignation or termination. To activate this non-competition
provision, the Company must notify Mr. DeJordy and pay him the sum of $100,000.
See "PRINCIPAL STOCKHOLDERS."
The Company and Mr. King have also entered into an employment agreement
which provides for a term of three years at an initial annual compensation of
$108,000. Mr. King is also entitled to receive, on January 31, 1997, an option
to purchase 60,000 shares of Common Stock at an exercise price equal to the
price per share of the Common Stock offered hereby to the public, vesting
monthly over a three-year period. Mr. King's employment agreement contains
change-of-control provisions requiring the Company to pay Mr. King 100% of his
annual salary in the event of a change-of-control during the term, subject to
certain conditions. Mr. King's employment agreement also contains health
insurance benefits, discretionary annual cash performance-based bonuses, and a
one year non-competition covenant following termination, which is activated by a
payment from the Company to Mr. King in the amount of one year's annual base
salary. Mr. King's employment agreement is terminable by the Company in the
event this Offering is not successfully completed.
-30-
1996 STOCK INCENTIVE PLAN
The following is a summary of the principal features of the Cafe La
France 1996 Stock Incentive Plan (the "Plan").
Purpose. The purpose of the Plan is to advance the interests of the
Company by providing material incentive for the continued services of key and
valuable employees, directors, and non-employees who perform services for the
Company. Under the Plan, participants may be awarded options to purchase Common
Stock, in accordance with the terms of the Plan as described below.
Operation and Eligibility. The Plan will be administered by [a
Committee of] the Board of Directors. The Committee shall have the authority
under the Plan to make awards to eligible participants in the form of (i)
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or (ii) non-qualified stock options. Employees
of the Company and non-employees who perform services for the Company, including
non-employee directors, shall be eligible for awards under the Plan as
determined by the Committee, except that only employees are eligible to receive
incentive stock options. The aggregate number of shares of Common Stock that may
be the subject of options awarded under the Plan shall not exceed 400,000
shares, all or any portion of which may be granted in the form of incentive
stock options. Shares of Common Stock reserved for issuance but never issued,
such as shares covered by expired or terminated options, generally will be
available for subsequent awards. Pursuant to Mr. DeJordy's employment agreement
with the Company, Mr. DeJordy shall receive an option to purchase 200,000 shares
of Common Stock upon the successful completion of this Offering. Mr. King,
pursuant to his employment agreement, shall receive an option to purchase 60,000
shares of Common Stock in January 1997.
Terms and Conditions of Options.
(a) Option price: The option price per share for any option granted
under the Plan shall be determined by the Committee; provided, however, that in
the case of an incentive stock option, the option price per share shall not be
less than l00% of the fair market value of the Common Stock at the time of
grant.
(b) Period within which option may be exercised: The period of each
option shall be fixed by the Committee, but no incentive stock option may be
exercised after the expiration of ten years from the date the option is granted.
The Committee may, in its discretion, determine as a condition of any option,
that all or a stated percentage of the shares covered by such option shall
become exercisable, in installments or otherwise, only after the completion of a
specified service requirement by the Optionee.
(c) Special Rules for l0% Shareholder: Notwithstanding the above, the
option price per share of an incentive stock option granted to an employee who,
at the time such option is granted, owns shares possessing more than l0% of the
total combined voting power of all classes of shares of the Company shall be at
least ll0% of the fair market value of the Common Stock subject to the option.
In addition, any such incentive stock option may not be exercised after the
expiration of five years from the date the option is granted.
(d) Grant limitation: The aggregate fair market value of Common Stock
with respect to which incentive stock options are exercisable for the first time
by any employee during any calendar year (determined at the time the incentive
stock option is granted) shall not exceed $l00,000.
(e) Termination of option by reason of termination of employment:
Unless the Committee in its discretion determines otherwise, if an Optionee's
employment with the Company terminates, all options which are not exercisable on
the date of termination of employment shall immediately terminate, and any
remaining options shall terminate if not exercised before the expiration of the
following periods, or the expiration of the term of the option, if earlier: (i)
thirty (30) days following termination of employment, if termination was not a
result of retirement on or after age 55, or of death or disability (disability
within the meaning of Section 22(e)(3) of the Internal Revenue Code), or (ii)
three (3) months following termination of employment because of retirement on or
after age 55, or (iii) one (l) year following date of death or commencement of
disability, if the Optionee was employed by the Company at the time of death or
the commencement of disability. Notwithstanding the foregoing, if the Optionee's
employment is terminated for cause, any remaining portion of the option shall
immediately terminate.
-31-
(f) Non-transferability: Except in limited circumstances, each option
and all rights thereunder shall be exercisable during the Optionee's lifetime
only by him and shall be non-assignable and non-transferable by the Optionee
except, in the event of the Optionee's death, by his will or by the laws of
descent and distribution.
(g) Modification or cancellation of option. The Committee shall have
the authority to effect, at any time and from time to time, with the consent of
the affected Optionee, the modification of the terms of any option agreement
(subject to the limitations contained in the Plan), including the acceleration
of the exercisability of any option for any reason including a change in the
control or ownership of the Company, or the cancellation of any or all
outstanding options granted under this Plan. In substitution for canceled
options, the Committee may grant new options (subject to the limitations
contained in the Plan) covering the same or different numbers of shares of
Common Stock at an option price per share in all events not less than fair
market value on the date of the new grant.
(h) Disposition of shares. No option shall qualify as an incentive
stock option if the shares of Common Stock acquired pursuant to the exercise of
the option are transferred, other than by will or by the laws of descent and
distribution, within two years of the date such option was granted or within one
year after the transfer of Common Stock to the employee pursuant to such
exercise.
Method of Exercise. An option granted under the Plan may be exercised
by written notice to the Committee, stating the number of shares of Common Stock
in respect of which the Option is being exercised. The notice shall either be
accompanied by the payment of the full option price for such shares or with a
request for a loan from the Company for all or a part of the purchase price. The
purchase price may be paid (i) in cash (including personal check), (ii) by the
delivery to the Company of Common Stock already owned by the Optionee, (iii)
subject to the prior approval of the Committee and if permitted by applicable
law, by delivery to the Company of the promissory note of the Optionee, or (iv)
by any combination of the above. A certificate or certificates for the shares of
Common Stock of the Company purchased through the exercise of an option shall be
issued in regular course after the exercise of the option and payment therefore.
During the option period no person entitled to exercise any option granted under
the Plan shall have any of the rights or privileges of a stockholder with
respect to any shares issuable upon exercise of such option until certificates
representing such shares shall have been issued and delivered.
Changes in the Company's Capital Structure. The existence of
outstanding options shall not affect in any way the right or ability of the
Company or its stockholders to make or authorize any or all changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights hereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business or substantially all of the outstanding stock of
the Company, or any other corporate act or proceeding, whether of a similar
character or otherwise.
If the Company shall effect a subdivision, consolidation or
reclassification of shares or other capital readjustment or recapitalization,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the voting shares outstanding, without receiving compensation therefor
in money, services or property, then the number, class, and per share price of
Common Stock shall be appropriately adjusted in such a manner as to entitle an
Optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment.
If the Company is merged into or consolidated with another corporation,
regardless of whether or not the Company is the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets or substantially all of the stock of the Company while this option
remains outstanding, unless the Board determines otherwise, all outstanding
options shall expire as of the effective date of any such merger, consolidation,
liquidation, sale, or other disposition, provided that (x) notice of such
merger, consolidation, liquidation, sale or other disposition shall be given to
such Optionee at least 30 days prior to the effective date of such merger,
consolidation, liquidation, sale or other disposition and (y) an Optionee shall
have the right to exercise an option to the extent that the same is then
exercisable during the 30 day period preceding the effective date of such
merger, consolidation, liquidation, sale or other disposition.
-32-
In general, the issue by the Company of shares of stock of any class,
for cash or property, or for labor or services, either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of shares or the price of Common Stock then subject
to outstanding options.
Amendment or Termination. The Committee may terminate the Plan at any
time, and may amend the Plan at any time or from time to time; provided,
however, that any amendment that would increase the aggregate number of shares
that may be issued under the Plan, or materially modify the requirements as to
eligibility for participation in the Plan shall be subject to the approval of
the Company stockholders to the extent required by Internal Revenue Code Section
422, other applicable laws or any other governing rules or regulations.
Duration of Plan. No incentive stock option may be granted later than
10 years after the earlier of the date the Plan is adopted or the date the Plan
is approved by the Company's stockholders.
LIMITATION ON LIABILITY OF AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL affords a Delaware corporation the power to
indemnify its present and former directors and officers under certain
conditions. Article Twelfth of the Company's Certificate of Incorporation
provides that any person made a party to or otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter, a "proceeding"), by reason of the fact that such person is or was
a director or officer of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the Company to the fullest extent authorized by the DGCL
against all expense, liability and loss, provided, however, that the Company
shall indemnify such person in any proceeding initiated by such person only if
such proceeding was authorized by the Directors of the Company. The right of
indemnification described herein includes the right to be paid expenses incurred
in defending any proceeding in advance of its final disposition, provided that
such person, if required by the DGCL, undertakes to repay all amounts advanced
if it shall be ultimately determined that such director or officer is not
entitled to be indemnified under Article Twelfth or otherwise.
Section 102(b)(7) of the DGCL gives a Delaware corporation the power to
adopt a charter provision eliminating or limiting the personal liability of
directors to the corporation or its stockholders for breach of fiduciary duty as
directors, provided that such provision may not eliminate or limit the liability
of directors for (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) any acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) any
payment of a dividend or approval of a stock purchase that is illegal under
Section 174 of the DGCL, or (iv) any transaction from which the director derived
an improper personal benefit. Article Twelfth of the Company's Certificate of
Incorporation states that to the maximum extent permitted by Section 102(b)(7)
of the DGCL, no director of the Company shall be personally liable to the
Company or its stockholders for monetary damages resulting from such director's
breach of fiduciary duty as a director of the Company, except for liability
involving one of the four exceptions described in (i) through (iv) above. In
addition, the Certificate of Incorporation will provide that if the DGCL is
amended to authorize the further limitation or elimination of the liability of a
director, then the liability of the directors shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Section 145 of the DGCL also affords a Delaware corporation the power to
obtain insurance on behalf of its directors and officers against liabilities
incurred by them in those capacities. Article Twelfth of the Company's
Certificate of Incorporation provides that the Company may maintain insurance to
protect the Company and its directors and officers against expenses, liabilities
and losses whether or not the Company would have the power to indemnify such
person against such expense, liability or loss under the DGCL. [The Company
intends to procure a directors' and officers' liability and company
reimbursement liability insurance policy that will (a) insure directors and
officers of the Company against losses (above a deductible amount) arising from
certain claims made against them by reason of certain acts done or attempted by
such directors or officers and (b) insure the Company against losses (above a
deductible amount) arising from any such claims, but only if the Company is
required or permitted to indemnify such directors or officers for such losses
under statutory or common law or under provisions of its Certificate of
Incorporation or By-Laws.
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Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
In November, 1996, the Company entered into employment agreements with
Messrs. DeJordy and King and Mr DeJordy entered into an escrow agreement with
respect to 300,000 shares of Common Stock owned by him. See "MANAGEMENT --
Employment Agreements" and "PRINCIPAL STOCKHOLDERS -- Escrow of Shares."
During October and November, 1996, the Company completed a private
offering of 12% promissory notes (the "Notes") and common stock purchase
warrants (the "Bridge Warrants"). The Notes are being repaid with the proceeds
of this Offering. The Bridge Warrants become exercisable for $.01 per share for
a period of 60 days beginning 13 months after the successful completion of this
Offering. The Bridge Warrants are exercisable for a total of 105,882 shares of
Common Stock in the Company. The Company has agreed to file a registration
statement to register the shares acquirable upon exercise of the Bridge Warrants
for resale after the successful completion of this Offering. The Bridge Warrants
are nontransferable and do not confer upon their holders any voting or other
rights as stockholders of the Company.
On October 25, 1996, Cafe la france, Inc., a Rhode Island corporation
and holder of all of the outstanding stock of the Company's operating
subsidiaries (the "Predecessor"), was merged with and into the Company. The
merger was structured to qualify as a tax-free reorganization pursuant to the
provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Reorganization"). In connection with the Reorganization, each existing
stockholder in the Predecessor received 290 shares of Common Stock in the
Company in exchange for each outstanding share of common stock of the
Predecessor owned thereby.
On February 28, 1996, Home Loan and Investment Bank provided a term
loan (the "Loan") in the principal amount of $350,000 to the Company. The Loan
is personally guaranteed by Mr. DeJordy. The Company does not intend to repay
the Loan from the proceeds of this Offering unless required to by the Bank.
From June 1995 through May 1996, the Predecessor conducted a private
offering of Common Stock pursuant to Regulation D under the Securities Act to
help provide the necessary funds to finance the Predecessor's operations and
expansion. The Predecessor sold a total of 999.66 shares at $1000 per share (the
equivalent of approximately 290,000 post-Reorganization shares of Common Stock)
or 22.4% of the shares of Common Stock currently outstanding, and raised gross
proceeds of $999,667 from such sales.
On October 2, 1995, Mr. DeJordy contributed all of the outstanding
stock of the Company's operating subsidiaries, CLF2, Inc. and CLF Franchise
Corporation, to the Predecessor in exchange for 3,375 shares of common stock of
the Predecessor.
On February 9, 1995, three corporations wholly owned by Mr. DeJordy
(CLF7, Inc., CLF3, Inc. and CLF9, Inc.) were merged with and into CLF2, Inc.
(also wholly-owned by Mr. DeJordy), in a tax free reorganization, and the stock
of such non-surviving corporations was canceled.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of common stock of the Company as of the date hereof, by
(i) each of the Company's directors, (ii) each of the Company's executive
officers named in the Summary Compensation Table and (iii) all current executive
officers and directors of the Company as a group. The common stock is the only
class of equity securities of the Company which will be outstanding after the
Offering. No other person beneficially owns more than 5% of the outstanding
shares of common stock. There are currently 34 stockholders of the Company.
<TABLE>
<CAPTION>
Number of Percentage Owned Percentage Owned
Name and Address Title Shares Owned Before the Offering After the Offering
- ---------------- ----- ------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Thomas W. DeJordy Chairman, CEO,
216 Weybosset Street President & Director 923,6501 71.4%1 37.8%1
Providence, RI 02903
Robert G. King Vice President - Finance
& Director 20,2502 1.5% .8%
Richard LaFrance Director 29,000 2.2% 1.2%
-------- ------ ------
All current directors and
executive officers (3 persons) 972,900 75.1.0% 39.8%
======== ======= =====
</TABLE>
(1) Certain of Mr. DeJordy's relatives also own shares of Common Stock, as to
which Mr. DeJordy disclaims beneficial ownership.
(2) Includes 20,250 shares of Common Stock issuable upon exercise of options
that are currently exercisable or exercisable within 60 days of January 31,
1997, pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended.
ESCROW OF SHARES.
At the request of the Underwriter, in December 1996, Mr. DeJordy
agreed to enter into an escrow agreement (the "Escrow Agreement") with a to be
selected financial institution as escrow agent pursuant to which 300,000 shares
of Common Stock owned by Mr. DeJordy will be deposited into an escrow account
(the "Escrow Account"). The Common Stock to be deposited in the Escrow Account
will be subject to release as follows: (i) in the event the Company achieves net
earnings equal to or exceeding $250,000 in the fiscal year ending September,
1998, Mr. DeJordy will have released to him 100,000 shares; (ii) in the event
the Company achieves net earnings equal to or exceeding $1,300,000 in the fiscal
year ending September, 1999, Mr. DeJordy will have released to him 100,000
shares; and (iii) in the event the Company achieves net earnings equal to or
exceeding $2,500,000 in the fiscal year ending September, 2000, Mr. DeJordy will
have released to him the remaining 100,000 shares. In the event any of the
foregoing benchmarks are not reached by the Company for the specific period, the
escrowed shares of Common Stock not subject to release for such period will be
subject to release in the next fiscal year in which the benchmark for that
specific period is met. In the event the benchmark for the fiscal year ending
September, 2000 is not met, any and all remaining escrowed shares of Common
Stock will be permanently transferred to the Company for a price of $.01 per
share.
The determination of net earnings will be made in accordance with
generally accepted accounting principles and will be based upon the audited
financial statements of the Company prepared by its certified public
accountants.
-35-
DESCRIPTION OF SECURITIES
COMMON STOCK. The Company is authorized to issue 9,000,000 shares of
Common Stock, par value $.01 per share, of which 1,293,302 shares are currently
outstanding. Holders of Common Stock have one vote for each share held of record
on all matters to be voted upon by stockholders, including the election of
directors, will have no cumulative voting rights with respect to any matter, and
will be entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor and, upon liquidation of such
corporation, to share ratably in the net assets available for distribution.
Shares of Common Stock are not redeemable and have no preemptive, conversion or
similar rights.
COMMON STOCK OPTIONS.
The Company's 1996 Stock Incentive Plan (the "Plan") enables the
Company to issue incentive and non-qualified stock options to deserving
employees and non-employees who perform services for the Company. Under the
Plan, the Company has reserved 400,000 shares of its authorized common stock for
option grants. The Company believes that the Plan will enhance its ability to
attract and retain key employees and other persons who are in a position to make
significant contributions to the Company's success. See "MANAGEMENT -- 1996
Stock Incentive Plan."
The Company has issued incentive stock options under the Plan to
purchase 65,250 shares of Common Stock to certain employees which options are
exercisable for $3.45 per share. The Company also has agreed to issue an option
for 200,000 shares of Common Stock under the Plan to Mr. DeJordy upon the
successful completion of this Offering, at an exercise price equal to the price
of the Common Stock offered hereby, subject to modification as a result of
applicable incentive stock option rules, and to issue an option for 60,000
shares to Mr. King in January 1997 at an exercise price equal to the price of
Common Stock offered hereby. See "MANAGEMENT -- Employment Agreements." In
addition, the Company has issued nonqualified options to purchase 58,000 shares
of Common Stock to certain consultants. Such options are exercisable for $3.45
per share.
REDEEMABLE WARRANTS.
The following summary description of certain provisions of the
Redeemable Warrants is believed to reflect all material provisions of the
Redeemable Warrants but is not necessarily complete and reference is made to the
Warrant Agreement by and among the Company and American Securities Transfer &
Trust Incorporated (the "Warrant Agent") filed as an exhibit to the Registration
Statement of which this Prospectus is a part for a detailed description thereof.
Each Redeemable Warrant entitles the holder thereof to purchase one
share of Common Stock at an exercise price of $5.525 per share. Unless the
Redeemable Warrants are redeemed as provided below, the Redeemable Warrants may
be exercised at any time commencing 90 days after the date of this Prospectus
and ending 5 years from the date of this Prospectus.
The Redeemable Warrants are redeemable by the Company at $.10 per
Redeemable Warrant on 30 days' prior written notice commencing 13 months after
the date of this Prospectus, provided that the average closing bid price of the
Common Stock equals or exceeds $6.80 per share (160% of the Offering price of
the Shares) for 20 consecutive trading days ending within 10 days prior to the
notice of redemption. For purposes of the Redeemable Warrant Agreement, "average
closing bid price" is defined as the closing bid price as quoted on the NASDAQ.
The Redeemable Warrants may not be redeemed unless they are then exercisable and
a current prospectus covering the Redeemable Warrants and the shares of Common
Stock issuable thereunder is then in effect. The Redeemable Warrants will remain
exercisable until the close of business on the fifth business day prior to the
date of redemption. Redemption of the Redeemable Warrants may force the holders
to exercise the Redeemable Warrants and pay the exercise price at a time when it
may be disadvantageous for them to do so or sell the Redeemable Warrants at the
current market price when they might otherwise desire to hold the Redeemable
Warrants.
The Company has agreed with the Underwriter that the Company will pay
the Underwriter a Warrant Solicitation Fee of 5% of the exercise price of the
Redeemable Warrants exercised and to the extent not inconsistent with the
guidelines of the NASD and the rules and regulations of the Commission. Such
Warrant Solicitation Fee will
-36-
be paid to the Underwriter if: (i) the market price of the Common Stock on the
date that the Redeemable Warrant is exercised is equal to or greater than the
exercise price of the Redeemable Warrant; (ii) the exercise of the Redeemable
Warrant was solicited by a NASD member firm; (iii) prior specific written
approval for exercise is received from the customer if the Redeemable Warrant is
held in a discretionary account; (iv) disclosure of this compensation
arrangement is made prior to or upon the exercise of the Redeemable Warrant; (v)
solicitation of the exercise is not in violation of Rule 10b-6 of the Exchange
Act; and (vi) solicitation of the exercise is in compliance with NASD notice to
Members 92-28. In addition, unless granted an exemption by the Commission from
its Rule 10b-6 under the Exchange Act, the Underwriter will be prohibited from
engaging in any market making activities or solicited brokerage activities with
regard to the Company's securities for the period from nine business days prior
to any solicitation of the exercise of any Redeemable Warrant or nine business
days prior to the exercise of any Redeemable Warrant based on prior solicitation
until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right the Underwriter may have to
receive a fee for the exercise of the Redeemable Warrants following such
solicitation. As a result, the Underwriter may be unable to continue to provide
a market for the Company's securities during certain periods while the
Redeemable Warrants are exercisable.
The holders of the Redeemable Warrants will not have any of the rights
or privileges of stockholders of the Company (except to the extent they
otherwise own Common Stock) prior to the exercise of the Redeemable Warrants.
The Redeemable Warrants will be entitled to the benefit of adjustments in the
exercise price and in the number of shares of Common Stock deliverable upon the
exercise thereof upon the occurrence of certain events, including a stock
dividend, stock split or similar reorganization.
In order for a holder to exercise a Redeemable Warrant, there must be a
current registration statement on file with the Commission and various state
securities commissions to register the shares of Common Stock underlying the
Redeemable Warrants for sale to the Holder of the Warrant. Pursuant to Section
10(a)(3) of the Securities Act, the information contained in this Prospectus
will be deemed "stale" nine months from the date of this Prospectus. The Company
has agreed, so long as the Redeemable Warrants are outstanding, to use its best
efforts to keep a registration statement effective under the Securities Act and
state securities laws to permit the issuance of the shares of Common Stock upon
exercise or exchange of the Redeemable Warrants. Nevertheless, although the
Company intends to do so, no assurance can be given that the registration
statement will be kept current, the failure of which may result in the
Redeemable Warrants not being exercisable or exchangeable and therefore
worthless.
UNDERWRITER'S WARRANT
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for nominal consideration, a warrant to purchase from the Company
115,000 shares of Common Stock and 115,000 Redeemable Warrants (the
"Underwriter's Warrant"). The Underwriter's Warrant is initially exercisable at
a price of $5.95 per share of Common Stock and $7.735 per Redeemable Warrant
(140% of the respective initial public offering prices) for a period of four
years commencing one year from the effective date of this Prospectus and is
restricted from sale, transfer, assignment or hypothecation for a period of
twelve months from the date hereof, except to officers of the Underwriter and by
operation of law. The shares of Common Stock and the Redeemable Warrants
issuable upon exercise of the Underwriter's Warrant are identical to those
offered hereby except for the exercise prices and that the Redeemable Warrants
contained in the Underwriter's Warrant cannot be redeemed by the Company.
For the term of the Underwriter's Warrant, the holder thereof has the
opportunity to profit from a rise in the market price of the Company's
securities which may result in a dilution of the interest of the stockholders.
The Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Underwriter's Warrant
is outstanding. At any time when the holders thereof might be expected to
exercise it, the Company would probably be able to obtain additional equity
capital on terms more favorable than those provided by the Underwriters'
Warrant.
BRIDGE WARRANTS. During 1996, the Company completed a private offering
of $600,000 of 12% promissory notes (the "Notes") and common stock purchase
warrants (the "Bridge Warrants"). The Notes are being repaid with a portion of
the net proceeds of this Offering. The Bridge Warrants become exercisable for
$.01 per share for a period of 60 days beginning 13 months after the successful
completion of this Offering. The Bridge Warrants are exercisable for a total of
105,882 shares of Common Stock in the Company. The Company has agreed to file a
-37-
registration statement to register the shares acquirable upon exercise of the
Bridge Warrants for resale after the successful completion of this Offering. The
Bridge Warrants are nontransferable and do not confer upon their holders any
voting or other rights as stockholders of the Company.
PREFERRED STOCK. The Board of Directors has the authority to issue
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series of the
designation of such series, without further vote or action by the stockholders.
The issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of the Company's common stock. At present, the Company has no plans to issue any
of the Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS.
SECTION 203. In the Certificate of Incorporation, the Company has
expressly elected to be governed by Section 203 of the DGCL. Section 203
prevents an "interested stockholder" (defined in Section 203 generally as a
person owning 15% or more of a corporation's outstanding voting stock), from
engaging in a "business combination" (as defined in Section 203) with a
publicly-held Delaware corporation for three years following the date such
person became an interested stockholder unless (i) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (ii) upon consummation of the transaction
that resulted in the interested stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers of the corporation and by employee stock
plans that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) following the transaction in which such person became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote and not by written consent of the holders of two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
ADVANCE NOTICE FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS OF
DIRECTORS. The By-Laws of the Company will establish an advance notice procedure
with regard to the nomination, other than by or at the direction of its Board of
Directors or a committee thereof, of candidates for election as directors (the
"Nomination Procedure") and with regard to certain matters to be brought before
an annual meeting of stockholders of the Company (the "Business Procedure"). The
Nomination Procedure will require that a stockholder give prior written notice,
in proper form, of a planned nomination for the Board of Directors to the
Secretary of the Company. The requirements as to the form and timing of that
notice are specified in the By-Laws. If the election inspectors determine that a
person was not nominated in accordance with the Nomination Procedure, such
person will not be eligible for election as a director. Under the Business
Procedure, a stockholder seeking to have any business conducted at an annual
meeting must give prior written notice, in proper form, to the Secretary of the
Company. The requirements as to the form and timing of that notice are specified
in the By-Laws. If the Chairman or other officer presiding at a meeting
determines that other business was not properly brought before such meeting in
accordance with the Business Procedure, such business will not be conducted at
such meeting. Although the By-Laws of the Company do not give the Board of
Directors any power to approve or disapprove stockholder nominations for the
election of directors or of any other business desired by stockholders to be
conducted at an annual or any other meeting, the By-Laws (i) may have the effect
of precluding a nomination for the election of directors or precluding the
conduct of business at a particular annual meeting if the proper procedures are
not followed or (ii) may discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company, even if the conduct of such
solicitation or such attempt might be beneficial to the Company and its
stockholders.
TRANSFER AGENT. The Company has appointed American Securities Transfer
& Trust Incorporated as its Transfer and Warrant Agent for the Common Stock and
Redeemable Warrants.
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SHARES AVAILABLE FOR FUTURE SALE
FUTURE SALES OF COMMON STOCK. Upon completion of this Offering, there
will be 2,443,302 shares of Common Stock outstanding (assuming no exercise of
existing Options or Warrants), of which 1,150,000 shares of Common Stock sold in
this Offering (excluding an additional 172,500 shares of Common Stock and
172,500 Redeemable Warrants to purchase 172,500 shares of Common Stock if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable in the United States without restriction under the Securities Act, by
persons other than "affiliates" of the Company, as defined under the Securities
Act. Of the remaining 1,293,302 shares outstanding, (i) 289,902 shares were
issued pursuant to Rule 504 of Regulation D in the Company's 1995-1996 private
offering of Common Stock (See "CERTAIN TRANSACTIONS") and would be freely
tradable under federal securities laws after this Offering but for a 13 month
post-Offering "lock-up" provision contained in the subscription agreements
executed by investors in such offering, and (ii) 1,003,400 shares have not been
registered under the Securities Act and constitute "restricted securities" under
Rule 144 of the Securities Act ("Rule 144"). Ordinarily, under Rule 144, a
person holding restricted securities for a period of two years may, every three
months, sell in ordinary brokerage transactions or in transactions directly with
a market maker an amount equal to the greater of one percent of the Company's
then outstanding Common Stock or the average weekly trading volume during the
four calendar weeks prior to such sale. Rule 144 also permits sales by a person
who is not an affiliate of the Company and who has satisfied a three-year
holding period without any quantity limitation. The Company's Chairman and Chief
Executive Officer (Mr. DeJordy) has agreed not to sell any of his 923,650 shares
of Common Stock, all of which constitute restricted securities, for a period of
13 months from the date of this Prospectus without the prior written consent of
the Underwriter. Thereafter, except for 300,000 shares which are subject to an
escrow agreement (See "PRINCIPAL STOCKHOLDERS"), Mr. DeJordy would be eligible
to resell such shares, subject to volume limitations and other conditions
imposed by Rule 144. With respect to the remaining 79,750 shares of Common Stock
which constitute restricted securities, 55,100 shares held by non-affiliates
would become eligible for resale under Rule 144 on October 2, 1997 and 24,650
shares held by non-affiliates would become eligible for resale on May 30, 1998,
subject to volume limitations and other conditions imposed by Rule 144. Future
sales under Rule 144 may have a depressive effect on the market price of the
Common Stock should a public market develop for such stock as to which there can
be no assurance. In addition, the Bridge Warrants will become exercisable for
105,882 shares of Common Stock 13 months after this Offering. Following
registration thereof, which the Company is obligated to undertake, resales of
such shares could also have a depressive effect on the market price of the
Common Stock.
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement (the form of which has been filed as an exhibit to the
Registration Statement), to purchase from the Company 1,150,000 Shares and
Redeemable Warrants. The Underwriting Agreement provides that the obligations of
the Underwriter are subject to certain conditions precedent and that the
Underwriter shall be obligated to purchase all of the Shares and Redeemable
Warrants.
The Underwriter has advised the Company that it proposes to offer the
Shares and Redeemable Warrants to the public at the initial public offering
prices set forth on the cover of this Prospectus. The Underwriter has advised
the Company that it may allow to certain dealers concessions of not in excess of
$.21 per share of Common Stock and $.005 per Redeemable Warrant, of which a sum
not in excess of $.11 per share of Common Stock and $.0025 per Redeemable
Warrant may in turn be reallowed by such dealers to other dealers. After the
issuance of the Shares, the public offering prices, the concessions and the
reallowances may be changed. The Underwriter has further advised the Company
that it does not expect sales to discretionary accounts to exceed five percent
of the total number of Shares offered hereby.
The Company has agreed to pay to the Underwriter a non-accountable
expense allowance equal to three percent of the total proceeds of the Offering,
of which $50,000 has already been paid.
The Company has granted an option to the Underwriter, exercisable
during the 45-day period following the effective date of the Underwriting
Agreement, to purchase up to 172,500 shares of Common Stock and/or 172,500
Redeemable Warrants at the offering price less underwriting discounts and the
non-accountable expense allowance.
-39-
The Underwriter may exercise such option only to satisfy over-allotments in the
sale of the Shares and Redeemable Warrants.
Upon the exercise of the Redeemable Warrants and to the extent not
inconsistent with the guidelines of the National Association of Securities
Dealers, Inc., and the Rules and Regulations of the Commission, the Company has
agreed to pay the Underwriter a commission equal to five percent (5%) of the
exercise price of the Redeemable Warrants. However, no compensation will be paid
to the Underwriter in connection with the exercise of the Redeemable Warrants if
(a) the market price of the underlying shares of Common Stock is lower than the
exercise price, (b) the Redeemable Warrants are exercised in an unsolicited
transaction, or (c) the Redeemable Warrants subject to the Underwriter's Warrant
are exercised. In addition, unless granted an exemption by the Commission from
Rule 10b-6 under the Exchange Act, the Underwriter will be prohibited from
engaging in any market making activities or solicited brokerage activities with
regard to the Company's securities for two to nine days before the solicitation
of the exercise of any Redeemable Warrant or before the exercise of any
Redeemable Warrant based upon a prior solicitation, until the later of the
termination of such solicitation activity or the termination by waiver or
otherwise of any right the Underwriter may have to receive a fee for the
exercise of the Redeemable Warrants following such solicitation.
In connection with this Offering, the Company has agreed to sell the
Underwriter, for nominal consideration, a Warrant (the "Underwriter's Warrant"),
which confers the right to purchase up to 115,000 shares of Common Stock and up
to 115,000 Redeemable Warrants. The Underwriter's Warrant is initially
exercisable at the price (the "Exercise Price") of $5.95 per share of Common
Stock and $.14 per Redeemable Warrant (140% of the respective initial public
offering prices) for a period of four years commencing one year from the
effective date of this Prospectus. The shares of Common Stock and Redeemable
Warrants issuable upon exercise of the Underwriter's Warrant are identical to
those offered hereby except for the exercise price of the Redeemable Warrants
included in the Underwriter's Warrant ($7.735 share) and the lack of redemption
provisions therein. The Underwriter's Warrant contains provisions providing for
adjustment of the Exercise Price and the number and type of securities issuable
upon the exercise thereof upon the occurrence of certain events.
The Company has agreed to enter into a three-year consulting agreement
with the Underwriter pursuant to which the Underwriter will act as a financial
consultant to the Company, commencing upon the closing date of this Offering.
The Underwriter will make available qualified personnel for this purpose. The
consulting fee of $3,000 per month for a period of 36 months is payable in full
at the closing of this Offering.
Certain principal stockholders and the Company have agreed that, for a
period of 13 months from the date of this Prospectus, they will not sell any
securities (except for shares of Common Stock issued pursuant to exercise of
options which may be granted under the Plan and for shares issued pursuant to
the exercise of the Redeemable Warrants) without the Underwriter's prior written
consent, which shall not be unreasonably withheld.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriter against certain liabilities in
connection with the Registration Statement, including liabilities under the
Securities Act.
The foregoing is a brief summary of certain provisions of the
Underwriting Agreement and does not purport to be a complete statement of its
terms and conditions. A copy of the Underwriting Agreement is on file with the
Commission as an exhibit to the Registration Statement of which this Prospectus
is a part.
Prior to the Offering, there has been no public market for any of the
Company's securities. The initial public offering prices of the Shares and
Redeemable Warrants will be determined by negotiations between the Company and
the Underwriter and are not necessarily related to the Company's assets,
earnings, or book value or any other established criteria of value. Factors
considered in determining the Offering price of the Shares and Redeemable
Warrants included estimates of business potential, historical earnings, future
prospects, gross proceeds to be raised, percentage of stock owned by officers
and directors on the date hereof, the type of business in which the Company
engages, and an assessment of the Company's management. The foregoing factors
were evaluated in light of the existing state of the securities market.
-40-
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for
the Company by Duffy & Sweeney, 300 Turks Head Building, Providence, Rhode
Island 02903. Michael F. Sweeney, Esquire, a partner in the law firm of Duffy &
Sweeney, is Secretary of the Company. William M. Prifti, Esquire, 220 Broadway,
Suite 204, Lynnfield, Massachusetts 01940 and Adler, Pollock & Sheehan, 2300
Hospital Trust Tower, Providence, Rhode Island 02903 are acting as counsel for
the Underwriter in connection with certain legal matters related to the
Offering.
EXPERTS
The financial statements of Cafe La France, Inc. as of September 29,
1996 and for the year ended September 29, 1996 and the nine-month period ended
October 1, 1995 have been included herein in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
with respect to the Securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits and
schedules thereto, as permitted by the Rules and Regulations of the Commission.
For further information with respect to the Company and to the Securities
offered hereby, reference is made to the Registration Statement including the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document summarize only the material
provisions thereof and 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 Registration Statement and exhibits and
schedules thereto may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's Regional Offices located at
7 World Trade Center, Suite 1300, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained at prescribed rates by writing to the Commission's Public
Reference Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission.
Prior to this Offering, the Company has not been a reporting company
under the Securities Exchange Act of 1934, as amended. Subsequent to this
Offering, the Company intends to furnish to its stockholders annual reports,
which will include financial statements audited by independent accountants, and
such other periodic reports as it may determine to furnish or as may be required
by law.
-41-
CAFE LA FRANCE, INC.
Consolidated Financial Statements
September 29, 1996
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Cafe La France, Inc.
We have audited the accompanying consolidated balance sheet of Cafe La France,
Inc. and subsidiaries as of September 29, 1996 and the related consolidated
statements of income, shareholders' deficit and cash flows for the year ended
September 29, 1996 and the nine-months ended October 1, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cafe La France, Inc.
and subsidiaries as of September 29, 1996 and the results of their operations
and their cash flows for the year ended September 29, 1996 and the nine-months
ended October 1, 1995 in conformity with generally accepted accounting
principles.
Providence, Rhode Island KPMG PEAT MARWICK LLP
November 7, 1996, except as to note 11, which
is as of December 12, 1996
2
CAFE LA FRANCE, INC.
Consolidated Balance Sheet
September 29, 1996
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets (note 5):
Cash $ 5,695
Accounts receivable, less allowance for doubtful
accounts of $19,000 (note 2) 16,569
Notes receivable from franchisees - current portion 19,185
Inventories 45,284
Prepaid expenses 15,784
Prepaid initial public offering costs 41,440
Preopening costs 1,262
---------
Total current assets 145,219
---------
Property and equipment (note 5):
Equipment and store furnishings 591,286
Office furniture and fixtures 30,909
Leasehold improvements 156,699
Vehicles 16,609
--------
795,503
Less accumulated depreciation 156,986
-------
Net property and equipment 638,517
-------
Other assets (note 5):
Notes receivable from franchisees - long term portion 32,946
Operating rights, net of accumulated amortization of $4,985 24,570
Loan origination costs 10,281
Deposits 34,121
--------
Total other assets 101,918
---------
Total assets $ 885,654
=========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C>
Current liabilities:
Deferred franchise fee $ 5,000
Notes payable (note 3) 193,293
Current installments of long-term debt (note 5) 36,715
Current installments of obligation under capital leases (note 4) 48,141
Trade accounts payable 208,552
Income taxes payable (note 6) 750
Accrued expenses 293,119
----------
Total current liabilities 785,570
---------
Long term liabilities:
Long-term debt, excluding current installments (note 5) 332,424
Obligations under capital leases, excluding current installments (note 4) 63,450
Deferred credits (note 4) 22,888
-----------
Total liabilities 1,204,332
---------
Stockholders' deficit (notes 5, 7 and 11):
Preferred stock $.01 par value. Authorized 1,000,000 shares;
none issued -
Common stock $.01 par value. Authorized 9,000,000 shares;
issued and outstanding 1,293,302 shares 12,933
Additional paid-in capital 935,258
Accumulated deficit (1,266,869)
---------
Total stockholders' deficit (318,678)
---------
Commitments and contingencies (note 4)
Total liabilities and stockholders' deficit $ 885,654
==========
</TABLE>
3
CAFE LA FRANCE, INC.
Consolidated Statements of Income
Year ended September 29, 1996 and
nine months ended October 1, 1995
<TABLE>
<CAPTION>
Year Nine months
ended ended
September 29, October 1,
1996 1995
---- ----
<S> <C> <C>
Income:
Sales from Company-ownc d restaurants $ 2,101,283 1,429,696
Franchise revenues (note 2) 97,470 37,466
--------- ---------
Total income 2,198,753 1,467,162
--------- ---------
Costs and expenses:
Cost of sales 884,068 607,995
Restaurant operating expenses 1,220,888 792,720
General and administrative expenses 641,879 510,895
Depreciation and amortization 68,519 43,564
--------- ---------
Total costs and expenses 2,815,354 1,955,174
--------- ---------
Loss from operations (616,601) (488,012)
Other income (expense):
Interest income 6,945 5 207
Interest expense (62 901) (34.053)
--------- ---------
Net loss before income taxes (672,557) (516,858)
Income taxes (note 6) 750 500
--------- ---------
Net loss $ (673,307) (517,358)
========= ========
Loss per share $ (.47)
=========
Weighted average shares outstanding 1,422,135
=========
</TABLE>
See accompanying notes to c onsolidated financial statements.
4
CAFE LA FRANCE, INC.
Consolidated Statements of Stockholders' Deficit
Year ended September 29, 1996 and
nine months ended October 1, 1995
<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-in Accumulated Stockholders'
Stock Stock Capital Deficit Deficit
----- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1994 $ - 9,788 43,923 (43,877) 9,834
Net loss - - - (517,358) (517,358)
Dividends and distributions to
stockholders - - - (32,327) (32,327)
--- --- --- ----------- --------
Balance October 1, 1995 - 9,788 43,923 (593,562) (539,851)
Net loss - - - (673,307) (673,307)
Issuance of stock - 3,145 891,335 - 894,480
--- ------- ------- ----- -------
Balance September 29, 1996 $ - 12,933 935,258 (1,266,869) (318,678)
=== ====== ======= ========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
CAFE LA FRANCE, INC.
Statements of Cash Flows
Year ended September 29, 1996 and
nine months ended October 1, 1995
<TABLE>
<CAPTION>
Year Nine months
ended ended
September 26, October 1,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (673,307) (517,358)
Adjustments to reconcile net loss to net cash flow
used in operating activities:
Depreciation 63,129 35,868
Amortization 5,390 7,696
Loss on uncollectible notes receivable (note 9) - 68,409
Decrease (increase) in accounts receivable 1,361 (3,830)
Increase in inventory (21,111) (16,173)
Decrease in prepaid expenses 41,581 52,388
Increase in preopening costs (1,262) -
Increase in operating rights (1,955) (27,600)
Increase in deposits (8,626) (16,965)
(Decrease) increase in deferred franchise fee (25,000) 30,000
(Decrease) increase in accounts payable (68,710) 155,301
Increase in accrued liabilities 1,939 206,718
Increase in accrued income taxes 750 -
Increase in deferred credits 12,269 2,601
-------- ---------
Net cash used in operating activities (673,552) (22,945)
Cash flows from investing activities:
Capital expenditures (268,898) (192,558)
Loans made on notes receivable - (15,915)
Payments received on notes receivable 16,368 8,916
-------- ---------
Net cash used in investing activities (252,530) (199,557)
Cash flows from financing activities:
Proceeds from issuance of notes payable 207,491 23,865
Principal payments on notes payable (8,573) (6,871)
Proceeds from issuance of long term debt 350,000 425,000
Principal payments on long-term debt (431,243) (173,955)
Principal payments on capital lease obligations (28,014) (9,847)
Stockholder distributions - (32,327)
Proceeds from issuance of stock, net 894,480 -
Increase in prepaid initial public offering costs (41,440) -
Debt issuance costs (10,918) (4,825)
-------- ---------
Net cash provided by financing activities 931,783 221,040
(Continued)
</TABLE>
6
CAFE LA FRANCE, INC.
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Year Nine months
ended ended
September 26, October 1,
1996 1995
---- ----
<S> <C> <C>
Increase (decrease) in cash 5,701 (1,462)
Cash at beginning of year (6) 1,456
------------ ---------
Cash at end of year $ 5,695 (6)
========= ===========
Supplemental disclosure of cash flow information:
Interest paid $ 57,270 34,053
======== ======
Income taxes paid $ 250 500
========== ========
Noncash financing and investing activities:
Capital lease obligations of $102,393 and $32,738 were incurred in 1996 and
1995, respectively, when the Company entered into leases for new machinery
and equipment.
</TABLE>
See accompanying notes to consolidated financial statements.
7
CAFE LA FRANCE, INC.
Notes to Consolidated Financial Statements
September 29, 1996
(1) Summary of Significant Accounting Policies
(a) Description of Business
Cafe La France, Inc. (the Company) operates Company-owned restaurants and
sells franchise rights to operate restaurants through its two
wholly-owned subsidiaries (note 7c). As of September 29, 1996 and October
1, 1995, the Company had ten Company-owned restaurants and seven and five
franchised restaurants, respectively, the majority of which are located
in the Rhode Island area.
(b) Franchise Revenues
Franchise agreements are executed for each franchised restaurant and
provide the terms of the franchise arrangement between the Company and
the franchisee. The franchise agreement requires the franchisee to pay an
initial, non-refundable franchise fee plus continuing royalties based
upon a percentage of restaurant sales. Other fees may be charged to cover
the costs of advertising, audit and accounting fees, transfer fees and
training. The franchisor is obligated to provide initial training and
other management services such as menu selections, provision of supplier
contacts, and the non-exclusive use of the trademark within an exclusive
territory as mutually agreed upon by the franchisor and franchisee as
governed by the franchise agreement.
Initial franchise fees are recognized as revenue when the Company performs
substantially all initial services required by the franchise agreement,
which generally occurs shortly after restaurant opening. Continuing
royalties are recognized as earned with an appropriate provision for
estimated uncollectible amounts. Initial franchise fees received
applicable to restaurants for which substantially all initial services
required by the franchise agreement have not been performed are recorded
as deferred franchise fees in the accompanying balance sheet.
Deferred initial franchise fees that are expected to be recognized within
12 months of the balance sheet date are classified as current portion of
deferred franchise fees in the accompanying balance sheet.
(c) Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments purchased with a maturity to the Company of three months or
less.
(d) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
(Continued)
8
CAFE LA FRANCE, INC.
Notes to Consolidated Financial Statements, Continued
(e) Operating Rights
Operating rights, which represent the excess of purchase price over fair
value of net assets acquired, are amortized on a straight-line basis over
10 years. The Company periodically assesses the recoverability of this
intangible asset by determining whether the amortization of the operating
rights balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The
amount of operating rights impairment, if any, is measured based on
projected future operating cash flows discounted at a rate commensurate
with the risks involved. The assessment of the recoverability of the
operating rights will be impacted if estimated future operating cash
flows are not achieved.
(f) Preopening Costs
Direct, incremental restaurant pre-opening costs, comprised primarily of
the cost of hiring and training restaurant employees, are amortized over
the initial 12 months of a restaurant's operations.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the
respective assets for financial reporting purposes. Leasehold
improvements are amortized on a straight-line basis over the lesser of
the remaining lease term, including renewal periods when the Company
intends to exercise renewal options, or the estimated useful life of the
asset.
(h) Advertising and Promotion Expenses
Advertising costs are expensed during the year in which they are incurred.
Promotion costs are expensed over the period of the promotional event.
Advertising expense was $5,953 and $7,092 for the year ended September
29, 1996 and the nine month period ended October 1, 1995, respectively.
Included in prepaid assets at September 29, 1996 is $12,902 of printed
promotional brochures used in on-going promotional programs.
(i) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Prior to October 2, 1995, each of the existing legal entities included in
the Company had elected those provisions of the Internal Revenue code
(Subchapter S) and state laws which provide for the income of the Company
to be taxed at the stockholder level. During the period ended October 1,
1995 no income tax expense or benefit was recorded by the Company other
than state minimum tax.
9
CAFE LA FRANCE, INC.
Notes to Consolidated Financial Statements, Continued
(j) Loss Per Share
Loss per share for the year ended September 29, 1996 is based on the
average number of shares of common stock and common stock equivalents
outstanding, using the treasury stock method, during the year after
giving effect to a 290-for-1 stock exchange in connection with a merger
on October 25, 1996 (note 7c). Common stock equivalents include shares
issuable upon exercise of outstanding stock options and warrants. In
addition, pursuant to SEC Staff Accounting Bulletin 83, common stock
options and warrants granted and shares issued during the 12 months
immediately preceding the offering date at a price below the proposed
offering price of the Company's initial public offering are reflected in
the earnings per share calculation as if they had been outstanding for
the full year (using the treasury stock method and the proposed initial
public offering price). For purposes of this calculation, common stock
equivalents totaled 128,833 incremental shares under the treasury stock
method.
Weighted average shares outstanding used in the loss per share calculation
were 1,422,135.
(k) Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from these
estimates.
(l) Fiscal Periods
Prior to October 2, 1995, the Company's financial reporting was done on a
calendar basis. Effective October 2, 1995, the Company changed to a
52/53-week fiscal year comprised of four thirteen-week periods ending the
Sunday closest to September 30.
(2) Franchise Fee Revenue
Franchise revenues for the year ended September 29, 1996 and period ended
October 1, 1995 consist of the following:
1996 1995
---- ----
Initial franchise fees $ 45,000 15,000
Royalty revenue 52,470 22,466
------ ------
Total $ 97,470 37,466
====== ======
The associated franchise receivables included within accounts receivable in
the accompanying balance sheet at September 29, 1996 is as follows:
Royalty receivables $ 17,660
Less allowance for doubtful accounts 10,000
------
$ 7,660
=========
10
CAFE LA FRANCE, INC.
Notes to Financial Statements, Continued
(3) Notes Payable
The Company has short-term notes payable outstanding of $123,477 relating to
the purchase of various equipment and leasehold improvements. Interest
rates on these notes range from 10%-15%, and they are all due within one
year of September 29, 1996. The Company also has an amount outstanding of
$69,816 relating to an unsecured promissory note. Interest on this note is
15%. The note is due the earlier of March 19, 1997, or ten days after the
successful completion of an initial public offering by the Company (note
11).
(4) Leases
The Company leases certain equipment under capital leases. The economic
substance of the leases is that the Company is financing the acquisition of
the assets through the leases, and accordingly, it is recorded in the
Company's assets and liabilities. The amount shown as property and
equipment is $153,543 with related accumulated depreciation of $29,575.
The Company leases several restaurant facilities under noncancelable
operating leases. These leases generally contain renewal options for
periods ranging from 5 to 15 years and require the Company to pay executory
costs such as maintenance and insurance. Rent expense for operating leases
aggregated $259,445 and $180,943 for the year ended September 29, 1996 and
the period ended October 1, 1995, respectively.
Future minimum lease payments under noncancelable operating leases with
initial or remaining lease terms in excess of one year and future minimum
capital lease payments as of September 29, 1996 are:
<TABLE>
<CAPTION>
Capital Operating
Year ending: Leases Leases
------------ ------ ------
<S> <C> <C>
1997 $ 60,186 283,308
1998 49,346 260,749
1999 22,947 205,203
2000 - 183,291
2001 - 176,676
Thereafter - 870,262
---------- ----------
Total minimum lease payments 132,479 1,979,489
Less amount representing interest 20,888
----------
Present value of minimum capital lease payments 111,591
Less current installments of obligations under capital leases 48,141
----------
Obligations under capital leases, excluding current installments $ 63,450
===========
</TABLE>
Deferred credits in the accompanying balance sheet represent accruals for
escalating rental payments on operating leases.
11
CAFE LA FRANCE, INC.
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
(5) Long-Term Debt
Long-term debt at September 29, 1996 consists of the following:
<S> <C>
Term loan payable to bank, secured by substantially all of the assets of
the Company, with monthly principal payments through February 2006,
interest at the prime rate plus 2.75% $ 342,923
Installment note secured by equipment, payable in monthly installments
through March 1998 at an interest rate of 15% 14,560
Installment note secured by vehicle, payable in monthly installments
through February 1999 at an interest rate of 9.99% 11,656
--------
Total long-term debt 369,139
Less: current installments 36,715
--------
Long-term debt, excluding current installments $ 332,424
=======
The prime rate at September 29, 1996 was 8.25%.
</TABLE>
The term loan payable to bank contains restrictions on the payment of
dividends without the bank's prior written consent.
The aggregate maturities of long-term debt for each of the five years
subsequent to September 29, 1996 are as follows: 1997 - $36,715; 1998 -
$35,501; 1999 - $29,492; 2000 - $30,706; 2001 - $30,304; and thereafter
$206,421.
(6) Income Taxes
Effective October 2, 1995, the Company adopted FASB Statement No. 109,
Accounting for Income Taxes. Prior to October 2, 1995, each of the existing
legal entities included in the Company had elected those provisions of the
Internal Revenue code (Subchapter S) and state laws which provide for the
income of the Company to be taxed at the stockholder level. The Company
terminated the S corporation elections as of October 2, 1995, and is
subject to federal and state income taxes. Management anticipates the
filing of consolidated federal and state returns. The income tax provision
is based on consolidated filings.
The provision for income taxes attributed to earnings before income tax are:
1996 1995
---- ----
Current:
Federal $ - -
State 750 500
--- ---
750 500
(Continued)
12
CAFE LA FRANCE, INC.
Notes to Financial Statements, Continued
1996 1995
---- ----
Deferred:
Federal - -
State - -
--- ---
- -
--- ---
Total Provision $ 750 500
=== ===
A reconciliation of the statutory United States federal income tax rate to
the Company's effective income tax rate is as follows:
1996 1995
---- ----
Federal statutory income tax rate 34% 34%
State income taxes, net of Federal benefit - -
Effect of S corporation elections - (34)
Valuation reserve (34) -
--- ---
Effective tax rate - -
=== ===
All earnings of the Company before tax are from domestic sources. The tax
effect of temporary differences that give rise to significant portions of
the deferred tax assets and liabilities at September 29, 1996 are:
Assets:
Deferred rent expense $ 5,276
Settlement reserve 6,267
Bad debt reserve 8,170
Net operating loss carry-forwards 339,543
-------
Gross deferred tax assets 359,256
Less valuation reserve 320,714
-------
Net deferred tax assets 38,542
Liabilities:
Excess tax depreciation 28,486
Conversion from accrued to cash basis for tax purposes 10,056
--------
Gross deferred tax liability 38,542
------
Net deferred tax asset $ -
========
AtSeptember 29, 1996 deferred tax assets and non-current deferred tax
liabilities were $0. The valuation reserve against gross deferred tax
assets increased by $320,714 for the year ended September 29, 1996. The
valuation reserve at September 29, 1996 is $320,714.
(Continued)
13
CAFE LA FRANCE, INC.
Notes to Financial Statements, Continued
Unused net operating loss of approximately $780,000 will expire primarily
during fiscal year end September 2011 and September 2001 for federal and
state purposes, respectively.
(7) Stockholders' Equity
(a) Sale of Common Stock
During fiscal year 1996 the Company sold 1,085 (314,551 after effect of the
reorganization (note 7c)) shares of common stock of Cafe la france, Inc.
as part of a private offering, for proceeds net of expenses of $894,480.
(b) Preferred Stock
The Company has 2,000 authorized shares of preferred stock at a par value
of $.01. No shares were issued and outstanding at September 29, 1996. In
connection with the reorganization (note 7c) the Company authorized
1,000,000 shares of preferred stock.
(c) Reorganization
Effective October 25, 1996, Cafe la france, Inc. a Rhode Island corporation
owning 100% of CLF2, Inc. and CLF Franchise Corporation, the Company's
operating subsidiaries, was merged with Cafe La France, Inc., a Delaware
corporation. On that date, each share of the stock in the Rhode Island
corporation was exchanged for 290 shares of common stock of Cafe La
France, Inc., the Delaware corporation. This resulted in 1,293,302 shares
issued and outstanding at the date of the merger. All share and per share
data presented in the accompanying consolidated financial statements have
been restated to reflect the increased number of authorized and
outstanding shares of common stock.
(d) Warrants
Inconnection with the bridge financing (note 11) the Company issued a
warrant to purchase shares of common stock with each financing unit sold.
The number of shares to be received under the warrant is determined by
dividing 75% of the amount of each note by the price per share of common
stock offered to the public in an initial public offering. Each warrant
shall become exercisable for a period of 60 days commencing thirteen
months after the successful completion of an initial public offering of
common stock by the Company at an exercise price of $.01 per share.
(e) Stock Option Plans
InSeptember 1996 the Board of Directors and shareholders established a
qualified Employee Stock Option Plan (the Plan) which provides for a
maximum of 400,000 shares of common stock options to be granted to
employees. Incentive stock options to purchase 65,250 shares at $3.45 per
share (the fair market value at date of grant) have been granted to
employees under the Plan. The options vest over a three year period.
Under the Plan, no options are exercisable for a period of more than ten
years after date of grant. No options are exercisable at September 29,
1996.
The Company has also issued 58,000 non-qualified options to purchase shares
at $3.45 per share (the fair market value at date of grant) to two
non-employee consultants in connection with a private placement offering
made by the Company during 1996. The options vested immediately. No
options have been exercised at September 29, 1996.
14
CAFE LA FRANCE, INC.
Notes to Financial Statements, Continued
(8) Financial Instruments Fair Value Information
The carrying values of the Company's long-term debt approximates their fair
values based on current interest rates of similar instruments and the
majority of the long-term debt fluctuating with the prime rate of interest.
The carrying values of the Company's other financial instruments at
September 29, 1996, including cash, accounts receivable, other current
assets, accounts payable, and accrued expenses approximate their fair
values because of their short maturity.
(9) Related Party Transaction
During 1995 the Company held a note receivable from a former president of the
Company. The note receivable in the amount of $37,772, was deemed
uncollectible and included as general and administrative expenses for the
nine months ended October 1, 1995. The Company also had notes receivable
from two franchisees, totaling $30,637, that were deemed uncollectible and
expensed during the nine months ended October 1, 1995.
(10) Dependence on Suppliers
The Company purchases all of its coffee products and most of its food
products from three main suppliers. The Company does not have any written
supply agreements with any of its suppliers. Although the Company believes
its suppliers have sufficient capacity to meet any increase in demand
resulting from the Company's growth strategy, a disruption in supply or
degradation in quality could have an adverse impact on the Company's
business and financial results.
(11) Subsequent Events
Subsequent to September 29, 1996, the Company obtained financing in the form
of unsecured promissory notes amounting to $154,063, bearing interest at
15% per annum. The notes were due upon the earlier of (i) six months from
the date of the note, or (ii) ten days after the successful completion of
an initial public offering of common stock by the Company. The note payable
of $69,816 at September 29, 1996 (note 3) as well as the notes amounting to
$154,063 were prepaid without penalty with a portion of the proceeds of a
bridge financing in the amount of $600,000 closed by the Company in October
and November 1996. The bridge financing consisted of units of subordinated,
unsecured promissory notes in the principal amount of $25,000 each, bearing
interest at the rate of 12% per annum, and a non-transferable warrant
exercisable for that number of shares of the Company's common stock
determined by dividing 75% of the amount of each note by the price per
share of the Company's common stock offered to the public in an initial
public offering of common stock by the Company. The principal and interest
payable under the notes are payable upon the earlier of (i) one year from
the date of each note, or (ii) ten days after the successful completion of
an initial public offering of common stock by the Company.
On November 30, 1996,the Company revoked the franchise license of one of its
franchisees. The Company is currently operating the location. On December
1, 1996, the Company closed its commissary. The commissary derived revenue
and incurred expenses primarily from the sale of food to franchises and
intercompany food sales and purchasing. Company owned restaurants and
franchisees will purchase food products from Cafe La France approved
vendors based upon an approved product listing on a go forward basis.
On December 13, 1996, the President of the Company entered into an escrow
agreement whereby if the Company does not meet or exceed specific net
earnings goals in fiscal years 1998, 1999 and 2000, 300,000 shares owned by
the president, which are currently in escrow, will be permanently
transferred to the Company for a price of $.01 per share.
================================================================================
No dealer, salesperson or 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, any of the Underwriters
or any other person. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy any securities: (i) other than those
specifically offered hereby, (ii) in any jurisdiction in which such offer or
solicitation is not authorized, (iii) in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so, (iv) to any person
to whom it is unlawful to make such offer or solicitation in such jurisdiction,
or (v) to any person who is not a United States resident or who is outside the
jurisdiction of the United States. Neither the delivery of this Prospectus nor
any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Company since the date hereof or
that the information herein is correct as of any time subsequent to the date as
of which such information is provided in this Prospectus.
-----------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ....................................
Risk Factors...........................................
The Company............................................
Use of Proceeds........................................
Dividend Policy........................................
Capitalization.........................................
Dilution...............................................
Selected Consolidated Financial Data...................
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................
Business...............................................
Management.............................................
Certain Transactions...................................
Principal Stockholders.................................
Description of Securities..............................
Shares Available for Future Sale.......................
Underwriting...........................................
Legal Matters..........................................
Experts ...............................................
Additional Information.................................
-------------------------
Until ________, 1997 (25 calendar days after the date of this
Prospectus), all dealers effecting transactions in the Securities offered
hereby, whether or not participating in this distribution, may be required to
deliver a prospectus. This delivery requirement is in addition to the obligation
of dealers to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
================================================================================
================================================================================
1,150,000 Shares Common Stock
and
1,150,000 Redeemable Common
Stock Purchase Warrants
[LOGO]
-----------------------
PROSPECTUS
-----------------------
SCHNEIDER SECURITIES, INC.
______________, 1997
================================================================================
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") affords
a Delaware corporation the power to indemnify its present and former directors
and officers under certain conditions. Article Twelfth of the Company's
Certificate of Incorporation provides that any person made a party to or
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter, a "proceeding"), by reason of the
fact that such person is or was a director or officer of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified and held harmless by the Company to the fullest
extent authorized by the DGCL against all expense, liability and loss, provided,
however, that the Company shall indemnify such person in any proceeding
initiated by such person only if such proceeding was authorized by the Directors
of the Company. The right of indemnification described herein includes the right
to be paid expenses incurred in defending any proceeding in advance of its final
disposition, provided that such person, if required by the DGCL, undertakes to
repay all amounts advanced if it shall be ultimately determined that such
director or officer is not entitled to be indemnified under Article Twelfth or
otherwise.
Section 102(b)(7) of the DGCL gives a Delaware corporation the power to
adopt a charter provision eliminating or limiting the personal liability of
directors to the corporation or its stockholders for breach of fiduciary duty as
directors, provided that such provision may not eliminate or limit the liability
of directors for (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) any acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) any
payment of a dividend or approval of a stock purchase that is illegal under
Section 174 of the DGCL, or (iv) any transaction from which the director derived
an improper personal benefit. Article Twelfth of the Company's Certificate of
Incorporation states that to the maximum extent permitted by Section 102(b)(7)
of the DGCL, no director of the Company shall be personally liable to the
Company or its stockholders for monetary damages resulting from such director's
breach of fiduciary duty as a director of the Company, except for liability
involving one of the four exceptions described in (i) through (iv) above. In
addition, the Certificate of Incorporation provides that if the DGCL is amended
to authorize the further limitation or elimination of the liability of a
director, then the liability of the directors shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Section 145 of the DGCL also affords a Delaware corporation the power to
obtain insurance on behalf of its directors and officers against liabilities
incurred by them in those capacities. Article Twelfth of the Company's
Certificate of Incorporation provides that the Company may maintain insurance to
protect the Company and its directors and officers against expenses, liabilities
and losses whether or not the Company would have the power to indemnify such
person against such expense, liability or loss under the DGCL.
Reference is also made to of the Underwriting Agreement between the
Company and the Representative, filed as Exhibit 1 to this Registration
Statement, for a description of indemnification arrangements between the Company
and the Underwriters.
II-1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with
the sale and distribution of the securities being registered other than the
underwriting discounts and commissions. All amounts shown are estimates except
the Securities and Exchange Commission registration fee, the NASD filing fee and
the NASDAQ listing application fee:
Item Amount
---- ------
SEC registration fee....................................... $ 4,440
NASD filing fee............................................ $ 1,965
NASDAQ listing application fee............................. $ 9,313
Blue Sky fees and expenses................................. $ 15,000
Printing and engraving expenses*........................... $ 40,000
Accounting fees and expenses............................... $ 22,500
Legal fees and expenses.................................... $130,000
Transfer agent and registrar fee........................... $ 1,000
Miscellaneous.............................................. $ 14,957
Total.............................................. $239,175
* includes Edgar filing service charges
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the following securities were sold by the
Registrant without registration under the Securities Act:
(a) During 1996, the Company completed a private offering of 12%
promissory notes (the "Notes") and common stock purchase warrants (the "Bridge
Warrants") to 13 accredited investors. The Notes will be repaid with the
proceeds of this Offering. The Bridge Warrants become exercisable for $.01 per
share for a period of 60 days beginning 13 months after the successful
completion of this Offering. The Bridge Warrants are exercisable for a total of
105,882 shares of Common Stock in the Company. The Company has agreed to file a
registration statement to register the resale of the shares acquirable upon
exercise of the Bridge Warrants. The Bridge Warrants are nontransferable and,
prior to exercise, do not confer upon their holders any voting or other rights
as stockholders of the Company.
(b) On various dates between October 6, 1995 and July 22, 1996, the
Company issued a total of 999.66 shares (the equivalent of 289,902
post-Reorganization shares of Company Common Stock) for an aggregate purchase
price of $1,000,000.
(c) On October 25, 1996, Cafe la france, Inc., a Rhode Island
corporation and holder of all of the outstanding stock of the Company's
operating subsidiaries, was merged with and into the Company in a tax-free
reorganization pursuant to the provisions of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Reorganization"). In connection with the
Reorganization, each existing stockholder in the Rhode Island corporation
received 290 shares of Common Stock in the Company in exchange for each
outstanding share of common stock of the Rhode Island corporation owned thereby.
(d) On October 2, 1995, Mr. DeJordy contributed all of the outstanding
stock of the Company's operating subsidiaries, CLF2, Inc. and CLF Franchise
Corporation, to the Company in exchange for 3,375 shares of common stock of the
Company.
The issuances described in Item 26(a) were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act of
1933, as amended, and Regulation D thereunder, relating to sale of securities by
an
II-2
issuer not involving any public offering. The issuances described in Item 26(b)
were made in reliance upon the exemption under Section 4(2) of the Securities
Act relating to the sale of securities by an issuer not involving any public
offering and Rule 504 of Regulation D promulgated thereunder and under Section
3(b) of the Securities Act. The exchanges described under Items 26(c) and (d)
did not involve "sales" subject to the registration requirements of the
Securities Act.
ITEM 27. EXHIBITS
The following exhibits are filed as part of this Registration Statement with the
Securities and Exchange Commission, pursuant to Item 601 of Regulation S-B. All
exhibits refer to the Company unless otherwise indicated.
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
No. Item Page
--- ---- ----
<S> <C> <C>
1 Form of Underwriting Agreement and Selected Dealer Agreement
2 Agreement and Plan of Merger and Reorganization
3.1 Certificate of Incorporation, filed with the Delaware Secretary of State
on September 25, 1996
3.2 By-Laws of the Company
4.1* Specimen Common Stock Certificate
4.2 Form of Warrant to be issued to the Underwriter
4.3* Form of Redeemable Warrant
4.4* Form of Warrant Agent Agreement between the Company and American
Securities Transfer & Trust Incorporated
4.5 Form of Bridge Warrant registration right (See Exhibit 10.16)
4.6 Relevant portion of Article II and VII of By-Laws (included in Exhibit
3.2)
5.1* Opinion of Duffy & Sweeney regarding the legality of the securities
offered
10.1 1996 Incentive Stock Option Plan
10.2 Form of Incentive Stock Option Agreement for 1996 Incentive Stock Option
Plan
10.3 Incentive Stock Option Agreement between the Company and Robert G. King
dated November 1, 1996
10.4 Form of Non Qualified Stock Option Agreement
II-3
10.5 Employment Agreement with Thomas W. DeJordy dated November 1, 1996
10.6 Employment Agreement with Robert G. King dated November 1, 1996
10.7* Standard Form of Store Franchise Agreement
10.8 Loan Agreement dated February 28, 1996 between the Company and Home Loan
and Investment Bank
10.9 $350,000 Term Promissory Note dated February 28, 1996 issued to Home Loan
and Investment Bank
10.10 Security Agreement dated February 28, 1996 between the Company and Home
Loan and Investment Bank
10.11 Guaranty of CLF Franchise Corporation and CLF2, Inc.
10.12 Security Agreement dated February 28, 1996 between Home Loan and
Investment Bank and CLF2, Inc.
10.13 Security Agreement dated 2/28/96 between Home Loan and Investment Bank
and CLF Franchise Corporation
10.14 Letter Agreement of Home Loan and Investment Bank dated October 23,
1996 consenting to the Agreement and Plan of Merger and Reorganization
(See Exhibit 2 above)
10.15 Form of Unsecured Promissory Note dated October 31, 1996 and November
15, 1996 evidencing $600,000 bridge loans to the Company made on such
dates
10.16 Form of Non-Transferable Common Stock Purchase Warrants, issued to
purchasers of unsecured promissory notes dated October 31, 1996 and
November 15, 1996
10.17* Form of Financial Advisory and Investment Banking Agreement between the
Company and the Underwriter
10.18* Form of Escrow Agreement between the Company and ____________
11 Computation of Net Loss Per Share
21.1 Subsidiaries of the registrant
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Duffy & Sweeney
(included in Exhibit 5.1 to this Registration Statement)
24.1* Power of Attorney of Richard LaFrance
27.1 Financial Data Schedule
- --------------------
* To be Filed by Amendment
</TABLE>
II-4
ITEM 28. UNDERTAKINGS.
The Company will provide to the Underwriters at the closing specified in
the Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The Company hereby undertakes that, if relying on Rule 430A under the
Securities Act:
(1) for determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company under Rule
424(b)(1) or (4), or 497(h) under the Securities Act shall be
treated as part of this Registration Statement as of the time the
Commission declared it effective.
(2) for determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall
be treated as a new registration statement for the securities
offered in this Registration Statement and that offering of the
securities at that time shall be treated as the initial bona fide
offering of those securities.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned in the City
of Providence, Rhode Island on December 17, 1996.
Cafe La France, Inc.
By: /s/ Thomas W. DeJordy
-------------------------------------
Thomas W. DeJordy, Chairman of
the Board, Chief Executive Officer,
President and Director
By: /s/ Robert G. King
-------------------------------------
Robert G. King, Chief Financial
Officer, Treasurer, Principal
Accounting Officer and Director
By: /s/ Richard LaFrance
-------------------------------------
Richard LaFrance, Director
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
No. Item Page
--- ---- ----
<S> <C> <C>
1 Form of Underwriting Agreement and Selected Dealer Agreement
2 Agreement and Plan of Merger and Reorganization
3.1 Certificate of Incorporation, filed with the Delaware Secretary of State
on September 25, 1996
3.2 By-Laws of the Company
4.1* Specimen Common Stock Certificate
4.2 Form of Warrant to be issued to the Underwriter
4.3* Form of Redeemable Warrant
4.4* Form of Warrant Agent Agreement between the Company and American
Securities Transfer & Trust Incorporated
4.5 Form of Bridge Warrant registration right (See Exhibit 10.16)
4.6 Relevant portion of Article II and VII of By-Laws (included in Exhibit
3.2)
5.1* Opinion of Duffy & Sweeney regarding the legality of the securities
offered
10.1 1996 Incentive Stock Option Plan
10.2 Form of Incentive Stock Option Agreement for 1996 Incentive Stock Option
Plan
10.3 Incentive Stock Option Agreement between the Company and Robert G. King
dated November 1, 1996
10.4 Form of Non Qualified Stock Option Agreement
10.5 Employment Agreement with Thomas W. DeJordy dated November 1, 1996
10.6 Employment Agreement with Robert G. King dated November 1, 1996
10.7* Standard Form of Store Franchise Agreement
10.8 Loan Agreement dated February 28, 1996 between the Company and Home Loan
and Investment Bank
10.9 $350,000 Term Promissory Note dated February 28, 1996 issued to Home Loan
and Investment Bank
10.10 Security Agreement dated February 28, 1996 between the Company and Home
Loan and Investment Bank
10.11 Guaranty of CLF Franchise Corporation and CLF2, Inc.
10.12 Security Agreement dated February 28, 1996 between Home Loan and
Investment Bank and CLF2, Inc.
10.13 Security Agreement dated 2/28/96 between Home Loan and Investment Bank
and CLF Franchise Corporation
10.14 Letter Agreement of Home Loan and Investment Bank dated October 23,
1996 consenting to the Agreement and Plan of Merger and Reorganization
(See Exhibit 2 above)
10.15 Form of Unsecured Promissory Note dated October 31, 1996 and November
15, 1996 evidencing $600,000 bridge loans to the Company made on such
dates
10.16 Form of Non-Transferable Common Stock Purchase Warrants, issued to
purchasers of unsecured promissory notes dated October 31, 1996 and
November 15, 1996
10.17* Form of Financial Advisory and Investment Banking Agreement between the
Company and the Underwriter
10.18* Form of Escrow Agreement between the Company and ____________
11.1 Computation of Net Loss Per Share
21.1 Subsidiaries of the registrant
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Duffy & Sweeney
(included in Exhibit 5.1 to this Registration Statement)
24.1* Power of Attorney of Richard LaFrance
27.1 Financial Data Schedules
- --------------------
* To be Filed by Amendment
</TABLE>
EXHIBIT 1
CAFE LA FRANCE, INC.
1,150,000 SHARES
OF COMMON STOCK
AND
1,150,000 REDEEMABLE WARRANTS
UNDERWRITING AGREEMENT
----------------------
, 1997
Schneider Securities, Inc.
1120 Lincoln Street
Denver, Colorado 80203
DEAR SIRS:
Cafe La France, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), 1,150,000 shares of common stock of the Company and 1,150,000
redeemable warrants (the "Securities"). The Company hereby confirms the
agreement made by it with respect to the purchase of the Securities by the
Underwriter, which Securities are more fully described in the Registration
Statement referred to below. Schneider Securities, Inc. is referred to herein as
the "Underwriter" or the "Representative."
You have advised the Company that the Underwriters desire to act on a firm
commitment basis to purchase the Securities from the Company and to publicly
offer and sell the Securities and that you are authorized to execute this
Agreement. The Company confirms the agreement made by it with respect to the
relationship with the Underwriters as follows:
1. Filing of Registration Statement with S.E.C. and Definitions. A Registration
Statement and Prospectus on Form SB-2 (File No.333-__________) with respect to
the Securities has been carefully and accurately prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the published rules and regulations (the "Rules and Regulations")
thereunder or under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been filed with the Securities and Exchange Commission
(the "Commission") and such other states that the Underwriter deems necessary in
its discretion to so file to permit a public offering and trading thereunder.
Such registration statement, including the prospectus, Part II, and all
financial schedules and exhibits thereto, as amended at the time when it shall
become effective, is herein referred to as the "Registration Statement," and the
prospectus included as part of the Registration Statement on file with the
Commission that discloses all the information that was omitted from the
prospectus on the effective date pursuant to Rule 430 A of the Rules and
Regulations with any changes contained in any prospectus filed with the
commission by the Company with the Underwriters consent after the effective date
of the Registration Statement, is herein referred to as the "Final Prospectus."
The prospectus included as part of the Registration Statement of the Company and
in any amendments thereto prior to the effective date of the Registration
Statement is referred to herein as a "Preliminary Prospectus."
2. Discount, Delivery, and Sale of the Securities
(a) Subject to the terms and conditions of this Agreement, and on the basis
of the representations, warranties, and agreements herein contained, the Company
agrees to sell to, and the Underwriters agree to buy from the Company at a
purchase price of $ per Share and at $ per Redeemable Warrant before any
underwriter expense allowance, an aggregate of 1,150,000 shares of Common Stock,
and 1,150,000 Redeemable Warrants on a firm commitment basis the "Initial
Securities".
It is understood that the Underwriters propose to sell the Securities to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
(b) Delivery of the Securities against payment of the purchase price
therefor by certified or official bank check or checks or wire transfer in
next-day funds, payable to the order of the Company shall take place at the
offices of the clearing broker for the Underwriter at New York City, within
three (3) business days after the Securities are first traded (or such other
place as may be designated by agreement between you and the Company) at 11:00
A.M., New York time or such time and date as you and the Company may agree upon
in writing, such time and date of payment and delivery for the Securities being
herein called the "Initial Closing Date."
The Company will make the certificates for the shares of Common Stock and
Redeemable Warrants to be purchased by the Underwriters hereunder available to
the Underwriter for inspection and packaging at least two (2) full business days
prior to the Initial Closing Date. The certificates shall be in such names and
denominations as the Underwriter may request to the Company in writing at least
two (2) full business days prior to any Closing Date.
(c) In addition, subject to the terms and conditions of this Agreement and
on the basis of the representations, warranties and agreements herein contained,
the Company grants an option to the Underwriters to purchase up to an additional
172,500 shares of Common Stock and/or up to 172,500 additional Warrants ("Option
Securities") at the same terms as the Underwriters shall pay for the Initial
Securities being sold by the Company pursuant to the provisions of Section 2(a)
hereof. This option may be exercised from time to time, for the purpose of
covering overallotments, within forty-five (45) days after (i) the effective
date of the Registration Statement if the Company has elected not to rely on
Rule 430A under the Rules and Regulations or (ii) the date of this Agreement if
the Company has elected to rely upon Rule 430A under the Rules and Regulations,
upon written notice by the Underwriter setting forth the number of Option
Securities as to which the Representative is exercising the option and the time
and date at which such certificates are to be delivered. Such time and date
shall be determined by the Representative. Nothing herein shall obligate the
Representative to make any overallotment.
(d) Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered at the closing by the
Company to the Underwriters against payment of the purchase price by the
Underwriters as described in section 2(b) above.
(e) The information set forth under "Underwriting" in any preliminary
prospectus and Prospectus relating to the Securities and the information set
forth in the last paragraph on the front cover page, under the last paragraph on
page 2 concerning stabilization and over-allotment by the Underwriters, and
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriter to the Company for inclusion therein,
and you represent and warrant to the Company that the statements made therein
are correct.
(f) On the Initial Closing Date, the Company shall issue and sell to the
Representative, warrants (the "Representative's Warrants") at a purchase price
of $.001 per Representative's Warrant, which shall entitle the holders thereof
to purchase an aggregate of 115,000 shares of Common Stock and 115,000
Redeemable Warrants. The shares of Common Stock and Redeemable Warrants issuable
upon the exercise of the Representative's Warrants are hereafter referred to as
the "Representative's Securities" or "Representative's Warrants." The shares of
common stock issuable upon exercise of the redeemable warrants are hereinafter
referred to collectively as the "Warrant Shares". The Representative's Warrants
shall be exercisable for a period of four (4) years commencing one (1) year from
the effective date of the Registration Statement at a price equaling one hundred
and forty percent (140%)of the initial public offering price of the Securities.
The form and terms of the of Representative's Warrant Certificate shall be
substantially in the form filed as an Exhibit to the Registration Statement.
Payment for the Representative's Warrants shall be made on the Initial Closing
Date.
3. Representations and Warranties of the Company.
(a) The Company represents and warrants to you as follows:
2
(i) The Company has prepared and filed with the Commission a registration
statement, and an amendment or amendments thereto, on Form SB-2 (No. ),
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Securities, the Representative's Warrant and the Warrant
Shares (sometimes referred to herein collectively as the "Registered
Securities"), under the Act, which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the Rules and Regulations. The Company will promptly file a
further amendment to said registration statement in the form heretofore
delivered to the Underwriter and will not file any other amendment thereto to
which the Underwriter shall have objected verbally or in writing after having
been furnished with a copy thereof. Except as the context may otherwise require,
such registration statement, as amended, on file with the Commission at the time
the registration statement becomes effective (including the prospectus,
financial statements, any schedules, exhibits and all other documents filed as a
part thereof or that may be incorporated therein (including, but not limited to
those documents or information incorporated by reference therein) and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430(A) of the Rules and Regulations), is hereinafter called the
"Registration Statement," and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations, is
hereinafter called the "Prospectus."
(ii) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Prospectus or the Registration
Statement and no proceeding for an order suspending the effectiveness of the
Registration Statement or any of the Company's securities has been instituted or
is pending or threatened. Each such Prospectus and/or any supplement thereto has
conformed in all material respects with the requirements of the Act and the
Rules and Regulations and on its date did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading, in light of the circumstances under which they were
made; and when the Prospectus becomes legally effective and for twenty-five (25)
days subsequent thereto (i) the Prospectus and/or any supplement thereto will
contain all statements which are required to be stated therein by the Act and
Rules and Regulations, and (ii) the Prospectus and/or any supplement thereto
will not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, in light of the circumstances under which they were
made; provided, however, that no representations, warranties or agreements are
made hereunder as to information contained in or omitted from the Prospectus in
reliance upon, and in conformity with, the written information furnished to the
Company by you as set forth in Section 2(e) above.
(iii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of its incorporation,
with full power and authority (corporate and other) to own its properties and
conduct its businesses as described in the Prospectus and is duly qualified to
do business as a foreign corporation in good standing in all other jurisdictions
in which the nature of its business or the character or location of its
properties requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the business, properties or
operations of the Company and the subsidiaries as a whole.
(iv) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, the Option Securities and the
Representative's Securities and to enter into this Agreement, the
Representative's Warrant dated as of the initial closing date to be exercised
and delivered by the Company to the Representative (the "Representative's
Warrant Agreement"), and the Financial Advisory and Investment Banking Agreement
dated as of the Initial Closing Date between the Company and the Representative
(the "Consulting Agreement"), and to consummate the transactions provided for in
such agreements, and each of such agreements has been duly and properly
authorized, and on the Initial Closing Date will be duly and properly executed
and delivered by the Company. This Agreement constitutes and on the Initial
Closing Date each of the Representative's Warrant Agreement and the Consulting
Agreement will then constitute valid and binding agreements, enforceable in
accordance with their respective terms (except as the enforceability thereof may
be limited by bankruptcy or other similar laws affecting the rights of creditors
generally or by general equitable principles and except as the enforcement of
indemnification provisions may be limited by federal or state securities laws).
(v) Except as disclosed in the Prospectus, the Company is not in
violation of its respective certificate or articles of incorporation or bylaws
or in default in the performance or observance of any material obligation,
agreement,
3
covenant or condition contained in any material bond, debenture, note or other
evidence of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture, partnership or other agreement or instrument to
which the Company is a party or by which it may be bound or is not in material
violation of any law, order, rule, regulation, writ, injunction or decree of any
governmental instrumentality or court, domestic or foreign; and the execution
and delivery of this Agreement, the Representative's Warrant Agreement and the
Consulting Agreement, and the consummation of the transactions contemplated
therein and in the Prospectus and compliance with the terms of each such
agreement will not conflict with, or result in a material breach of any of the
terms, conditions or provisions of, or constitute a material default under, or
result in the imposition of any material lien, charge or encumbrance upon any of
the property or assets of the Company pursuant to, any material bond, debenture,
note or other evidence of indebtedness or any material contract, indenture,
mortgage, loan agreement, lease, joint venture, partnership or other agreement
or instrument to which the Company is a party nor will such action result in the
material violation by the Company of any of the provisions of its respective
certificate or articles of incorporation or bylaws or any law, order, rule,
regulation, writ, injunction, decree of any government, governmental
instrumentality or court, domestic or foreign, except where such violation will
not have a material adverse effect on the financial condition of the Company.
(vi) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus and the Company will have the adjusted
capitalization set forth therein on the Initial Closing Date; all of the shares
of issued and outstanding capital stock of the Company set forth therein have
been duly authorized, validly issued and are fully paid and nonassessable; the
holders thereof do not have any rights of rescission with respect therefor and
are not subject to personal liability for any obligations of the Company by
reason of being stockholders under the laws of the State in which the Company is
incorporated; none of such outstanding capital stock is subject to or was issued
in violation of any preemptive or similar rights of any stockholder of the
Company; and such capital stock (including the Securities, the Option Securities
and the Representative's Securities) conforms in all material respects to all
statements relating thereto contained in the Prospectus.
(vii) The Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement or as described in the
Prospectus. The Securities, the Option Securities and the Representative's
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the respective descriptions thereof
contained in the Prospectus; except for payment of the applicable purchase price
paid upon exercise of the options or warrants, as the case may be the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities, the Option Securities and the Representative's Securities has
been duly and validly taken; and the certificates representing the Securities,
the Option Securities and the Representative's Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of the
Securities, the Option Securities and the Representative's Securities to be sold
by the Company hereunder, the Underwriter will acquire good and marketable title
to such Securities, Option Securities and Representative's Securities free and
clear of any lien, charge, claim, encumbrance, pledge, security interest, defect
or other restriction of any kind whatsoever other than restrictions as may be
imposed under the securities laws.
(viii) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described or referred
to in the Prospectus or which are not materially significant or important in
relation to its business or which have been incurred in the ordinary course of
business; except as described in the Prospectus all of the leases and subleases
under which the Company holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and the Company is not
in material default in respect of any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone adverse to the
Company's rights as lessor, sublessor, lessee or sublessee under any of the
leases or subleases mentioned above or affecting or questioning the Company's
right to the continued possession of the leased or subleased premises or assets
under any such lease or sublease; and the Company owns or leases all such
properties as are necessary to its operations as now conducted and as
contemplated to be conducted, except as otherwise stated in the Prospectus.
4
(ix) The financial statements, together with related notes, set forth
in the Prospectus fairly present the financial position and results of
operations of the Company at the respective dates and for the respective periods
to which they apply. Said statements and related notes have been prepared in
accordance with generally accepted accounting principles applied on a basis
which is consistent in all material respects during the periods involved but any
stub period has not been audited by an independent accounting firm. There has
been no material adverse change or material development involving a prospective
change in the condition, financial or otherwise, or in the prospects, value,
operation, properties, business or results of operations of the Company whether
or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus.
(x) Subsequent to the respective dates as of which information is
given in the Prospectus as it may be amended or supplemented, and except as
described in the Prospectus, the Company has not, directly or indirectly,
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business or entered into any transactions not in the ordinary
course of business, which are material to the business of the Company as a whole
and there has not been any change in the capital stock of, or any incurrence of
long term debts by, the Company or any issuance of options, warrants or rights
to purchase the capital stock of the Company or declaration or payment of any
dividend on the capital stock of the Company or any material adverse change in
the condition (financial or other), net worth or results of operations of the
Company as a whole and the Company has not become a party to, any material
litigation whether or not in the ordinary course of business.
(xi) To the knowledge of the Company, there is no pending or
threatened, action, suit or proceeding to which the Company is a party before or
by any court or governmental agency or body, which might result in any material
adverse change in the condition (financial or other), business or prospects of
the Company as a whole or might materially and adversely affect the properties
or assets of the Company as a whole nor are there any actions, suits or
proceedings against the Company related to environmental matters or related to
discrimination on the basis of age, sex, religion or race which might be
expected to materially and adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company as a whole;
and no labor disturbance by the employees of the Company individually exists or
is, to the knowledge of the Company, imminent which might be expected to
materially and adversely affect the conduct of the business, property,
operations, financial condition or earnings of the Company as a whole.
(xii) Except as may be disclosed in the Prospectus, the Company has
properly prepared and filed all necessary federal, state, local and foreign
income and franchise tax returns, has paid all taxes shown as due thereon, has
established adequate reserves for such taxes which are not yet due and payable,
and does not have any tax deficiency or claims outstanding, proposed or assessed
against it.
(xiii) The Company has sufficient licenses, permits, right to use trade
or service marks and other governmental authorizations currently required for
the conduct of its business as now being conducted and as contemplated to be
conducted and the Company is in all material respects complying therewith.
Except as set forth in the Prospectus, the expiration of any such licenses,
permits, or other governmental authorizations would not materially affect the
Company's operations. To its knowledge, none of the activities or businesses of
the Company are in material violation of, or cause the Company to materially
violate any law, rule, regulations, or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality.
(xiv) The Company has not at any time (i) made any contributions to any
candidate for political office in violation of law, or failed to disclose fully
any such contribution, or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasipublic duties, other than payments required or allowed by applicable law.
(xv) Except as set forth in the Prospectus the Company knows of no
outstanding claims for services either in the nature of a finder's fee,
brokerage fee or otherwise with respect to this financing for which the Company
or the Underwriters may be responsible, or which may affect the Underwriter's
compensation as determined by the
5
National Association of Securities Dealers, Inc. ("NASD") except as otherwise
disclosed in the Prospectus or known by the Underwriters.
(xvi) The Company has its property adequately insured against loss or
damage by fire and maintains such other insurance as is customarily maintained
by companies in the same or similar business.
The Representative's Warrants herein described are duly and validly
authorized and upon delivery to the Representative in accordance herewith will
be duly issued and legal, valid and binding obligations of the Company, except
as the enforceability thereof may be limited by bankruptcy or other similar laws
affecting the rights of creditors generally or by equitable principles, and
except as the enforcement of indemnification provisions may be limited by
federal or state securities laws.
(xvii) The Representative's Securities issuable upon exercise of any of
the Representative's Warrants have been duly authorized, and when issued upon
payment of the exercise price therefor, will be validly issued, fully paid and
nonassessable.
(xviii) Except as set forth in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note, loan
or credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company is
subject or affected.
(xix) To the best of the Company's knowledge it has generally enjoyed a
satisfactory employer-employee relationship with its employees and, to the best
of its knowledge, is in substantial compliance in all material respects with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. To the best of the Company's knowledge, there are no pending
investigations involving the Company, by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. To the best of the Company's
knowledge, there is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or to its knowledge involving the Company, or any predecessor entity, and none
has ever occurred. To the best of the Company's knowledge, no representation
question is pending respecting the employees of the Company, and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company. To the best of the Company's knowledge, no grievance or arbitration
proceeding is pending or to its knowledge threatened under any expired or
existing collective bargaining agreements of the Company. No labor dispute with
the employees of the Company is pending, or, to its knowledge is imminent; and
the Company is not aware of any pending or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
may result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company.
(xx) Except as may be set forth in the Registration Statement, the
Company does not maintain, sponsor or contribute to any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit plan,"
or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(l) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute,
now or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Internal Revenue Code (the "Code"), which could subject the Company
to any tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code Section 401 (a), stating that such ERISA Plan and
6
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(xxi) None of the Company, or any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations)
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities,
Option Securities, Representative's Securities or otherwise.
(xxii) None of the patents, patent applications, trademarks, service
marks, trade names, copyrights, and licenses and rights to the foregoing
presently owned or held by the Company, are in dispute or, to the best knowledge
of the Company's management are in any conflict with the right of any other
person or entity. The Company (i) except as disclosed in the Prospectus owns or
has the right to use, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing, and except as set forth in the Prospectus or otherwise disclosed
to the Underwriter in writing, to the best knowledge of the Company's management
is not obligated or under any liability whatsoever to make any material payments
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(xxiii) Except as disclosed in the Prospectus the Company owns and has
adequate right to use to the best knowledge of the Company's management all
trade secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") required for or
incident to the development, manufacture, operation and sale of all products and
services sold or proposed to be sold by the Company. The Company is not aware of
any such development of similar or identical trade secrets or technical
information by others. The Company has valid and binding confidentiality
agreements with all of its officers, covering its intellectual property (subject
to the equitable powers of any court), which agreements have remaining terms of
at least two years from the effective date of the Registration Statement except
where the failure to have such agreements would not materially and adversely
effect the Company's business taken as a whole. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus, to be owned or leased by it
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable.
(xxiv) KPMG Peat Marwick LLP whose reports are filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(xxv) Except in connection with acquisitions or pursuant to warrants
and options outstanding immediately prior to the closing, the Company has agreed
to execute and the Company has also caused to be duly executed, agreements
pursuant to which each of the Company's officers and directors and shareholders
and any person or entity deemed to be an affiliate of the Company pursuant to
the Rules and Regulations has agreed not to, directly or indirectly, sell,
assign, transfer, or otherwise dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) for a period of not less
than thirteen (13) months following such effective date without the prior
written approval of the Representative and if such approval is granted, then to
be extended on a pro-rata basis to all other restricted shareholders. The
Company will cause the Transfer Agent, as defined below, to mark an appropriate
legend on the face of stock certificates restricting the transfer of all of such
securities and to place "stop transfer" orders on the Company's stock ledgers.
(xxvi) The Registered Securities have been approved for listing on the
NASDAQ Small Cap Market.
7
(xxvii) Except as set forth in the Prospectus or disclosed in writing
to the Underwriter (which writing specifically refers to this Section), no
officer or director of the Company, holder of 5% or more of securities of the
Company or any "affiliate" or "associate" (as these terms are defined in Rule
405 promulgated under the Rules and Regulations) of any of the foregoing persons
or entities has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficiary interest in any contract or agreement to which the Company is
a party or by which it may be bound or affected. Except as set forth in the
Prospectus under "Certain Transactions" or disclosed in writing to the
Underwriter (which writing specifically refers to this Section) there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, and any officer, director, principal stockholder of the Company, or any
partner, affiliate or associate of any of the foregoing persons or entities.
(xxviii) Any certificate signed by any officer of the Company, and delivered
to the Underwriter or to the Underwriter's counsel (as defined herein) shall be
deemed a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
(xxix) Each of the minute books of the Company has been made available to
the Underwriter and contains a complete summary of all meetings and actions of
the directors and stockholders of the Company, since the time of its
incorporation and reflect all transactions referred to in such minutes
accurately in all respects.
(xxx) As of the Initial Closing Date, the Company will enter into the
Consulting Agreement substantially in the form filed as an Exhibit to the
Registration Statement with respect to the furnishing of consulting services by
the Representative to the Company.
(xxxi) Except and only to the extent described in the Prospectus or
disclosed in writing to the Underwriter (which writing specifically refers to
this Section), no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or to require
the Company to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company. Except as disclosed in the Prospectus, all rights so described or
disclosed have been waived or have not been triggered with respect to the
transactions contemplated by this Agreement, the Consulting Agreement and the
Representative's Warrant Agreement (including the warrants issuable thereunder).
(xxxii) The Company has not entered into any employment agreements with its
executive officers, except as disclosed in the Prospectus.
(xxxiii) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Registered Securities pursuant to
the Prospectus and the Registration Statement, the issuance of the Underwriter's
Warrants, the performance of this Agreement, the Representative's Warrant
Agreement and the Consulting Agreement, and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, the Option Securities and the Underwriter's
Securities, except such as have been or may be obtained under the Act, otherwise
or may be required under state securities or blue sky laws in connection with
the Underwriter's purchase and distribution of the Securities, the Option
Securities, the Representative's Securities and the Underwriter's Warrants to be
sold by the Company hereunder or may be required by the Rules of the National
Association of Securities Dealer, Inc. ("NASD").
8
(xxxiv) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company, in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form SB-2, and there are no contracts or other documents which are
required by the Act to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
(xxxv) Within the past five (5) years, none of the Company's independent
public accountants has brought to the attention of the Company's management any
"material weakness" as defined in the Statement of Auditing Standard No. 60 in
any of the Company's internal controls.
4. Covenants of the Company. The Company covenants and agrees with you that:
(a) It will cooperate in all respects in making the Prospectus effective and
will not at any time, whether before or after the effective date, file any
amendment to or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you or your counsel
shall have reasonably objected or which is not in material compliance with the
Act and the Rules and Regulations or applicable state law.
As soon as the Company is advised thereof, the Company will advise you, and
confirm the advice in writing, of the receipt of any comments of the Commission
or any state securities department, when the Registration Statement becomes
effective if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, of the effectiveness of any posteffective amendment to the Registration
Statement or Prospectus, or the filing of any supplement to the Prospectus or
any amended Prospectus, of any request made by the Commission or any state
securities department for amendment of the Prospectus or for supplementing of
the Prospectus or for additional information with respect thereto, of the
issuance of any stop order suspending the effectiveness of the Prospectus or any
order preventing or suspending the use of any Prospectus or any order suspending
trading in the Common Stock of the Company, or of the suspension of the
qualification of the Securities, the Option Securities or the Representatives
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any such purposes, and will use its best efforts to prevent the
issuance of any such order and, if issued, to obtain as soon as possible the
lifting or dismissal thereof.
The Company has caused to be delivered to you copies of such Prospectus, and the
Company has consented and hereby consents to the use of such copies for the
purposes permitted by law. The Company authorizes you and the dealers to use the
Prospectus and such copies of the Prospectus in connection with the sale of the
Securities, the Option Securities and the Representative's Securities for such
period as in the opinion of your counsel and our counsel the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. The Company will prepare and file with the states, promptly upon
your request, any such amendments or supplements to the Prospectus, and take any
other action, as, in the opinion of your counsel, may be necessary or advisable
in connection with the initial sale of the Securities, the Option Securities and
the Underwriter's Securities and will use its best efforts to cause the same to
become effective as promptly as possible.
The Company shall file the Prospectus (in form and substance satisfactory to
the Underwriter) or transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission pursuant to rule 424(b)(1) or pursuant to
Rule 424(b)(3) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement, and (ii) the fifth business day after the effective date of the
Registration Statement.
9
In case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with the initial sale of
the Securities, the Option Securities and the Representative's Securities of any
event of which the Company has knowledge and which materially affects the
Company, or the securities thereof, and which should be set forth in an
amendment of or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required under the Act to be delivered, or in case it shall be
necessary to amend or supplement the Prospectus to comply with the Act, the
Rules and Regulations or any other law, the Company will forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they are made. The preparation and
furnishing of any such amendment or supplement to the Prospectus or supplement
to be attached to the Prospectus shall be without expense to you.
The Company will to the best of its ability comply with the Act, the
Exchange Act and applicable state securities laws so as to permit the initial
offer and sales of the Securities, the Option Securities and the Representatives
Securities under the Act, the Rules and Regulations, and applicable state
securities laws.
(b) It will cooperate to qualify the Securities and the Option Securities
and the Representative's Securities for initial sale under the securities laws
of such jurisdictions as you may designate and will make such applications and
furnish such information as may be required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long as the Underwriter may reasonably request.
(c) So long as any of the Securities, the Option Securities or the
Representative's Securities remain outstanding in the hands of the public, the
Company, at its expense, will annually furnish to its shareholders a report of
its operations to include financial statements audited by independent public
accountants, and will furnish to the Underwriter as soon as practicable after
the end of each fiscal year, a balance sheet of the Company as at the end of
such fiscal year, together with statements of operations, shareholders' equity,
and changes in cash flow of the Company for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent public accountants.
(d) It will deliver to you at or before the Initial Closing Date two signed
copies of the Registration Statement including all financial statements and
exhibits filed therewith, whether or not incorporated by reference. The Company
will deliver to you, from time to time until the effective date of the
Prospectus, as many copies of the Prospectus as you may reasonably request. The
Company will deliver to you on the effective date of the Prospectus and
thereafter for so long as a Prospectus is required to be delivered under the Act
and the Rules and Regulations as many copies of the Prospectus, in final form,
or as thereafter amended or supplemented, as you may from time to time
reasonably request.
(e) The Company will apply the net proceeds from the sale of the Securities
and the Option Securities substantially in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the proceeds shall be used, directly
or indirectly, to acquire any securities issued by the Company, without the
prior written consent of the Underwriter.
(f) As soon as it is practicable, but in any event not later than the first
(lst) day of the fifteenth (15th) full calendar month following the effective
date of the Registration Statement, the Company will make available to its
security holders and the Underwriter an earnings statement (which need not be
audited) covering a period of at least twelve (12) consecutive months beginning
after the effective date of the Registration Statement, which shall satisfy the
requirements of Section 11(a) of the Act and Rule 158(a) of the Rules and
Regulations.
10
(g) Non-Accountable Expense Allowance. The Company shall pay to the
Representative at each closing date, and to be deducted from the purchase price
for the Securities and the Option Securities, an amount equal to three percent
(3%) of the gross proceeds received by the Company from the sale of the
Securities and the Option Securities at such closing date less in the case of
the Initial Closing Date, the sum of $_________ previously paid by the Company.
If the sale of the Securities by the Underwriter is not consummated for any
reason not attributable to the Underwriter, or if (i) the Company withdraws the
Registration Statement from the Commission or does not proceed with the public
offering, or (ii) the representations in Section 3 hereof are not correct or the
covenants cannot be complied with, or (iii) there has been a materially adverse
change in the condition, prospects or obligations of the Company or a materially
adverse change in stock market conditions from current conditions, all as
determined by the Underwriter, then the Company shall reimburse the Underwriter
for its out of pocket expenses including without limitation, its legal fees and
disbursements all on an accountable basis . If any excess remains from the
$50,000 previously paid , such excess will be returned to the Company.
If however, in the event of the sale or merger of the Company, or any
significant subsidiary or significant assets of the Company or substitution of
Underwriter's or the Representative (the "Transaction") after such date as the
Company has filed a Registration Statement with the Securities and Exchange
Commission the Company shall reimburse the Representative for its fees and
expenses in accordance with the preceding paragraph. Such amount will be paid on
the date of closing the Transaction.
Costs and Expenses. Subject to the provisions of Section 4(g) the Company
will pay all costs and expenses incident to the performance of this Agreement by
the Company including, but not limited to, the fees and expenses of counsel to
the Company and of the Company's accountants; the costs and expenses incident to
the preparation, printing, filing and distribution under the Act of the
Registration Statement and Prospectus (including the fee of the Commission, any
securities exchange and the NASD in connection with the filing required by the
NASD relating to the offering of the Securities contemplated hereby); all
expenses, including fees of counsel, which shall be due and payable on the
Closing Date in connection with the qualification of the Securities under the
state securities or blue sky laws; the cost of furnishing to you copies of the
Prospectus, this Agreement, the cost of printing the certificates representing
the Securities and of preparing and photocopying the Underwriting Agreement and
related Underwriting documents, the cost of four (4) underwriter's bound
volumes, any advertising costs and expenses, including but not limited to the
Company's expenses on "road show" information meetings and presentations,
prospectus memorabilia, issue and transfer taxes, if any. The Company will also
pay all costs and expenses incident to the furnishing of any amended Prospectus
of or any supplement to be attached to the Prospectus.
(h) The Company shall not, without the Representative's prior written
consent which shall not be unreasonably withheld, sell or offer to sell any
shares of Common Stock for thirteen (13) months after the effective date
including other equity securities or warrants or options to purchase any shares
of Common Stock or equity securities except (i) in connection with acquisitions,
(ii) pursuant to warrants and options outstanding immediately prior to or as a
result of the Closing, or (iii) pursuant to options granted under Company's
Stock Option Plan as described in the Prospectus
(i) During a date five years after the date hereof, the Company will make
available to its shareholders, as soon as practicable, and deliver to the
Representative:
(1) as soon as they are available, copies of all reports (financial or
other) mailed to shareholders;
(2) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any securities
exchange;
(3) every press release and every material news item or article of
interest to the financial community in respect of the Company or its affairs
which was prepared and released by or on behalf of the Company; and
(4) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the Underwriter
may request.
11
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(j) The Company will maintain a Transfer Agent and, if necessary under the
jurisdiction of incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock.
(k) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Final Prospectus the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits), the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such quantities
as the Representative may request.
(1) Neither the Company nor any of its officers, directors, stockholders or
any of its affiliates will take, directly or indirectly, any action designed to,
or which might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of any of the Company's securities.
(m) The Company shall timely file all such reports, forms or other documents
as may be required from time to time, under the Act, the Exchange Act, and the
Rules and Regulations, and all such reports, forms and documents filed will
comply as to form and substance with the applicable requirements under the Act,
the Exchange Act, and the Rules and Regulations.
(n) The Company shall cause the Securities to be listed on NASDAQ for a
period of five (5) years from the date hereof, and use its best efforts to
maintain the listing of the Securities to the extent they are outstanding.
(o) As soon as practicable, (i) before the effective date of the
Registration Statement, file a Form 8-A with the Commission
providing for the registration under the Exchange Act of the
Securities and (ii) but in no event more than 30 days from the
effective date of the Registration Statement, take all
necessary and appropriate actions to be included in Standard
and Poor's Corporation Descriptions and/or Moody's OTC Manual
and to continue such inclusion for a period of not less than
five years if the securities are not listed on the AMEX or
equivalent exchange.
(p) Until the completion of the distribution of the Securities, the Company
shall not without the prior written consent of the Underwriter and its
counsel which consent shall not be unreasonably withheld or delayed, issue,
directly or indirectly, any press release or other communication or hold any
press conference with respect to the Company or its activities or the
offering contemplated hereby, other than trade releases issued in 'the
ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(q) Commencing one year from the effective date of the registration
statement, the Company agrees to pay the Representative a 5% solicitation fee
for the exercise of the publicly-held warrants such solicitation being subject
to applicable SEC and NASD Rules.
5. Conditions of the Underwriter's Obligations. The obligation of the
Underwriters to offer and sell the Securities and the Option Securities is
subject to the accuracy (as of the date hereof, and as of the Closing Dates) of
and compliance with the representations and warranties of the Company to the
performance by it of its agreement and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective as and when
cleared by the Commission, and you shall have received notice thereof, on or
prior to any closing date no stop order suspending the effectiveness of the
Prospectus shall have been issued and no proceedings for that or similar purpose
shall have been instituted or shall be pending, or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the Underwriter; and
qualification, under the securities laws of such states as you may
12
designate, of the issue and sale of the Securities upon the terms and conditions
herein set forth or contemplated and containing no provision unacceptable to you
shall have been secured, and no stop order shall be in effect denying or
suspending effectiveness of such qualification nor shall any stop order
proceedings with respect thereto be instituted or pending or threatened under
such law.
(b) On any closing date and, with respect to the letter referred to in
subparagraph (iii), as of the date hereof, you shall have received:
(i) the opinion, together with such number of signed or photostatic copies
of such opinion as you may reasonably request, addressed to you by Duffy &
Sweeney, Esqs, counsel for the Company, and in form and substance reasonably
satisfactory to the Representative and William M. Prifti, Esq., counsel to the
Representative, dated each such closing date, to the effect that:
(A) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the jurisdiction in which it is
incorporated and has all necessary corporate power and authority to carry on its
business as described in the Prospectus.
(B) The Company is qualified to do business in each jurisdiction in which
conducting its business requires such qualification, except where the failure to
be so qualified would not have a material adverse effect on the Company's
business or assets.
(C) The Company has the full corporate power and authority to enter into
this Agreement, the Representative's Warrant Agreement and the Consulting
Agreement and to consummate the transactions provided for therein and each such
Agreement has been duly and validly authorized, executed and delivered by the
Company. Each of this Agreement, the Consulting Agreement and the
Representative's Warrant Agreement, assuming due authorization, execution and
delivery by each other party thereto, constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency or similar laws governing the rights of
creditors and to general equitable principles, and provided that no opinion need
be given as to the enforceability of any indemnification or contribution
provisions, and none of the Company's execution or delivery of this Agreement,
the Consulting Agreement or the Representative's Warrant Agreement, its
performance hereunder or thereunder, its consummation of the transactions
contemplated herein or therein, or the conduct of its business as described in
the Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
material breach or violation of any of the terms or provisions of, or
constitutes or will constitute a material default under, or result in the
creation or imposition of any material lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction of any kind whatsoever upon, any
property or assets (tangible or intangible) of the Company pursuant to the terms
of (A) the articles of incorporation or by-laws of the Company, (B) to the
knowledge of such counsel, any material license, contract, indenture, mortgage,
deed of trust, voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument to which the Company is a
party or by which it is or may be bound, or (C) to the knowledge of such
counsel, any statute, judgment, decree, order, rule or regulation applicable to
the Company, whether domestic or foreign.
(D) The Company had authorized and outstanding capital stock as set forth in
the Prospectus under the heading "Capitalization" as of the date set forth
therein, and all of such issued and outstanding shares of capital stock have
been duly and validly authorized and issued, and to the knowledge of such
counsel are fully paid and nonassessable, and to the knowledge of such counsel
no stockholder of the Company is entitled to any preemptive rights to subscribe
for, or purchase shares of the capital stock and to the knowledge of such
counsel none of such securities were issued in violation of the preemptive
rights of any holders of any securities of the Company.
(E) To the knowledge of such counsel, the Company is not a party to or bound
by any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement, the Representative's Warrant Agreement, and except as described in
the Prospectus. The Common Stock, the Warrants and the Representative's Warrants
each conforms in all material respects to the respective
13
descriptions thereof contained in the Prospectus. The outstanding shares of
Common Stock and the Warrants the Warrant Stock and the Representative's Warrant
Stock will have been upon payment and delivery, in the manner described herein,
the Warrant Agreement and the Representative Agreement, as the case may be, will
be, duly authorized, validly issued, fully paid and nonassessable. There are no
preemptive or other rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of, any shares of Common Stock pursuant to the
Company's articles of incorporation, by-laws, other governing documents or any
agreement or other instrument known to such counsel to which the Company is a
party or by which it is bound.
(F) The certificates representing the Securities are in due and proper form
and each of the Warrant Stock and the Representative's Warrant Stock has been
duly authorized and reserved for issuance and when issued and delivered in
accordance with the respective terms of the Warrant Agreement and
Representative's Warrant Agreement, respectively, will duly and validly issued,
fully paid and nonassessable.
(G) To the knowledge of such counsel, there are no claims, suits or other
legal proceedings pending or threatened against the Company in any court or
before or by any governmental body which might materially affect the business of
the Company or the financial condition of the Company as a whole, except as set
forth in or contemplated by the Prospectus.
(H) Based on oral and/or written advice from the staff of the Commission,
the Registration Statement has become effective and, to the knowledge of such
counsel, no stop order suspending the effectiveness of the Prospectus is in
effect and no proceedings for that purpose are pending before, or threatened by,
federal or by a state securities administrator.
(I) To the knowledge of such counsel, there are no legal or governmental
proceedings, actions, arbitrations, investigations, inquiries or the like
pending or threatened against the Company of a character required to be
disclosed in the Prospectus which have not been so disclosed, questions the
validity of the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement or might adversely affect the condition,
financial or otherwise, or the prospects of the Company or which could adversely
affect the Company's ability to perform any of its obligations under this
Agreement, the Representative's Warrant Agreement or the Consulting Agreement.
(J) To such counsel's knowledge, there are no material agreements, contracts
or other documents known to such counsel required by the Act to be described in
the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and to such counsel's
knowledge (A) the exhibits which have been filed are correct copies of the
documents of which they purport to be copies; (B) the descriptions in the
Registration Statement and the Prospectus and any supplement or amendment
thereto of contracts and other documents to which the Company is a party or by
which it is bound, including any document to which the Company is a party or by
which it is bound incorporated by reference into the Prospectus and any
supplement or amendment thereto, are accurate in all material respects and
fairly represent the information required to be shown by Form SB-2.
(K) No consent, approval, order or authorization from any regulatory board,
agency or instrumentality having jurisdiction over the Company, or its
properties (other than registration under the Act or qualification under state
or foreign securities law or approval by the NASD) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Option
Securities or the Representative's Warrant.
(L) The statements in the Prospectus under "Risk Factors-Control by Existing
Stockholders," "Management-Limitation of Liability" "Description of the
Securities," and "Shares Eligible For Future Sale" have been reviewed by such
counsel, and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are correct in
all material respects.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Representative's Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and
14
related matters were discussed, and although they have not certified the
accuracy or completeness of the statements contained in the Registration
Statement or the Prospectus, nothing has come to the attention of such counsel
which leads them to believe that, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the Closing Date and
on any later date on which Option Shares are to be purchased, the Registration
Statement and any amendment or supplement, when such documents became effective
or were filed with the Commission (other than the financial statements including
the notes thereto and supporting schedules and other financial and statistical
information derived therefrom, as to which such counsel need express no comment)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or at the Closing Date or any later date on which the Option
Shares are to be purchased, as the case may be, the Prospectus and any amendment
or supplement thereto (other than the financial statements including the notes
thereto and other financial and statistical information derived therefrom, as to
which such counsel need express no comment) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Such opinion shall also cover such other matters incident to the
transactions contemplated hereby and the offering Prospectus as you or counsel
to the Representative shall reasonably request. In rendering such opinion, to
the extent deemed reasonable by them, such counsel may rely upon certificates of
any officer of the Company or public officials as to matters of fact of which
the maker of such certificate has knowledge.
(ii) a certificate, signed by the Chief Executive Officer and the Principal
Financial or Accounting Officer of the Company dated the Closing Date, to the
effect that with regard to the Company, each of the conditions set forth in
Section 5(d) have been satisfied.
(iii) a letter, addressed to the Representative and in form and substance
satisfactory to the Representative in all respects (including the nonmaterial
nature of the changes or decreases, if any, referred to in clause (D) below),
from KMPG Peat Marwick LLP, dated, respectively, as of the effective date of the
Registration Statement and as of the Closing Date, as the case may be:
(A) Confirming that they are independent public accountants with respect to
the Company and its consolidated subsidiaries, if any, within the meaning of the
Act and the applicable published Rules and Regulations.
(B) Stating that, in their opinion, the financial statements, related notes
and schedules of the Company and its consolidated subsidiaries, if any, included
in the Registration Statement examined by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder.
(C) Stating that, with respect to the period from September 29, 1996, to a
specified date (the specified date") not earlier than five (5) business days
prior to the date of such letter, they have read the minutes of meetings of the
stockholders and board of directors (and various committees thereof) of the
Company and its consolidated subsidiaries, if any, for the period from September
29, 1996 through the specified date, and made inquiries of officers of the
Company and its consolidated subsidiaries, if any, responsible for financial and
accounting matters and, especially as to whether there was any decrease in
sales, income before extraordinary items or net income as compared with the
corresponding period in the preceding year; or any change in the capital stock
of the Company or any change in the longterm debt or any increase in the
short-term bank borrowings or any decrease in net current assets or net assets
of the Company or of any of its consolidated subsidiaries, if any, and further
stating that while such procedures and inquiries do not constitute an
examination made in accordance with generally accepted auditing standards,
nothing came to their attention which caused them to believe that during the
period from September 29, 1996, through the specified date there were any
decreases as compared with the corresponding period in the preceding year in
sales, income before extraordinary items or net income; or any change in the
capital stock of the Company or consolidated subsidiary, if any, or any change
in the longterm debt or any increase in the short-term bank borrowings (other
than any increase in short-term bank borrowings in the ordinary course of
business) of the Company or any
15
consolidated subsidiary, if any, or any decrease in the net current assets or
net assets of the Company or any consolidated subsidiary, if any; and
(D) Stating that they have carried out certain specified procedures
(specifically set forth in such letter or letters) as specified by the
Underwriter (after consultations with KMPG Peat Marwick LLP, relating to such
procedures), not constituting an audit, with respect to certain tables,
statistics and other financial data in the Prospectus specified by the
Underwriter and such financial data not included in the Prospectus but from
which information in the Prospectus is derived, and which have been obtained
from the general accounting records of the Company or consolidated subsidiaries,
if any, or from such accounting records by analysis or computation, and having
compared such financial data with the accounting records of the Company or the
consolidated subsidiaries, if any, stating that they have found such financial
data to agree with the accounting records of the Company.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Prospectus and other related matters shall be satisfactory to or
approved by counsel to the Underwriter and you shall have received from Duffy &
Sweeney, Esqs. a signed opinion dated as of each closing date, with respect to
the incorporation of the Company, the validity of the Securities, the form of
the Prospectus, (other than the financial statements together with related notes
and other financial and statistical data contained in the Prospectus or omitted
therefrom, as to which such counsel need express no opinion), the execution of
this Agreement and other related matters as you may reasonably require.
(d) At each closing date, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects with the same effect as if made on and as of such closing date; (ii)
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations and in all material respects conform to the
requirements thereof, and neither the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary, in light of the
circumstances under which they were made, in order to make the statements
therein not misleading; (iii) there shall have been since the respective dates
as of which information is given no material adverse change in the business,
properties or condition (financial or otherwise), results of operations, capital
stock, longterm debt or general affairs of the Company from that set forth in
the Prospectus, except changes which the Prospectus indicates might occur after
the effective date of the Prospectus, and the Company shall not have incurred
any material liabilities or material obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Prospectus and which would
be required to be set forth in the Prospectus; and (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall be
pending or threatened against the Company which would be required to be set
forth in the Prospectus, and no proceedings shall be pending or threatened
against the Company or any subsidiary before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company.
(e) On the Initial Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Representatives' Warrant Agreement
substantially in the form filed as an Exhibit to the Registration Statement in
final form and substance satisfactory to the Underwriter, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(f) On or before the Initial Closing Date, the Securities shall have been
duly approved for listing on NASDAQ.
(g) On or before the Initial Closing Date, there shall have been delivered
to the Representative all of the Lock-up Agreements required to be delivered
pursuant to Section 3(a)(xxv) and 4(h), in FORM and substance satisfactory to
the Representative and Representative's counsel.
(h) On or before the Initial Closing Date, the Company shall have (i)
executed and delivered to the Underwriter the Consulting Agreement, in the form
filed as an Exhibit to the Registration Statement and (ii) paid the Underwriter
the full retainer pursuant to the Consulting Agreement.
16
If any condition to the Representative's obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
6. Conditions of the Company's Obligations. The obligation of the Company to
sell and deliver the Securities is subject to the following:
(a) The provisions regarding the effective date, as described in
Section 10.
(b) At the Initial Closing Date, no stop order suspending the
effectiveness of the Prospectus shall have been issued under the
Act or any proceedings therefor initiated or threatened by the
Commission or by any state securities department.
(c) Tender of payment by the Representative in accord with Section 2
hereof.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and its employees and each person, if any, who controls you within the meaning
of the Act, against any losses, claims, damages or liabilities, joint or several
(which shall, for any purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
each Underwriter or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission made in the Prospectus, or such amendment or supplement to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, which is in reliance upon and in conformity
with written information furnished by the Company to you specifically for use in
the preparation thereof, and provided further that the indemnity agreement
contained in this subsection (a) shall not inure to the benefit of you with
respect to any person asserting any such loss, claim, damage or liability who
has purchased the Securities which are the subject thereof if you or any
participants failed to send or give a copy of the Prospectus to such person at
or prior to the written confirmation of the sale of such Securities to such
person and except that, with respect to any untrue statement or omission or any
alleged untrue statement or omission, made in any Pre-Effective Prospectus, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter ( or to any person controlling any such underwriter)
from whom the person asserting any such loss, claim, damage or liability
purchased the securities concerned to the extent that such untrue statement or
omission, or alleged untrue statement or omission, has been corrected in a later
Pre-Effective Prospectus or in the Final Prospectus unless the Underwriter
circulated a later Pre-Effective Prospectus or the Final Prospectus to such
person
(b) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, officer or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission was made in the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by you specifically for use in the preparation thereof. This indemnity
will be in addition to any liability which any Underwriter may otherwise have.
17
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any 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, to assume the
defense thereof, subject to the provisions herein stated, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The 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 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 party; provided
that, if the indemnified party is you or a person who controls you, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both you or such controlling person
and the indemnifying party and you or such controlling person shall have been
advised by such counsel that there is a conflict of interest which would prevent
counsel for the indemnifying party from representing the indemnifying party and
you or such controlling person (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of you or such
controlling person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction or which are consolidated
into the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for you and all such controlling persons, which firm
shall be designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnified party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnified party.
8. Contribution. In order to provide for just and equitable contribution
tinder the Act in any case in which (i) the indemnifying party makes a claim for
indemnification pursuant to Section 7 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of the
Underwriters, then the Company and the Underwriters in the aggregate shall
contribute to the aggregate losses, claims, damages, or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all attorneys'
fees) in either such case (after contribution from others) in such proportions
that the Underwriters are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities determined by multiplying the total
amount of such losses, claims, damages or liabilities times the difference
between the public offering price and the commission to the Underwriter and
dividing the product thereof by the public offering price, and the Company, if
applicable, shall be responsible for that portion of such losses, claims,
damages or liabilities times the commission to the Underwriters and dividing the
product thereof by the public offering price; provided, however, that the
Underwriters shall not be required to so contribute any amount in excess of the
underwriting discount applicable to the Securities purchased by the Underwriters
hereunder if such allocation is not permitted by applicable law, then the
relative fault of the Company and the Underwriters in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 12(2) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. The foregoing contribution agreement shall in no
way affect the contribution liabilities of any person having liability under
Section 12 of the Act other than the Company and the Underwriter. As used in
this paragraph, the term "Underwriters" includes any person who controls the
Underwriters within the meaning of Section 15 of the Act. If the full amount of
the contribution specified in this paragraph is not permitted by law, then any
Underwriter and each person who controls any Underwriter shall be entitled to
contribution from the Company, to the full extent permitted by law.
18
9. Effective Date. This Agreement shall become effective at 11:00 a.m. New
York time on the next full business day following the effective date of the
Registration Statement, or at such other time after the effective date of the
Prospectus as you in your discretion shall first commence the public offering of
any of the Securities covered thereby, provided, however, that at all times the
provisions of Sections 7, 8, 9 and 11 shall be effective.
10. Termination.
(a) This Agreement, may be terminated at any time prior to the Closing
Date by you if in your judgment it is impracticable to offer for
sale or to enforce contracts made by you for the sale of the
Securities agreed to be sold hereunder by reason of (i) the
Company as a whole having sustained a material loss, whether or
not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government
action, order or decree, (ii) trading in securities of the Company
having been suspended by a state securities administrator or by
the Commission, (iii) material governmental restrictions having
been imposed on trading in securities generally (not in force and
effect on the date hereof) or trading on the New York Stock
Exchange, American Stock Exchange, or in the over-the-counter
market shall have been suspended, (iv) a banking moratorium having
been declared by federal or New York State authorities, (v) an
outbreak or escalation of hostilities or other national or
international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body, of
any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative
accounting institute or board, or any governmental executive,
which is believed likely by you to have a material impact on the
business, financial condition or financial statements of the
Company; or (vii) any material adverse change having occurred,
since the respective dates as of which information is given in the
Prospectus, in the condition, financial or otherwise, of the
Company as a whole, whether or not arising in the ordinary course
of business, (viii) Thomas W. DeJordy ceases to be employed by the
Company in his present capacity; (ix) the Securities are not
listed on an exchange or on NASDAQ.
(b) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11 or in Section 10,
the Company shall be promptly notified by you, by telephone or telegram,
confirmed by letter.
11. Representations, Warrants and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company (or its officers) and the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation made by or on behalf of the Representative, the Company, or
any of their officers or directors and will survive delivery of and payment for
the Securities.
12. Notices. All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed, delivered
or telephoned and confirmed to you at Schneider Securities, Inc., 1120 Lincoln
Street Denver, Colorado 80203 Attn: Thomas. Schneider, Chairman; to the Company
at 216 Wegbosset Street, Providence, RI 02903, Attn: Thomas W. DeJordy .
13. Parties in Interest. This Agreement is made solely for the benefit of
the Underwriter(s), and the Company, and their respective controlling persons,
directors and officers, and their respective successors, assigns, executors and
administrators. No other person shall acquire or have any right under or by
virtue of this Agreement.
14. Headings. The Section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
19
15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Rhode Island, without giving effect to
conflict of law principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
If the foregoing correctly sets forth the understanding between the Company
and you, as Representative of the several underwriters, please so indicate in
the space provided below for such purpose, whereupon this letter and your
acceptance shall constitute a binding agreement between us.
Very truly yours,
Cafe La France, Inc.
By:
----------------------------------
(Authorized Officer)
Thomas W. DeJordy, President
Accepted as of the date first above written:
SCHNEIDER SECURITIES, INC.
By:
---------------------------------------
(Authorized Officer)
Thomas Schneider, Chairman
20
SCHEDULE I
UNDERWRITERS
Underwriter Common Stock
and
Redeemable Warrant
Schneider Securities, Inc. 1,150,000
TOTAL 1,150,000
- -----
21
EXHIBIT B
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE. YOUR EXECUTION HEREOF WELL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY KIND
UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
CAFE LA FRANCE, INC.
SELECTED DEALERS AGREEMENT
--------------------------
, 199_
Dear Sirs:
1. Schneider Securities, Inc. named as the Underwriter or Representative
("Underwriter" "Representative") in the enclosed preliminary Prospectus,
proposes to offer on a firm commitment basis, subject to the terms and
conditions and execution of the Underwriting Agreement, 1,150,000 shares of
common stock and 1,150,000 redeemable warrant at $ 4.25 per share and $0.10 per
Redeemable Warrant ("Securities") of the above Company. The Securities are more
particularly described in the enclosed preliminary Prospectus, additional copies
of which will be supplied in reasonable quantities upon request. Copies of the
definitive Prospectus will be supplied after the effective date of the
Registration Statement.
2. The Underwriter is soliciting offers to buy, upon the terms and
conditions hereof, a part of the Securities from Selected Dealers, including you
who are to act as principal and who are (i) registered with the Securities and
Exchange Commission ("Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), or (ii) dealers
or institutions with their principal place of business located outside the
United States, its territories and possessions who are not eligible for
membership in the NASD and who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's Interpretation
with Respect to FreeRiding and Withholding and with Sections 2898, 2740, 2750,
to the extent applicable to foreign nonmember brokers or dealers, and Section
2750 of the NASD's Rules of Fair Practice. The Securities are to be offered at a
public price of $ 4.25 per share and $0.10 per redeemable warrant. Selected
Dealers will be allowed a concession of not less than $ .21 per share and $ .005
per Redeemable Warrant, except as provided below. You will be notified of the
precise amount of such concession prior to the effective date of the
Registration Statement. You may reallow not in excess of $ .11 per share and
$.0005 per Redeemable Warrants to dealers who meet the requirements set forth in
this Section 2. This offer is solicited subject to the issuance and delivery of
the Securities and their acceptance by the Underwriter, to the approval of legal
matters by counsel and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without obligation
or commitment of any kind by you and any time prior to acceptance and no offer
may be accepted by us and no sale can be made until after the registration
statement covering the Securities has become effective with the Commission.
Subject to the foregoing, upon execution by you of the Offer to Purchase below
and the return of same to us, you shall be deemed to have offered to purchase
the number of Securities set forth in your offer on the basis set forth in
paragraph 2 above. Any
oral notice by us of acceptance of your offer shall be immediately followed by
written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable. We may also make available to
you an allotment to purchase Securities, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange of
confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of Securities assume and are applicable
only if contractual commitments to purchase are completed in accordance with the
foregoing..
4. You agree that in reoffering said Securities, if your offer is accepted
after the effective date, you will make a bona fide public distribution of same.
You will advise us upon request of Securities purchased by you remaining unsold
and we shall have the right to repurchase such Securities upon demand at the
public offering price without paying the concession with respect to any
Securities so repurchased. Any of the Securities purchased by you pursuant to
this Agreement are to be subject to the terms hereof. Securities shall not be
offered or sold by you below the public offering price before the termination of
this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by you
on or before five (5) business days after the date of each confirmation by
certified or bank cashier's check payable to the Underwriter. Certificates for
the Securities shall be delivered as soon as practicable after delivery
instructions are received by the Underwriter.
6. A registration statement covering the offering has been filed with the
Securities and Exchange Commission in respect to the Securities. You will be
promptly advised when the registration statement becomes effective. Each
Selected Dealer in selling Securities pursuant hereto agrees (which agreement
shall also be for the benefit of the Company) that it will comply with the
applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934 and any applicable rules and regulations issued under said
Acts. No person is authorized by the Company or by the Underwriter to give any
information or to make any representations other than those contained in the
Prospectus in connection with the sale of the Securities. Nothing contained
herein shall render the Selected Dealers a member of the Underwriting Group or
partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been advised
by counsel that the Securities have been qualified for sale or are exempt under
the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Securities in any state. You agree not to sell
Securities in any other state or jurisdiction and to not sell Securities in any
state or jurisdiction unless you are qualified or licensed to sell securities in
such state or jurisdiction.
8. The Underwriter shall have full authority to take such action as it may
deem advisable in respect of all matters pertaining to the offering or arising
thereunder. The Underwriter shall not be under any liability to you, except such
as may be incurred under the Securities Act of 1933 and the rules and
regulations thereunder, except for lack of good faith and except for obligations
assumed by us in this Agreement, and no obligation on our part shall be implied
or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD and
registered as a broker-dealer with the Commission, or that you are a foreign
broker-dealer not eligible for membership under the Bylaws of the NASD who
agrees to make no sales within the United States, its territories or possessions
or to persons who are nationals thereof or residents therein and, in making
sales, to comply with the NASD's interpretation with Respect to FreeRiding and
Withholding and with Sections 2878, 2740, 2750 to the extent applicable to
foreign nonmember brokers and dealers, and Section 2750 of the NASD's Rules of
Fair Practice. Your attention is called to and you agree to comply with the
following: (a) Article III, Section 1 of the Rules of Fair Practice of the NASD
and the interpretations of said Section promulgated by the Board of Governors of
the NASD including Section 2740 and the
2
interpretation with respect to "Free-Riding and Withholding;" (b) Section 10(b)
of the 1934 Act and Rules 10b-6, 10b-10 of the general rules and regulations
promulgated under the 1934 Act; and (c) Rule 15c2-8 of the general rules and
regulations promulgated under the 1934 Act requiring the distribution of a
preliminary Prospectus to all persons reasonably expected to be purchasers of
the Securities from you at least 48 hours prior to the time you expect to mail
confirmations. You, as a member of the NASD, by signing this Agreement,
acknowledge that you are familiar with the cited laws and rules and agree that
you will not directly and/or indirectly violate any provisions of applicable law
in connection with your participation in the distribution of the Securities.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Securities in the open
market or otherwise make a market in the Securities or otherwise attempt to
induce others to purchase the Securities in the open market. Nothing contained
in this paragraph 11 shall, however, preclude you from acting as agent in the
execution of unsolicited orders of customers in transactions effectuated for
them through a market maker.
12. You understand that the Underwriter may in connection with the offering
engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased and you agree to pay such amount to us on
demand.
13. By submitting an Offer to Purchase you confirm that you may, in
accordance with Rule 15c-1 adopted under the 1934 Act, agree to purchase the
number of Securities you may become obligated to purchase under the provisions
of this Agreement.
14. All communications from you should be directed to us at 2 Charles
Street, Providence, R.I. 02904, Attn: Pasquale Ruggieri (1-800-709-4040) and
(fax 401-274-8942). All communications from us to you shall be directed to the
address to which this letter is mailed.
Very truly yours,
SCHNEIDER SECURITIES, INC.
By
- ------------------------------
(Authorized Officer)
3
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in paragraph 3)
_________________ * Securities in accordance with the terms and conditions set
forth above. We hereby acknowledge receipt of the Prospectus referred to in the
first paragraph thereof relating to such Securities. We further state that in
purchasing such Securities we have relied upon such Prospectus and upon no other
statement whatsoever, written or oral.
- ------------------------------
By
- ------------------------------
(Authorized Officer)
*If a number appears here which does not correspond with what you wish to offer
to purchase, you may change the number by crossing out the number, inserting a
different number and initializing the change.
4
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Merger
Agreement"), dated as of October 25, 1996 is between Cafe la france, Inc., a
Rhode Island corporation ("Cafe-RI") and Cafe La France, Inc., a Delaware
corporation ("Cafe-DE").
WHEREAS, Cafe-RI is a corporation duly organized and existing under the
laws of the State of Rhode Island;
WHEREAS, Cafe-DE is a corporation duly organized and existing under the
laws of the State of Delaware;
WHEREAS, on the date of this Merger Agreement, Cafe-RI has authority to
issue eight thousand (8,000) shares of Common Stock, $.01 par value per share
("Cafe-RI Common Stock"), 4,459.66 of which shares are issued and outstanding,
and 2,000 shares of Preferred Stock, $.01 par value per share, no shares of
which are issued and outstanding;
WHEREAS, on the date of this Merger Agreement, Cafe-DE has authority to
issue 9,000,000 shares of Common Stock, $.01 par value per share ("Cafe-DE
Common Stock"), one (1) share of which is issued and outstanding and 1,000,000
shares of Preferred Stock, $.01 par value per share ("Cafe-DE Preferred Stock"),
no shares of which are issued and outstanding;
WHEREAS, the respective Boards of Directors of Cafe-RI and Cafe-DE have
determined that it is advisable and in the best interests of each of such
corporations that Cafe-RI merge in a tax-free reorganization pursuant to Section
368 of the Internal Revenue Code of 1986, as amended, with and into Cafe-DE upon
the terms and subject to the conditions of this Merger Agreement; and
WHEREAS, the respective Boards of Directors of Cafe-RI and Cafe-DE
have, by resolutions duly adopted, approved this Merger Agreement, and the
shareholders of Cafe-RI at a meeting duly called, noticed and held on September
26, 1996 approved this Merger Agreement and the sole stockholder of Cafe-DE has,
by unanimous written consent dated October 25, 1996, duly approved this Merger
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Cafe-RI and Cafe-DE hereby agree as follows:
1. Merger. Cafe-RI will be merged with and into Cafe-DE (the "Merger"),
and Cafe-DE shall be the surviving corporation (hereinafter sometimes referred
to as the "Surviving Corporation"). The merger shall become effective upon the
time and date of filing of such documents as may be required under applicable
law ("Effective Time"). The
merger is intended to be a tax-free reorganization pursuant to Section 368 of
the Internal Revenue Code of 1986, as amended.
2. Governing Documents. The Certificate of Incorporation of Cafe-DE as
in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation without change or amendment until
thereafter amended in accordance with the provisions thereof and applicable
laws, and the Bylaws of Cafe-DE as in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation without change or
amendment until thereafter amended in accordance with the provisions thereof and
applicable laws.
3. Succession. At the Effective Time, the separate corporate existence
of Cafe-RI shall cease, and Cafe-DE shall possess all the rights, privileges,
powers and franchises of a public and private nature and be subject to all the
restrictions, liabilities and duties of Cafe-RI; and all and singular, the
rights, privileges, powers and franchises of Cafe-RI and all property, real,
personal and mixed, and all debts due to Cafe-RI on whatever account, as well as
for share and note subscriptions and all other things in action or belonging to
Cafe-RI shall be vested in the Surviving Corporation; and all property, rights,
privileges, powers and franchises, and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of Cafe-RI, and the title to any real estate vested by deed or otherwise, under
the laws of the State of Delaware, in Cafe-RI shall not revert or be in any way
impaired by reason of the General Corporation Law of the State of Delaware; but
all rights of creditors and all liens upon any property of Cafe-RI shall be
preserved unimpaired; and all debts, liabilities and duties of Cafe-RI shall
thenceforth attach to the Surviving Corporation and may be enforced against it
to the same extent as if such debts, liabilities and duties had been incurred or
contracted by it. All corporate acts, plans, policies, agreements, arrangements,
approvals and authorizations of Cafe-RI, its shareholders, Board of Directors
and committees thereof, officers and agents which were valid and effective
immediately prior to the Effective Time, shall be taken for all purposes as the
acts, plans, policies, agreements, arrangements, approvals and authorizations of
Cafe-DE and shall be as effective and binding thereon as the same were with
respect to Cafe-RI. The employees and agents of Cafe-RI shall become the
employees and agents of Cafe-DE and continue to be entitled to the same rights
and benefits which they enjoyed as employees of Cafe-RI.
4. Further Assurances. From time to time, as and when required by
Cafe-DE or by its successors and assigns, there shall be executed and delivered
on behalf of Cafe-RI such deeds and other instruments, and there shall be taken
or caused to be taken by it all such further and other action, as shall be
appropriate or necessary in order to vest, perfect or confirm, of record or
otherwise, in Cafe-DE the title to and possession of all property, interest,
assets, rights, privileges, immunities, powers, franchises and authority of
Cafe-RI and otherwise to carry out the purposes of this Merger Agreement, and
the officers and directors of Cafe-DE are fully authorized in the name and on
behalf of Cafe-RI to take any and all such action and to execute and deliver any
and all deeds and other instruments.
2
5. Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) Each of the shares of Cafe-RI Common Stock outstanding
immediately prior to the Effective Time shall be changed and converted
into two hundred ninety (290) fully-paid and non-assessable shares of
Cafe-DE Common Stock. Fractional shares may be issued at the discretion
of the Board of Directors of Cafe-DE.
(b) The one (1) share of Cafe-DE Common Stock presently issued
and outstanding shall be given to Cafe-DE as a capital contribution and
shall be canceled and resume the status of authorized and unissued
shares of Cafe-DE Common Stock, and no shares or other securities of
Cafe-DE shall be issued in respect thereof.
6. Conversion of Options. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, unless the
Board of Directors determines otherwise, each option to purchase Cafe-RI Common
Stock outstanding immediately prior to the Effective Time shall be changed and
converted into an option to purchase two hundred ninety (290) shares of Cafe-DE
Common Stock.
7. Stock Certificates. At and after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented shares of Cafe-RI Common Stock shall be presented to Cafe-DE to be
exchanged for certificates representing shares of Cafe-DE Common Stock as
converted as herein provided. The registered owner of any such outstanding
certificate shall, until such certificate shall have been surrendered for
transfer or otherwise accounted for to Cafe-DE or its transfer agents, have and
be entitled to exercise any voting and other rights with respect to and to
receive any dividends and other distributions upon the shares of Cafe-DE Common
Stock evidenced by such outstanding certificate as above provided. All
certificates representing shares of Cafe-DE outstanding immediately prior to the
Effective Time shall be surrendered to Cafe-DE for cancellation; at and after
the Effective Time, the shares represented by such certificates shall be deemed
to be canceled whether or not the certificates have been surrendered or
otherwise accounted for.
8. Employee Benefit Plans. As of the Effective Time, Cafe-DE hereby
assumes all obligations of Cafe-RI under all employee benefit plans in effect,
if any, as of the Effective Time or with respect to which employee rights or
accrued benefits are outstanding, if any, as of the Effective Time.
9. Amendment. Subject to applicable law, this Merger Agreement may be
amended, modified or supplemented by written agreement of the parties hereto at
any time prior to the Effective Time with respect to any of the terms contained
herein.
3
10. Abandonment. At any time prior to the Effective Time, this Merger
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either of Cafe-RI or Cafe-DE, notwithstanding approval of this
Merger Agreement by the stockholders of either of said corporations if
circumstances arise which, in the opinion of the Board of Directors of Cafe-RI
or Cafe-DE make the Merger inadvisable.
11. Counterparts. In order to facilitate the filing and recording of
this Merger Agreement, the same may be executed in counterparts, each of which
shall be deemed to be an original and the same agreement.
IN WITNESS WHEREOF, Cafe-RI and Cafe-DE have caused this Merger
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
Cafe la france, Inc.
a Rhode Island corporation
ATTEST:
By:/s/ Thomas W. DeJordy
------------------------------------
Thomas W. DeJordy, President
/s/ Michael F. Sweeney
- --------------------------------
Michael F. Sweeney
Secretary
Cafe La France, Inc.
------------------------------------
a Delaware corporation
ATTEST:
By:/s/ Thomas W. DeJordy
------------------------------------
Thomas W. DeJordy, President
/s/ Michael F. Sweeney
- --------------------------------
Michael F. Sweeney
Secretary
4
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CAFE LA FRANCE, INC.
FIRST: The name of the Corporation is Cafe La France, Inc.
SECOND: The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Nine Million (9,000,000) shares of common stock, par
value $.01 per share ("Common Stock"), and One Million (1,000,000) shares of
preferred stock, par value $.01 per share ("Preferred Stock").
FIFTH: The designations and the powers, preferences and rights and the
qualifications, limitations or restrictions on the shares of Common Stock
initially authorized for issuance shall be governed by the following provisions:
(i) Identical Rights. Except as otherwise provided herein, all
shares of Common Stock shall be identical and shall
entitle the holders thereof to the same rights and
privileges.
(ii) Voting Rights. Except as otherwise required by law or as
otherwise provided herein, on all matters submitted to the
Corporation's stockholders, the holders of Common Stock
shall be entitled to one vote per share.
(iii) Dividend Rights. When and as dividends or other
distributions are declared, whether payable in cash, in
property or in securities of the Corporation, the holders
of shares of Common Stock shall be entitled to share
equally, share for share, in such dividends or
distributions, provided that if dividends or other
distributions are declared which are payable in shares of
Common Stock, such dividends or other distributions shall
be declared payable at the same rate for all holders of
Common Stock, and the dividends payable in shares of
Common Stock will be payable to holders of Common Stock.
(iv) No Closing of Transfer Books. The Corporation shall not
close its books against the transfer of any share of
Common Stock.
SIXTH: The Corporation may issue Preferred Stock from time to time in
one or more series or classes as the Board of Directors may establish by the
adoption of a resolution or resolutions relating thereto, each series or class
to have such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, as shall be
stated in the resolution or resolutions providing for the issue of such series
or class adopted by the Board of Directors pursuant to authority to do so, which
authority is hereby granted to the Board of Directors.
SEVENTH: (a) The number of directors of the Corporation shall be
determined from time to time in the manner described in the By-laws. No director
need be a stockholder.
(b) Newly created directorships resulting from any increase in
the number of directors and any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then in
office, even if less than a quorum of the Board of Directors, or by a sole
remaining director. Any director elected in accordance with the preceding
sentence shall hold office until the next succeeding annual meeting of
stockholders, and until such director's successor shall have been duly elected
and qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
EIGHTH: The name and mailing address of the Corporation's incorporator
is Michael F. Sweeney, Esq., Duffy & Sweeney, 300 Turks Head Building,
Providence, RI 02903.
NINTH: The powers of the incorporator are to terminate upon the filing
of this Certificate of Incorporation, and the names and mailing addresses of the
persons who are to serve as the directors of the Corporation until the first
annual meeting of the stockholders or until their successors are elected and
qualified are:
Thomas W. DeJordy 216 Weybosset Street
Providence, RI 02903
Robert G. King 216 Weybosset Street
Providence, RI 02903
Richard LaFrance 31 Fallon Drive
Westport, MA 02790
TENTH: The Corporation is to have perpetual existence.
2
ELEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized:
To make, alter or repeal the bylaws of the Corporation.
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purposes and to
abolish any such reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. The bylaws may provide that in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such agent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors, or in the bylaws of the Corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease, or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the bylaws of the Corporation; and, unless the resolution or bylaws
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with
statute, to sell, lease or exchange all or substantially all of the property and
assets of the Corporation, including its goodwill and its corporate franchises,
upon such terms and conditions and for such consideration, which may consist in
whole or in part of money or property, including shares of stock in, and/or
other securities of, any other corporation, as its Board of Directors shall deem
expedient and for the best interests of the Corporation.
TWELFTH: (a) To the maximum extent permitted by Section 102(b)(7) of
the General Corporation Law of Delaware, a director of this Corporation shall
not be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the
3
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.
(b)(1) Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or the person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity as a director, officer,
employee or agent in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors, and administrators;
provided, however, that, except as provided in this paragraph (b), the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this paragraph (b) shall
be a contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director of officer in his
or her capacity as a director or officer of the Corporation (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
(2) Right of Claimant to Bring Suit. If a claim under
subparagraph (b)(1) is not paid in full by the Corporation within 30 days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to
4
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceedings in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this paragraph (b) shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
(4) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability, or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
THIRTEENTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement, or to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said
5
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders of this
Corporation, as the case may be, and also on this Corporation.
FOURTEENTH: Meetings of the stockholders may be held within or without
the State of Delaware, as the bylaws may provide. The books of the Corporation
may be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the bylaws of the Corporation. Elections of
directors need not be by written ballot unless the bylaws of the Corporation
shall so provide.
FIFTEENTH: The Corporation reserves the right to amend, alter, change,
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation; except that any
such amendment shall be made by the holders of at least two-thirds of the
outstanding shares of Common Stock of the Corporation.
SIXTEENTH: The Corporation expressly elects to be governed by Section
203 of the General Corporation Law of the State of Delaware.
THE UNDERSIGNED, being the incorporator named hereinbefore, for the
purposes of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that this is his act and deed and the facts herein stated are true, and
accordingly, has hereunto set his hand this 25th day of September, 1996.
/s/ Michael F. Sweeney
----------------------
Michael F. Sweeney
6
EXHIBIT 3.2
BY-LAWS
OF
CAFE LA FRANCE, INC.
(a Delaware corporation)
ARTICLE I
OFFICES
SECTION 1. Delaware Office. The registered office of Cafe La France,
Inc. (the "Corporation") within the State of Delaware shall be in the City of
Wilmington, County of Newcastle.
SECTION 2. Other Offices. The Corporation may also have an office or
offices and keep the books and records of the Corporation, except as otherwise
may be required by law, in such other place or places, either within or without
the State of Delaware, as the Board of Directors of the Corporation (the
"Board") may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of holders of shares of
capital stock of the Corporation shall be held at the office of the Corporation
in the State of Delaware or at such other place, within or without the State of
Delaware, as may from time to time be fixed by the Board or specified or fixed
in the respective notices or waivers of notice thereof.
SECTION 2. Annual Meetings. The Annual Meeting of stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting (the "Annual Meeting") shall be
held at 10:00 a.m. on the first Thursday in February, or on such other date and
at such other time as may be fixed by the Board. If the Annual Meeting shall not
be held on the day designated, the Board shall call a special meeting of
stockholders as soon as practicable for the election of directors.
SECTION 3. Special Meetings. Special meetings of stockholders, unless
otherwise provided by law, may be called at any time by the Board pursuant to a
resolution adopted by a majority of the then authorized number of directors (as
determined in accordance with Section
2 of Article III of these By-laws) or by the Chief Executive Officer. Any such
call must specify the matter or matters to be acted upon at such meeting and
only such matter or matters shall be acted upon thereat.
SECTION 4. Notice of Meetings. Except as otherwise may be required by
law, notice of each meeting of stockholders, whether the Annual Meeting or a
special meeting, shall be in writing, shall state the purpose or purposes of the
meeting, the place, date and hour of the meeting and, unless it is the Annual
Meeting, shall indicate that the notice is being issued by or at the direction
of the person or persons calling the meeting, and a copy thereof shall be
delivered or sent by mail, not less than 10 or more than 60 days before the date
of said meeting, to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be directed to such stockholder at his address as it
appears on the stock records of the Corporation, unless he shall have filed with
the Secretary a written request that notices to him be mailed to some other
address, in which case it shall be directed to him at such other address. Notice
of an adjourned meeting need not be given if the time and place to which the
meeting is to be adjourned was announced at the meeting at which the adjournment
was taken, unless (i) the adjournment is for more than 30 days, or (ii) the
Board shall fix a new record date for such adjourned meeting after the
adjournment.
SECTION 5. Quorum. At each meeting of stockholders of the Corporation,
the holders of shares having a majority of the voting power of the capital stock
of the Corporation issued and outstanding and entitled to vote thereat shall be
present or represented by proxy to constitute a quorum for the transaction of
business, except as otherwise provided by law.
SECTION 6. Adjournments. In the absence of a quorum at any meeting of
stockholders or any adjournment or adjournments thereof, holders of shares
having a majority of the voting power of the capital stock present or
represented by proxy at the meeting may adjourn the meeting from time to time
until a quorum shall be present or represented by proxy. At any such adjourned
meeting at which a quorum shall be present or represented by proxy, any business
may be transacted which might have been transacted at the meeting as originally
called if a quorum had been present or represented by proxy thereat.
SECTION 7. Order of Business.
(a) At any Annual Meeting, only such business shall be conducted as
shall have been brought before the Annual Meeting (i) by or at the direction of
the Board of Directors, or (ii) by any stockholder who complies with the
procedures set forth in this Section 7.
(b) For business properly to be brought before the Annual Meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 30 days nor more than 60 days prior to
the Annual Meeting; provided, however, that in the event that less than 40 days
notice or prior public disclosure of the date of the Annual Meeting is given
2
or made to stockholders, notice by the stockholder to be timely must be
received not later than the close of business on the tenth day following the day
on which such notice of the date of the Annual Meeting was mailed or such public
disclosure was made. To be in proper written form, a stockholder's notice to the
Secretary shall set forth in writing as to each matter the stockholder proposes
to bring before the Annual Meeting: (i) a brief description of the business
desired to be brought before the Annual Meeting and the reasons for conducting
such business at the Annual Meeting; (ii) the name and address, as they appear
on the Corporation's books, of the stockholder proposing such business; (iii)
the class and number of shares of the Corporation which are beneficially owned
by the stockholder; and (iv) any material interest of the stockholder in such
business. Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at the Annual Meeting except in accordance with the
procedures set forth in this Section 7. The chairman of the Annual Meeting
shall, if the facts warrant, determine and declare to the Annual Meeting that
business was not properly brought before the Annual Meeting in accordance with
the provisions of this Section 7 and, if he should so determine, he shall so
declare to the Annual Meeting and any such business not properly brought before
the Annual Meeting shall not be transacted.
SECTION 8. Voting. Except as otherwise provided in the Certificate of
Incorporation or in a resolution of the Board of Directors adopted pursuant to
the Certificate of Incorporation establishing a series of Common Stock of the
Corporation, at each meeting of stockholders, every stockholder of the
Corporation shall be entitled to one vote for every share of capital stock
standing in his name on the stock records of the Corporation (i) at the time
fixed pursuant to Section 6 of Article VII of these By-laws as the record date
for the determination of stockholders entitled to vote at such meeting, or (ii)
if no such record date shall have been fixed, then at the close of business on
the day next preceding the day on which notice thereof shall be given. At each
meeting of stockholders, all matters (except as otherwise provided in Section 3
of Article III of these By-laws and except in cases where a larger vote is
required by law or by the Certificate of Incorporation of the Corporation or
these By-laws) shall be decided by a majority of the votes cast at such meeting
by the holders of shares of capital stock present or represented by proxy and
entitled to vote thereon, a quorum being present.
SECTION 9. Inspectors. For each election of directors by the
stockholders and in any other case in which it shall be advisable, in the
opinion of the Board, that the voting upon any matter shall be conducted by
inspectors of election, the Board shall appoint two inspectors of election. If,
for any such election of directors or the voting upon any such other matter, any
inspector appointed by the Board shall be unwilling or unable to serve, or if
the Board shall fail to appoint inspectors, the chairman of the meeting shall
appoint the necessary inspector or inspectors. The inspectors so appointed,
before entering upon the discharge of their duties, shall be sworn faithfully to
execute the duties of inspectors with strict impartiality, and according to the
best of their ability, and the oath so taken shall be subscribed by them. Such
inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each of the shares represented
at the meeting, the existence of a quorum, and the validity and effect of
proxies, and shall receive
3
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as an inspector of
election of directors. Inspectors need not be stockholders.
ARTICLE III
DIRECTORS
SECTION 1. Powers. The business of the Corporation shall be managed
under the direction of the Board. The Board may exercise all such authority and
powers of the Corporation and do all such lawful acts and things as are not by
law or otherwise directed or required to be exercised or done by the
stockholders.
SECTION 2. Number, Election and Terms. The authorized number of
directors may be determined from time to time by a vote of a majority of the
then authorized number of directors or by the affirmative vote of the holders of
a majority of the voting power of the then outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class; provided, however, that such number initially
shall not be less than three nor more than 9; and provided, further, that such
number and such minimum and maximum may be increased pursuant to resolution of
the Board, adopted pursuant to the Certificate of Incorporation, establishing
any series or any class of Common Stock. Except as otherwise provided in the
Certificate of Incorporation, newly created directorships resulting from any
increase in the number of directors and any vacancies on the Board resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then in
office, even if less than a quorum of the Board, or by a sole remaining
director. Any director elected in accordance with the preceding sentence shall
hold office until the next succeeding Annual Meeting and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of directors constituting the Board shall shorten the term of any incumbent
director.
SECTION 3. Nominations of Directors; Election. Nominations for the
election of directors may be made by the Board or a committee appointed by the
Board, or by any stockholder entitled to vote generally in the election of
directors who complies with the procedures set forth in this Section 3.
Directors shall be at least 21 years of age. Directors need not be stockholders.
At each meeting of stockholders for the election of directors, at which a quorum
is present, the persons receiving a plurality of the votes cast shall be elected
directors. All nominations by stockholders shall be made pursuant to timely
notice in proper written form to the Secretary of the Corporation. To be timely,
a stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not
4
less than 30 days nor more than 60 days prior to the meeting; provided,
however, that in the event that less than 40 days notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. To be in proper
written form, such stockholder's notice shall set forth in writing (i) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, including, without limitation, such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; and (ii) as to the stockholder giving the notice, the (x)
name and address, as they appear on the Corporation's books, of such stockholder
and (y) the class and number of shares of the Corporation which are beneficially
owned by such stockholder. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the Corporation the information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. In the event
that a stockholder seeks to nominate one or more directors, the Secretary shall
appoint two inspectors, who shall not be affiliated with the Corporation, to
determine whether a stockholder has complied with this Section 3. If the
inspectors shall determine that a stockholder has not complied with this Section
3, the inspectors shall direct the chairman of the meeting to declare to the
meeting that a nomination was not made in accordance with the procedures
prescribed by the By-laws of the Corporation, and the chairman shall so declare
to the meeting and the defective nomination shall be disregarded.
SECTION 4. Place of Meetings. Meetings of the Board shall be held at
the Corporation's office in the State of Delaware or at such other place, within
or without such State, as the Board may from time to time determine or as shall
be specified or fixed in the notice or waiver of notice of any such meeting.
SECTION 5. Regular Meetings. Regular meetings of the Board shall be
held in accordance with a yearly meeting schedule as determined by the Board; or
such meetings may be held on such other days and at such other times as the
Board may from time to time determine. Notice of regular meetings of the Board
need not be given except as otherwise required by these By-laws.
SECTION 6. Special Meetings. Special meetings of the Board may be
called by the Chief Executive Officer and shall be called by the Secretary at
the request of any two of the other directors.
SECTION 7. Notice of Meetings. Notice of each special meeting of the
Board (and of each regular meeting for which notice shall be required), stating
the time, place and purposes thereof, shall be mailed to each director,
addressed to him at his residence or usual
5
place of business, or shall be sent to him by telex, cable or telegram so
addressed, or shall be given personally or by telephone, on 24 hours' notice.
SECTION 8. Quorum and Manner of Action. The presence of at least a
majority of the authorized number of directors shall be necessary and sufficient
to constitute a quorum for the transaction of business at any meeting of the
Board. If a quorum shall not be present at any meeting of the Board, a majority
of the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present. Except where a different vote is required or permitted by law or these
By-laws or otherwise, the act of a majority of the directors present at any
meeting at which a quorum shall be present shall be the act of the Board. Any
action requited or permitted to be taken by the Board may be taken without a
meeting if all the directors consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
directors shall be filed with the minutes of the proceedings of the Board. Any
one or more directors may participate in any meeting of the Board by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall be deemed to constitute presence in person at a meeting of
the Board.
SECTION 9. Resignation. Any director may resign at any time by giving
written notice to the Corporation; provided, however, that written notice to the
Board, the Chairman of the Board, the Chief Executive Officer or the Secretary
shall be deemed to constitute notice to the Corporation. Such resignation shall
take effect upon receipt of such notice or at any later time specified therein
and, unless otherwise specified therein, acceptance of such resignation shall
not be necessary to make it effective.
SECTION 10. Removal of Directors. Any director may be removed from
office with or without cause by the affirmative vote of the holders of a
majority of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
SECTION 11. Compensation of Directors. The Board may provide for the
payment to any of the directors, other than officers or employees of the
Corporation, of a specified amount for services as director or member of a
committee of the Board, or of a specified amount for attendance at each regular
or special Board meeting or committee meeting, or of both, and all directors
shall be reimbursed for expenses of attendance at any such meeting; provided,
however, that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
6
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 1. Appointment and Powers of Executive Committee. The Board
may, by resolution adopted by the affirmative vote of a majority of the
authorized number of directors, designate an Executive Committee of the Board
which shall consist of such number of members as the Board shall determine.
Except as provided by Delaware law, during the interval between the meetings of
the Board, the Executive Committee shall possess and may exercise all the powers
of the Board in the management and direction of all the business and affairs of
the Corporation (except the matters hereinafter assigned to any other Committee
of the Board), in such manner as the Executive Committee shall deem in the best
interests of the Corporation in all cases in which specific directions shall not
have been given by the Board. A majority of the members of the Executive
Committee shall constitute a quorum for the transaction of business by the
committee and the act of a majority of the members of the committee present at a
meeting at which a quorum shall be present shall be the act of the committee.
Either the Chief Executive Officer or the Chairman of the Executive Committee
may call the meetings of the Executive Committee.
SECTION 2. Appointment and Powers of Audit Committee. The Board may, by
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate an Audit Committee of the Board, which shall
consist of such number of members as the Board shall determine. The Audit
committee shall (i) make recommendations to the Board as to the independent
accountants to be appointed by the Board; (ii) review with the independent
accountants the scope of their examination; (iii) receive the reports of the
independent accountants and meet with representatives of such accountants for
the purpose of reviewing and considering questions relating to their examination
and such reports; (iv) review, either directly or through the independent
accountants, the internal accounting and auditing procedures of the Corporation;
and (v) perform such other functions as may be assigned to it from time to time
by the Board. The Audit Committee may determine its manner of acting and fix the
time and place of its meetings, unless the Board shall otherwise provide. A
majority of the members of the Audit Committee shall constitute a quorum for the
transaction of business by the committee and the act of a majority of the
members of the committee present at a meeting at which a quorum shall be present
shall be the act of the committee.
SECTION 3. Compensation Committee; Other Committees. The Board may, by
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate members of the Board to constitute a Compensation
Committee and such other committees of the Board as the Board may determine.
Such committees shall in each case consist of such number of directors as the
Board may determine, and shall have and may exercise, to the extent permitted by
law, such powers as the Board may delegate to them in the respective resolutions
appointing them. Each such committee may determine its manner of acting and fix
the time and place of its meetings, unless the Board shall otherwise provide. A
majority of the members of any such committee shall constitute a quorum for the
transaction
7
of business by the committee and the act of a majority of the members of such
committee present at a meeting at which a quorum shall be present shall be the
act of the committee.
SECTION 4. Action by Consent; Participation by Telephone or Similar
Equipment. Unless the Board shall otherwise provide, any action required or
permitted to be taken by any committee may be taken without a meeting if all
members of the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
members of the committee shall be filed with the minutes of the proceedings of
the committee. Unless the Board shall otherwise provide, any one or more members
of any such committee may participate in any meeting of the committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear one another. Participation by
such means shall constitute presence in person at a meeting of the committee.
SECTION 5. Changes in Committees; Resignations; Removals. The Board
shall have power, by the affirmative vote of a majority of the authorized number
of directors, at any time to change the members of, to fill vacancies in, and to
discharge any committee of the Board. Any member of any such committee may
resign at any time by giving notice to the Corporation; however, that notice to
the Board, the Chairman of the Board, the Chief Executive Officer, the chairman
of such committee or the Secretary shall be deemed to constitute notice to the
Corporation. Such resignation shall take effect upon receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective. Any
member of any such committee may be removed at any time, either with or without
cause, by the affirmative vote of a majority of the authorized number of
directors at any meeting of the Board called for that purpose.
ARTICLE V
OFFICERS
SECTION 1. Number and Qualification. The Corporation shall have such
officers as may be necessary or desirable for the business of the Corporation.
Each officer of the Corporation shall have a title set forth below or as may be
prescribed by the Board and shall hold his office for such term as may be
prescribed by the Board provided, however that the term for the Chairman of the
Board shall automatically terminate upon the termination of such officer's term
as a director of the Corporation. There shall be elected from among the officers
of the Corporation, persons having the titles and exercising the duties (as
prescribed by the By-laws or by the Board) of Chairman of the Board, Chief
Executive Officer, President, Treasurer and Secretary, and such other persons
having such other titles and such other duties as the Board may prescribe. The
same person may hold more than one office. The Chairman of the Board and the
Chief Executive Officer shall be elected from among the directors. The Chief
Executive Officer may appoint one or more deputies, associates or assistant
officers or such other agents as may be necessary or desirable for the business
of the Corporation. In
8
case one or more deputies, associates or assistant officers shall be appointed,
the officer such appointee assists may delegate to the appointee the authority
to perform such of the officer's duties as the officer may determine.
SECTION 2. Resignations. Any officer may resign at any time by giving
written notice to the Corporation; provided, however, that notice to the Board,
Chairman of the Board, the Chief Executive Officer or the Secretary shall be
deemed to constitute notice to the Corporation. Such resignation shall take
effect upon receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 3. Removal. Any officer or agent may be removed, either with or
without cause, at any time, by the Board at any meeting called for that purpose;
provided however that the Chief Executive Officer and President each may remove
any agent appointed by him.
SECTION 4. Vacancies. Any vacancy among the officers, whether caused by
death, resignation, removal or any other cause, shall be filled in the manner
prescribed for election or appointment to such office.
SECTION 5. Chairman of the Board. The Chairman of the Board shall, if
present, preside at all meetings of the Board and, in the absence of the Chief
Executive Officer, at all meetings of the stockholders. He shall perform the
duties incident to the office of the Chairman of the Board and all such other
duties as are specified in these By-laws or as shall be assigned to him from
time to time by the Board.
SECTION 6. Chief Executive Officer. The Chief Executive Officer shall,
if present, preside at all meetings of the stockholders. He shall have, under
the control of the Board, general supervision and direction of the business and
affairs of the Corporation. He shall at all times see that all resolutions or
determinations of the Board are carried into effect. He may from time to time
appoint, remove or change members of and discharge one or more advisory
committees, each of which shall consist of such number of persons (who may, but
need not, be directors or officers of the Corporation), and have such advisory
duties, as he shall determine. He shall perform the duties incident to the
office of the Chief Executive Officer and all such other duties as are specified
in these By-laws or as shall be assigned to him from time to time by the Board.
SECTION 7. Treasurer. The Treasurer shall have charge and custody of,
and be responsible for, all funds and securities of the Corporation, shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation, shall deposit all moneys and other valuables to the credit of
the Corporation in such depositories as may be designated pursuant to these
By-laws, shall receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever, shall disburse the funds of the
Corporation and shall render to all regular meetings of the Board, or whenever
the Board may require, an account of all his transactions as Treasurer. He
shall, in general, perform all the
9
duties incident to the office of Treasurer and all such other duties as may be
assigned to him from time to time by the Chief Executive Officer or such other
officer to whom the Treasurer reports.
SECTION 8. Secretary. The Secretary shall, if present, act as secretary
of, and keep the minutes of, all meetings of the Board, the Executive Committee
and other committees of the Board and the stockholders in one or more books
provided for that purpose, shall see that all notices are duly given in
accordance with these By-laws and as required by law, shall be custodian of the
seal of the Corporation and shall affix and attest the seal to all documents to
be executed on behalf of the Corporation under its seal. He shall, in general,
perform all the duties incident to the office of Secretary and all such other
duties as may be assigned to him from time to time by the Chief Executive
Officer or such other officer to whom the Secretary reports.
SECTION 9. Bonds of Officers. If required by the Board, any officer of
the Corporation shall give a bond for the faithful discharge of his duties in
such amount and with such surety or sureties as the Board may require.
SECTION 10. Compensation. The salaries of the officers shall be fixed
from time to time by the Compensation Committee of the Board; provided, however,
that the Chief Executive Officer may fix or delegate to others the authority to
fix the salaries of any agents appointed by the Chief Executive Officer.
SECTION 11. Officers of Operating Companies or Divisions. The Chief
Executive Officer shall have the power to appoint, remove, and prescribe the
terms of office, responsibilities, duties and salaries of, the officers of the
operating companies or divisions, other than those who are officers of the
Corporation.
ARTICLE VI
CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.
SECTION 1. Contracts. The Board may authorize any officer or officers,
agent or agents, in the name and on behalf of the Corporation, to enter into any
contract or to execute and deliver any instrument, which authorization may be
general or confined to specific instances; and, unless so authorized by the
Board, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement or to pledge its credit or to
render it liable pecuniarily for any purpose or for any amount.
SECTION 2. Checks, etc. All checks, drafts, bills of exchange or other
orders for the payment of money out of the funds of the Corporation, and all
notes or other evidences of indebtedness of the Corporation, shall be signed in
the name and on behalf of the Corporation in such manner as shall from time to
time be authorized by the Board, which authorization may be general or confined
to specific instances.
10
SECTION 3. Loans. No loan shall be contracted on behalf of the
Corporation, and no negotiable paper shall be issued in its name, unless
authorized by the Board, which authorization may be general or confined to
specific instances. All bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation issued for such loans shall be
made, executed and delivered as the Board shall authorize.
SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as may be selected by or in
the manner designated by the Board. The Board or its designees may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of the Certificate of Incorporation or these
By-laws, as them may deem advisable.
ARTICLE VII
CAPITAL STOCK
SECTION 1. Stock Certificates. Each stockholder shall be entitled to
have, in such form as shall be approved by the Board, a certificate or
certificates signed by the Chairman of the Board or Chief Executive Officer and
by either the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary (except that, when any such certificate is countersigned by
a transfer agent or registered by a registrar other than the Corporation or an
employee of the Corporation, the signatures of any such officers may be
facsimiles, engraved or printed), which may be sealed with the seal of the
Corporation (which seal may be a facsimile, engraved or printed), certifying the
number of shares of capital stock of the Corporation owned by such stockholder.
In the event any officer who has signed or whose facsimile signature has been
placed upon any such certificate shall have ceased to be such officer before
such certificate is issued, such certificate may be issued by the Corporation
with the same effect as if he were such officer at the date of its issue.
SECTION 2. Lists of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make or cause to be prepared or made, at least 10 days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares of capital stock registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting for the duration thereof, and may be inspected by any stockholder of
the Corporation who is present.
11
SECTION 3. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 2 of this Article VII or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 4. Transfers of Capital Stock. Transfers of shares of capital
stock of the Corporation shall be made only on the stock ledger of the
Corporation by the holder of record thereof, by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, or by the transfer agent of the Corporation, and only on
surrender of the certificate or certificates representing such shares, properly
endorsed or accompanied by a duly executed stock transfer power. The Board may
make such additional rules and regulations as it may deem advisable concerning
the issue and transfer of certificates representing shares of the capital stock
of the Corporation.
SECTION 5. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
SECTION 6. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividends or other distributions or allotments of any rights, or entitled to
exercise any rights in respect to any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than 60 days nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 7. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, and to hold liable for
calls and assessments a person registered on its books as the owner of shares,
and shall not be bound to recognize any equitable or other claim to or interest
in such shares on the part of any other person, whether or not the Corporation
shall have express or other notice thereof, except as otherwise provided by law.
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ARTICLE VIII
FISCAL YEAR
The Corporation's fiscal year shall be fixed by resolution of the Board
of Directors.
ARTICLE IX
SEAL
The Corporation's seal shall be circular in form and shall include the
words "Cafe La France, Inc., Delaware, 1996."
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required by law, the Certificate of
Incorporation or these By-Laws to be given to any director, member of a
committee or stockholder, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether signed before or after the time stated
in such written waiver, shall be deemed equivalent to such notice. Attendance of
a person at a meeting shall constitute a waiver of notice of such meeting,
except when such person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business on the
grounds that the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
ARTICLE XI
AMENDMENTS
These By-Laws or any of them may be amended or supplemented in any
respect at any time, either (i) at any meeting of stockholders, provided that
any amendment or supplement proposed to be acted upon at any such meeting shall
have been described or referred to in the notice of such meeting; of (ii) at any
meeting of the Board, provided that any amendment or supplement proposed to be
acted upon at any such meeting shall have been described or referred to in the
notice of such meeting or an announcement with respect thereto shall have been
made at the last previous Board meeting, and provided further that no amendment
or supplement adopted by the Board shall vary or conflict with any amendment or
supplement adopted by the stockholders.
13
EXHIBIT 10.1
CAFE LA FRANCE, INC.
1996 STOCK INCENTIVE PLAN
1. Name and Purpose. This Plan shall be known as the 1996 Cafe La France Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to advance the interests
of Cafe La France, Inc. (the "Company") by providing material incentive for the
continued services of key and valuable employees, directors, and non-employees
who perform services for the Company and its subsidiaries. Awards under the Plan
may be granted in the form of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive Stock
Options") or non-qualified stock options.
2. Administration. The Plan shall be administered by the Board of Directors of
the Company (the "Board") unless the authority to administer the Plan is
delegated to a committee of the Board (the Board or such committee being
hereinafter referred to as the "Committee"). The Committee may establish,
subject to the provisions of the Plan, such rules and regulations as it deems
necessary for the proper administration of the Plan, and make such determination
and take such action in connection therewith or in relation to the Plan as it
deems necessary or advisable, consistent with the Plan.
3. Eligibility. Regular full-time employees of the Company and its subsidiaries
who are key executives or other key employees as determined by the Committee at
the recommendation of the Chief Executive Officer of the Company shall be
eligible to participate in the Plan. Non-employees who perform services for the
Company, including non-employee directors, shall also be eligible to participate
in the Plan as determined by the Company, except that such non-employees shall
not be eligible to receive Incentive Stock Options. Such employees, directors
and non-employees described above are hereinafter referred to as "Eligible
Employees."
4. Shares Subject to the Plan.
(a) The shares to be issued and delivered by the Company upon exercise
of options granted under the Plan are the Company's shares of Common Stock, $.01
par value per share ("Common Shares"), which may be either authorized but
unissued shares or treasury shares.
(b) The aggregate number of Common Shares of the Company which may be
issued under the Plan shall not exceed 400,000 shares, all or any portion of
which may be Incentive Stock Options; subject, however, to the adjustment
provided in Paragraph 8 in the event of certain changes in the Company's capital
structure. No option may be granted under this Plan which could cause such
maximum limit to be exceeded.
(c) Common Shares covered by an option which is no longer exercisable
with respect to such shares shall again be available for issuance under this
Plan.
5. Grant of Options. The Committee may from time to time, in its discretion and
subject to the recommendations of the Chief Executive Officer of the Company and
the provisions of the Plan, grant either non-qualified or Incentive Stock
Options to Eligible Employees. Employees to whom options have been granted are
herein referred to as "Optionees". Each option shall be embodied in an option
agreement signed by the Optionee and the Company providing the option shall be
subject to the provisions of this Plan and containing such other provisions as
the Committee may prescribe not inconsistent with the Plan. The option agreement
shall specify whether the option is a non-qualified option or an Incentive Stock
Option.
6. Terms and Conditions of Option. All options granted under the Plan shall
contain such terms and conditions as the Committee from time to time determines,
subject to the foregoing and following limitations and requirements:
(a) Option price: The option price per share for any option granted
under the Plan shall be determined by the Committee; provided, however, that in
the case of an Incentive Stock Option, the option price per share shall not be
less than l00% of the fair market value of the Common Shares at the time of
grant.
(b) Period within which option may be exercised: The period of each
option shall be fixed by the Committee, but no Incentive Stock Option may be
exercised after the expiration of ten years from the date the option is granted.
The Committee may, in its discretion, determine as a condition of any option,
that all or a stated percentage of the shares covered by such option shall
become exercisable, in installments or otherwise, only after the completion of a
specified service requirement by the Optionee.
(c) l0% Shareholder: Notwithstanding any other provision of this Plan,
the option price per share of an Incentive Stock Option granted to an Eligible
Employee who, at the time such option is granted, owns shares possessing more
than l0% of the total combined voting power of all classes of shares of the
Company or its subsidiaries shall be at least ll0% of the fair market value of
the Common Shares subject to the option. In addition, any such Incentive Stock
Option may not be exercised after the expiration of five years from the date the
option is granted.
(d) Grant limitation: The aggregate fair market value of Common Shares
with respect to which Incentive Stock Options are exercisable for the first time
by any Eligible Employee during any calendar year (determined at the time the
Incentive Stock Option is granted) shall not exceed $l00,000.
(e) Termination of option by reason of termination of employment:
Unless the Committee in its discretion determines otherwise, if an Optionee's
employment with the Company and its subsidiaries terminates, all options granted
under this Plan to such Optionee which are not exercisable on the date of such
termination of employment shall immediately terminate, and any remaining options
shall terminate if not exercised before
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the expiration of the following periods, or at such earlier time as may be
applicable under Paragraph 6(b) or 6(c) above: (i) thirty (30) days following
such termination of employment, if such termination was not a result of
retirement on or after age 55, or of death or disability (disability within the
meaning of Section 22(e)(3) of the Internal Revenue Code), or (ii) three (3)
months following the Optionee's termination of employment because of retirement
on or after age 55, or (iii) one (l) year following date of death or
commencement of disability, if the Optionee was employed by the Company and/or
subsidiary at the time of his death or the commencement of his disability.
Notwithstanding the foregoing, if the Optionee's employment is terminated for
cause, any remaining portion of this option shall immediately terminate.
(f) Non-transferability: Each option and all rights thereunder shall be
exercisable during the Optionee's lifetime only by him and shall be
non-assignable and non-transferable by the Optionee except, in the event of the
Optionee's death, by his will or by the laws of descent and distribution;
provided, however, that in the case of a non-qualified option, such option may
be gifted to a family member or a trust for the benefit of a family member. For
purposes of this paragraph, "family member" means a spouse, parent, child,
grandchild, step-child or step-grandchild. In the event the death of an Optionee
occurs, the representative or representatives of his estate, or the person or
persons who acquired (by bequest or inheritance) the rights to exercise his
options may exercise such options in whole or in part prior to the expiration of
the applicable exercise period, as specified in Paragraph 6(e) above.
(g) More than one option granted to an Optionee: More than one option
may be granted to an Optionee under this Plan and both non-qualified options and
Incentive Stock Options may be granted to an Optionee.
(h) Compliance with securities laws. Options granted and shares issued
by the Company upon exercise of options shall be granted and issued only in full
compliance with all applicable securities laws, including laws, rules and
regulations of the Securities and Exchange Commission and applicable state Blue
Sky Laws. With respect thereto, the Committee may impose such conditions on
transfer, restrictions and limitations as it may deem necessary and appropriate
to assure compliance with such applicable securities laws.
(i) Modification or cancellation of option. The Committee shall have
the authority to effect, at any time and from time to time, with the consent of
the affected Optionee or Optionees, the modification of the terms of any option
agreement (subject to the limitations hereof), including the acceleration of the
exercisability of any option for any reason including a change in the control or
ownership of the Company, or the cancellation of any or all outstanding options
granted under this Plan. In substitution for canceled options, the Committee may
grant new options (subject to the limitations hereof) covering the same or
different numbers of Common Shares at an option price per share in all events
not less than fair market value on the date of the new grant.
-3-
(j) Disposition of shares. No option granted under this Plan shall
qualify as an Incentive Stock Option if the Common Shares acquired pursuant to
the exercise of the option are transferred, other than by will or by the laws of
descent and distribution, within two years of the date such option was granted
or within one year after the transfer of Common Shares to the employee pursuant
to such exercise.
7. Method of Exercise. An option granted under this Plan may be exercised by
written notice to the Committee, signed by the Optionee, or by such other person
as is entitled to exercise such option. The notice of exercise shall state the
number of Common Shares in respect of which the Option is being exercised, and
shall either be accompanied by the payment of the full option price for such
shares, or shall fix a date (not more than ten business days from the date of
such notice) for the payment of the full option price of the shares being
purchased. The purchase price may be paid (i) in cash (including personal
check), (ii) the delivery to the Company of Common Shares already owned by the
Optionee (which shall be valued for this purpose at the fair market value on the
date of transfer to the Company as determined by the Committee, (iii) the
delivery of a promissory note of the Optionee to the Company, payable upon such
terms as are specified by the Committee, or (iv) any combination of the above. A
certificate or certificates for the Common Shares of the Company purchased
through the exercise of an option shall be issued in regular course after the
exercise of the option and payment therefore. During the option period no person
entitled to exercise any option granted under this Plan shall have any of the
rights or privileges of a shareholder with respect to any shares issuable upon
exercise of such option until certificates representing such shares shall have
been issued and delivered.
8. Changes in the Company's Capital Structure. The existence of outstanding
options shall not affect in any way the right or ability of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Shares or the rights hereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business or
substantially all of the outstanding stock of the Company, or any other
corporate act or proceeding, whether of a similar character or otherwise.
If the Company shall effect a subdivision, consolidation or
reclassification of shares or other capital readjustment or recapitalization,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the voting shares outstanding, without receiving compensation therefor
in money, services or property, then the number, class, and per share price of
Common Shares shall be appropriately adjusted in such a manner as to entitle an
Optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment.
-4-
If the Company is merged into or consolidated with another corporation,
regardless of whether or not the Company is the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets or substantially all of the stock of the Company while this option
remains outstanding, unless the Board determines otherwise, all outstanding
options shall expire as of the effective date of any such merger, consolidation,
liquidation, sale, or other disposition, provided that (x) notice of such
merger, consolidation, liquidation, sale or other disposition shall be given to
such Optionee at least 30 days prior to the effective date of such merger,
consolidation, liquidation, sale or other disposition and (y) an Optionee shall
have the right to exercise an option to the extent that the same is then
exercisable during the 30 day period preceding the effective date of such
merger, consolidation, liquidation, sale or other disposition.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of Common
Shares then subject to outstanding options.
9. Amendment or Termination. The Committee may terminate this Plan at any time,
and may amend the Plan at any time or from time to time; provided, however, that
any amendment that would increase the aggregate number of shares that may be
issued under the Plan, materially increase the benefits accruing to employees
under the Plan, or materially modify the requirements as to eligibility for
participation in the Plan shall be subject to the approval of the Company
stockholders to the extent required by Internal Revenue Code Section 422, other
applicable laws or any other governing rules or regulations except that such
increase or modification that may result from adjustments authorized by
Paragraph 8 does not require such approval. If the Plan is terminated, any
unexercised option shall continue to be exercisable in accordance with its
terms, except as provided in Paragraph 8 above.
10. Company Responsibility. All expenses of this Plan, including the cost of
maintaining records, shall be borne by the Company. The Company shall have no
responsibility or liability (other than under applicable Securities Acts) for
any act or thing done or left undone with respect to the price, time, quantity,
or other conditions and circumstances of the purchase of shares under the terms
of the Plan, so long as the Company acts in good faith.
11. Tax Withholding. Any grant of an option hereunder shall provide as
determined by the Committee for appropriate arrangements for the satisfaction by
the Company and the Optionee or Participant of all federal, state, local or
other income excise or employment taxes or tax withholding requirements
applicable to the exercise of the option or the later disposition of the Common
Shares thereby acquired and all such additional taxes or amounts as determined
by the Committee in its discretion, including, without limitation,
-5-
the right of the Company or any subsidiary thereof to receive transfers of
Common Shares or other property from the Optionee or to deduct or withhold in
the form of shares from any transfer to an Optionee or Participant, in such
amount or amounts deemed required or appropriate by the Committee in its sole
and absolute discretion.
12. Implied Consent. Every Optionee or Participant, by his acceptance of an
option under this Plan shall be deemed to have consented to be bound, on his own
behalf and on behalf of his heirs, assigns, and legal representatives, by all of
the terms and conditions of this Plan.
13. No Effect on Employment Status. The fact that an employee has been granted
an option under this Plan shall not limit or otherwise qualify the right of the
employer to terminate his employment at any time.
14. Duration and Termination of the Plan. The Plan shall become effective on
October 25, 1996. No Incentive Stock Option shall be granted subsequent to
October 25, 2006, or subsequent to any earlier date as of which the Plan is
terminated pursuant to Paragraph 9.
15. Delaware Law to Govern. This Plan shall be construed and administered in
accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this 1996 Stock Incentive
Plan to be executed by its duly authorized officer as of this 25th day of
October, l996.
CAFE LA FRANCE, INC.
By:/s/ Thomas W. DeJordy
-------------------------
Title: President
-------------------------
EXHIBIT 10.2
CAFE LA FRANCE
1996 STOCK INCENTIVE PLAN
Incentive Stock Option Agreement
This Agreement is by and between Cafe La France, Inc. (the "Company")
and _____________, (the "Optionee"), effective as of _________________.
W I T N E S S E T H:
1. Grant of Option. Pursuant to the provisions of the Cafe La France 1996 Stock
Incentive Plan (the "Plan"), effective as of the date hereof, the Company hereby
grants to the Optionee, subject to the terms and conditions of the Plan and
subject further to the terms and conditions herein, the right and option to
purchase from the Company all or any part of an aggregate of _____ shares of the
common stock ($.01 par value) of the Company ("Common Shares"), at the purchase
price equal to ____ per share, being the fair market value of the Common Shares
as of the date hereof, such option to be exercised as hereinafter provided. It
is intended that the option evidenced hereby constitute an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Terms and Conditions. In addition to the terms and conditions contained in
the Plan, it is understood and agreed that the option evidenced hereby is
subject to the following additional terms and conditions:
Expiration Date. The option shall expire on the tenth anniversary of
the date hereof.
(b) Period of Exercise. Subject to the other terms of this Agreement
regarding the exercisability of this option, this option shall become
exercisable at the rate of ____ Common Shares per _______ over a period of
_______ years from the date hereof, such that the entire option shall be fully
vested as of __________________.
(c) Exercise of Option. This option shall be exercised by submitting a
written notice to the Committee appointed pursuant to Section 2 of the Plan (the
"Committee") signed by the Optionee and specifying the number of Common Shares
as to which the option is being exercised. Such notice shall be accompanied by
the payment of the full option price for such shares, or shall fix a date (not
more than ten business days from the date of such notice) for the payment of the
full option price of the shares being purchased. Payment shall be made in (i)
cash (including personal check), (ii) Common Shares (to the extent permitted by
law), which shall be valued for this purpose at the fair market value on the
date of transfer to the Company, as determined in accordance with the Plan,
(iii) with the consent of the Committee, the delivery of a promissory note of
the Optionee to the Company, payable upon such terms as are specified by the
Committee, or (iv) any combination of the above. A certificate or certificates
for the Common Shares purchased shall be issued by the Company after the
exercise of the option and payment therefor.
(d) Termination of Option upon Death, Disability, Retirement or
Termination of Employment. Unless the Committee in its discretion determines
otherwise, if the Optionee's employment with the Company and its subsidiaries
terminates, any portion of this option which is not exercisable on the date of
such termination of employment by reason of Section 2(b) hereof shall
immediately terminate, and any remaining portion of this option shall terminate
if not exercised before the expiration of the following periods, or at such
earlier time as may be applicable under Paragraph 2(a) above: (i) thirty (30)
days following such termination of employment, if such termination was not a
result of retirement on or after age 55, or of death or disability (disability
within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended), or (ii) three (3) months following the Optionee's termination of
employment because of retirement on or after age 55, or (iii) one (l) year
following date of death or commencement of disability, if the Optionee is
employed by the Company and/or subsidiary at the time of death or the
commencement of disability. Notwithstanding the foregoing, if the Optionee is
terminated for cause, any remaining portion of this option shall immediately
terminate.
(e) Non-transferability. This option and all rights hereunder shall be
exercisable during the Optionee's lifetime only by the Optionee and shall be
non-assignable and non-transferable by the Optionee except, in the event of the
Optionee's death, by will or by the laws of descent and distribution. In the
event the death of the Optionee occurs, the representative or representatives of
the Optionee's estate, or the person or persons who acquire (by bequest or
inheritance) the rights to exercise this option in whole or in part, may
exercise this option prior to the expiration of the applicable exercise period,
as specified in Paragraph 2(d) above.
(f) Changes in the Company's Capital Structure. If the Company shall
effect a subdivision, consolidation or reclassification of shares or other
capital readjustment or recapitalization, the payment of a stock dividend, or
other increase or reduction of the number of shares of the voting shares
outstanding, without receiving compensation therefor in money, services or
property, then the number, class, and per share price of Common Shares subject
to this option shall be appropriately adjusted in such a manner as to entitle
the Optionee to receive upon exercise of this option, for the same aggregate
cash consideration, the same total number and class of shares as the Optionee
would have received as a result of the event requiring the adjustment.
If the Company is merged into or consolidated with another corporation,
regardless of whether or not the Company is the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets or substantially all of the stock of the Company while this option
remains outstanding, unless the Board determines otherwise, this option shall
expire as of the effective date of any such merger, consolidation, liquidation,
sale, or other disposition, provided that (x) notice of such merger,
consolidation, liquidation, sale or other disposition shall be given to the
Optionee at least 30 days prior to the effective date of such merger,
consolidation, liquidation, sale or other disposition and (y) the Optionee shall
have the right to exercise this option to the extent that the same is then
exercisable during the 30 day period preceding the effective date of such
merger, consolidation, liquidation, sale or other disposition.
Except as expressly provided herein, the issue by the Company of shares
of stock of any class, for cash or property, or for labor or services, either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of Common
Shares then subject to this option.
Modification or cancellation of option. The Committee shall have the
authority to effect, at any time and from time to time, with the consent of the
Optionee, the modification of the terms of this option agreement (subject to the
limitations contained in the Plan), including the acceleration of the
exercisability of any option for any reason including a change in the control or
ownership of the Company, or the cancellation of any or all outstanding options
granted under the Plan.
(h) No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Common Shares subject to this option prior to
the date of issuance to him of a certificate or certificates for such shares.
(i) No Right to Continued Employment. This option shall not confer upon
the Optionee any right with respect to continuance of employment by the Company
or any subsidiary, nor shall it interfere in any way with the right of the
employer to terminate the Optionee's employment at any time.
(j) Compliance with Law and Regulations. This option and the obligation
of the Company to sell and deliver shares hereunder shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Company shall not
be required to issue or deliver any certificates for shares of Common Shares
prior to (i) the listing of such shares on any stock exchange on which the
Common Shares may then be listed, and (ii) the completion of any registration or
qualification of such shares under any federal or state law, or any rule or
regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable. Moreover, this option may
not be exercised if its exercise, or the receipt of Common Shares pursuant
thereto, would be contrary to applicable law.
3. Disposition of Shares. This option shall not qualify as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code if the
Common Shares acquired pursuant to the exercise of the option are transferred,
other than by will or the laws of descent and distribution, within two years of
the date hereof, or within one year after transfer of Common Shares to the
Optionee pursuant to such exercise.
4. Optionee Bound by Plan. The Optionee hereby agrees to be bound by all the
terms and provisions of the Plan, a copy of which is available upon request to
the Committee.
5. Withholding Taxes. Optionee acknowledges and agrees that the Company and its
subsidiaries have the right to deduct from payments of any kind otherwise due to
Optionee any federal, state or local taxes of any kind required by law to be
withheld with respect to the exercise of this option hereunder.
6. Notices. Any notice hereunder to the Company shall be addressed to it at its
principal business office, 216 Weybosset Street, Providence, RI 02903;
Attention: Board of Directors, and any notice hereunder to the Optionee shall be
sent to the address reflected on the payroll records of the Company, subject to
the right of either party to designate at any time hereafter in writing some
other address.
6. Delaware Law to Govern. This Agreement shall be construed and administered in
accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Optionee has executed this
Agreement as of the date above written.
CAFE LA FRANCE, INC.
By:_____________________________________
Title:__________________________________
----------------------------------------
[Optionee]
EXHIBIT 10.3
1996 STOCK INCENTIVE PLAN
Incentive Stock Option Agreement
This Agreement is by and between Cafe La France, Inc. (the "Company")
and Robert King (the "Optionee"), effective as of November 1, 1996.
W I T N E S S E T H:
1. Grant of Option. Pursuant to the provisions of the Cafe La France 1996 Stock
Incentive Plan (the "Plan"), effective as of the date hereof, the Company hereby
grants to the Optionee, subject to the terms and conditions of the Plan and
subject further to the terms and conditions herein, the right and option to
purchase from the Company all or any part of an aggregate of 43,500 shares of
the common stock ($.01 par value) of the Company ("Common Shares"), at the
purchase price equal to $3.45 per share, being the fair market value of the
Common Shares as of the date hereof, such option to be exercised as hereinafter
provided. It is intended that the option evidenced hereby constitute an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
2. Terms and Conditions. In addition to the terms and conditions contained in
the Plan, it is understood and agreed that the option evidenced hereby is
subject to the following additional terms and conditions:
Expiration Date. The option shall expire on the tenth anniversary of
the date hereof.
(b) Period of Exercise. Subject to the other terms of this Agreement
regarding the exercisability of this option, this option shall be immediately
exercisable with respect to 10,875 Common Shares, and the remainder of the
option shall become exercisable at the rate of 1208.33 Common Shares per month,
such that the entire option shall be fully vested as of January 31, 1999.
Notwithstanding the foregoing, no Common Shares acquired pursuant to an
exercise of any portion of this option shall be sold, transferred, exchanged or
otherwise disposed of prior to May 1 , 1996.
(c) Exercise of Option. This option shall be exercised by submitting a
written notice to the Committee appointed pursuant to Section 2 of the Plan (the
"Committee") signed by the Optionee and specifying the number of Common Shares
as to which the option is being exercised. Such notice shall be accompanied by
the payment of the full option price for such shares, or shall fix a date (not
more than ten business days from the date of such notice) for the payment of the
full option price of the shares being purchased. Payment shall be made in (i)
cash (including personal check), (ii) Common Shares (to the extent permitted by
law), which shall be valued for this purpose at the fair market value on the
date of transfer to the Company, as determined in accordance with the Plan,
(iii) with the consent of the Committee, the delivery of a
promissory note of the Optionee to the Company, payable upon such terms as are
specified by the Committee, or (iv) any combination of the above. A certificate
or certificates for the Common Shares purchased shall be issued by the Company
after the exercise of the option and payment therefor.
(d) Termination of Option upon Death, Disability, Retirement or
Termination of Employment. Unless the Committee in its discretion determines
otherwise, if the Optionee's employment with the Company and its subsidiaries
terminates, any portion of this option which is not exercisable on the date of
such termination of employment by reason of Section 2(b) hereof shall
immediately terminate, and any remaining portion of this option shall terminate
if not exercised before the expiration of the following periods, or at such
earlier time as may be applicable under Paragraph 2(a) above: (i) thirty (30)
days following such termination of employment, if such termination was not a
result of retirement on or after age 55, or of death or disability (disability
within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended), or (ii) three (3) months following the Optionee's termination of
employment because of retirement on or after age 55, or (iii) one (l) year
following date of death or commencement of disability, if the Optionee is
employed by the Company and/or subsidiary at the time of death or the
commencement of disability. Notwithstanding the foregoing, if the Optionee is
terminated for cause, any remaining portion of this option shall immediately
terminate.
(e) Non-transferability. This option and all rights hereunder shall be
exercisable during the Optionee's lifetime only by the Optionee and shall be
non-assignable and non-transferable by the Optionee except, in the event of the
Optionee's death, by will or by the laws of descent and distribution. In the
event the death of the Optionee occurs, the representative or representatives of
the Optionee's estate, or the person or persons who acquire (by bequest or
inheritance) the rights to exercise this option in whole or in part, may
exercise this option prior to the expiration of the applicable exercise period,
as specified in Paragraph 2(d) above.
(f) Changes in the Company's Capital Structure. If the Company shall
effect a subdivision, consolidation or reclassification of shares or other
capital readjustment or recapitalization, the payment of a stock dividend, or
other increase or reduction of the number of shares of the voting shares
outstanding, without receiving compensation therefor in money, services or
property, then the number, class, and per share price of Common Shares subject
to this option shall be appropriately adjusted in such a manner as to entitle
the Optionee to receive upon exercise of this option, for the same aggregate
cash consideration, the same total number and class of shares as the Optionee
would have received as a result of the event requiring the adjustment.
If the Company is merged into or consolidated with another corporation,
regardless of whether or not the Company is the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets or substantially all of the stock of the Company while this option
remains outstanding, unless the Board determines otherwise, this option shall
expire as of the effective date of any such merger, consolidation, liquidation,
sale, or other disposition, provided that (x) notice of such merger,
consolidation, liquidation, sale or other
disposition shall be given to the Optionee at least 30 days prior to the
effective date of such merger, consolidation, liquidation, sale or other
disposition and (y) the Optionee shall have the right to exercise this option to
the extent that the same is then exercisable during the 30 day period preceding
the effective date of such merger, consolidation, liquidation, sale or other
disposition.
Except as expressly provided herein, the issue by the Company of shares
of stock of any class, for cash or property, or for labor or services, either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of Common
Shares then subject to this option.
(g)Modification or cancellation of option. The Committee shall have the
authority to effect, at any time and from time to time, with the consent of the
Optionee, the modification of the terms of this option agreement (subject to the
limitations contained in the Plan), including the acceleration of the
exercisability of any option for any reason including a change in the control or
ownership of the Company, or the cancellation of any or all outstanding options
granted under the Plan.
(h) No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Common Shares subject to this option prior to
the date of issuance to him of a certificate or certificates for such shares.
(i) No Right to Continued Employment. This option shall not confer upon
the Optionee any right with respect to continuance of employment by the Company
or any subsidiary, nor shall it interfere in any way with the right of the
employer to terminate the Optionee's employment at any time.
(j) Compliance with Law and Regulations. This option and the obligation
of the Company to sell and deliver shares hereunder shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Company shall not
be required to issue or deliver any certificates for shares of Common Shares
prior to (i) the listing of such shares on any stock exchange on which the
Common Shares may then be listed, and (ii) the completion of any registration or
qualification of such shares under any federal or state law, or any rule or
regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable. Moreover, this option may
not be exercised if its exercise, or the receipt of Common Shares pursuant
thereto, would be contrary to applicable law.
3. Disposition of Shares. This option shall not qualify as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code if the
Common Shares acquired pursuant to the exercise of the option are transferred,
other than by will or the laws of descent and distribution, within two years of
the date hereof, or within one year after transfer of Common Shares to the
Optionee pursuant to such exercise.
4. Optionee Bound by Plan. The Optionee hereby agrees to be bound by all the
terms and provisions of the Plan, a copy of which is available upon request to
the Committee.
5. Withholding Taxes. Optionee acknowledges and agrees that the Company and its
subsidiaries have the right to deduct from payments of any kind otherwise due to
Optionee any federal, state or local taxes of any kind required by law to be
withheld with respect to the exercise of this option hereunder.
6. Notices. Any notice hereunder to the Company shall be addressed to it at its
principal business office, 216 Weybosset Street, Providence, RI 02903;
Attention: Board of Directors, and any notice hereunder to the Optionee shall be
sent to the address reflected on the payroll records of the Company, subject to
the right of either party to designate at any time hereafter in writing some
other address.
7. Delaware Law to Govern. This Agreement shall be construed and administered in
accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Optionee has executed this
Agreement as of the date above written
CAFE LA FRANCE, INC.
By: /s/ Thomas W. DeJordy
---------------------------
Title: President
/s/ Robert King
---------------------------
Robert King
EXHIBIT 10.4
CAFE LA FRANCE
1996 STOCK INCENTIVE PLAN
Non-qualified Stock Option Agreement
This Agreement is by and between Cafe La France, Inc. (the "Company")
and _____________, (the "Optionee"), effective as of _________________.
W I T N E S S E T H:
1. Grant of Option. Pursuant to the provisions of the Cafe La France 1996 Stock
Incentive Plan (the "Plan"), effective as of the date hereof, the Company hereby
grants to the Optionee, subject to the terms and conditions of the Plan and
subject further to the terms and conditions herein, the right and option to
purchase from the Company all or any part of an aggregate of _____ shares of the
common stock ($.01 par value) of the Company ("Common Shares"), at the purchase
price equal to ____ per share, being the fair market value of the Common Shares
as of the date hereof, such option to be exercised as hereinafter provided. It
is intended that the option evidenced hereby constitute a non-qualified stock
option.
2. Terms and Conditions. In addition to the terms and conditions contained in
the Plan, it is understood and agreed that the option evidenced hereby is
subject to the following additional terms and conditions:
(a) Expiration Date. The option shall expire on the tenth anniversary
of the date hereof.
(b) Period of Exercise. Subject to the other terms of this Agreement
regarding the exercisability of this option, this option shall become
exercisable at the rate of ____ Common Shares per _______ over a period of
_______ years from the date hereof, such that the entire option shall be fully
vested as of __________________.
(c) Exercise of Option. This option shall be exercised by submitting a
written notice to the Committee appointed pursuant to Section 2 of the Plan (the
"Committee") signed by the Optionee and specifying the number of Common Shares
as to which the option is being exercised. Such notice shall be accompanied by
the payment of the full option price for such shares, or shall fix a date (not
more than ten business days from the date of such notice) for the payment of the
full option price of the shares being purchased. Payment shall be made in (i)
cash (including personal check), (ii) Common Shares (to the extent permitted by
law), which shall be valued for this purpose at the fair market value on the
date of transfer to the Company, as determined in accordance with the Plan,
(iii) with the consent of the Committee, the delivery of a promissory note of
the Optionee to the Company, payable upon such terms as are specified by the
Committee, or (iv) any combination of the above. A certificate or certificates
for the Common Shares purchased shall be issued by the Company after the
exercise of the option and payment therefor.
(d) Termination of Option upon Death, Disability, Retirement or
Termination of Employment. Unless the Committee in its discretion determines
otherwise, if the Optionee's employment with the Company and its subsidiaries
terminates, any portion of this option which is not exercisable on the date of
such termination of employment by reason of Section 2(b) hereof shall
immediately terminate, and any remaining portion of this option shall terminate
if not exercised before the expiration of the following periods, or at such
earlier time as may be applicable under Paragraph 2(a) above: (i) thirty (30)
days following such termination of employment, if such termination was not a
result of retirement on or after age 55, or of death or disability (disability
within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended), or (ii) three (3) months following the Optionee's termination of
employment because of retirement on or after age 55, or (iii) one (l) year
following date of death or commencement of disability, if the Optionee is
employed by the Company and/or subsidiary at the time of death or the
commencement of disability. Notwithstanding the foregoing, if the Optionee is
terminated for cause, any remaining portion of this option shall immediately
terminate.
(e) Non-transferability. This option and all rights hereunder shall be
exercisable during the Optionee's lifetime only by the Optionee and shall be
non-assignable and non-transferable by the Optionee except, in the event of the
Optionee's death, by will or by the laws of descent and distribution. In the
event the death of the Optionee occurs, the representative or representatives of
the Optionee's estate, or the person or persons who acquire (by bequest or
inheritance) the rights to exercise this option in whole or in part, may
exercise this option prior to the expiration of the applicable exercise period,
as specified in Paragraph 2(d) above.
(f) Changes in the Company's Capital Structure. If the Company shall
effect a subdivision, consolidation or reclassification of shares or other
capital readjustment or recapitalization, the payment of a stock dividend, or
other increase or reduction of the number of shares of the voting shares
outstanding, without receiving compensation therefor in money, services or
property, then the number, class, and per share price of Common Shares subject
to this option shall be appropriately adjusted in such a manner as to entitle
the Optionee to receive upon exercise of this option, for the same aggregate
cash consideration, the same total number and class of shares as the Optionee
would have received as a result of the event requiring the adjustment.
If the Company is merged into or consolidated with another corporation,
regardless of whether or not the Company is the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets or substantially all of the stock of the Company while this option
remains outstanding, unless the Board determines otherwise, this option shall
expire as of the effective date of any such merger, consolidation, liquidation,
sale, or other disposition, provided that (x) notice of such merger,
consolidation, liquidation, sale or other disposition shall be given to the
Optionee at least 30 days prior to the effective date of such merger,
consolidation, liquidation, sale or other disposition and (y) the Optionee shall
have the right to exercise this option to the extent that the same is then
exercisable during the 30 day period preceding the effective date of such
merger, consolidation, liquidation, sale or other disposition.
Except as expressly provided herein, the issue by the Company of shares
of stock of any class, for cash or property, or for labor or services, either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of Common
Shares then subject to this option.
(g) Modification or cancellation of option. The Committee shall have
the authority to effect, at any time and from time to time, with the consent of
the Optionee, the modification of the terms of this option agreement (subject to
the limitations contained in the Plan), including the acceleration of the
exercisability of any option for any reason including a change in the control or
ownership of the Company, or the cancellation of any or all outstanding options
granted under the Plan.
(h) No Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Common Shares subject to this option prior to
the date of issuance to him of a certificate or certificates for such shares.
(i) No Right to Continued Employment. This option shall not confer upon
the Optionee any right with respect to continuance of employment by the Company
or any subsidiary, nor shall it interfere in any way with the right of the
employer to terminate the Optionee's employment at any time.
(j) Compliance with Law and Regulations. This option and the obligation
of the Company to sell and deliver shares hereunder shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Company shall not
be required to issue or deliver any certificates for shares of Common Shares
prior to (i) the listing of such shares on any stock exchange on which the
Common Shares may then be listed, and (ii) the completion of any registration or
qualification of such shares under any federal or state law, or any rule or
regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable. Moreover, this option may
not be exercised if its exercise, or the receipt of Common Shares pursuant
thereto, would be contrary to applicable law.
3. Optionee Bound by Plan. The Optionee hereby agrees to be bound by all the
terms and provisions of the Plan, a copy of which is available upon request to
the Committee.
4. Withholding Taxes. Optionee acknowledges and agrees that the Company and its
subsidiaries have the right to deduct from payments of any kind otherwise due to
Optionee any federal, state or local taxes of any kind required by law to be
withheld with respect to the exercise of this option hereunder.
5. Notices. Any notice hereunder to the Company shall be addressed to it at its
principal business office, 216 Weybosset Street, Providence, RI 02903;
Attention: Board of Directors,
and any notice hereunder to the Optionee shall be sent to the address reflected
on the payroll records of the Company, subject to the right of either party to
designate at any time hereafter in writing some other address.
6. Delaware Law to Govern. This Agreement shall be construed and administered in
accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Optionee has executed this
Agreement as of the date above written.
CAFE LA FRANCE, INC.
By:_______________________________________
Title:____________________________________
------------------------------------------
[Optionee]
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of this
1st day of November, 1996, by and between CLF2, Inc., a Rhode Island corporation
with its principal place of business at 216 Weybosset Street, Providence, Rhode
Island 02903 (the "Company"), and Thomas W. DeJordy, an individual with a
residence address of 174 Wentworth Avenue, Cranston, Rhode Island 02905
("Employee").
INTRODUCTION
1. The Company is in the business of operating and managing cafe
restaurants. Employee possesses skills and knowledge advantageous to the
Company.
2. The Company desires to employ Employee and Employee desires to
accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. Employment; Duties. Subject to the terms and conditions
set forth herein, the Company hereby employs Employee, on a full-time basis, to
act as Chairman of the Board of Directors, President and Chief Executive Officer
of the Company during the Employment Period, and to perform such acts and duties
and furnish such services to the Company in connection with and related to that
position as is customary for persons with similar positions in like companies,
as the Company's Board of Directors shall from time to time reasonably direct.
Employee hereby accepts such employment and agrees to perform such acts, duties
and services for the Company diligently, competently, and in good faith manner.
2. Employment Period. The term of this Agreement (the
"Employment Period") shall commence on the date hereof and shall terminate
thirty-six (36) months thereafter, unless terminated earlier pursuant to
Sections 4 or 5 below, provided, however, that the Employment Period shall
automatically renew for additional one year periods thereafter unless the
Company shall provide Employee with not less than ninety (90) days' prior
written notice of its intention not to renew prior to the expiration of the
initial Employment Period or any annual extension thereof. In the event that the
Company shall not renew this Agreement as provided in the preceding sentence,
the Company shall continue to pay Employee's salary, at his then current rate,
for a twelve (12) month period following termination. Notwithstanding any
provision of this Agreement to the contrary, the Company shall not terminate
Employee's employment hereunder (other than for cause pursuant to Section 4.1)
unless Employee has been relieved of any and all obligations to guarantee any
indebtedness of the Company.
3. Compensation and Benefits.
3.1 Salary. During the initial 12 months of the
Employment Period, the Company agrees to pay Employee at the rate of $132,000
per year, payable in equal installments pursuant to the Company's customary
payroll policies in force at the time of payment, less required payroll
deductions. Employee's salary shall thereafter be increased annually by at least
5% in the sole discretion of the Board of Directors of the Company.
3.2 Bonus. During the Employment Period, Employee shall
receive cash bonuses as follows: (i) for the initial 12 months of the Employment
Period, a cash bonus equal to $15,000, payable on the last day of the 1997
fiscal year (September 28, 1997); (ii) for the second 12 months of the
Employment Period, a cash bonus equal to $20,000, payable on the last day of the
1998 fiscal year (September 27, 1998); and (iii) for the third 12 months of the
Employment Period, a cash bonus equal to $25,000, payable on the last day of the
1999 fiscal year (October 3, 1999). In addition, Employee shall receive an
additional cash bonus equal to 25% of his annual base salary for the 1998 fiscal
year if the Company meets its budget net income projections for the 1998 fiscal
year as determined by the Board of Directors, payable on the last day of such
fiscal year; and an additional cash bonus equal to 25% of his annual salary for
the 1999 fiscal year, payable on the last day of such fiscal year, if the
Company meets its budget net income projections for the 1999 fiscal year as
determined by the Board of Directors.
3.3 Health Benefits. During the Employment Period, the
Company agrees to pay for the cost of family health care coverage (including
dental care) for Employee as currently provided by the Company's health care
provider(s) or by such other health care provider(s) to be selected by the
Company.
3.4 Life Insurance. During the Employment Period, the
Company shall provide Employee with life insurance in such amount as the Board
of Directors may determine to provide, but in no event shall such amount be less
than that provided to other executive officers of the Company.
3.5 Vacation. Employee may take three(3) weeks paid
vacation each year during the Employment Period.
3.6 Stock Options. If the Company (or any parent or
subsidiary corporations) successfully completes an initial public offering
("IPO") of common stock during the fiscal year ending September 28, 1997,
Employee shall receive an option to purchase 200,000 shares of common stock of
the Company at the price per share of common stock offered to the public in such
IPO (subject to modification under applicable law with respect to incentive
stock options). In addition, Employee shall be entitled to participate in the
Company's stock option plan with other key employees as the Board of Directors
may determine.
3.7 Automobile. During the Employment Period, the Company
will lease or purchase a late amodel automobile for Employee's use and will
reimburse Employee for all reasonable expenses related to business use of such
automobile by Employee.
2
3.8 Reimbursement of Expenses. The Company shall
reimburse Employee for all reasonable expenses in connection with Employee's
duties hereunder and the promotion of the Company's business in general, upon
presentation by Employee of appropriate supporting documentation.
3.9 Miscellaneous. The Company agrees to provide Employee
with such other benefits in its discretion as it may provide to other similarly
situated employees, including but not limited to pension or other retirement
benefits and disability insurance.
3.10 Severance Payments.
3.10.1 Termination by the Company. In the event the
Company terminates this Agreement pursuant to Section 4.2 (Disability) or
Section 5 (Termination Without Cause), the Company shall, prior to the effective
date of the termination, pay Employee, in one lump sum, an amount equal to (a)
1.5 times Employee's annual salary, at his then current rate, less applicable
taxes, if termination shall occur prior to a "Change in Control" or an "Approved
Change in Control" (both as hereinafter defined) or subsequent to an Approved
Change in Control, or (b) 2.5 times Employee's annual salary, at his then
current rate, less applicable taxes, if termination shall occur after a Change
in Control. The Company shall also pay Employee's health insurance benefits as
described in Section 3.3 for a period of one year in the event of termination
pursuant to Section 4.2 or 5, and in the event of a Change in Control, all
options granted to Employee shall become fully vested as of such date of
termination in connection with such Change of Control.
3.10.2 Termination by Employee for "Good Reason".
(a) After a Change in Control and provided
Employee has "Good Reason" (as hereinafter defined), Employee may terminate his
employment hereunder upon fifteen (15) days written notice to the Company and
the Company shall continue to pay Employee his annual salary, at his then
current rate, for a thirty (30) month period.
(b) After an Approved Change in Control and
provided Employee has Good Reason, Employee may terminate his employment
hereunder upon fifteen (15) days written notice to the Company and the Company
shall continue to pay Employee his annual salary, at his then current rate, for
an eighteen (18) month period.
3.10.3 Definitions.
(a) Change in Control. A "Change in Control"
shall be deemed to have occurred in any of the following events:
(i) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other than
(a) a merger or consolidation which would result in the voting securities of the
Company outstanding
3
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 80% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, (b) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person" or
group (as such terms are defined in Section 13(d)(3) of the Securities Exchange
Act of 1934) acquires more than 30% of the combined voting power of the
Company's then outstanding securities, or (c) a reorganization pursuant to which
the Company creates a holding company for itself in which the stockholders of
the Company immediately prior to the reorganization (other than those exercising
dissenters' rights) become the stockholders of the holding company immediately
after the reorganization; or
(ii) the stockholders of the Company approve
a plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
or
(iii) as a result of or in connection with
any cash tender offer, merger, or other business combination, sale of assets or
contested election, or combination of the foregoing, the persons who were
directors of the Company just prior to such event shall cease to constitute a
majority of the Board; or
(iv) when any "person" or "group" (as such
terms are defined in Section 13(d)(3) of the Securities Exchange Act of 1934)
becomes a "beneficial owner" (as such term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of securities of the
Company representing forty percent (40%) or more of the total number of votes
that may be cast for the election of directors of the Company; or
(v) the closing of a transaction or series
of transactions in which more than 50% of the voting power of the Company is
transferred; or
(vi) a tender offer or exchange offer for
the common stock of the Company, other than one made by the Company or by a
person or group (as such terms are defined in Section 13(d)(3) of the Securities
Exchange Act of 1934) that on the date hereof holds more than 5% of the
outstanding shares of the Company entitled to vote for the election of
directors, where the offeror acquires more than 40% of the outstanding shares of
common stock of the Company.
(b) Approved Change in Control. An "Approved
Change in Control" of the Company shall mean a Change in Control that is
approved by a majority of the Company's Board of Directors.
(c) Good Reason. "Good Reason" shall mean
without Employee's written consent, the occurrence after a Change in Control of
any of the circumstances set forth in subparagraphs (1) through (8) below. For
purposes hereof, Employee's continued employment shall not constitute consent
to, or a waiver of rights with
4
respect to, any circumstance constituting "Good Reason" hereunder, and any good
faith determination of "Good Reason" made by Employee shall be conclusive. Good
Reason shall mean any of the following:
(1) a significant change in the nature or
scope of the Employee's responsibilities, authorities, powers, functions or
duties from the responsibilities, authorities, powers, functions or duties
exercised by the Employee immediately prior to the Change in Control;
(2) a reasonable determination by Employee
that, as a result of a Change in Control, he is unable to exercise the
responsibilities, authorities, powers, functions or duties exercised by the
Employee immediately prior to such Change in Control;
(3) a reduction in the Employee's annual
base salary as in effect on the date hereof or as the same may be increased from
time to time except for across-the-board salary reductions similarly affecting
all management personnel of the Company and all management personnel of any
person in control of the Company; or
(4) the failure by the Company to continue
in effect any material compensation, incentive, bonus or benefit plan in which
Employee participated immediately prior the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by the Company to
continue Employee's participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of Employee's participation relative to other
participants, as existed at the time of the Change in Control; or
(5) the failure by the Company to continue
to provide the Employee with benefits substantially similar to those available
to the Employee under any of the life insurance, medical, health and accident,
or disability plans or any other material benefit plans in which the Employee
was participating at the time of the Change in Control, or the taking of any
action by the Company which would directly or indirectly materially reduce any
of such benefits, or the failure by the Company to provide the Employee with the
number of paid vacation days to which the Employee is entitled on the basis of
years of service with the Company in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control; or
(6) any requirement by the Company or of
any person in control of the Company that Employee establish a permanent
residence in a state other than Rhode Island or Massachusetts or any requirement
that Employee's principal duties for the Company require Employee to spend
substantial time at a location other than Rhode Island or Massachusetts; or
(7) the failure by the Company to pay
Employee any portion of Employee's current compensation within seven (7) days
after such compensation is due; or
5
(8) any requirement by the Company or any
person in control of the Company that Employee travel on an overnight basis to
an extent not substantially consistent with Employee's business travel
obligations immediately prior to the Change in Control.
4. Termination for Cause; Disability
4.1 Termination for Cause. The Company may discharge
Employee and terminate his employment under this Agreement for cause without
further liability to the Company by a majority vote of the Board of Directors of
the Company, except that Employee, if a Director, shall not be entitled to vote
thereon. As used in this Section 4.1, "cause" shall mean any or all of the
following: (i) gross or willful misconduct of Employee during the course of his
employment; (ii) conviction of a fraud or felony or any criminal offense
involving dishonesty, breach of trust or moral turpitude during the Employment
Period; or (iii) Employee's breach of any of the material terms of this
Agreement.
4.2 Disability. If during the Employment Period, Employee
shall become ill, disabled or otherwise incapacitated so as to be unable to
perform his usual duties (a) for a period in excess of one hundred twenty (120)
consecutive days or (b) for more than one hundred eighty (180) days in any
consecutive twelve (12) month period, then the Company shall have the right to
terminate this Agreement without further liability except as set forth in
Section 3.10 on thirty (30) days' prior notice to Employee.
5. Termination without Cause. Upon ninety (90) days prior written
notice, the Company may terminate this Agreement without cause and without
further liability to the Company except as set forth in Section 3.10 by a
majority vote of the Board of Directors except that Employee, if a Director,
shall not be entitled to vote thereon.
6. Non-Competition. Employee, during the Employment Period and for
a period of one (1) year thereafter in exchange for a payment of $100,000 from
the Company for such one (1) year period, shall not directly or indirectly enter
into or engage in or have a proprietary interest (except with respect to the
ownership of less than 2% of securities of publicly-held companies) in any
cafe-related business located in New England, which competes with the Company or
its affiliates, either as an individual, partner, joint venturer, employee or
agent for any person, company, corporation or association or as an officer,
director or stockholder of a corporation or otherwise. Employee expressly agrees
that the character, duration and geographical scope of this covenant not to
compete are reasonable in light of the circumstances as they exist at the date
upon which this Agreement has been executed. However, should a determination
nonetheless be made by a court of competent jurisdiction at a later date that
the character, duration or geographical scope of this covenant not to compete is
unreasonable in light of the circumstances as they then exist, then it is the
intention of both Employee and the Company that this covenant not to compete
shall be construed by the court in such a manner as to impose only those
restrictions on the conduct of Employee which are reasonable in light of the
6
circumstances as they then exist and necessary to assure the Company of the
intended benefit of this covenant not to compete.
7. Confidentiality; Conflicts of Interest. Employee agrees to
accept, perform and abide by the confidentiality and non-solicitation covenants
set forth on Exhibit A hereto.
8. Remedies. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any provision of this Agreement and Employee agrees that the Company
shall be entitled to injunctive relief in the event of such breach.
9. Governing Law/Jurisdiction. This Agreement shall be governed by
and interpreted and governed in accordance with the laws of the State of Rhode
Island.
10. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
11. Notices. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company at:
216 Weybosset Street
Providence, Rhode Island 02903
with a copy to:
Michael F. Sweeney, Esq.
Duffy & Sweeney
300 Turks Head Building
Providence, RI 02903
(b) to Employee at:
174 Wentworth Avenue
Cranston, Rhode Island 02905
12. Severability. If any term or provision of this Agreement, or
the application thereof to any person or under any circumstance, shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such terms to the persons or under circumstances other than those
as to which it is invalid or unenforceable, shall be considered severable and
shall not be affected thereby, and each term of this Agreement shall be valid
and
7
enforceable to the fullest extent permitted by law. The invalid or unenforceable
provisions shall, to the extent permitted by law, be deemed amended and given
such interpretation as to achieve the economic intent of this Agreement.
13. Waiver. The failure of any party to insist in any one instance
or more upon strict performance of any of the terms and conditions hereof, or to
exercise any right or privilege herein conferred, shall not be construed as a
waiver of such terms, conditions, rights or privileges, but same shall continue
to remain in full force and effect. Any waiver by any party of any violation of,
breach of or default under any provision of this Agreement by the other party
shall not be construed as, or constitute, a continuing waiver of such provision,
or waiver of any other violation of, breach of or default under any other
provision of this Agreement.
14. Survival of the Company's Obligations. The Company's
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to the
Company. This Agreement shall not be terminated by a merger or consolidation or
other reorganization of the Company. In the event any such merger,
consolidation, or reorganization shall be accomplished by transfer of stock or
by transfer of assets or otherwise, the provisions of this Agreement shall be
binding upon the surviving or resulting corporation or person. This Agreement
shall be binding upon and inure to the benefit of the executors, administrators,
heirs, successors and assigns of the parties; provided, however, that except as
herein expressly provided, this Agreement shall not be assignable either by the
Company (except to an affiliate of the Company) or by Employee.
15. Assignment. The Company may assign this Agreement to any affiliate
without the consent of Employee. For purposes of this section, "affiliate" shall
mean any individual, corporation, partnership or other business entity that
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, the Company.
8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE COMPANY:
CLF2, INC.
By: /s/Thomas W. DeJordy
------------------------
Title: President
EMPLOYEE:
/s/ Thomas W. DeJordy
---------------------
Thomas W. DeJordy
9
EXHIBIT A
Confidentiality Covenants. In accepting employment with CLF2, Inc. and/or
its affiliates (collectively, the "Company"), I understand that the Company may
impart to me confidential business information including, without limitation,
vendor lists, recipes, designs, software, financial information, personnel
information, real estate information, and the like (collectively "confidential
information"). I hereby acknowledge the Company's exclusive ownership of such
confidential information.
I agree: (1) only to use the confidential business information to provide
services or goods to the Company; (2) only to communicate the confidential
information to fellow employees on a need-to-know basis; and (3) not otherwise
disclose or use, at any time any confidential information. Upon demand by the
Company or upon termination of my employment, I will deliver to the Company all
blueprints, manuals, documents plans, recordings, photographs, software and any
other instrument or device by which, through which, or on which confidential
information has been recorded and/or preserved, which are in my possession,
custody or control.
I further agree that the disclosure or use of any confidential
information in breach of this understanding would cause irreparable harm to the
Company and accordingly, not only may the Company seek damages but I agree to
the issuance of a permanent injunction against me restraining such disclosure
and use, and I agree that any court of competent jurisdiction selected by the
Company shall have personal jurisdiction over me.
I agree that neither this document nor any other communication shall bind
the Company to employ me now or hereafter and that no consideration has been
furnished to the Company for my employment other than my services. I also
understand and agree that this agreement may not be modified orally, and that if
such a modification is made it must be in writing and signed by an executive
officer of the Company.
10
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of this
1st day of November, 1996, by and between CLF2, Inc., a Rhode Island corporation
with its principal place of business at 216 Weybosset Street, Providence, Rhode
Island 02903 (the "Company"), and Robert G. King, an individual with a residence
address of 40 Walker Road, Duxbury, Massachusetts 02332 ("Employee").
INTRODUCTION
1. The Company is in the business of operating and managing cafe
restaurants. Employee possesses skills and knowledge advantageous to the
Company.
2. The Company desires to employ Employee and Employee desires to
accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. Employment; Duties. Subject to the terms and conditions set
forth herein, the Company hereby employs Employee, on a full-time basis, to act
as Vice President - Finance of the Company during the Employment Period, and to
perform such acts and duties and furnish such services to the Company in
connection with and related to that position as is customary for persons with
similar positions in like companies, as the Company's Board of Directors shall
from time to time reasonably direct. Employee hereby accepts such employment and
agrees to perform such acts, duties and services for the Company diligently,
competently, and in good faith manner.
2. Employment Period. The term of this Agreement (the "Employment
Period") shall commence on the date hereof and shall terminate thirty-six (36)
months thereafter, unless terminated earlier pursuant to Sections 4 or 5 below,
provided, however, that the Employment Period shall automatically renew for
additional one year periods thereafter unless the Company shall provide Employee
with not less than sixty (60) days' prior written notice of its intention not to
renew prior to the expiration of the initial Employment Period or any annual
extension thereof. In the event that the Company shall not renew this Agreement
as provided in the preceding sentence, the Company shall continue to pay
Employee's salary, at his then current rate, for a twelve (12) month period
following termination.
3. Compensation and Benefits.
3.1 Salary. During the initial months of the Employment
Period, the Company agrees to pay Employee at the rate of $100,000 per year,
payable in equal installments pursuant to the Company's customary payroll
policies in force at the time of payment, less required payroll deductions.
Employee's salary will thereafter increase to $108,000 effective at such time
the Company completes an initial public offering of its Common Stock, and will
thereafter be increased annually by 5% in the sole discretion of the Board of
Directors of the Company.
3.2 Stock Options/Bonus.
3.2.1 Stock Options. Employee as of the date of this
Agreement has received an incentive stock option under the company's 1996 Stock
Incentive Plan to purchase 43,500 shares of common stock at a price per share
equal to $3.45, of which options to purchase 10,875 shares are immediately
exercisable and of which options to purchase 32,625 shares vest at the rate of
1208.33 shares on the last day of each month hereafter commencing November 30,
1996 such that the entire option shall be fully vested as of January 31, 1999.
Employee shall also receive, on January 31, 1997, an option to purchase 60,000
shares of common stock at the price per share of common stock offered to the
public in an initial public offering of common stock, which option shall vest at
the rate of 1,666.66 shares per month over a three year period such that the
entire option shall be fully vested as of January 31, 2000 provided that said
option shall terminate in the event the Company has not succesfully completed an
initial public offering of its common stock by September 30, 1997.
3.2.2 Bonus. During the Employment Period, Employee
shall be entitled to receive cash bonuses in the sole discretion of the
Company's Board of Directors provided that the Company has achieved positive net
income and met its budget for the fiscal year preceding the date of payment of
any such bonus.
3.3 Health Benefits. During the Employment Period, the
Company agrees to pay for the cost of family health care coverage for Employee
as currently provided by the Company's health care provider(s) or by such other
health care provider(s) to be selected by the Company.
3.4 Vacation. Employee may take three(3) weeks paid vacation
each year during the Employment Period.
3.5 Reimbursement of Expenses. The Company shall reimburse
Employee for all reasonable expenses in connection with Employee's duties
hereunder and the promotion of the Company's business in general, upon
presentation by Employee of appropriate supporting documentation.
3.6 Miscellaneous. The Company agrees to provide Employee
with such other benefits in its discretion as it may provide to other similarly
situated employees, including but not limited to pension or other retirement
benefits, life insurance and disability insurance.
2
3.7 Severance Payments.
3.7.1 Termination by the Company. In the event the
Company terminates this Agreement pursuant to Section 4.2 (Disability) the
Company shall, prior to the effective date of the termination, pay Employee, in
one lump sum, an amount equal to 50% of Employee's annual cash salary, at his
then current rate, less applicable taxes. In the event the Company terminates
this Agreement pursuant to Section 5 (Termination without Cause) in connection
with a "Change in Control" or an "Approved Change in Control" (both as
hereinafter defined), the Company shall, prior to the effective date of
termination, pay Employee 100% of Employee's annual cash salary, at his then
current rate, less applicable taxes, if termination shall occur in connection
with a Change in Control. The Company shall also pay Employee's health insurance
benefits as described in Section 3.3 for a period of 6 months in the event of
termination pursuant to Section 4.2 or 5, and, in the event of a Change of
Control, all options granted to Employee shall become fully vested as of such
date of termination.
3.7.2 Termination by Employee for "Good Reason".
(a) After a Change in Control and provided
Employee has "Good Reason" (as hereinafter defined), Employee may terminate his
employment hereunder upon fifteen (15) days written notice to the Company and
the Company shall continue to pay Employee his annual salary, at his then
current rate, for a six (6) month period.
(b) After an Approved Change in Control
and provided Employee has Good Reason, Employee may terminate his employment
hereunder upon fifteen (15) days written notice to the Company and the Company
shall continue to pay Employee his annual salary, at his then current rate, for
a twelve three (3) month period.
3.7.3 Definitions.
(a) Change in Control. A "Change in
Control" shall be deemed to have occurred in any of the following events:
(i) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than (a) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, (b) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no "person" or group (as such terms are defined in Section 13(d)(3) of
the Securities Exchange Act of 1934) acquires more than 30% of the combined
voting power of the Company's then outstanding securities, or (c) a
reorganization pursuant to which the Company creates a holding company for
itself in which the stockholders of the Company immediately prior to the
reorganization (other than those exercising
3
dissenters' rights) become the stockholders of the holding company immediately
after the reorganization; or
(ii) the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets; or
(iii) as a result of or in connection
with any cash tender offer, merger, or other business combination, sale of
assets or contested election, or combination of the foregoing, the persons who
were directors of the Company just prior to such event shall cease to constitute
a majority of the Board; or
(iv) when any "person" or "group" (as
such terms are defined in Section 13(d)(3) of the Securities Exchange Act of
1934) becomes a "beneficial owner" (as such term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934), directly or indirectly, of securities of
the Company representing forty percent (40%) or more of the total number of
votes that may be cast for the election of directors of the Company; or
(v) the closing of a transaction or
series of transactions in which more than 50% of the voting power of the Company
is transferred; or
(vi) a tender offer or exchange offer
for the common stock of the Company, other than one made by the Company or by a
person or group (as such terms are defined in Section 13(d)(3) of the Securities
Exchange Act of 1934) that on the date hereof holds more than 5% of the
outstanding shares of the Company entitled to vote for the election of
directors, where the offeror acquires more than 40% of the outstanding shares of
common stock of the Company.
(b) Approved Change in Control. An
"Approved Change in Control" of the Company shall mean a Change in Control that
is approved by a majority of the Company's Board of Directors.
(c) Good Reason. "Good Reason" shall mean
without Employee's written consent, the occurrence after a Change in Control of
any of the circumstances set forth in subparagraphs (1) through (8) below. For
purposes hereof, Employee's continued employment shall not constitute consent
to, or a waiver of rights with respect to, any circumstance constituting "Good
Reason" hereunder, and any good faith determination of "Good Reason" made by
Employee shall be conclusive. Good Reason shall mean any of the following:
(1) a significant change in the nature
or scope of the Employee's responsibilities, authorities, powers, functions or
duties from the responsibilities, authorities, powers, functions or duties
exercised by the Employee immediately prior to the Change in Control;
4
(2) a reasonable determination by
Employee that, as a result of a Change in Control, he is unable to exercise the
responsibilities, authorities, powers, functions or duties exercised by the
Employee immediately prior to such Change in Control;
(3) a reduction in the Employee's
annual base salary as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary reductions
similarly affecting all management personnel of the Company and all management
personnel of any person in control of the Company;
(4) the failure by the Company to
continue in effect any material compensation, incentive, bonus or benefit plan
in which Employee participated immediately prior the Change in Control, unless
an equitable arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by the Company to
continue Employee's participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of Employee's participation relative to other
participants, as existed at the time of the Change in Control;
(5) the failure by the Company to
continue to provide the Employee with benefits substantially similar to those
available to the Employee under any of the life insurance, medical, health and
accident, or disability plans or any other material benefit plans in which the
Employee was participating at the time of the Change in Control, or the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits, or the failure by the Company to provide the
Employee with the number of paid vacation days to which the Employee is entitled
on the basis of years of service with the Company in accordance with the
Company's normal vacation policy in effect at the time of the Change in Control;
(6) any requirement by the Company or
of any person in control of the Company that Employee establish a permanent
residence in a state other than Rhode Island or Massachusetts or any requirement
that Employee's principal duties for the Company require Employee to spend
substantial time at a location other than Rhode Island or Massachusetts;
(7) the failure by the Company to pay
Employee any portion of Employee's current compensation within seven (7) days
after such compensation is due; or
(8) any requirement by the Company or
any person in control of the Company that Employee travel on an overnight basis
to an extent not substantially consistent with Employee's business travel
obligations immediately prior to the Change in Control.
4. Termination for Cause; Disability
5
4.1 Termination for Cause. The Company may discharge
Employee and terminate his employment under this Agreement for cause without
further liability to the Company by a majority vote of the Board of Directors of
the Company, except that Employee, if a Director, shall not be entitled to vote
thereon. As used in this Section 4.1, "cause" shall mean any or all of the
following: (i) gross or willful misconduct of Employee during the course of his
employment; (ii) conviction of a fraud or felony or any criminal offense
involving dishonesty, breach of trust or moral turpitude during the Employment
Period; or (iii) Employee's breach of any of the material terms of this
Agreement.
4.2 Disability. If during the Employment Period, Employee
shall become ill, disabled or otherwise incapacitated so as to be unable to
perform his usual duties (a) for a period in excess of one hundred twenty (120)
consecutive days or (b) for more than one hundred eighty (180) days in any
consecutive twelve (12) month period, then the Company shall have the right to
terminate this Agreement without further liability except as set forth in
Section 3.79 on thirty (30) days' prior notice to Employee.
5. Termination without Cause.
5.1 Upon thirty (30) thirty days prior written notice, the
Company may terminate this Agreement without cause and without further liability
to the Company except as set forth in Section 3.79 by a majority vote of the
Board of Directors except that Employee, if a Director, shall not be entitled to
vote thereon.
5.2 NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT,
IN THE EVENT THAT THE COMPANY DOES NOT COMPLETE AN INITIAL PUBLIC OFFERING OF
COMMON STOCK BY FEBRUARY 28, 1996, THIS AGREEMENT MAY BE TERMINATED BY THE
COMPANY WITHOUT CAUSE UPON FIFTEEN (15) DAYS PRIOR WRITTEN NOTICE, AND EMPLOYEE
SHALL NOT BE ENTITLED TO ANY SEVERANCE PAYMENTS OR BENEFITS DESCRIBED IN SECTION
3.7.1 ABOVE.
6. Non-Competition. Employee, during the Employment Period and for
a period of one (1) year thereafter in exchange for a payment of one year's
salary from the Company for such one (1) year period, shall not directly or
indirectly enter into or engage in or have a proprietary interest (except with
respect to the ownership of less than 2% of securities of publicly-held
companies) in any cafe-related business located in New England, which competes
with the Company or its affiliates, either as an individual, partner, joint
venturer, employee or agent for any person, company, corporation or association
or as an officer, director or stockholder of a corporation or otherwise.
Employee expressly agrees that the character, duration and geographical scope of
this covenant not to compete are reasonable in light of the circumstances as
they exist at the date upon which this Agreement has been executed. However,
should a determination nonetheless be made by a court of competent jurisdiction
at a later date that the character, duration or geographical scope of this
covenant not to compete is unreasonable in light of the circumstances as they
then exist, then it is the intention of both Employee and the Company that this
covenant not to compete shall be construed by the court in such a manner as to
impose only those restrictions on the conduct of Employee which are reasonable
in light of the
6
circumstances as they then exist and necessary to assure the Company of the
intended benefit of this covenant not to compete.
7. Confidentiality; Conflicts of Interest. Employee agrees to
accept, perform and abide by the confidentiality and non-solicitation covenants
set forth on Exhibit A hereto.
8. Remedies. Without limiting the Company's right to claim
damages, Employee acknowledges that the Company will be irreparably harmed by a
breach of any provision of this Agreement and Employee agrees that the Company
shall be entitled to injunctive relief in the event of such breach.
9. Governing Law/Jurisdiction. This Agreement shall be governed by
and interpreted and governed in accordance with the laws of the State of Rhode
Island.
10. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto. This Agreement shall not be
changed, altered, modified or amended, except by a written agreement signed by
both parties hereto.
11. Notices. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
mail,
(a) to the Company at:
216 Weybosset Street
Providence, Rhode Island 02903
with a copy to:
Michael F. Sweeney, Esq.
Duffy & Sweeney
300 Turks Head Building
Providence, RI 02903
(b) to Employee at:
40 Walker Road
Duxbury, Massachusetts 02332
12. Severability. If any term or provision of this Agreement, or
the application thereof to any person or under any circumstance, shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such terms to the persons or under circumstances other than those
as to which it is invalid or unenforceable, shall be considered severable and
shall not be affected thereby, and each term of this Agreement shall be valid
and
7
enforceable to the fullest extent permitted by law. The invalid or unenforceable
provisions shall, to the extent permitted by law, be deemed amended and
given such interpretation as to achieve the economic intent of this Agreement.
13. Waiver. The failure of any party to insist in any one instance
or more upon strict performance of any of the terms and conditions hereof, or to
exercise any right or privilege herein conferred, shall not be construed as a
waiver of such terms, conditions, rights or privileges, but same shall continue
to remain in full force and effect. Any waiver by any party of any violation of,
breach of or default under any provision of this Agreement by the other party
shall not be construed as, or constitute, a continuing waiver of such provision,
or waiver of any other violation of, breach of or default under any other
provision of this Agreement.
14. Survival of the Company's Obligations. The Company's
obligations hereunder shall not be terminated by reason of any liquidation,
dissolution, bankruptcy, cessation of business, or similar event relating to the
Company. This Agreement shall not be terminated by a merger or consolidation or
other reorganization of the Company. In the event any such merger,
consolidation, or reorganization shall be accomplished by transfer of stock or
by transfer of assets or otherwise, the provisions of this Agreement shall be
binding upon the surviving or resulting corporation or person. This Agreement
shall be binding upon and inure to the benefit of the executors, administrators,
heirs, successors and assigns of the parties; provided, however, that except as
herein expressly provided, this Agreement shall not be assignable either by the
Company (except to an affiliate of the Company) or by Employee.
15. Assignment. The Company may assign this Agreement to any
affiliate without the consent of Employee. For purposes of this section,
"affiliate" shall mean any individual, corporation, partnership or other
business entity that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the Company.
8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE COMPANY:
CLF2, INC.
By:/s/Thomas W. DeJordy
--------------------
Title: President
EMPLOYEE:
/s/Robert G. King
-----------------
Robert G. King
9
EXHIBIT A
Confidentiality Covenants. In accepting employment with CLF2, Inc. and/or
its affiliates (collectively, the "Company"), I understand that the Company may
impart to me confidential business information including, without limitation,
vendor lists, recipes, designs, software, financial information, personnel
information, real estate information, and the like (collectively "confidential
information"). I hereby acknowledge the Company's exclusive ownership of such
confidential information.
I agree: (1) only to use the confidential business information to provide
services or goods to the Company; (2) only to communicate the confidential
information to fellow employees on a need-to-know basis; and (3) not otherwise
disclose or use, at any time any confidential information. Upon demand by the
Company or upon termination of my employment, I will deliver to the Company all
blueprints, manuals, documents plans, recordings, photographs, software and any
other instrument or device by which, through which, or on which confidential
information has been recorded and/or preserved, which are in my possession,
custody or control.
I further agree that the disclosure or use of any confidential
information in breach of this understanding would cause irreparable harm to the
Company and accordingly, not only may the Company seek damages but I agree to
the issuance of a permanent injunction against me restraining such disclosure
and use, and I agree that any court of competent jurisdiction selected by the
Company shall have personal jurisdiction over me.
I agree that neither this document nor any other communication shall bind
the Company to employ me now or hereafter and that no consideration has been
furnished to the Company for my employment other than my services. I also
understand and agree that this agreement may not be modified orally, and that if
such a modification is made it must be in writing and signed by an executive
officer of the Company.
10
EXHIBIT 10.8
LOAN NUMBER
GP 893 642 3000 PRO
U.S. SMALL BUSINESS ADMINISTRATION
PROVIDENCE DISTRICT OFFICE
380 WESTMINSTER STREET
PROVIDENCE, RI 02903
AUTHORIZATION AND LOAN AGREEMENT
(GUARANTY LOAN)
Home Loan & Investment Bank. F.S.B.
One Home Loan Plaza, Suite 3
Warwick, RI 02886
Your request dated January 8, 1996 for SBA to Guarantee Seventy-five percent
(75%) of a loan in the amount of Three Hundred Fifty Thousand Dollars
($350,000.00) to be made by Lender to
Cafe La France Inc.
d/b/a Cafe La France
216 Weybosset Street
Providence RI 02903
is hereby approved pursuant to Section 7(a)of the Small Business Act as amended.
1. The following forms are herewith enclosed:
A. Three copies of SBA Note (Form 147 - revised), one to be executed by the
Borrower, the other two to be conformed. The original executed copy must
be retained by you and one conformed copy must be sent to SBA immediately
after first disbursement, together with a guaranty fee equal to
$7,937.50. This fee should be paid by Lender within 90 days of the date
of this Authorization and may be charged to Borrower, only after Lender
has paid fee to SBA and initial disbursement made to Borrower. This fee
may be deducted from loan proceeds.
B. Copies of SBA Settlement Sheet, (Form 1050), are to be completed and
executed by Lender and Borrower to reflect each disbursement. Prompt
reporting of disbursements is necessary. Return the first two copies
("Denver FOD" copy and "Servicing Office" copy) to SBA.
C. Compensation Agreements (Form 159) shall be executed by Borrower, his
representatives and Lender and returned to SBA if Borrower has employed
an attorney, accountant or other representative, or if Borrower is
charged fees for services by Lender or an associate of Lender. If no such
fees have been charged, please write "None" and return the form, executed
by the Lender, to SBA.
D. The original copy of this Authorization (and documentation itemized
below, if any), shall be executed prior to first disbursement and
retained in the loan file by the Lender. (A copy of the Authorization,
amendments and itemized documents should be given to the Borrower.)
(1) SBA Form 148, Guaranty (3)
(2) SBA Form 155, Standby Agreement
(3) SBA Form 160, Corporate Resolution of Board of Directors
(4) SBA Form 652, Assurance of Compliance for Nondiscrimination
(5) SBA Form 722, Equal Opportunity Poster
(6) SBA Form 928, Mortgage (Participation)
(7) IRS Form 4506, Request for Copy or Transcript of Tax Form
2. This Authorization is subject to:
A. Provisions of the Guaranty Agreement(SBA Form 750) between Lender and SBA
dated February 22, 1980.
B. First disbursement of the loan being made not later than six (6) months,
and no disbursement being made later than twelve (12) months, from the
date of this Authorization, unless such time is extended pursuant to
prior written consent by SBA.
C. Receipt by Lender of evidence satisfactory to it in its sole discretion,
that there has been no unremedied adverse change since the date of the
Application, or since any of the preceding disbursements, in the
financial or any other conditions of Borrower, which would warrant
withholding or not making any such disbursement or any further
disbursement.
D. The representations made by Borrower in its loan application, the
requirements or conditions set forth in Lender's application form,
including the supporting documents thereto, the conditions set forth
herein and any future conditions imposed by Lender (with prior SBA
approval).
E. Prior to loan disbursement Lender and Borrower will comply with
provisions of SBA Policy Notice 9000-941, Obtaining IRS Tax Return
Information to Verify Financial Information Submitted in Program
Applications." Lender to follow IRS letter attached.
3. Terms of Loan:
A. Repayment terms, interest rate(s) and maturity:
(1) NOTE PAYABLE: Ten (10) years from date of Note, with interest at the
initial rate of eleven and one quarter percent (11.25%) and initial
installments, including principal and interest, each in the amount of
Four Thousand Eight Hundred Seventy-one Dollars ($4,871.00), payable
monthly, beginning on the first day of the second month from the date of
the Note, and the balance of principal and interest payable at maturity.
With the further provision that each said monthly installment shall be
applied first to interest accrued to the date of receipt of said
installment, and the balance, if any, to principal. Upon each interest
rate adjustment the monthly installment of principal and interest shall
be adjusted to amortize the loan over the originally stated maturity.
(2) This is a variable interest rate loan in which the interest rate will
fluctuate in accordance with the prime rate published in the Wall Street
Journal. The prime rate published as of January 11, 1996 in that
publication was eight and one half percent (8.5%). The interest rate
(spread) to be added to the prime rate on the beginning of each
adjustment period will be two and three quarters percent (2.75%).
(3) Quarterly Fluctuations: Shall be for three (3) full calendar months
Each adjustment period occurring on the first business day of the month
at least three (3) months from the date of Note hereof. Subsequent
adjustments shall be made on the first business day of the month
commencing a new quarterly period.
(4) The interest rate on this Note shall increase or decrease by adding
the interest rate
2
spread on the prime rate as of the beginning of each adjustment period.
Holder should give written notice to the Undersigned of each increase or
decrease in the interest rate within thirty days after the effective date
of each rate adjustment; however, the fluctuation of the interest rate is
not contingent on whether the notice is given.
(5) Borrower shall provide Lender with written notice of intent to prepay
part or all of this loan at least three (3) weeks prior to the
anticipated prepayment date. A prepayment shall be defined as any payment
made ahead of schedule that exceeds 20% of the then outstanding balance.
(6) If the Borrower is in default on payments when SBA purchases its
guaranteed portion, the rate of interest on the unguaranteed portion
shall become fixed at the rate in effect as of the initial date of
default. If the Borrower is not in default on payments when SBA purchases
its guaranteed portion, the rate of interest on the unguaranteed portion
shall be fixed at the rate in effect as of the initial date of purchase
by SBA.
Provided, however, in no event shall the amount of interest payment
hereunder, together with all amounts reserved, charged, or taken by the
Lender/SBA as compensation for fees, services, expenses incidental in the
making, negotiating or collection of the loan evidenced hereby exceed the
maximum rate of interest on the unpaid principal balance hereof allowable
by applicable law. In the event that any sum is collected, said sum shall
be applied to reduce the principal in an inverse order of maturity.
B. Use of Proceeds of Loan as follows:
(1) Approximately $350,000.00 for debt payments as follows:
a. Fleet Bank, S350,000.00
Note: Funds not disbursed as a result of minor variations in above
amounts may be disbursed as working capital.
C. Collateral:
Prior to initial disbursement, Lender shall be assured of the following
lien positions:
(1) First security interest (under UCC) in all machinery, equipment,
furniture, fixtures, inventory, general intangibles, and Accounts
Receivable, now owned, to be acquired with loan proceeds and hereinafter
acquired or created by Borrower, including all substitutions and
accessions thereto and the proceeds thereof. Said assets to be located at
all locations owned by borrowers. Lender to obtain a detailed listing of
collateral prior to disbursement of loan proceeds.
(2) Assignment of life insurance on Thomas W. DeJordy in the amount of
S350,000.00. (This must be the decreasing term type unless the Borrower
specifically requests in writing that he be permitted to assign existing
whole life or other permanent type of insurance.)
NOTE: Assignment of life insurance shall be an Absolute Collateral
Assignment properly acknowledged by Home Office of Insurer. Lender should
not be named as beneficiary of these policies. There shall be no purchase
of additional life insurance from business income or assets during the
time of the loan without prior written approval of Lender.
3
(3) Guaranty on SBA Form 148 of CLF 2, Inc., secured by the following:
First security interest (under UCC) in all machinery, equipment,
furniture, fixtures, inventory, general intangibles, and Accounts
Receivable, now owned, to be acquired with loan proceeds and hereinafter
acquired or created by Borrower, including all substitutions and
accessions thereto and the proceeds thereof.
(4) Guaranty on SBA Form 148 of CLF Franchise Corporation secured by the
following: First security interest (under UCC) in all machinery,
equipment, furniture, fixtures, inventory, general intangibles, and
Accounts Receivable, now owned, to be acquired with loan proceeds and
hereinafter acquired or created by Borrower, including all substitutions
and accessions thereto and the proceeds thereof.
(5) Guaranty on SBA Form 148 of Thomas W. DeJordy secured by the
following: Second mortgage on real property located at 174 Wentworth
Avenue, Cranston, RI, subject to lien of prior mortgage held by STM
Mortgage in the approximate balance of $181,000.00.
(6) Assignment of leases for all locations owned by the borrowers.
4. To further induce Lender to make and SBA to guarantee this Loan Lender and
SBA impose the following conditions:
A. Execution of all documents required in Item 1 above.
B. Reimbursable expenses - Borrower will, on demand, reimburse Lender for
any and all expenses incurred, or which may be hereafter incurred, by
Lender from time to time in connection with or by reason of Borrower's
application for, and the making and administration of the Loan.
C. Books Records and Reports - Borrower will at all times keep proper books
of account in a manner satisfactory to Lender/SBA. Borrower hereby
authorizes Lender/SBA to make or cause to be made, at Borrower's expense
and in such manner and at such times as Lender/SBA may require, (a)
inspection and audits of any books, records and paper; in the custody or
control of Borrower or others, relating to Borrower's financial or
business conditions, including the making of copies thereof and extracts
therefrom, and (b) inspections and the appraisals of any of Borrower's
assets.
Borrower will furnish to Lender/SBA for the 12 month period ending
December 31, 1995 and annually thereafter (no later than 3 months
following the expiration of any such period) and at such other times and
in such form as Lender/SBA may prescribe, Borrower's reviewed Balance
Sheet and Profit and Loss Statements.
Borrower hereby authorizes, all Federal, State and municipal authorities
to furnish reports of examinations, records and other information
relating to the conditions and affairs of Borrower and any desired
information from reports, returns, files and records of such authorities
upon request by Lender/SBA.
D. Borrower shall not execute any contracts for managemcut consulting
services without prior approval of Lender/SBA.
E. Distribution and Compensation - Borrower will not, without the prior
written consent of Lender/SBA, (a) if Borrower is a corporation, declare
or pay any dividend or make any distribution upon its capital stock, or
purchase or retire any of its capital stock, or consolidate or merge with
any other company or give any preferential treatment, make any advance,
directly
4
or indirectly, by way of loan, gift, bonus or otherwise, to any company
directly indirectly controlling or affiliated with or controlled by
Borrower, or any other company, or to any officer, director or employee
of Borrower, or of any such company, (b) if Borrower is a partnership or
individual, make any distribution of assets of the business of Borrower,
other than reasonable compensation for services, or give any preferential
treatment, make any advance, directly or indirectly, by way of loan,
gift, bonus or otherwise, to any partner or any of its employees, or to
any company directly or indirectly controlling or affiliated with or
controlled by Borrower, or any other company.
Additional Financial Reporting: In addition to the financial reporting
requirements above, the Borrower will furnish to Lender income tax
returns on all borrowers and guarantors on an annual basis within 90 days
of each period end.
F. Other Provisions:
(1) Prior to any disbursement, Lender must have satisfactory evidence
that an additional $200,000.00 of equity funds have been injected by the
investors into the subject business.
(2) Standby Agreement to be executed on SBA Form 155 by Thomas W. DeJordy
(Standby Creditor), in favor of Lender. Said Agreement shall cover the
debt or obligation owed by Borrower to Standby Creditor in the principal
amount of $9,500.00.
(3) Prior to first disbursement, on account of the loan, evidence
satisfactory to Lender that all licenses necessary for operation of
business have been issued or tentatively assured.
(4) Prior to first disbursement, Borrower to furnish executed lease
(satisfactory to Lender) covering the real property at all locations
owned by borrower. Said lease to include Landlord's Waiver.
(5) Assignment of lease, with right of reassignment to Lender/SBA
covering premises at all locations owned by borrower.
(6) Prior to first disbursement, the Lender must be in receipt of
evidence of the kind described below from an independent authoritative
source which is sufficient to indicate to the Lender that the property is
not in a special hazard area. If such evidence is not provided to the
Lender, the borrower must obtain, and maintain, Federal Flood Insurance
or other appropriate special hazard insurance in amounts and coverages
equal to the lesser of (1) the insurable value of the property or (2) the
maximum limit of coverage available. Evidence that required flood or
special hazard insurance has been acquired may be in the form of proof of
payment to any licensed insurance agent specifically relative to the
required flood or hazard insurance or a copy of the required flood or
hazard insurance policy which has been issued. Borrower will not be
eligible for either any future disaster assistance or SBA business loan
assistance if this flood or special hazard insurance is not maintained as
stipulated herein throughout the entire term of this loan.
As evidence that the property is not located within a special hazard area
subject to flooding, mudslides, erosions or earthquakes, the Lender may
rely on a determination of flood zone or special hazard area status by
the applicants property and casualty insurance company, a local
government agency or other authoritative source approved by SBA which
would ordinarily have knowledge of the special hazard area status for the
property being financed.
(7) Borrower shall provide and maintain hazard insurance (fire and
extended coverage)
5
in amounts and coverage equal to the lesser of (a) the amount of this
loan, (b) the insurable value of the property, or (c) the maximum limit
of coverage available. Lender shall be named loss payee of the insurance
(8) Agreement that there will be no further borrowing or leasing without
prior written consent of Lender.
(9) Borrower shall post SBA Form 722, "Equal Opportunity Poster," where
it will be clearly visible to employees, applicants for employment and
the general public.
(10) Prior to any disbursement, Borrower shall submit satisfactory
evidence to Lender that Borrower is incorporated and that it is in good
standing with the Secretary of State.
(11) Prior to any disbursement, Lender shall be in receipt of evidence
satisfactory to it that Borrower has installed and maintained an adequate
accounting system under the supervision of a qualified public accountant.
(12) Prior to first disbursement, Borrower to present satisfactory
evidence that all Federal and State taxes are current.
(13) Borrower shall not acquire by purchase or by lease, any additional
locations without prior written consent of Lender.
(14) Borrower covenants and warrants that:
(a) Borrower is in compliance with all applicable Federal and State
environmental laws, and regulations and that they will continue to
comply with all such laws and regulations in the future.
(b) No proceedings alleging violations of environmental laws are
pending on property owned or project property to be purchased,
leased or rented by Borrower.
(c) Borrower has no knowledge of hazardous waste contamination on
property owned or project property to be purchased, leased or rented
by Borrower.
(d) Borrower assumes all responsibility and all liability for toxic
substance cleanup resulting from any violations, past, present or
future, and agrees to indemnify the Lender and SBA for any and all
resulting liabilities or costs.
(15) Borrower agrees to pay a late charge equal to 5% of the payment
amount due if such payment is not received within ten days of the
due date. Funds received from the Borrower will be applied first to
interest to the date of receipt, then to principal and then to the
late fee.
(16) The Borrower recognizes such other conditions not inconsistent with
the provisions of the Authorization or of the Guarantee Agreement as
may be imposed by the Lender.
(17) Borrower certifies that no principal who owns at least 50% of the
voting interest of the company is delinquent more than 60 days under
the terms of any (a) administrative order, (b) court order, or (c)
repayment agreement that requires payment of child support.
(18) Lender to be in receipt of satisfactory evidence that $425,000.00
has already been injected into the business.
6
(19) Prior to disbursement, SBA to be in receipt and satisfactory review
of year end 1995, financial statements and tax returns from an
independent qualified source showing no adverse change.
G. Franchisor Agreement:
Assignment of Franchisee's interest in the Franchise Agreement for
security purposes with agreement of Franchisor that no termination of the
Franchise Agreement will be effective until 90 days after receipt by
Lender of a written notice thereof and further, with right of Lender to
cure any default or breach of Borrower which precipitated said
termination.
Subordination
Subordination by Franchisor of any and all rights under Franchise
Agreement in and to the loan collateral.
Provisions
(1) Prior to first disbursement, on account of the loan, satisfactory
evidence to Lender/SBA that a copy of the Franchise Agreement and
disclosure statement as required by the FTC has been submitted by
Borrower.
(2) In the event of default on the loan, payment of franchise fees,
royalties, advertising, etc., will be deferred until such time as the
Lender loan payments are brought current, deferment of aforementioned
fees shall not be cause for termination.
(3) Prior to disbursement, lender shall verify that Franchisor is
currently registered to sell franchises in the State of Rhode Island.
5. Parties Affected:
This Agreement shall be binding upon Borrower and Borrower's successors and
assigns. No provision stated herein shall be waived without the prior written
consent of SBA. This loan shall be administered as provided in the Guaranty
Agreement.
Philip Lader
----------------------------------
Administrator
U.S. Small Business Administration
Date: January 17, 1996 By:/s/ Paul A. Bouchard
---------------- -----------------------------
Paul A Bouchard
Supervisory Loan Specialist
On behalf of Lender:
Date: 2/28/96 By:/s/ James M. Roche
----------------- ------------------------------
Small Business Lending Manager
7
Borrower hereby agrees to the conditions imposed herein and further agrees
that the terms and conditions herein are for the benefit of, and may be
enforced by, Lender and SBA. This Authorization and Loan Agreement and
amendments constitute the Loan Agreement between Lender and Borrower.
Borrower further acknowledges: (1) that the Authorization is not a commitment
by Lender to make a loan to Borrower; (2) that the Authorization is solely
for the benefit of Lender and the SBA, with no third-party rights or benefits
arising therefrom; and (3) that payments by SBA to lender shall not apply to
the loan account of Borrower, nor in any way diminish the indebtedness under
its Note, nor the obligation of any personal guarantor of Note.
Date: 2/28/96 By: /s/Thomas W. DeJordy
-------- --------------------
Thomas W. DeJordy
President
NOTE: Corporate Borrowers must execute this Authorization, in corporate name,
by duly authorized officer, and seal must be affixed and duly attested;
partnership Borrowers must execute in firm name, together with signature of
all general partners.
8
EXHIBIT 10.9
U.S. Small-Business Administration
SBA LOAN NUMBER
GP 893 642 3000 PRO
NOTE
Providence, Rhode Island
------------------------
(City and State)
$ 350,000 (Date) February 28, 1996
- ----------------------- ------------------
For value received, the undersigned promises to pay to the order of
HOME LOAN AND INVESTMENT BANK, F.S.B.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Payee)
at its office in the city of Providence , State of Rhode Island
------------------ ----------------------
or at holder's option, at such other place as may be designated from time to
time by the holder
Three Hundred Fifty Thousand ($350,000.00) dollars,
- ------------------------------------------------------------------------
(Write our amount)
with interest on unpaid principal computed from the date of each advance to the
undersigned at the rate of variable percent per annum, payment to be made in
----------
installments as follows:
SEE EXHIBIT A ATTACHED HERETO
---------
If this Note contains a fluctuating interest rate, the notice provision is
not a pre-condition for fluctuation (which shall take place regardless of
notice. Payment of any installment of principal or interest owing on this Note
may be made prior to the maturity date thereof without penalty. Borrower shall
provide lender with written notice of intent to prepay part or all of this loan
at least three (3) weeks prior to the anticipated prepayment date. A prepayment
is any payment made ahead of schedule that exceeds twenty (20) percent of the
then outstanding principal balance. If borrower makes a prepayment and fails to
give at least three weeks advance notice of intent to prepay, then,
notwithstanding any other provision to the contrary in this note or other
document, borrower shall be required to pay lender three weeks interest on the
unpaid principal as of the date preceding such prepayment.
Page 1
The term Indebtedness as used herein shall mean the Indebtedness evidenced
by this Note, including principal, interest, and expenses, whether contingent,
now due or hereafter to become due and whether heretofore or contemporaneously
herewith or hereafter contracted. The term "Collateral" as used in this Note
shall mean any funds, guaranties, or other property or rights therein of any
nature whatsoever or the proceeds thereof which may have been, are, or hereafter
may be, hypothecated, directly or indirectly by the undersigned or others, in
connection with, or as security for, the Indebtedness or any part thereof. The
Collateral, and each part thereof, shall secure the Indebtedness and each part
thereof. The covenants and conditions set forth or referred to in any and all
instruments of hypothecation constituting the Collateral are hereby incorporated
in this Note as covenants and conditions of the undersigned with the same force
and effect as though such covenants and conditions were fully set forth herein.
The Indebtedness shall immediately become due and payable, without notice
or demand, upon the appointment of a receiver or liquidator, whether voluntary
or involuntary, for the undersigned or for any of its property, or upon the
filing of a petition by or against the undersigned under the provisions of any
State insolvency law or under the provisions of the Bankruptcy Reform Act of
1978, as amended, or upon the making by the undersigned of an assignment for the
benefit of its creditors. Holder is authorized to declare all or any part of the
Indebtedness immediately due and payable upon the happening of any of the
following events: (1) Failure to pay any part of the Indebtedness when due; (2)
nonperformance by the undersigned of any agreement with, or any condition
imposed by, Holder or Small Business Administration (hereinafter called "SBA"),
with respect to the Indebtedness; (3) Holder's discovery Of the undersigned's
failure in any application of the undersigned to Holder or SBA to disclose any
fact deemed by Holder to be material or of the making therein or in any of the
said agreements, or in any affidavit or other documents submitted in connection
with said application or the indebtedness, of any misrepresentation by, on
behalf of, or for the benefit of the undersigned; (4) the reorganization (other
than a reorganization pursuant to any of the provisions of the Bankruptcy Reform
Act of 1978, as amended) or merger or consolidation of the undersigned (or the
making of any agreement therefor) without the prior written consent of Holder;
(5) the undersigned's failure duly to account, to Holder's satisfaction, at
such time or times as Holder may require, for any of the Collateral, or proceeds
thereof, coming into the control of the undersigned; or (6) the institution of
any suit affecting the undersigned deemed by Holder to affect adversely its
interest hereunder in the Collateral or otherwise. Holder's failure to exercise
its rights under this paragraph shall not constitute a waiver thereof.
Upon the nonpayment of the Indebtedness, or any part thereof, when due,
whether by acceleration or otherwise. Holder is empowered to sell, assign, and
deliver the whole or any part of the Collateral at public or private sale,
without demand, advertisement or notice of the time or place of sale or of any
adjournment thereof, which are hereby expressly waived. After deducting all
expenses incidental to or arising from such sale or sales, Holder may apply the
residue of the proceeds thereof to the payment of the Indebtedness, as it shall
deem proper, returning the excess, if any, to the undersigned. The undersigned
hereby waives all right of redemption or appraisement whether before or after
sale.
Holder is further empowered to collect or cause to the collected or
otherwise to be converted into money all or any part of the Collateral, by suit
or otherwise, and to surrender, compromise, release, renew, extend, exchange, or
substitute any item of the Collateral in transactions with the undersigned or
any third party, irrespective of any assignment thereof by the undersigned, and
without prior notice to or consent of the undersigned or any assignee. Whenever
any item of the Collateral shall not be paid when due, or otherwise shall be in
default, whether or not the indebtedness, or any part thereof, has become due,
Holder shall have the same rights and powers with respect to such item of the
Collateral as are granted in this paragraph in case of nonpayment of the
Indebtedness, or any part thereof, when due. None of the rights, remedies,
privileges, or powers of Holder expressly provided for herein shall be
exclusive, but each of them shall be cumulative with and in addition to every
other right, remedy, privilege, and power now or hereafter existing in favor of
Holder, whether at law or equity, by statute or otherwise.
The undersigned agrees to take all necessary steps to administer,
supervise, preserve, and protect the Collateral; and regardless of any action
taken by Holder, there shall be no duty upon Holder in this respect. The
undersigned shall pay all expenses of any nature, whether incurred in or out of
court, and whether incurred before or after this Note shall become due at its
maturity date or otherwise, including but not limited to reasonable attorney's
fees and costs, which Holder may deem necessary or proper in connection with the
satisfaction of the indebtedness or the administration, supervision,
preservation, protection of (including, but not limited to, the maintenance of
adequate insurance) or the realization upon the Collateral Holder is authorized
to pay at any time and from time to time any or all of such expenses add the
amount of such payment to the amount of the Indebtedness, and charge interest
thereon at the rate specified herein with respect to the principal amount of
this Note.
The security rights of Holder and its assigns hereunder shall not be
impaired by Holder's sale, hypothecation or rehypothecation of any note of the
undersigned or any item of the Collateral, or by any indulgence, including but
not limited to (a) any renewal, extension, or modification which Holder may
grant with respect to the indebtedness or any part thereof, or (b) any
surrender, compromise, release, renewal, extension, exchange, or substitution
which Holder may grant in respect of the Collateral, or (c) any indulgence
granted in respect of any endorser, guarantor, or surety. The purchaser,
assignee, transferee, or pledgee of this Note, the Collateral, and guaranty, and
any other document (or any of them), sold, assigned, transferred, pledged, or
repledged, shall forthwith become vested with and entitled to exercise all the
powers and rights given by this Note and all applications of the undersigned to
Holder or SBA, as if said purchaser, assignee, transferee, or pledgee were
originally named as Payee in this Note and in said application or applications.
Page 2
This promissory note is given to secure a loan which SBA is making or in
which it is participating and, pursuant to Part 101 of the Rules and Regulations
of SBA (13 C.F.R. 101.1(d)), this instrument is to be construed and (when SBA is
the Holder or a party in interest) enforced in accordance with applicable
Federal law.
CAFE LA FRANCE, INC.
(corporate seal) By: /s/ Thomas W. DeJordy
----------------------------------
Thomas W. DeJordy
President
----------------------------------
- --------------------------------------------------------------------------------
Note--Corporate applicants must execute Note, in corporate name, by duly
authorized officer, and seal must the affixed and duly attested: partnership
applicants must execute Note in firm name, together with signature of a general
partner.
Page 3
U.S. GOVERNMENT PRINTING OFFICE: 1993 0-348-951
Exhibit A
1. NOTE PAYABLE: Ten (10) years from date of Note, with interest at the
initial rate of eleven and one-quarter percent (11.25%) in monthly
installments, including principal and interest, each in the amount of
Four Thousand Eight Hundred and Seventy-One Dollars ($4,871.00),
payable monthly, beginning on the first day of the second month
following the date of the note and the balance of principal and
interest payable at maturity. With the further provision that each said
monthly installment shall be applied first to interest accrued to the
date of receipt of said installment, and the balance, if any, to
principal. Upon each interest rate adjustment the monthly installment
of principal and interest shall be adjusted to amortize the loan over
the originally stated maturity.
2. This is a variable interest rate loan in which the interest rate will
fluctuate in accordance with the prime rate published in the Wall
Street Journal. Interest shall accrue on a 365 per annum basis for the
actual number of days elapsed. The prime rate published as of January
11, 1996 in that publication was eight and five percent (8.50%). The
interest rate (spread) to be added to the prime rate on the beginning
of each adjustment period will be two and three quarters percent
(2.75%).
3. Quarterly Fluctuations: Shall be for three (3) full calendar months.
Each adjustment period occurring on the first business day of January,
April, July and October.
4. The interest rate on this Note shall increase or decrease by adding the
interest rate spread on the prime rate as of the beginning of each
adjustment period.
Holder should give written notice to the Undersigned of each increase
or decrease in the interest rate within thirty (30) days after the
effective date of each rate adjustment; however, the fluctuation of the
interest rate is not contingent on whether the notice is given.
5. Borrower shall provide Lender with written notice of intent to prepay
part or all of this loan at least three (3) weeks prior to the
anticipated prepayment date. A prepayment shall be defined as any
payment made ahead of schedule that exceeds twenty (20%) percent of
the then outstanding balance.
6. If the Borrower is in default on payments when SBA purchases its
guaranteed portion, the rate of interest on the unguaranteed portion
shall become fixed at the rate in effect as of the initial date of
default. If the Borrower is not in default on payments when SBA
purchases its guaranteed portion, the rate of interest on the
unguaranteed portion shall be fixed at the rate in effect as of the
initial date of purchase by SBA.
Provided, however, in no event shall the amount of interest payment
hereunder, together with all amounts reserved, charged, or taken by the
Lender/SBA as compensation for fees, services, expenses incidental in
the making, negotiating or collection of the loan evidenced hereby
exceed the maximum rate of interest on, the unpaid principal balance
hereof allowable by applicable law. In the event that any sum is
collected, said sum shall be applied to reduce the principal in an
inverse order of maturity.
EXPIRATION DATE 12/31/93
EXHIBIT 10.l0
U.S. SMALL BUSINESS ADMINISTRATION
SECURITY AGREEMENT
1. CAFE LA FRANCE, INC. (hereinafter called "Debtor"),
------------------------------------------------
(Name)
216 Weybosset Street, Providence, Rhode Island 02903 , for value received
- --------------------------------------------------------------------------------
(Address)
hereby grants to HOME LOAN AND INVESTMENT BANK, F.S.B. ,
---------------------------------------------------------------
(Name)
244 Weybosset Street, Providence, Rhode Island 02903 (hereinafter called
- -------------------------------------------------------------
(Address)
"Secured Party"), a security interest in the property described below
(hereinafter collectively called "Collateral") to secure the payment of the
principal and interest on and all obligations under a note (hereinafter called
the "Note"), dated
February 28, 1996, of the Debtor payable to the order of the Secured Party, in
- -----------------
the principal amount of Three Hundred Fifty Thousand Dollars ($350,000), all
---------------------------- ----------
renewals and extensions of the Note, and all costs, expenses, advances and
liabilities which may be made or incurred by Secured Party in the disbursement,
administration and collection of the loan evidenced by the Note and in the
protection, maintenance and liquidation of the security interest hereby granted
with interest at the maximum legal rate on such costs, expenses, advances and
liabilities. The note and all other obligations secured hereby are herein
collectively called the "Liabilities."
2. The Collateral in which this security interest is granted is all of the
Debtor's property described below in reference to which an "X" or checkmark has
been placed in the box applicable thereto, together with all the proceeds and
products therefrom. If two such boxes are so marked, the security interest so
designated secures the purchase money from the loan used by the Debtor to
acquire title to the Collateral.
[X][X] a. All equipment and machinery, including power-driven machinery and
equipment, furniture and fixtures now owned or hereafter acquired,
together with all replacements thereof, all attachments, accessories,
parts and tools belonging thereto or for use in connection therewith.
[ ][ ] b. All passenger and commercial motor vehicles registered for use upon
public highways or streets, now owned or hereinafter acquired,
together with all replacements thereof, all attachments, accessories,
parts, equipment and tools belonging, thereto or for use in connection
therewith.
[X][X] c. All inventory, raw materials, work in process and supplies now owned
or hereinafter acquired.
[X][X] d. All accounts receivable now outstanding or hereafter arising.
[X][X] e. All contract rights and general intangibles now in force or hereafter
acquired.
3. Debtor shall not transfer, sell or assign Debtor's interest in the Collateral
nor permit any other security interest to be created thereon without Secured
Party's prior written approval, except that Debtor may sell the inventory listed
in Paragraph 2.c. hereof in the ordinary course of business on customary terms
and at usual prices and may collect as Secured Party's agent sums due on
accounts receivable and contract rights listed in Paragraphs 2.d. and 2.e. until
advised otherwise by Secured Party.
SBA FORM 1059 (10-86) REF SOP 70 50 Use 11-85 Edition Until Exhausted
4. Debtor shall keep, store or regularly garage all Collateral at locations
approved by Secured Party in writing.
5. Debtor shall not conduct business under any other name than that given above
nor change or reorganize the type of business entity under which it does
business except upon prior written approval of Secured Party. If such approval
is given, Debtor guarantees that all documents, instruments and agreements
demanded by Secured Party shall be prepared and filed at Debtor's expense before
such change of name or business entity occurs.
6. Debtor shall pay the filing and recording costs of any documents or
instruments necessary to perfect, extend, modify, or terminate the security
interest created hereunder, as demanded by Secured Party.
7. Debtor shall maintain all Collateral in good condition, pay promptly all
taxes, judgments, or changes of any kind levied or assessed theron, keep current
all rent due on premises where Collateral is located, and maintain insurance on
all collateral against such hazards, in such amounts and with such companies as
Secured Party may demand, all such insurance policies to be in the possession of
Secured Party and to contain a Lender's Loss Payable Clause naming Secured Party
in a manner satisfactory to Secured Party. Debtor hereby assigns to Secured
Party any proceeds of such policies and an unearned premiums thereon, and
authorizes and empowers Secured Party to collect such sums and to execute and
endorse in Debtor's name all proofs of loss, drafts, checks and any other
documents necessary to accomplish such collections, and any persons or entities
making payments to Secured Party under the terms of this Paragraph are hereby
relieved absolutely from any obligation to see to the application of any sums so
paid.
8. Debtor shall be in default hereunder if Debtor fails to perform any of the
liabilities imposed hereby or any other obligation required by the various
instruments or papers evidencing or securing this loan, or if the full balance
of the loan becomes immediately payable under the terms of such instruments,
either automatically or by declaration of the Secured Party. In the event of any
default, Secured Party may, in its own discretion, cure such default and, if it
does so, any expenditures made for such purpose shall be added to the principal
of the Note.
9. In the event of default, Debtor shall assemble and make available all
Collateral at any place designated by Secured Party. Debtor acknowledges being
advised of a constitutional right to a court notice and hearing to determine
whether, upon default, there is probable cause to sustain the validity of the
Secured Party's claim and whether the Secured Party is entitled to possession of
the Collateral and being so advised, Debtor hereby voluntarily gives up, waives
and surrenders any right to a notice and hearing to determine whether there is
probable cause to sustain the validity of Secured Party's claim. Any notices
required pursuant to any state or local law shall be deemed reasonable if mailed
by Secured Party to the persons entitled thereto at their last known addresses
at least ten days prior to disposition of the Collateral, and, in reference to a
private sale, need state only that Secured Party intends to negotiate such a
sale. Disposition of Collateral shall be deemed commercially reasonable if made
pursuant to a public offering advertised at least twice in a newspaper of
general circulation in the community where the Collateral. is located or by a
private sale for a sum equal to or in excess of the liquidation value of the
Collateral as determined by Secured Party.
10. All rights conferred on Secured Party hereby are in addition to those
granted to it by any state or local law or any other law. Failure or repeated
failure to enforce any rights hereunder shall not constitute an estoppel or
waiver of Secured Party's rights to exercise such rights accruing prior or
subsequent thereto. Secured Party shall not be liable for any loss to Collateral
in its possession, nor shall such loss diminish the debt due, even if the loss
is caused or contributed to by Secured Party's negligence.
IN WITNESS WHEREOF, The above-named Debtor has executed this Security Agreement
-----------------------------------------------------------
as a sealed instrument this 28th day of February, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CAFE LA FRANCE, INC.
-----------------------------------------
(corpoate seal) By: /s/ Thomas W. DeJordy
-----------------------------------------
Thomas W. DeJordy, President
-----------------------------------------
SBA Form 1059 (10-86) US Government Printing Office 1992-312-624/51734 Page 2
EXHIBIT 10.11
Expiration Date: 12-31-93
SBA LOAN NO.
GP 893 642 3000 PRO
U.S. SMALL BUSINESS ADMINISTRATION (SBA)
GUARANTY
February 28, 1996
------------------
In order to induce HOME LOAN AND INVESTMENT BANK, F.S B., (hereinafter
--------------------------------------
(SBA or other Lending Institution)
called "Lender") to make a loan or loan, or renewal or extension thereof, to
CAFE LA FRANCE, INC.
- --------------------------------------------------------------------------------
(hereinafter called "Debtor"), the Undersigned hereby unconditionally guarantees
to Lender, its successors and assigns, the due and punctual payment when due,
whether by acceleration or otherwise, in accordance with the terms thereof, of
the principal of and interest on and all other sums payable, or stated to be
payable, with respect to the note of the Debtor, made by then Debtor to Lender,
dated February 28, 1996 in the principal amount of $350,000, with interest at
----------------- ---------
the rate of variable per cent per annum. Such note, and the interest thereon and
--------
all other sums payable with respect thereto are hereinafter collectively called
"Liabilities." As security for the performance of this guaranty the Undersigned
hereby mortgages, pledges, assigns, transfers and delivers to Lender certain
collateral (if any), listed in the schedule on the reverse side hereof. The term
"collateral" as used herein shall mean any funds, guaranties, agreements or
other property or rights or interests of any nature whatsoever, or the proceeds
thereof, which may have been, are, or hereinafter may be, mortgaged, pledged,
assigned, transferred or delivered directly or indirectly by or on behalf of the
Debtor or the Undersigned or any other party to Lender or to the holder of the
aforesaid note of the Debtor, or which may have been, are, or hereafter may be
held by any party as trustee or otherwise, as security, whether immediate or
underlying, for the performance of this guaranty or the payment of the
Liabilities or any of them or any security therefor.
The Undersigned waives any notice of the incurring by the Debtor at any
time of any of the Liabilities, and waives any and all presentment, demand,
protest or notice of dishonor, nonpayment, or other default with respect to any
of the Liabilities and any obligation of any party at any time comprised in the
collateral. The Undersigned hereby grants to Lender full power, in its
uncontrolled discretion and without notice to the undersigned, but subject to
the provisions of any agreement between the Debtor or any other party and Lender
at the time in force, to deal in any manner with the Liabilities and the
collateral, including, but without limiting the generality of the foregoing, the
following powers:
(a) To modify or otherwise change any terms of all or any part of the
Liabilities or the rate of interest thereon (but not to increase the
principal amount of the note of the Debtor to Lender), to grant any
extension or renewal thereof and any other indulgence with respect
thereto, and to effect any release, compromise or settlement with
respect thereto;
(b) To enter into any agreement of forbearance with respect to all or any
part of the Liabilities, or with respect to all or any part of the
collateral, and to change the terms of any such agreement;
(c) To forbear from calling for additional collateral to secure any of the
Liabilities or to secure any obligation comprised in the collateral;
(d) To consent to the substitution, exchange, or release of all or any
part of the collateral, whether or not the collateral, if any,
received by Lender upon any such substitution, exchange, or release
shall be of the same or of a different character or value than the
collateral surrendered by Lender;
(e) In the event of the nonpayment when due, whether by acceleration or
otherwise, of any of the Liabilities, or in the event of default in
the performance of any obligation comprised in the collateral, to
realize on the collateral or any part thereof, as a whole or in such
parcels or subdivided interest as Lender may elect, at any public or
private sale or sales, for cash or on credit or for future delivery,
without demand, advertisement, or notice of the time or place of sale
or any adjournment thereof (the Undersigned hereby waiving any such
demand, advertisement and notice to the extent permitted by law), or
by foreclosure or otherwise, or to forbear from realizing thereon, all
as Lender in its uncontrolled discretion may deem proper, and to
purchase all or any part of the collateral for its own account at any
such sale or foreclosure, such powers to be exercised only to the
extent permitted by law.
The obligations of the Undersigned hereunder shall not be released,
discharged or in any way affected, nor shall the Undersigned have any rights or
recourse against Lender, by reason of any action Lender may take or omit to take
under the foregoing powers.
In case the Debtor shall fail to pay all or any part of the Liabilities
when due, whether by acceleration or otherwise, according to the terms of said
note, the Undersigned, immediately upon the written demand of Lender, will pay
to Lender the amount due and unpaid by the Debtor as aforesaid, in like manner
as if such amount constituted the direct and primary obligation of the
Undersigned. Lender shall not be required, prior to any such demand on, or
payment by, the Undersigned, to make any demand upon or pursue or exhaust any of
its rights or remedies against the Debtor or others with respect to the payment
of any any of the Liabilities, or to pursue or exhaust any of its rights or
remedies with respect to any part of the collateral. The Undersigned shall have
no right to subrogation whatsoever with respect to the Liabilities or the
collateral unless and until Lender shall have received full payment of all the
Liabilities.
The obligations of the Undersigned hereunder, and the rights of Lender in
the collateral, shall not be released, discharged or in any way affected, nor
shall the Undersigned have any rights against Lender: by reason of the fact that
any of the collateral may be in default at the time of acceptance thereof by
Lender or later; nor by reason of the fact that a valid lien in any of the
collateral may not be conveyed to, or created in favor or, Lender; nor by reason
of the fact that any of the collateral may be subject to equities or defenses or
claims in favor of others or may be invalid or defective in any way; nor by
reason of the fact that any of the Liabilities may be invalid for any reason
whatsoever; nor by reason of the fact that the value of any of the collateral,
or the financial condition of the Debtor or any obligor under or guarantor of
any of the collateral, may not have been correctly estimated or may have changed
or may hereafter change; nor by reason of any deterioration, waste, or loss by
fire, theft, or otherwise of any of the collateral, unless such deterioration,
waste, or loss be caused by the willful act or willful failure to act of Lender.
The Undersigned agrees to furnish Lender, or the holder of the aforesaid
note of the Debtor, upon demand, but not more often than semiannually, so long
as any part of the indebtedness under such note remains unpaid, a financial
statement setting forth, in reasonable detail, the assets, liabilities, and net
worth of the Undersigned.
The Undersigned acknowledged and understands that if the Small Business
Administration (SBA) enters into, has entered into, or will enter into, a
Guaranty Agreement, with Lender or any other lending institution, guaranteeing a
portion of Debtor's Liabilities, the Undersigned agrees that it is not a
coguarantor with SBA and shall have no right of contribution against SBA. The
Undersigned further agrees that all liability hereunder shall continue
notwithstanding payment by SBA under its Guaranty Agreement to the other lending
institution.
The term "Undersigned" as used in this agreement shall mean the signer or
signers of this agreement, and such signers, if more than one, shall be jointly
and severally liable hereunder. The Undersigned further agrees that all
liability hereunder shall continue notwithstanding the incapacity, lack of
authority, death, or disability of any one or more of the Undersigned, and that
any failure by Lender or its assigns to file or enforce a claim against the
estate of any of the Undersigned shall not operate to release any other of the
Undersigned from liability hereunder. The failure of any other person to sign
this guaranty shall not release or affect the liability of any signer hereof.
CLF FRANCHISE CORPORATION
(corporate seal) By: /s/ Thomas W. DeJordy
----------------------------------
Thomas W. DeJordy, President
CLF 2, INC.
----------------------------------
(corporate seal) By: /s/ Thomas W. DeJordy
----------------------------------
Thomas W. DeJordy, President
- --------------
NOTE:--Corporate guarantors must execute guaranty in corporate name, by duly
authorized officer, and seal must be affixed and duly attested; partnership
guarantors must execute guaranty in firm name, together with signature of a
general partner. Formally executed guaranty is to be delivered at the time of
disbursement of loan.
(LIST COLLATERAL SECURING THE GUARANTY)
EXPIRATION DATE 12/31/93
EXHIBIT 10.12
U. S. SMALL BUSINESS ADMINISTRATION
SECURITY AGREEMENT
1. CLF 2, INC. (hereinafter called "Debtor"),
- --------------------------------------------------
(Name)
216 Weybosset Street, Providence, Rhode Island 02903, for value received,
- -------------------------------------------------------------
(Address)
hereby grants to HOME LOAN AND INVESTMENT BANK, F.S.B. ,
- --------------------------------------------------------------------------------
(Name)
244 Weybosset Street, Providence, Rhode Island 02903 (hereinafter called
- --------------------------------------------------------------------------------
(Address)
"Secured Party"), a security interest in the property described below
(hereinafter collectively called "Collateral") to secure the payment of the
principal and interest on and all obligations under a note (hereinafter called
the "Note"), dated February 28, 1996, of Cafe La France, Inc. payable to the
------------------
order of the Secured Party, in the principal amount of Three Hundred Fifty
-------------------------
Thousand Dollars (S350,000), all renewals and extensions of the Note, and all
- -----------------------------
costs, expenses, advances and liabilities which may be made or incurred by
Secured Party in the disbursement, administration and collection of the loan
evidenced by the Note and in the protection, maintenance and liquidation of the
security interest hereby granted with interest at the maximum legal rate on such
costs, expenses, advances and liabilities. The note and all other obligations
secured hereby are herein collectively called the "Liabilities."
2. The Collateral in which this security interest is granted is all of the
Debtor's property described below in reference to which an "X" or checkmark has
been placed in the box applicable thereto, together with all the proceeds and
products therefrom. If two such boxes are so marked, the security interest so
designated secures the purchase money from the loan used by the Debtor to
acquire title to the Collateral.
[x] [x] a. All equipment and machinery, including power-driven machinery and
equipment, furniture and fixtures now owned or hereafter acquired,
together with all replacements thereof, all attachments,
accessories, parts and tools belonging thereto or for use in
connection therewith.
[ ] [ ] b. All passenger and commercial motor vehicles registered for use upon
public highways or streets, now owned or hereinafter acquired,
together with all replacements thereof, all attachments,
accessories, parts, equipment and tools belonging thereto or for use
in connection therewith.
[x] [x] c. All inventory, raw materials, work in process and supplies now owned
or hereinafter acquired.
[x] [x] d. All accounts receivable now outstanding or hereafter arising.
[x] [x] e. All contract rights and general intangibles now in force or
hereafter acquired.
3. Debtor shall not transfer, sell or assign Debtors interest in the Collateral
nor permit any other security interest to be created thereon without Secured
Party's prior written approval, except that Debtor may sell the inventory listed
in Paragraph 2.c. hereof in the ordinary course of business on customary terms
and at usual prices and may collect as Secured Party's agent sums due on
accounts receivable and contract rights listed in Paragraphs 2.d. and 2.e. until
advised otherwise by Secured Party.
4. Debtor shall keep, store or regularly garage all Collateral at locations
approved by Secured Party in writing.
5. Debtor shall not conduct business under any other name than that given above
nor change or reorganize the type of business entity under which it does
business except upon prior written approval of Secured Party. If such approval
is given, Debtor guarantees that all documents, instruments and agreements
demanded by Secured Party shall be prepared and filed at Debtor's expense before
such change or name or business entity occurs.
6. Debtor shall pay the filing and recording costs of any documents or
instruments necessary to perfect, extend, modify, or terminate the security
interest created hereunder, as demanded by Secured Party.
7. Debtor shall maintain all Collateral in good condition, pay promptly all
taxes, judgments, or changes of any kind levied or assessed thereon, keep
current all rent due on premises where Collateral is located, and maintain
insurance on all Collateral against such hazards, in such amounts and with such
companies as Secured Party may demand, an such insurance policies to be in the
possession of Secured Party and to contain a Lender's Loss Payable Clause naming
Secured Party in a manner satisfactory to Secured Party. Debtor hereby assigns
to Secured Party any proceeds of such policies and an unearned premiums thereon,
and authorizes and empowers Secured Party to collect such sums and to execute
and endorse in Debtor's name all proofs of loss, drafts, checks and any other
documents necessary to accomplish such collections, and any persons; or entities
making payments to Secured Party under the terms of this Paragraph are hereby
relieved absolutely from any obligation to see to the application of any sums so
paid.
8. Debtor shall be in default hereunder if Debtor fails to perform any of the
liabilities imposed hereby or any other obligation required by the various
instruments or papers evidencing or securing this loan, or if the full balance
of the loan becomes immediately payable under the terms of such instruments,
either automatically or by declaration of the Secured Party. In the event of any
default, Secured Party may, in its own discretion, cure such default and, if it
does so, any expenditures made for such purpose shall be added to the principal
of the Note.
9. In the event of default, Debtor shall assemble and make available all
Collateral at any place designated by Secured Party. Debtor acknowledges being
advised of a constitutional right to a court notice and hearing to determine
whether, upon default, there is probable cause to sustain the validity of the
Secured Party's claim and whether the Secured Party is entitled to possession of
the Collateral and being so advised, Debtor hereby voluntarily gives up, waives
and surrenders any right to a notice and hearing to determine whether there is
probable cause to sustain the validity of Secured Party's claim. Any notices
required pursuant to any state or local law shall be deemed reasonable if mailed
by Secured Party to the persons entitled thereto at their last known addresses
at least ten days prior to disposition of the Collateral, and, in reference to a
private sale, need state only that Secured Party intends to negotiate such a
sale. Disposition of Collateral shall be deemed commercially reasonable if made
pursuant to a public offering advertised at least twice in a newspaper of
general circulation in the community where the Collateral is located or by a
private sale for a sum equal to or in excess of the liquidation value of the
Collateral as determined by Secured Party.
10. All rights conferred on Secured Party hereby are in addition to those
granted to it by any state or local law or any other law. Failure or repeated
failure to enforce any rights hereunder shall not constitute an estoppel or
waiver of Secured Party's rights to exercise such rights accruing prior or
subsequent thereto. Secured Party shall not be liable for any loss to Collateral
in its possession, nor shall such loss diminish the debt due, even if the loss
is caused or contributed to by Secured Party's negligence.
IN WITNESS WHEREOF, The above-named Debtor has executed this Security
-------------------------------------------------------
Agreement as a sealed instrument this 28th day of February, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CLF 2, INC.
----------------------------------
(corporate seal)
By: /s/ Thomas W. DeJordy
----------------------------------
Thomas W. DeJordy, President
----------------------------------
Page 2
EXPIRATION DATE 12/31/93
EXHIBIT 10.13
U. S. SMALL BUSINESS ADMINISTRATION
SECURITY AGREEMENT
1. CLF FRANCHISE CORPORATION (hereinafter called "Debtor"),
- --------------------------------------------------
(Name)
216 Weybosset Street, Providence, Rhode Island 02903, for value received,
- --------------------------------------------------------------------------------
(Address)
hereby grants to HOME LOAN AND INVESTMENT BANK, F.S.B. ,
- --------------------------------------------------------------------------------
(Name)
244 Weybosset Street, Providence, Rhode Is1and 02903 (hereinafter called
- -------------------------------------------------------------
(Address)
"Secured Party"), a security interest in the property described below
(hereinafter collectively called "Collateral") to secure the payment of the
principal and interest on and all obligations under a note (hereinafter called
the "Note"), dated February 28, 1996, Cafe La France, Inc. payable to the order
------------------
of the Secured Party, in the principal amount of Three Hundred Fifty Thousand
----------------------------
Dollars ($350,000), all renewals and extensions of the Note, and all costs,
- -------------------
expenses, advances and liabilities which may be made or incurred by Secured
Party in the disbursement, administration and collection of the loan evidenced
by the Note and in the protection, maintenance and liquidation of the security
interest hereby granted with interest at the maximum legal rate on such costs,
expenses, advances and liabilities. The note and all other obligations secured
hereby are herein collectively called the "Liabilities."
2. The Collateral in which this security interest is granted is all of the
Debtor's property described below in reference to which an "X" or checkmark has
been placed in the box applicable thereto, together with all the proceeds and
products therefrom. If two such boxes are so marked, the security interest so
designated secures the purchase money from the loan used by the Debtor to
acquire title to the Collateral.
[x] [x] a. All equipment and machinery, including power-driven machinery and
equipment, furniture and fixtures now owned or hereafter acquired,
together with all replacements thereof, all attachments, accessories,
parts and tools belonging thereto or for use in connection therewith.
[ ] [ ] b. All passenger and commercial motor vehicles registered for use upon
public highways or streets, now owned or hereinafter acquired,
together with all replacements thereof, all attachments, accessories,
parts, equipment and tools belonging thereto or for use in connection
therewith.
[x] [x] c. All inventory, raw materials, work in process and supplies now owned
or hereinafter acquired.
[x] [x] d. All accounts receivable now outstanding or hereafter arising.
[x] [x] e. All contract rights and general intangibles now in force or hereafter
acquired.
3. Debtor shall not transfer, sell or assign Debtors interest in the Collateral
nor permit any other security interest to be created thereon without Secured
Party's prior written approval, except that Debtor may sell the inventory listed
in Paragraph 2.c. hereof in the ordinary course of business on customary terms
and at usual prices and may collect as Secured Party's agent sums due on
accounts receivable and contract rights listed in Paragraphs 2.d. and 2.e. until
advised otherwise by Secured Party.
4. Debtor shall keep, store or regularly garage all Collateral at locations
approved by Secured Party in writing.
5. Debtor shall not conduct business under any other name than that given above
nor change or reorganize the type of business entity under which it does
business except upon prior written approval of Secured Party. If such approval
is given, Debtor guarantees that all documents, instruments and agreements
demanded by Secured Party shall be prepared and filed at Debtor's expense
before such change of name or business entity occurs.
6. Debtor shall pay the filing and recording costs of any documents or
instruments necessary to perfect, extend, modify, or terminate the security
interest created hereunder, as demanded by Secured Party.
7. Debtor shall maintain all Collateral in good condition, pay promptly all
taxes, judgments, or changes of any kind levied or assessed thereon, keep
current all rent due on premises where Collateral is located, and maintain
insurance on all Collateral against such hazards, in such amounts and with such
companies as Secured Party may demand, all such insurance policies to be in the
possession of Secured Party and to contain a Lender's Loss Payable Clause naming
Secured Party in a manner satisfactory to Secured Party. Debtor hereby assigns
to Secured Party any proceeds of such policies and all unearned premiums
thereon, and authorizes and empowers Secured Party to collect such sums and to
execute and endorse in Debtor's name all proofs of loss, drafts, checks and any
other documents necessary to accomplish such collections, and any persons or
entities making payments to Secured Party under the terms of this Paragraph are
hereby relieved absolutely from any obligation to see to the application of any
sums so paid.
8. Debtor shall be in default hereunder if Debtor fails to perform any of the
liabilities imposed hereby or any other obligation required by the various
instruments or papers evidencing or securing this loan, or if the full balance
of the loan becomes immediately payable under the terms of such instruments,
either automatically or by declaration of the Secured Party. In the event of any
default, Secured Party may, in its own, discretion, cure such default and, if it
does so, any expenditures made for such purpose shall be added to the principal
of the Note.
9. In the event of default, Debtor shall assemble and make available all
Collateral at any place designated by Secured Party. Debtor acknowledges being
advised of a constitutional right to a court notice and hearing to determine
whether, upon default, there is probable cause to sustain the validity of the
Secured Party's claim and whether the Secured Party is entitled, to possession
of the Collateral and being so advised, Debtor hereby voluntarily gives up,
waives and surrenders any right to a notice and hearing to determine whether
there is probable cause to sustain the validity of Secured Party's claim. Any
notices required pursuant to any state or local law shall be deemed reasonable
if mailed by Secured Party to the persons entitled thereto at their last known
addresses at least ten days prior to disposition of the Collateral, and, in
reference to a private sale, need state only that Secured Party intends to
negotiate such a sale. Disposition of Collateral shall be deemed commercially
reasonable if made pursuant to a public offering advertised at least twice in a
newspaper of general circulation in the community where the Collateral is
located or by a private sale for a sum equal to or in excess of the liquidation
value of the Collateral as determined by Secured Party.
10. All rights conferred on Secured Party hereby are in addition to those
granted to it by any state or local law or any other law. Failure or repeated
failure to enforce any rights hereunder shall not constitute an estoppel or
waiver of Secured Party's rights to exercise such rights accruing prior or
subsequent thereto. Secured Party shall not be liable for any loss to Collateral
in its possession, nor shall such loss diminish the debt due, even if the loss
is caused or contributed to by Secured Party's negligence.
IN WITNESS WHEREOF, The above-named debtor has executed this Security
-------------------------------------------------
Agreement as a sealed instrument this 28th day of February, 1996.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CLF FRANCHISE CORPORATION
---------------------------------
(corporate seal) By: /s/ Thomas W. DeJordy
---------------------------------
Thomas W. DeJordy, President
Page 2
EXHIBIT 10.14
October 23, 1996
Home Loan and Investment Bank
244 Weybosset Street
Providence, RI 02889
ATTN: James M. Roche, Small
Business Banking Manager
Re: Cafe la france
Dear Jim,
Pursuant to that certain Authorization and Loan Agreement dated February
28, 1996 (the "Loan Agreement") by and among Home Loan and Investment Bank,
F.S.B. ("Lender"), the U.S. Small Business Administration ("SBA") and Cafe la
france, Inc., a Rhode Island corporation ("Borrower"), Lender loaned to Borrower
the principal amount of $350,000 subject to the terms and conditions of the Loan
Agreement and certain related documents, including but not limited to Borrower's
promissory note to Lender in the principal amount of $350,000 (the "Note") and a
Security Agreement dated February 28, 1996 between Borrower and Lender (the
"Security Agreement") (the Loan Agreement, the Note, the Security Agreement and
any related documents including guarantees by Borrower's affiliates are
hereinafter referred to as the "Loan Documents").
Certain of the Loan Documents contain representations that Borrower will
not acquire any additional locations without Lender's prior consent (Section
4.F.13 of the Loan Agreement), that Borrower will not undertake further
borrowing without Lender's prior consent (Section 4.F.8 of the Loan Agreement),
and that Borrower will not reorganize or merge with any other corporation
without Lender's prior consent (Section 4.E of the Loan Agreement; Paragraph
4(4) of the Note; Section 5 of the Security Agreement).
Borrower has disclosed orally to Lender and hereby notifies Lender in
writing of the following occurrences and events which may require consent of the
Lender under the
Loan Documents and requests Lender's consent to the following and waiver of any
defaults that any of the following may constitute under the Loan Documents:
1. Borrower intends to reorganize as a Delaware corporation pursuant to
the Agreement and Plan of Merger and Reorganization attached hereto as
Exhibit A.
2. Borrower's Delaware successor corporation intends to close a $600,000
private placement of 12% Promissory Notes and Warrants to purchase common
stock pursuant to the Borrower's Private Offering Memorandum attached
hereto as Exhibit B.
3. Borrower's subsidiary CLF2, Inc. ("CLF2") acquired an additional
location known as The Village Bean on August 1, 1996 pursuant to the
agreement attached hereto as Exhibit C, in connection with which CLF2
received a loan of $50,000 pursuant to the promissory note attached
hereto as Exhibit D which loan has been paid.
4. Borrower has entered into a letter of intent with Schneider
Securities, Inc. to undertake a public offering of common stock which is
expected to occur in 1997.
Your signature below will constitute your acknowledgment of the foregoing
and your consent to such actions and waiver of any defaults the same may
constitute under Loan Documents. We appreciate your willingness to work with us
as our business continues to grow and expand.
Very truly yours,
/s/ Thomas W. DeJordy
Thomas W. DeJordy
ACKNOWLEDGED AND AGREED:
Home Loan and Investment Bank
By:/s/ James M. Roche
James M. Roche
Attachments:
Exhibit A: Agreement and Plan of Merger and Reorganization
Exhibit B: Private Offering Memorandum dated September 12, 1996
Exhibit C: Agreement for the purchase of The Village Bean dated
August 1, 1996
Exhibit D: Promissory Note in the principal amount of $50,000 [PAID]
EXHIBIT 10.15
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED
PURSUANT TO THE PROVISIONS OF THAT ACT OR AN
OPINION OF COUNSEL TO THE MAKER IS OBTAINED
STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION
12% UNSECURED SUBORDINATED PROMISSORY NOTE
$(Amoumt) November 15, 1996
Providence, Rhode Island
FOR VALUE RECEIVED, the undersigned, CAFE LA FRANCE, INC., a Delaware
corporation (the "Maker"), promises to pay to or registered assigns (the
"Holder"), the principal sum of Dollars ($) upon the earlier of (i) one year
from the date hereof or (ii) 10 days after the successful completion of an
initial public offering of the Maker's common stock (the "Maturity Date"),
together with interest on the outstanding principal balance of this Note from
the date hereof until fully paid at a simple interest rate of twelve percent
(12%) per annum.
Interest shall be calculated on the basis of the actual number of days
elapsed over a year of three hundred and sixty (360) days.
The entire principal amount hereof, together with all interest hereon,
shall be due and payable on the Maturity Date or upon the acceleration of this
Note following the occurrence of an Event of Default, as that term is defined
below, whichever shall first occur. Upon the occurrence of any Event of Default,
the Holder shall have the right to declare the unpaid principal of and interest
on this Note to be forthwith due and payable.
The principal hereof and interest hereon shall be payable in lawful
money of the United States of America, at the Maker's principal office in
Providence, Rhode Island or at such other place at the Holder hereof may
designate in writing to the Maker. The Maker may prepay this Note in full or in
part at any time without premium or penalty.
The Holder agrees that the Note may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except to a person who, in the opinion of
counsel to the Maker, is a person to whom the Note may legally be transferred
without registration under the Securities Act of 1933, as amended the (the "1933
Act"), and then only against receipt of an agreement of such person to comply
with the provisions of this paragraph with respect to any resale or other
disposition of the Note.
The Maker covenants and agrees that, so long as this Note shall be
outstanding, it will:
(i) Promptly pay and discharge all lawful taxes, assessments,
and governmental charges or levies imposed upon the Maker or upon its income and
profits, provided, however, that the Maker shall not be required to pay and
discharge any such tax, assessment, charge or levy so long as the validity
thereof shall be contested in good faith by appropriate proceedings and the
Maker shall set aside on its books adequate reserves with respect to any such
tax, assessment, charge, or levy so contested;
(ii) Do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence, rights and franchises
and comply with all laws applicable to the Maker as its counsel may advise;
(iii) At all times keep true and correct books, records and
accounts.
This Note shall become and be due and payable upon written demand made
by the Holder hereof if one or more of the following events (each, an "Event of
Default"), shall happen and be continuing: (i) default in the payment of the
principal and interest on this Note when and as the same shall become due and
payable, whether by acceleration or otherwise; (ii) default in the due
observance or performance of any covenant, condition or agreement on the part of
the Maker to be observed or performed pursuant to the terms hereof, if such
default shall continue uncured for 30 days after written notice, specifying such
default, shall have been given to the Maker by the Holder; (iii) application
for, or consent to, the appointment of a receiver, trustee or liquidator of the
Maker or of its property; (iv) admission in writing of the Maker's inability to
pay its debts as they mature; (v) general assignment by the Maker for the
benefit of creditors; (vi) filing by the Maker of a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization, or an arrangement
with creditors; or (vii) entering against the Maker of a court order approving a
petition filed against it under the Federal Bankruptcy laws, which order shall
not have been vacated or set aside or otherwise terminated within 120 days. The
Maker agrees that notice of the occurrence of any Event of Default will be
promptly given to the Holder at his registered address by certified mail. In
case any Event of Default shall happen and be continuing, the Holder may proceed
to protect and enforce his rights by suit in the specific performance of any
covenant or agreement contained in this Note or in aid of the exercise of any
power granted in this Note or may proceed to enforce the payment of this Note or
to enforce any other legal or equitable rights as such Holder may have.
The Maker waives presentment for payment, protest and demand, and
notice of protest, demand and/or dishonor and nonpayment of this Note.
2
The Maker may consider and treat the person in whose name this Note
shall be registered as the absolute owner thereof for all purposes whatsoever
(whether or not this Note shall be overdue), and the Maker shall not be affected
by any notice to the contrary. The registered owner of the Note shall have the
right to transfer it by assignment, subject to the provisions elsewhere
contained herein, and the transferee thereof shall, upon his registration as the
owner of this Note, become vested with all the powers and rights of the
transferor. Registration of any new owner shall take place upon presentation of
this Note to the Maker at its principal offices, together with a duly
authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Maker of such transfer and of his address and to
submit appropriate evidence regarding the transfer so that this Note may be
registered in the name of the transferee. This Note is transferable only on the
books of the Maker by the Holder hereof, in person or by his attorney, on the
surrender hereof, duly endorsed. Communications sent to any registered owner
shall be effective as against all holders or transferees of the Note not
registered at the time of sending the communication.
Payments of interest and principal shall be made to the Holder of this
Note upon presentation of this Note on or after the Maturity Date. No interest
shall be due on this Note for such period of time as may elapse between the
Maturity Date and the date of presentation.
The Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Maker, either at law or in equity, and the rights of the
Holder are limited to those expressed in this Note.
Upon receipt by the Maker of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Note, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Note, if mutilated, the Maker shall execute
and deliver a new Note of like tenor and date. Any such new Note executed and
delivered shall constitute an additional contractual obligation on the part of
the Maker whether or not this Note so lost, stolen, destroyed or mutilated shall
be at any time enforceable by anyone.
This Note shall be construed and enforced in accordance with the laws
of the State of Delaware.
THIS NOTE SHALL BE UNSECURED.
In no event shall the amount due or payable hereunder exceed the
maximum rate of interest allowed by applicable law, and in the event any such
payment is inadvertently paid by the Maker or inadvertently received by the
Holder, then such excess sum shall be credited as a payment of principal, unless
the Maker shall notify the Holder, in writing, that the Maker elects to have
such excess sum refunded to it forthwith. It is the express intent hereof that
the Maker not pay and the Holder to receive, directly or indirectly, in any
manner whatsoever, interest in excess of that which may be lawfully paid by the
Maker under applicable law.
3
Payment of this Note is subordinate to payment in full of all "senior
indebtedness" of the Maker, now existing or hereafter arising. For purposes of
this Note, "senior indebtedness" means all obligations of the Maker for money
borrowed to any banks, financing companies, factors, or other similar lenders.
IN WITNESS WHEREOF, the undersigned Maker has caused this to be
executed by its duly authorized corporate officer as of the day and year first
above written.
MAKER:
CAFE LA FRANCE, INC.
By:______________________________
Title:____________________________
4
EXHIBIT 10.16
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. NEITHER THE WARRANT NOR SUCH SECURITIES CAN BE OFFERED OR SOLD EXCEPT
PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT, OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
CAFE LA FRANCE, INC.
NONTRANSFERABLE COMMON STOCK PURCHASE WARRANT
No. (Number) (Units) Units
THIS NONTRANSFERABLE COMMON STOCK PURCHASE WARRANT, for value received,
entitles or assigns (the "Holder"), to subscribe for and purchase from CAFE LA
FRANCE, INC., a Delaware corporation (the "Company"), upon the terms and
conditions set forth herein, for a period of 60 days (the "Exercise Period")
beginning 13 months after the successful completion of an initial public
offering of common stock by the Company, that number of shares of the Company's
common stock, par value $.01 per share ("Common Stock") determined by dividing
$18,750 by the price per share of Common Stock offered to the public in said
initial public offering by the Company, multiplied by the number of Units
specified above (the "Shares"). This Warrant will be exercisable at a price per
share equal to $.01 (the "Exercise Price").
1. Exercise of Warrant. This Warrant may be exercised during the
Exercise Period as to the whole or any lesser number of Shares, by the surrender
of this Warrant (together with the duly executed Election in the form attached
hereto as Exhibit A) to the Company at its office or at such other place as is
designated in writing by the Company, together with a check payable to the order
of the Company in an amount equal to the Exercise Price multiplied by the number
of Shares for which this Warrant is being exercised.
2. Record Holder of Warrants. As soon as practicable after exercise of
this Warrant, the Company shall issue and deliver to the Holder a certificate or
certificates for the Shares registered in the name of the Holder or its
designee. Upon exercise of this Warrant, the Holder shall be deemed to be the
holder of record of the Shares notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Shares shall not
then have been actually delivered to the Holder. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Shares (or portions thereof) subject to
purchase hereunder, provided the Exercise Period has not expired.
3. Warrant Register. Any Warrant issued upon the transfer or exercise
in part of this Warrant (together with this Warrant, the "Warrants") shall be
numbered and shall be registered in a warrant register as they are issued. The
Company shall be entitled to treat the registered holder of any Warrant upon the
warrant register 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 or
transfer of Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amount to bad faith. The Warrants shall be
nontransferable.
4. Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized and unissued Common Stock, solely for
the purpose of providing for the exercise of this Warrant, such number of shares
of Common Stock as shall, from time to time, be sufficient therefor. The Company
covenants that all shares of Common Stock issuable upon exercise of this Warrant
when paid for in accordance with the respective terms hereof, shall be validly
issued, fully paid and nonassessable by the Company.
5. Merger, Consolidation or Reclassification of Securities:
Adjustments. (a) In case of any consolidation with or merger of the Company with
or into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, such successor, leasing or purchasing
corporation, as the case may be, shall (i) execute with the Holder an agreement
providing that the Holder shall have the right thereafter to receive upon
exercise of this Warrant solely the kind and amount of shares of stock and other
securities, property, cash or any combination thereof receivable upon such
consolidation, merger, sale, lease or conveyance by a Holder of the number of
shares of Common Stock for which this Warrant might have been exercised
immediately prior to such consolidation, merger, sale, lease or conveyance, and
(ii) make effective provision in its certificate of incorporation or otherwise,
if necessary, in order to effect such agreement.
(b) In case of any reclassification or change of the Shares issuable
upon exercise of this Warrant (other than a change in par value or from par
value to no par value) or in case of a subdivision or combination, including any
change in the shares into two or more classes or series of shares, or in case of
any consolidation or merger of another corporation into the Company in which the
Company is the continuing corporation and in which there is a reclassification
or change (including a change to the right to receive cash or other property) of
the Shares (other than a change in par value, or from par value to no par value)
the Holder shall have the right thereafter to receive upon exercise of this
Warrant solely the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such
2
reclassification, change, consolidation or merger by a holder of the number of
Shares for which this Warrant might have been exercised immediately prior to
such reclassification, change, consolidation or merger.
(c) Upon the occurrence of any event described in paragraphs 5(a) or
(b) (an "Event"), the number of Shares acquirable thereafter upon exercise of
this Warrant shall be adjusted so that the Holder hereof is entitled to receive
upon exercise of this Warrant the number of Shares which the Holder would have
owned or would have been entitled to receive after the happening of the Event
had this Warrant been exercised immediately prior to the happening of such
Event; and the Exercise Price per share shall be correspondingly adjusted.
(d) Whenever there shall be an adjustment as provided in paragraph
5(c), the Company shall promptly cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its principal office, which
notice shall be accompanied by an officer's certificate setting forth the number
of Shares issuable after such adjustment and setting forth a brief statement of
the facts requiring such adjustment and the computation thereof, which officer's
certificate shall be conclusive evidence of the correctness of any such
adjustment absent manifest error.
(e) All calculations under this paragraph 5 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
(f) The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company upon the exercise of
Warrants. If any fraction of a share would be issuable upon the exercise of any
Warrant (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the same fraction of the current market
price of such share of Common Stock on the date of exercise of the Warrant,
based on the average of the daily closing prices or sales prices of the Common
Stock for the 30 consecutive trading days immediately preceding such date.
(h) The above provisions of this paragraph 5 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases or conveyances similar to
those described in paragraphs 5(a) and (b).
6. Notice of Certain Proposed Actions. In case at any time the Company
shall propose:
(a) to pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or
3
(b) to issue any rights, warrants or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common Stock or
any other rights, warrants or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock, or any consolidation, merger, sale, lease or conveyance of
property described in paragraph 5; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company;
(e) then, and in any one or more of such cases, the Company shall give
written notice thereof, by registered mail, postage prepaid, to the Holder at
the Holder's address as it shall appear in the warrant register, mailed at least
15 days prior to the earlier to occur of (i) the date as of which the holders of
record of shares of Common Stock to be entitled to receive any such dividend,
distribution, rights, warrants or other securities are to be determined, or (ii)
the date on which any such reclassification, change of outstanding shares of
Common Stock, consolidation, merger, sale, lease, conveyance of property,
liquidation, dissolution, or winding-up is expected to become effective, and the
date as of which it is expected that holders of record of shares of Common
Stock, as the case may be, shall be entitled to exchange their shares or
warrants for securities or other property, if any, deliverable upon such
reclassification, change of outstanding shares, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution, or winding-up.
7. Exercise of Warrants: Issuance of Securities. The issuance of any
shares or warrants or other securities upon the exercise of this Warrant, and
the delivery of Certificates or other instruments representing such shares,
warrants or other securities, shall be made without charge to the Holder for any
tax or other charge in respect of such issuance. The Company shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any Certificate in a name other than
that of the Holder and the Company shall not be required to issue or deliver any
such Certificate unless and until the person or persons requesting the issue
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
8. Registration Rights of Holder.
(a) As soon as practicable following the successful completion of an
initial public offering of Common Stock by the Company but in no event later
than 9 months thereafter, the Company shall prepare and file with the Securities
and Exchange Commission (the "Commission") a registration statement sufficient
to permit the public offering and sale of the shares acquirable upon exercise of
this Warrant (the "Restricted Shares") through the facilities of all appropriate
securities exchanges and the over-the-counter market, and will use its best
efforts through its officers, directors, auditors and counsel to cause such
registration statement to become effective as promptly as
4
practicable. Such registration statement shall be prepared at the Company's
expense (other than fees and disbursements of counsel for the Holder and
underwriting discounts and expenses, if any, payable in respect of the
Restricted Shares sold by any such Holders).
(b) The Company shall use its best efforts to cause the Restricted
Shares so registered to be registered or qualified for sale under the securities
or "blue sky" laws of such jurisdictions as such Holders may reasonably request;
provided, however, that the Company shall not be required to qualify to do
business in any state by reason of this paragraph 8(b) in which it is not
otherwise required to qualify to do business.
(c) The Company shall keep effective the registration or qualification
contemplated by this paragraph 8 and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document and communication for such period of time as
shall be required to permit the Holders to complete the offer and sale of the
Restricted Shares covered thereby. The Company shall in no event be required to
keep any such registration or qualification in effect for a period in excess of
nine months from the date on which the Holders are first free to sell such
Restricted Shares; provided, however, that if the Company is required to keep
any such registration or qualification in effect with respect to securities
other than the Restricted Shares beyond such period, the Company shall keep such
registration or qualification in effect as it relates to the Restricted Shares
for so long as such registration or qualification remains or is required to
remain in effect in respect of such other securities.
(d) In connection with a registration pursuant to the provisions of
this paragraph 8, the Company shall furnish to each holder of any Restricted
Shares included therein such number of copies of the registration statement and
of each amendment and supplement thereto (in each case, including all exhibits),
such reasonable number of copies of each prospectus contained in such
registration statement and each supplement or amendment thereto (including each
preliminary prospectus), all of which shall conform to the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
thereunder, and such other documents, as the Holders may reasonably request in
order to facilitate the disposition of the Restricted Shares included in such
registration.
(e) In the event of a registration pursuant to the provisions of this
paragraph 8, the Company shall furnish to each holder of any Restricted Shares
so registered with an opinion of its counsel (reasonably acceptable to the
Holder) to the effect that (i) the registration statement has become effective
under the Act and no order suspending the effectiveness of the registration
statement, preventing or suspending the use of the registration statement, any
preliminary prospectus, any final prospectus, or any amendment or supplement
thereto has been issued, nor has the Commission or any securities or blue sky
authority of any jurisdiction instituted or threatened to institute any
proceedings with respect to such an order, (ii) the registration statement and
each
5
prospectus forming a part thereof (including each preliminary prospectus) and
any amendment or supplement thereto, complies as to form with the Act and the
rules and regulations thereunder, and (iii) such counsel has no knowledge or
reason to know of any material misstatement or omission in such registration
statement or any prospectus, as amended or supplemented. Such opinion shall also
state the jurisdictions in which the Restricted Shares have been registered or
qualified for sale pursuant to the provisions of paragraph 8(b).
(f) The Company agrees that until all the Restricted Shares have been
sold under a registration statement or pursuant to Rule 144 under the Act, it
shall keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit holders of the Restricted
Shares to sell such securities under Rule 144.
(g) Notwithstanding anything to the contrary herein, the Company shall
not be required to register the Restricted Shares if counsel for the Company
delivers an opinion to the Holders that the proposed sale of Restricted Shares
may be effected in its entirety within any 90 day period without registration
and without any further holding period pursuant to Rule 144 under the Securities
Act of 1933, as amended.
9. Restrictive Legend. The securities issued upon exercise of the
Warrants shall be subject to a stop transfer order and the certificate or
certificates evidencing any such securities shall bear the following legend:
"THE SHARES (OR OTHER SECURITIES) REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND SUCH
SHARES (OR OTHER SECURITIES) CANNOT BE OFFERED OR SOLD EXCEPT PURSUANT TO A
REGISTRATION STATEMENT UNDER SUCH ACT, OR AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT."
10. Replacement of Certificates. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of any Warrant (and
upon surrender of any Warrant if mutilated), and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new Warrant of like date, tenor and denomination.
11. Rights of Holder. The Holder of any Warrant shall not have, solely
on account of such status, any rights of a stockholder of the Company, either at
law or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Warrant.
12. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, nor mailed by registered or Certified mail, return receipt requested:
6
(a) If to the registered holder of this Warrant, to the
address of such holder as shown on the books of the Company, or
(b) If to the Company, to Secretary, Cafe La France, Inc., 216
Weybosset Street, Providence, RI 02903.
13. Governing Law. This Warrant shall be construed in accordance with
the laws of the State of Delaware, without giving effect to conflict of laws.
Dated: November 15, 1996
CAFE LA FRANCE, INC., a Delaware
Corporation
By_______________________________
Title:_____________________________
(Seal)
- ------------------------------
Secretary
7
EXHIBIT A
Election Form
The undersigned holder of the enclosed warrant hereby elects to
exercise said warrant to purchase ____ shares of common stock of Cafe La France,
Inc. pursuant to the terms and conditions set forth in the enclosed warrants.
Payment in the amount of $_________________ representing the exercise price is
attached herewith.
---------------------------
Warrant Holder
8
EXHIBIT 11
CAFE LA FRANCE, INC.
COMPUTATION OF LOSS PER SHARE
YEAR ENDED SEPTEMBER 29, 1996
<TABLE>
<CAPTION>
1996
Primary Fully Diluted
<S> <C> <C>
Net loss applicable to common shares: $(673,307) $(673,307)
========== ==========
Weighted average number of shares outstanding(1):
Outstanding at beginning of period.................. 1,293,302 1,293,302
Assumed exercise of stock options and warrants... 128,833 128,833
---------- ----------
Total................................................... 1,422,135 1,422,135
========= =========
Net loss per common share (2) $ (.47) $ (.47)
========== ===========
</TABLE>
- --------------------------
(1) Pursuant to SEC Staff Accounting Bulletin 83, common stock options and
warrants granted and shares issued during the 12 months immediately preceding
the offering date at a price below the proposed offering price of the Company's
initial public offering are reflected in the earnings per share calculation as
if they had been outstanding for the full year (using the treasury stock method
and the proposed initial public offering price).
(2)Prior to October 2, 1995, the Company elected S-corporation status and
therefore was not subject to federal and state income taxes. Accordingly,
earnings per share data has been presented only for the fiscal year ended
September 29, 1996.
EXHIBIT 21.1
SUBSIDIARIES
Name Jurisdiction
---- ------------
CLF2, Inc. [d/b/a Cafe la france] Rhode Island
CLF Franchise Corporation [d/b/a Cafe la france] Rhode Island
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report included herein and to the references to our
firm under the heading "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
/s/ KPMG PEAT MARWICK LLP
---------------------
KPMG PEAT MARWICK LLP
Providence, Rhode Island
December 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> SEP-29-1996
<CASH> 5695
<SECURITIES> 0
<RECEIVABLES> 54754
<ALLOWANCES> 19000
<INVENTORY> 45284
<CURRENT-ASSETS> 145219
<PP&E> 795503
<DEPRECIATION> 156986
<TOTAL-ASSETS> 885684
<CURRENT-LIABILITIES> 785570
<BONDS> 0
0
0
<COMMON> 948191
<OTHER-SE> (1,266,869)
<TOTAL-LIABILITY-AND-EQUITY> 885,654
<SALES> 2101283
<TOTAL-REVENUES> 2198753
<CGS> 884068
<TOTAL-COSTS> 2815354
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18026
<INTEREST-EXPENSE> 55956
<INCOME-PRETAX> (672557)
<INCOME-TAX> 750
<INCOME-CONTINUING> (673307)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (673307)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> (.47)
</TABLE>
