[DESCRIPTION] SB-2 Registration Statement
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
UPTOWN RESTAURANT GROUP, INC.
(Name of small business issuer in its charter)
COLORADO 65-0835444
(State or jurisdiction (Primary Standard (I.R.S. Employer
incorporation or Industrial Identification No.)
Organization ) Classification Code
Number)
955 E. Javelina Ave., Ste. 106, Mesa, AZ 85204; (602) 503-3363
(Address and telephone number of principal executive offices)
955 E. Javelina Ave., Ste. 106, Mesa, AZ 85204
(Address of principal place of business or intended principal place of business)
R. Michael Jackson, 165 S. Union Blvd., # 705, Lakewood, CO 80228; (303)969-0808
(Name, Address and Telephone Number of Agent for Service of Process)
Approximate date of proposed sale to the public:
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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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, check
the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Title of each Dollar Proposed Proposed
class of amount to maximum maximum
securities be offering aggregate Amount of
to be registered price per offering registration
registered Unit price fee
No Par Value up to $0.75 per $8,601,662 $2,270.84
Common Stock $8,601,662 (estimate)
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PART I - INFORMATION REQUIRED IN PROSPECTUS
UPTOWN RESTAURANT GROUP, INC.
A Colorado corporation
7,983,883 SHARES OF COMMON STOCK
NO PAR VALUE
This is an offering of shares of common stock of Uptown Restaurant Group,
Inc., from time to time by selling shareholders. Uptown Restaurant Group will
not receive any of the proceeds from the sale of the shares by the selling
shareholders. Our common stock is currently reported on the NASD's OTC Bulletin
Board under the symbol "UTRG."
From time to time, the selling shareholders may use this prospectus to
offer and sell their shares at the prices quoted for the common stock in the
over-the-counter market. The selling shareholders may also attempt to sell their
shares in isolated transactions, at negotiated prices, with institutional or
other investors.
To the extent required, we will disclose in a prospectus supplement the
names of any agent or broker-dealer, applicable commissions or discounts, and
any other required information about any particular offer. The selling
shareholders will pay commission expenses and brokerage fees, if any.
Our bona fide estimate of the range of maximum offering price is $.50 to
$1.00 per share, and the maximum number of shares to be offered by this
prospectus is 11,468,883.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
INVESTING IN THE COMMON STOCK INVOLVES RISK. YOU SHOULD PURCHASE SHARES ONLY IF
YOU CAN AFFORD A COMPLETE LOSS.
See "Risk Factors" beginning on page __.
Dated: __________, 2000
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TABLE OF CONTENTS
Page
SUMMARY..................................................... 5
RISK FACTORS................................................ 9
USE OF PROCEEDS............................................. 12
DILUTION.................................................... 13
SELLING SECURITY HOLDERS.................................... 13
PLAN OF DISTRIBUTION........................................ 15
LEGAL PROCEEDINGS........................................... 16
DIRECTORS AND EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS.......................... 17
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT....................... 21
DESCRIPTION OF SECURITIES................................... 23
COMMISSION POSITION OF INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES......................... 26
DESCRIPTION OF BUSINESS..................................... 26
MANAGEMENT'S DISCUSSION AND ANALYSIS........................ 31
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................................... 32
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................... 33
EXECUTIVE COMPENSATION...................................... 34
LEGAL MATTERS............................................... 37
EXPERTS..................................................... 37
WHERE YOU CAN FIND MORE INFORMATION......................... 37
FINANCIAL STATEMENTS........................................ F-1
You should rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The selling shareholders are offering to sell, and
seeking offers to buy, shares of common stock only in jurisdictions where offers
and sales are permitted. The information in this prospectus may be accurate only
as of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
<PAGE>
SUMMARY
Because this is a summary, it does not contain all of the information that may
be important to you as a prospective purchaser of shares of our common stock
from a selling shareholder. You should read the entire prospectus carefully,
including the risk factors and the financial statements, before you decide to
purchase shares of our common stock.
SHARES OFFERED UNDER THIS PROSPECTUS. This prospectus covers the resale of
shares by the selling shareholders. We will not receive any of the proceeds of
the shares offered under this prospectus. We have filed the registration
statement that includes this prospectus with the SEC to comply with our
agreements with the selling shareholders. The selling shareholders have obtained
or will obtain the shares of common stock offered for resale under this
prospectus (1) by exercising warrants we issued, (2) by exchanging shares of
common stock of NYB Foods, Inc., for our common stock shares in a merger with
one of our subsidiaries, (3) by exchanging a promissory note or other
indebtedness owed by us for shares of our common stock, or (4) by exchanging
assets previously owned by 1 Potato 2, Inc., a Minnesota corporation, for shares
of our common stock in an asset purchase transaction with one of our
subsidiaries.
BACKGROUND. On October 8, 1999, NYB Foods, Inc., a Colorado corporation
engaged in the business of franchising New York Burrito Gourmet Wraps
restaurants, merged into NYB Acquisitions Corp., one of our wholly-owned
subsidiary corporations. As part of the merger (1) the former shareholders of
NYB Foods received 7,500,000 shares of our common stock (and they are offering
3,500,000 of those shares for resale under this prospectus), which represented
approximately 52% of our then-outstanding common stock shares, (2) we changed
our board of directors to consist of five members, one of whom was one of our
former board members, and (3) NYB Foods' management team became the management
team of the new business.
On November 11, 1999, Wrapsters Acquisitions Corp., another of our
subsidiaries, acquired substantially all the assets of 1 Potato 2, Inc., a
Minnesota corporation engaged in the business of operating and franchising 1
Potato 2 restaurants. As part of the acquisition (1) 1 Potato 2, Inc., received
600,000 shares of our common stock, representing approximately 3.3% of our
then-outstanding shares of common stock (and they are offering 400,000 of those
shares for resale under this prospectus), (2) our subsidiary issued a promissory
note in the principal amount of $400,000.00 to 1 Potato 2, Inc., and (3) the
management team of NYB Foods, Inc., became the management team of our 1 Potato 2
subsidiary.
On December 15, 1999, we changed our name from Wrapsters, Inc., to Uptown
Restaurant Group, Inc. Also, we changed the name of NYB Acquisitions Corp. to
NYB Foods, Inc., and we changed the name of Wrapsters Acquisitions Corp. to 1
Potato 2 Franchising Corporation. Unless otherwise indicated in this prospectus,
the terms "we," "us," or "our" refer to the company after the date of the merger
and asset purchase described above, and the term "Wrapsters" refers to the
company before the above-mentioned merger and asset purchase.
As a result of the NYB Foods merger, we now own and franchise fifty-four
(54) New York Burrito restaurants, one of which is company-owned and fifty-three
(53) of which are franchised. In addition to the above, ten (10) New York
Burrito franchise restaurants located in California were sold to our California
Sub-Franchisor. As a result of the 1 Potato 2 asset purchase, we now own and
franchise twenty-nine (29) 1 Potato 2 restaurants, two of which are company-
owned and twenty-seven (27) of which are franchised.
A significant factor in both the structure and completion of the NYB Foods
merger was a commitment by outside investors to purchase 3,400,000 shares of our
common stock for $850,000.00, and to purchase warrants for the purchase of
3,000,000 additional shares of our common stock for $200,000.00. We have
received the proceeds of these securities sales.
OUR BUSINESS. NYB Foods, Inc. ("NYB") offers individuals the right to
establish and operate, from a single location, a limited-cooking "New York
Burrito Gourmet Wraps" specialty restaurant franchise. Each wrap, or burrito, is
made to order in full view for each customer and the operation of the restaurant
requires limited on-location cooking. Most major ingredients necessary for the
preparation of the food items are pre-cooked and quick-frozen, utilizing quick-
chill cooking and packaging techniques by various manufacturers. Other items,
including cheeses, greens and other condiments, are also pre-prepared and
packaged for use in the New York Burrito restaurant locations. Its menu consists
mainly of flavored tortillas filled with vegetarian-style pinto or black beans
and rice, along with spiced meats, such as steak, chicken, barbeque, deli, cajun
or teriyaki. An optional breakfast menu may also be served, which features
breakfast burritos, other breakfast items, juice and coffee.
New York Burrito franchises are marketed by means of advertising, trade
shows and Area Development Agents. The initial franchise fee for a New York
Burrito Gourmet Wraps restaurant is $15,000.00, and a reduced rate of $10,000.00
is offered to certain existing franchisees for additional franchises. A
franchisee pays 7% of gross sales to New York Burrito as a royalty, and 4% of
gross sales for co-cooperative advertising.
1 Potato 2 Franchising Corporation ("1 Potato 2 Franchising") operates and
sells franchises for the operation of "1 Potato 2" fast food restaurants
specializing in baked potatoes and other types of potato dishes. The first 1
Potato 2 restaurant was opened in 1978, and the number of company-owned
restaurants expanded until franchises were offered in 1984. In 1986, 1 Potato 2
developed a more contemporary potato menu, including a number of proprietary
items such as "lite" potato offerings, potato skins, potato soup, gourmet wraps
and smoothies. Through 1991, 1 Potato 2 continued to open company-owned stores
at the same time it sold franchises, when it was decided that, due to the
relatively small size of a 1 Potato 2 unit, franchisee-operated stores were
preferable. Thereafter, until 1995, 1 Potato 2 continued to sell its company-
owned stores to franchisees. In March of 1995, 1 Potato 2 filed a Chapter 11
reorganization case in Bankruptcy Court in order to cancel unfavorable store
leases and concentrate on selling franchises. The Plan of Reorganization was
confirmed within 115 days.
Marketing efforts have been minimal in the recent past, but we intend to
market 1 Potato 2 franchises in much the same manner as New York Burrito
franchises, by means of advertising, trade shows and Area Development Agents.
The initial franchise fee for a 1 Potato 2 restaurant is $15,000.00 for the
first location, and $10,000.00 for each additional location purchased by an
existing franchisee. A franchisee pays 6% of gross sales to the franchisor as a
royalty, and 2% of gross sales for co-cooperative advertising.
USE OF PROCEEDS. We will not receive any cash proceeds from the resale of
common shares by the selling shareholders. Some of the selling shareholders,
however, may exercise warrants in order to acquire the common shares to be sold
under this prospectus for a maximum exercise price of $0.35 per shares. If
received, we will use the net proceeds of a maximum of $1,219,750 primarily for
working capital, the payment of indebtedness, and general corporate purposes,
including the opening of new franchised restaurants, and the evaluation of
opportunities to acquire new restaurant concepts. We cannot assure you that any
of our development and acquisition plans will be successful.
THE OFFERING.
Estimated common stock offered by selling shareholders
upon exercise of 3,485,000 common stock purchase warrants........... 3,485,000*
Common stock offered by previous owners of NYB Foods stock.......... 3,500,000
Common stock offered by 1 Potato 2,Inc.............................. 400,000
Common stock offered by selling shareholders upon
conversion of indebtedness for common shares........................ 598,883
Estimated common stock outstanding after the Offering.............. 22,451,313
_________________
* 3,485,000 of the common stock purchase warrants were sold to investors
pursuant to a contract which provides that the number of shares of common stock
underlying the warrants which the investors can acquire by exercising their
warrants may be increased (see "Security Ownership of Certain Beneficial Owners
and Management - Changes in Control - Warrant Purchase Agreement," and
"Description of Securities - Warrant Purchase Agreement.") We agreed to include
twice the number of shares underlying the warrants, or a total of 6,970,000
underlying common stock shares, in this prospectus in case the number they are
able to acquire increases. Even though an additional 3,485,000 shares of common
stock are being registered, we may never issue them and, even if issued, the
holders may never sell them under this prospectus.
DILUTION. The holders of common stock purchase warrants will be able to
exercise those warrants and purchase 3,485,000 additional shares of our common
stock. If these individuals exercise all their warrants and tender the exercise
price of $.35 per share, we would receive $1,219,750 and issue and additional
3,485,000 shares of common stock. The holders of these warrants also have a
"cashless" exercise option, providing that they may exercise some or all their
warrants and be issued a number of shares of common stock not for cash if the
average price of the common stock is more than the warrant exercise price of
$.35 per share (see "Security Ownership of Certain Beneficial Owners and
Management - Changes in Control - Warrant Purchase Agreement," and "Description
of Securities - Warrant Purchase Agreement"). Also, if the effectiveness of this
registration statement is suspended after warrants are exercised, but before the
underlying common stock shares are issued, we may have to issue additional
shares to the warrant holders if the bid price of our common stock is greater
before the suspension that after the suspension is lifted.
We may have to issue more shares of common stock to the investors who
purchased 3,400,000 of our shares on September 22, 1999, if the average bid
price for our shares over the first 60 trading after their purchase, or for the
61st through the 100th trading days, falls below one-half the bid price on
September 22, 1999 (the closing price on that date was $.812 per share). The
number of additional shares we would have to issue depends on the average bid
price (the lower the average bid price, the more shares we must issue). See
"Security Ownership of Certain Beneficial Owners and Management - Changes in
Control - 'Reset' Provisions," and "Description of Securities - 'Reset'
Provisions."
We may elect to pay dividends in shares of common stock, and the board of
directors may decide to issue additional shares. Consequently, substantial
dilution of the voting power of the current shareholders is likely over time as
warrants are exercised and dividends are paid in common shares. Such actions are
also likely to depress the market price of the common stock.
In any of the above-mentioned instances, one who purchases our common stock
shares offered by this prospectus will have his or her interest in us diluted.
PLAN OF DISTRIBUTION. We are registering the shares on behalf of the
selling shareholders, each of whom may, from time to time, offer his or her
shares of common stock for sale under this prospectus at the prices then
prevailing on the OTC Bulletin Board or otherwise in the over-the-counter
market. Each selling shareholder may sell the shares of common stock in isolated
transactions, at negotiated prices, with institutional or other investors. We
will bear the costs, expenses and fees of the registration of the shares offered
by this prospectus. The selling shareholders will bear the brokerage commissions
and similar selling expenses, if any, attributable to the sale of shares.
DESCRIPTION OF SECURITIES. Our authorized capital consists of 50,000,000
shares of common stock, no par value, and 10,000,000 shares of no par value
preferred stock. All common shares have equal voting rights and are non-
assessable. Common stock voting rights are non-cumulative and, therefore, the
holders of more than 50% of our common stock could, if they chose to do so,
elect all the directors. Currently, we have 18,966,313 outstanding shares of
common stock and 1,000 outstanding shares of non-voting Series B Preferred
stock. (See "Description of Securities.")
RISK FACTORS. Investment in our common stock shares offered hereby
involves certain risks. Such risks include, but are not limited to, our lack of
prior profitable operations, the amount of liabilities we currently carry on our
books, and the risk that we will not have sufficient earnings, if any, to pay
dividends on the Shares.
_________________________
This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are identified by words like
"expects," "intends," "believes," "anticipates," "estimates," "may," "could,"
"should," "would," "will," "plans," "hopes" and similar expressions. Our actual
results could differ materially from those anticipated in these forward-looking
statements due to certain factors, including those described in "Risk Factors"
and in other places in this prospectus.
RISK FACTORS
An investment in our common stock involves a high degree of risk, including
those risks discussed below. You should carefully consider these risk factors
along with all the other information contained in this prospectus before you
decide to purchase shares of our common stock. If any of these risks actually
occur, our business, financial condition and operating results could be
adversely affected. If that happens, the trading price of our common stock could
decline, and you could lose part or all of your investment.
RISKS RELATED TO OUR BUSINESS AND OPERATIONS
WE HAVE EXPERIENCED LOSSES FOR THE LAST TWO YEARS, AND OUR FUTURE OPERATING
RESULTS ARE UNCERTAIN. For the fiscal year ended December 31, 1998, we had a
net loss of $1,282,682. For the 1997 fiscal year, our net loss was $340,364. Our
future financial results will depend on, among other things, our ability to
generate a level of revenues sufficient to offset our cost structure and our
ability to reduce our operating costs. We cannot assure you that we will
significantly increase our revenues or become profitable.
WE PRESENTLY HAVE NO ARRANGEMENT TO REPAY SHORT-TERM DEBT OF $350,000. In
addition to our other outstanding obligations, we owe a total of $130,000 to
four (4) shareholders, and are liable on real estate and equipment leases for
an additonal $220,000. The shareholder loans mature in 2001 and require
interest-only payments semi-annually at the rate of 10%. The real estate leases
are currently in default since our previous management closed all the
"Wrapsters" restaurants that had been operated in those locations, and the
equipment leases require monthly installments in excess of $1,000. We currently
do not have the proceeds to repay these loans or to settle the lease
liabilities, but we are working to resolve these conditions. If we cannot reach
a satisfactory settlement of any of these loans or leases, we may be forced to
sell some or all of our assets, to relinquish control of the company, or to
renegotiate terms of our outstanding obligations on terms less favorable to us.
Any event of that nature is likely to have material adverse effects.
WE CLOSED ALL OUR "WRAPSTERS" RESTAURANTS IN 1999. Prior to the merger
between NYB Foods and our subsidiary, our previous management closed all the
company-owned "Wrapsters" restaurants, which were located in Florida, Georgia
and Virginia.
WE NEED ADDITIONAL CAPITAL IMMEDIATELY. In addition to our need for
capital to repay the $350,000 in short-term loans and lease liabilities, we will
continue to have substantial capital needs that cannot be funded completely from
operations. As a result, we will be required to raise additional capital through
equity or debt financing. Those sources of financing, if available, may include
bank financing, third party equity investors, capital leases, private limited
partnerships, joint venture financing and sale leaseback arrangements. None of
our lenders is under any obligation to make additional advances to us, nor are
they under any obligation to approve any financing arrangement that we may
negotiate. Further, we have no source of additional financing other than the
maximum $1,219,750 we may receive upon the exercise of the common stock purchase
warrants on the date of this prospectus. Consequently, we cannot assure you that
any additional financing will be available to us when needed, on commercially
reasonable terms, or at all. If we cannot obtain additional financing, our
business operations and financial results will suffer.
WE FACE RISKS IN ACQUIRING COMPLEMENTARY BUSINESSES. One component of our
growth strategy is to evaluate the feasibility of acquiring complementary
businesses. Any potential acquisitions will involve a number of risks that could
materially and adversely affect us, including (a) diverting our management's
attention from operational and financial matters, (b) assimilating the
operations, technologies, products, and personnel of the acquired companies, (c)
risks of entering markets in which we have no or limited prior experience, and
(d) the potential loss of key personnel of the acquired companies. Acquisitions
could involve the potentially dilutive issuance of equity securities and/or the
incurrence of debt, contingent liabilities, and/or amortization expenses related
to goodwill and other intangible assets, any of which could materially adversely
affect our operating results and/or market price of the common stock.
Shareholders generally do not have rights to approve any acquisitions we make.
Any acquisition we make may have a material adverse effect on our business,
financial condition, and results of operations.
OUR FUTURE REVENUES ARE DEPENDENT UPON THE PROFITABLE OPERATIONS OF OUR TWO
SUBSIDIARIES. In 1999, all our company-owned "Wrapsters" restaurants were
closed. Now, our only business consists of our two subsidiaries, NYB Foods,
Inc., and 1 Potato 2 Franchising Corporation. Since we do not own or operate any
restaurants directly, we are dependent for our future revenues on our ability to
operate our two subsidiaries profitably. As we are presently organized, the only
revenues we will receive in the future is the amount, if any, of dividends
either of our two subsidiaries declares and pays to us. We cannot assure you
that we will be able to operate these subsidiaries in a profitable manner so
that they will be able to declare and pay dividends to us.
WE ARE DEPENDENT ON CURRENT MANAGEMENT. Robert D. Palmer, Jr., is our
chief executive officer, Robert Hosac is our chief financial officer, and the
remaining directors are all important to our operations. We are heavily
dependent upon the expertise and experience of these officers and directors. If
any of them were to resign, we cannot assure you that we would be able to
replace them, and our inability to do so could materially adversely affect our
business.
RISKS RELATED TO OUR INDUSTRY
OUR INDUSTRY IS VERY COMPETITIVE AND MANY OF OUR COMPETITORS HAVE GREATER
RESOURCES THAN WE DO. The restaurant franchising industry is intensely
competitive with respect to price, service, location, and food quality. We have
many competitors, including mid-priced, full-service casual atmosphere
restaurants, take-out food service companies, fast food restaurants,
delicatessens, cafeteria-style buffets, prepared food stores, supermarkets, and
convenience stores. Our competition also includes regional and national
restaurant and franchising companies, including Taco Bell, Taco John's,
Chipotle, and others. Many of our competitors are better established, have
substantially greater financial, marketing and other resources, have been in
existence for a substantially longer period of time, and have greater name brand
recognition. Further, the restaurant franchising industry is significantly
affected by many external factors, including (a) changes in the national,
regional, and local economic and real estate conditions, (b) changes in consumer
preferences, tastes, and eating habits, (c) demographic trends and traffic
patterns, (d) increases in food and labor costs and availability, (e) the type,
number, and location of competing restaurants in a particular locale, and (f)
the ability of our franchisees to operate a profitable business.
Inflation, food costs, and other similar factors may also affect the
restaurant industry. We cannot assure you that we will be able to successfully
compete in the restaurant industry. See "Business - Competition."
RISKS OF THE OFFERING
ADDITIONAL SALES OF SHARES OF COMMON STOCK ARE LIKELY TO CAUSE THE MARKET
PRICE OF THE COMMON STOCK TO DECLINE. Currently, 18,966,313 shares of our
common stock are outstanding. The number of shares of common stock potentially
issuable under our warrants is 3,485,000, or more if a provision of the "Warrant
Purchase Agreement" is activiated (see "Security Ownership of Certain Beneficial
Owners and Management - Changes in Control - Warrant Purchase Agreement," and
"Description of Securities - Warrant Purchase Agreement"). The sale, or
availability for sale, of substantial amounts of shares of common stock could
materially adversely affect the market price of the common stock and could
impair our ability to raise additional capital by selling equity securities.
This number will increase if the trading price of the common stock declines
further. For more information, see "Shares Eligible for Future Sale."
THE MARKET PRICE OF THE COMMON STOCK IS EXTREMELY VOLATILE. Trading volume
and prices for the common stock have fluctuated widely since it first became
publicly-traded. During the month of December, 1999, for example, the closing
sales price of the common stock ranged from $.625 to $.937 per share. In
addition, since our common stock began trading in January of 1999, the bid price
for our common stock has reached a high of $2.625 per share in January of 1999,
and a low of $0.4375 per share in April of 1999. These severe fluctuations may
continue in response to quarterly variations in operating results, announced
earnings, and other factors. We cannot always predict or foresee those events.
The market price of the common stock could also be influenced by developments or
matters not related to us, including the sale or attempted sale of a large
amount of the common stock on the open market by a shareholder. Because of this
volatility, your investment in us may result in a complete loss.
BECAUSE OUR COMMON STOCK IS LISTED ON THE OTC BULLETIN BOARD, ITS LIQUIDITY
MAY BE IMPAIRED. Trading in our common stock is conducted in the over-the-
counter market and reported on the NASD's OTC Bulletin Board. Consequently,
selling our shares may be more difficult because smaller quantities of shares
may be bought and sold, transactions may be delayed, and the news media's
coverage of us may be reduced. These factors could result in lower prices and
larger spreads in the bid and asked prices for our shares. Further, securities
analysts are unlikely to cover our stock, and institutional investors are
unlikely to purchase our stock. We cannot assure you that we will ever be able
to list our stock on the Nasdaq Small Cap Market, or any other market.
"PENNY STOCK" REGULATIONS MAY IMPAIR THE LIQUIDITY OF OUR COMMON STOCK.
Because the bid price of our common stock is below $5.00 per share, shares of
common stock may be subject to the SEC's Rule 15g-9 and other penny stock
regulations under the Securities Exchange Act of 1934. Rule 15g-9 imposes sales
practice requirements on broker-dealers that sell low-priced securities to
persons other than established customers and institutional accredited investors.
For transactions covered by this rule, a broker-dealer must make a special
suitability determination for the prospective purchaser and have received the
purchaser's written consent to the transaction before the sale. Consequently,
this rule and other "penny stock" regulations may adversely affect the ability
of broker-dealers to sell our shares and may adversely affect the ability of
holders to sell their shares of common stock in the secondary market.
WE MAY ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK WITHOUT
SHAREHOLDER APPROVAL. Our board of directors may authorize us to issue one or
more series of preferred stock or additional shares of common stock without
shareholder approval, and the existence or terms of these securities may
adversely affect the rights of holders of the common stock. In addition, the
issuance of any additional shares of preferred or common stock may be used as an
"anti-takeover" device without shareholder approval. Issuance of additional
preferred stock or common stock, which may be accomplished through a public
offering or a private placement to parties favorable to current management, may
dilute the voting power of holders of common stock and may make it harder to
remove current management, even if removal might be in the shareholders' best
interests.
WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK. We do not currently
pay any dividends on the common stock and do not intend to pay dividends on the
common stock in the foreseeable future.
USE OF PROCEEDS
We will not receive any proceeds from the sales by the selling shareholders
of the shares of common stock sold pursuant to this prospectus. However, if the
holders of the common stock purchase warrants exercise all of their outstanding
warrants, we may receive up to a maximum of $1,219,750 upon the exercise (at the
maximum exercise price of $0.35 per share), and we will issue up to 3,485,000
shares to these shareholders. Since the warrantholders have an option to
exercise their warrants in a "cashless" transaction, we cannot assure you that
we will receive any of these funds. (See "Description of Securities - Warrant
Purchase Agreement.")
We intend to use the net proceeds from the exercise of the warrants, if
any, to develop new franchisees, to evaluate opportunities to acquire new
restaurant concepts, to pay certain indebtedness, and for working capital.
DILUTION
The holders of common stock purchase warrants will be able to exercise
those warrants and purchase 3,485,000 shares of our common stock. If the warrant
holders pay the full exercise price, we may receive as much as $1,219,750.
However, if the average bid price of our common stock rises above $.35 per
share, the warrantholders may exercise their warrants without paying us any
cash, and receive a lesser number of underlying shares of common stock. If the
effectiveness of this prospectus is suspended after warrants have been
exercised, but before the underlying shares have been issued, we may have to
issue additional shares of common stock if the bid price for our common stock
is less after the suspension is lifted than it was before. (See "Description of
Securities - Warrant Purchase Agreement.")
If the average bid price for our common stock falls below $.409 per share
for the period from September 22, 1999, until the 60th trading day thereafter,
or during the 61st through the 100th trading day, we may have to issue
additional shares of common stock to certain of our investors. (See "Description
of Securities - "Reset" Provisions.")
We may also elect to pay dividends in shares of common stock, and the board
of directors may decide to issue additional shares. Consequently, substantial
dilution of the voting power of the current shareholders is likely over time if
warrants are exercised, if the average bid price for our common stock falls
below $0.409 per share for an extended period of time, or if dividends are paid
in common shares. Such conditions are also likely to depress the market price of
the common stock.
SELLING SECURITY HOLDERS
All 7,983,883 shares of our no par value common stock being offered hereby
are being offered by the following individuals, who are security holders of the
Company:
________________________________________________________________________________
<TABLE>
<S> <C> <C> <C> <C>
Position, Office Amount of
Held or Relationship Securities Amount to Amount
Name with Company Owned Before be Offered After
Offering Offering
________________________________________________________________________________
Robert D. Palmer, Jr. President, CEO 5,188,776 2,414,989 2,773,787
Chairman of Board Common Common 12.35%
L. Bennett Berg, Director; Area 1,244,490 579,217 665,273
Trustee FBO Development Agent Common Common 2.58%
Berg Family Trust for Tucson, AZ
Gary F. Palmer Employee & brother 765,306 356,193 409,113
of Robert D. Palmer, Jr. Common Common 1.82%
Mary Jo DiVito None 306,122 142,477 163,645
Common Common
Hank Rabin Area Development 15,306 7,124 8,182
Agent, Reno, NV Common Common
Clyde E. Culp, III Director 1,328,883 428,88 3 900,000
Common Common 4.01%
David Metz None 125,000 125,000 0
Common Common
Brand Resources, Inc. None 75,000 75,000 0
Common Common
design kontractors, inc. None 45,000 45,000 0
Common Common
1 Potato 2, Inc. None 600,000 400,000 200,000
Common Common
Mohamed Ghaus None 3,144,000 3,144,000 0
Khalisa Common upon Common
exercise of
warrants
DSF Capital, Inc. None 161,000 161,000 0
Common upon Common
exercise of
warrants
Bicoastal Assocs. None 100,000 100,000 0
Corp. Common upon Common
exercies of
warrants
Man Chu Chow None 30,000 30,000 0
Common upon Common
exercies of
warrants
Pacific Basin LLC None 50,000 50,000 0
Common upon Common
exercise of
warrants
</TABLE>
________________________________________________________________________________
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling shareholders. As
used in this section, "selling shareholders" includes donees and pledgees
selling shares received from a named selling shareholder after the date of this
prospectus. The holders of common stock purchase warrants, when and if they
exercise their warrants, may, from time to time, offer the underlying shares of
common stock for sale under this prospectus at the prices then prevailing on the
OTC Bulletin Board, or otherwise in the over-the-counter market. Each selling
shareholder also may sell his or her shares of common stock in isolated
transactions, at negotiated prices, with institutional or other investors. The
selling shareholders have not informed us that they have entered into any
agreements, understandings or arrangements with any underwriters regarding the
sale of their securities, nor is there an underwriter acting in connection with
the proposed sale of shares by the selling shareholders. However, each selling
shareholder has indicated that sales may be effected for each selling
shareholder through his personal broker. If all common stock purchase warrants
are exercised, 3,485,000 shares of common stock will be offered by this
prospectus.
We will bear the costs, expense and fees of the registration of the shares
offered by this prospectus. The selling shareholders will bear brokerage
commissions and similar selling expenses, if any, attributable to the sale of
shares.
The shares of the common stock offered by the selling shareholders may be
sold under this prospectus by one or more of the following methods, without
limitation: (a) a block trade on which the broker-dealer so engaged will attempt
to sell the shares of the common stock as agent, but may position and resell a
portion of the block as principal to facilitate the transaction, (b) purchases
by the broker-dealer as principal and resale by that broker-dealer for its
account under this prospectus, (c) ordinary brokerage transactions and
transactions in which the broker solicits purchases, or (d) face-to-face
transactions between the selling shareholder and purchasers without a broker-
dealer.
These transactions may be effected at market prices prevailing at the time
of sale or at negotiated prices. In effecting sales, a broker-dealer engaged by
the selling shareholder may arrange for other brokers or dealers to participate.
These brokers or dealers may receive commissions or discounts from the selling
shareholders in amounts to be negotiated immediately before sale. Brokers or
dealers and any participating brokers or dealers acting as described in this
paragraph may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act in connection with such sales.
Upon our being notified by a selling shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares of
the common stock through a block trade, special offering, exchange distribution
or secondary distribution, or a purchase by a broker or dealer, we will file a
supplement to the prospectus, if required, under Rule 424(c) under the
Securities Act, disclosing (a) the name of each broker-dealer, (b) the number of
shares involved, (c) the price at which such shares were sold, (d) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (e) that such broker-dealer(s) did not conduct any
investigation to verify the information set out in this prospectus, as
supplemented, and (f) other facts material to the transaction.
Some of the shares of common stock being offered by this prospectus may be
sold under Rule 144 under the Securities Act. Each of the selling shareholders
has advised us that, as his shares become eligible for sale under Rule 144, he
may, as an alternative to use of this prospectus, sell his shares under Rule
144.
Because the selling shareholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, we will advise them of the
requirement under the Securities Act that each of them, or any broker-dealer
acting for him, must deliver a copy of this prospectus for any sale by the
selling shareholder of shares of the common stock covered by this prospectus. We
will also undertake, if, in our future opinion, this prospectus no longer
complies with Section 10(a)(3) of the Securities Act, to advise the selling
shareholders of this opinion, to request that the selling shareholders stop
using this prospectus, and to confirm our then intention to amend the
registration statement containing this prospectus to effect that compliance. We
will also advise each of the selling shareholders that, if it is determined that
he is an "underwriter," the selling shareholder may be found liable for monetary
damages to purchasers under Section 11, 12(2) and 15 of the Securities Act if
there are any defects in the registration statement (i.e., material
misstatements or omissions) and also may be found liable under Section 10(b) of
the Exchange Act and Rule 10b-5 for such material misstatements or omissions, if
any.
We and our officers and directors, and the selling shareholders, are
obligated to take all steps as may be necessary to ensure that the offer and
sale by the selling shareholder of the common stock offered by this prospectus
shall comply with the requirements of the federal securities laws, including
Regulation M. In general, Regulation M prohibits any selling shareholder or a
broker-dealer acting for such selling shareholder from, directly or indirectly,
bidding for or purchasing any shares of the common stock or attempting to induce
any person to bid for or to purchase shares of the common stock during a
restricted period (as defined in Rule 100) which ends when he has completed his
participation in the offering made under this prospectus. Rule 102 provides
certain exceptions for the selling shareholder, including exercising a common
stock purchase warrant.
LEGAL PROCEEDINGS
Other than what is listed below, there are currently no pending legal
proceedings, either material or ordinary, routine litigation incidental to the
business, to which the Company or any subsidiary of the Company is a party. The
Company is not a party to any proceedings instituted by a governmental
authority, and none are known to be contemplated by government authorities.
REAL ESTATE LEASES. We previously owned "Wrapsters" restaurants which were
located in the Abernathy Square shopping center in Atlanta, Georgia, and the
Greenbrier shopping center in Virginia. Prior management closed the restaurants,
and the landlords are requesting payment under the leases. Although legal
proceedings have been commenced, and we believe reasonable and favorable
settlements can be reached, we nevertheless face the potential of having
judgments entered against us in excess of $175,000.00, representing the rent
payments due under the remainder of the leases.
EQUIPMENT LEASES. Prior management signed five (5) year leases for
computerized cash register equipment for four (4) "Wrapsters" restaurants. Since
those restaurants were closed, the equipment is not currently being used, and no
payments have been made on the leases since December, 1999. The lessor has
declared a default under the leases and demanded payment in full of the
remaining lease payments, in an amount in excess of $30,000.00. Although legal
proceedings have been commenced, and we believe a reasonable and favorable
settlement can be reached, we nevertheless face the potential of having a
judgment entered against us in excess of $30,000.00, representing the payments
due under the remainder of the leases.
DIRECTORS AND EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
All directors of the Company hold office until the next annual meeting of
shareholders or until their successors have been elected and shall have been
qualified. The officers of the Company are elected by the Board of Directors at
its annual meeting after each annual meeting of shareholders and hold office
until their next successors are elected and qualified or until their death,
resignation or removal from office. There are no arrangements or understandings
between any of the directors or executive officers of the Company and any other
person pursuant to which such person is to be elected or selected as a director
or officer other than the following: Robert D. Palmer, Jr., Clyde Culp, III and
William Gallagher have entered into an agreement to vote their the shares of
common stock they own in the Company for the election of the present Board of
Directors for a period of three (3) years.
The officers and directors of the Company are set forth below. Officers
serve at the pleasure of the Board of Directors. Directors serve until the next
annual meeting of shareholders, expected to be held in December of 2000.
________________________________________________________________________________
Officer or
Name and Address Age Office Director Since
________________________________________________________________________________
Robert D. Palmer, Jr. 59 President October, 1999
955 E. Javelina Ave., #106 CEO
Mesa, AZ 85204 Chairman
Clyde E. Culp, III 56 Director February, 1998
1907 Hidden Point Road
Annapolis, MD 21401
L. Bennett Berg 67 Director December, 1999
4625 E. Broadway, # 117
Tucson, AZ 85711
Harold Kestenbaum 50 Director December, 1999
585 Stewart Avenue Secretary
Garden City, NY 11530
William G. Norton 59 Director December, 1999
7000 Bass Lake Road, #200
Minneapolis, MN 55428
________________________________________________________________________________
ROBERT D. PALMER, JR., age 59, has been President and Chairman of the Board
of Directors of NYB Foods, Inc., since the merger between NYB Acquisitions
Corp., one of our wholly-owned subsidiaries, and NYB Foods, Inc. Mr. Palmer's
term is until the next annual meeting of shareholders, to be held in December of
2000. Mr. Palmer served as President, Treasurer and Director of the previous NYB
Foods, Inc., since its inception in 1996. In the past, Mr. Palmer has been an
active advisor and consultant to franchisors. His experience is as follows: ATL
International, Inc. (automotive franchises), January through September, 1995;
Re-Bath Franchising Corp. (plastics manufacturing), Director of Franchising,
April of 1991 through June of 1992; Mr. Palmer was President, Founder and
Director of Franchising for USA Fast Lube Systems, Inc., from 1983 through
October of 1988; and from 1978 until January of 1984, he was Founder, President
and Director of Franchising for Grease Monkey International, Inc., and Grease
Monkey Holding Corporation. Between 1984 and 1996, Mr. Palmer also served as
independent consultant to the following franchising clients: Spinato's Pizza
International, Inc. (pizza restaurants); Surface Renew-All, Inc., Chicago, IL
(specialty coatings); The Packaging Store, Inc. (Quik Ship, Inc. division); Taco
Rancho, U.S.A. (Mexican fast food); Packaging Plus Services, Inc. (packaging
stores); Auto Spa Corporation (automotive franchisor); Shipping Connection, Inc.
(packaging stores); Homewatch International, Inc. (home care services). Mr.
Palmer attended the University of Colorado.
L. BENNETT BERG, age 67, is a Director. Mr. Berg's term is until the next
annual meeting of shareholders, to be held in December of 2000. Mr. Berg has
been the owner and operator of Western Lease Analysis, LLC, an Arizona limited
liability company, since 1994, which is in the business of consulting with
tenants concerning commercial leases. Since 1988, Mr. Berg has been the owner
and operator of Berg Financial, LLC, an Arizona limited liability company, which
provides consultation services to bankruptcy trustees and advises clients on
loan "workout" arrangements. Mr. Berg is the New York Burrito Area Development
Agent for Tucson, Arizona.
WILLIAM G. NORTON, age 59, is one of our Directors. Mr. Norton's term is
until the next annual meeting of shareholders, to be held in December of 2000.
Mr. Norton earned a B.S. degree in Business and English from Northern Michigan
University, and an M.B.A. degree from the Wharton Graduate School of Business,
University of Pennsylvania. Mr. Norton is currently the president of "Foodmark,"
a national company specializing in providing strategic planning, marketing,
communications and new product development consulting for the retail food and
restaurant and food service industries. Foodmark's clients include ConAgra,
General Mills, Nestle, Coca Cola, Land-O-Lakes, Malt-O-Meal, and Multifoods.
Until we recently purchased substantially all its assets, Mr. Norton served as
President, CEO, and a Director of 1 Potato 2, Inc., a national franchise chain
which specialized in potato-based foods located primarily in foods courts in
upscale shopping malls. Mr. Norton has also served on the Board of Directors for
Source Food Technology, Inc., as Director of New Products for the Betty Crocker
Division of General Mills, Inc., as Senior Vice President and Director of the
Telesis Group New Product Workshop for Bozell & Jacobs, and as the President and
CEO of Mrs. Clark's Foods, Inc., where he spearheaded the growth of the
company's diversified private label food manufacturing. Mr. Norton received the
American Marketing Association's "Edison Gold Award" for the best new product of
1998, and is listed in "Who's Who in American Business."
CLYDE E. CULP, III, age 56, has served on our Board of Directors since
February of 1998. Mr. Culp's term is until the next annual meeting of
shareholders, to be held in December of 2000. Mr. Culp was Chairman of
Wrapsters, L.C., a Florida limited liability company, from its inception until
February 28, 1998. From 1995 to 1996, Mr. Culp acted as an investor, developer,
and consultant, and served on several boards of directors within the restaurant
industry. From 1993 through 1995, Mr. Culp served as President of the "Long John
Silver's" restaurant chain, Lexington, Kentucky. From 1990 through 1993, he
served as President of "Embassy Suites Hotel" chain, Dallas, Texas. In addition
to serving as one of our Directors, Mr. Culp also is the Chairman and Managing
Member of Bakery Resources Group, LLC, a bakery in Baltimore, Maryland, Chairman
of the Board of Directors of Tanners Group, Inc., Alpharetta, Georgia, and a
Director of El Chico/Spaghetti Warehouse, Inc., Dallas, Texas. Mr. Culp earned a
B.A. degree in Business from William & Mary College, and an M.B.A. degree in
marketing and finance from New York University.
HAROLD L. KESTENBAUM, age 50, is our Secretary and one of our Directors.
Mr. Kestenbaum's term is until the next annual meeting of shareholders, to be
held in December of 2000. Mr. Kestenbaum is an attorney admitted to practice law
in the State of New York and is our franchise attorney. He received a Bachelor
of Arts degree in Sociology from Queens College, New York, and earned his Juris
Doctorate degree from the University of Richmond School of Law, Richmond,
Virginia. Mr. Kestenbaum was admitted to the New Jersey State Bar Association in
1975, and the New York Bar State Association in 1976. Since 1977, Mr. Kestenbaum
has concentrated his law practice in the field of franchise law and, since 1990,
has owned and operated his own law firm in Garden City, New York. From May,
1982, until September, 1986, Mr. Kestenbaum served as franchise and general
counsel to Sbarro, Inc., a national franchisor of over 900 family-style Italian
Restaurants and, since March of 1985, has been a director of Sbarro, whose
securities were listed on the New York Stock Exchange. In addition, Mr.
Kestenbaum currently sits on the board of directors of Global Travel Network.
From September, 1983, to October, 1989, Mr. Kestenbaum served as President and
Chairman of the Board of Directors of FranchiseIt Corporation, the first
publicly-traded company specializing in providing franchise marketing and
consulting services and equity financing to emerging franchise companies, which
he co-founded. In addition to the above, Mr. Kestenbaum has been franchise
counsel to over sixty regional, national or international franchise companies.
Mr. Kestenbaum is a member of the American Bar Association's Corporation Banking
and Business Law Section, a founding member of the New York State Bar
Association's Franchise Law Section, serving the latter as Chairman for its
Education and Seminar Subcommittee, as well as serving as a mediator for the
Franchise Arbitration and Mediation Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information concerning the securities of the
Company owned of record and beneficially as of the date of this Offering
Circular by each person known to the Company to own of record or beneficially 5%
or more of any class of the Company's voting securities. All shareholders listed
below have sole voting and investment power with respect to their shares.
________________________________________________________________________________
Title of Name and Address of Amount and Nature of Percent of
Class Beneficial Owner Beneficial Ownership Class
________________________________________________________________________________
Common Robert & Karene Palmer 5,188,776 27.36%
955 E. Javelina Ave., #106
Mesa, AZ 85204
Common Berg Family Trust (1) 1,244,490 6.56%
L. Bennett Berg, Trustee
4625 E. Broadway, # 117
Tucson, AZ 85711
Common Dr. C.R. Joshi 1,700,000 8.96%
1350 Los Angeles Avenue
Simi Valley, CA 93065
Common Kazi Family Partnership 1,700,000 8.96%
13724 Sherman Way
Van Nuys, CA 91405
Common Clyde E. Culp, III 1,328,883 7.01%
1907 Hidden Point Road
Annapolis, MD 21401
________________________________________________________________________________
The following table sets forth information concerning the securities of the
Company owned of record and beneficially as of the date of this Offering
Circular by each Officer and Director of the Company, and all officers and
directors of the Company as a group. All shareholders listed below have sole
voting and investment power with respect to their shares.
________________________________________________________________________________
Title of Name and Address of Amount and Nature of Percent of
Class Beneficial Owner Beneficial Ownership Class
________________________________________________________________________________
Common Robert D. Palmer, Jr. 5,188,776 27.36%
955 E. Javelina Ave., #106
Mesa, AZ 85204
Common Berg Family Trust(1) 1,244,490 6.56%
L. Bennett Berg, Trustee
4625 E. Broadway, # 117
Tucson, AZ 85711
Common Clyde E. Culp, III 1,328,883 7.01%
1907 Hidden Point Road
Annapolis, MD 21401
Common All Officers and 7,762,149 40.93%
Directors
as a Group (5 in number)
________________________________________________________________________________
(1) L. Bennett Berg is a Director of the Company and the Trustee of the
Berg Family Trust, the owner of the shares. Mr. Berg is also one of the
beneficiaries of the trust.
CHANGES IN CONTROL - VOTING AGREEMENT. Three of the shareholders of the
Company (Robert D. Palmer, Jr., Clyde E. Culp, III, and William Gallagher) have
entered into a Voting Agreement. According to the terms of the Voting Agreement,
all three shareholders have agreed to vote their shares for a period of three
(3) years from the execution date of August 31, 1999, to elect as directors of
the Company a slate consisting of Robert D. Palmer, Jr., Clyde E. Culp, III, two
(2) candidates nominated by Mr. Palmer, and one (1) candidate nominated by Mr.
Culp.
CHANGES IN CONTROL - "RESET" PROVISIONS. Two investors purchased 3,400,000
shares of common stock in September, 1999, and, as part of the purchase
agreement, we consented to a "Reset" provision. According to this "Reset"
agreement, we may be obligated to issue more shares to these two investors if
the average bid price for our common stock falls below one-half (1/2) the bid
price on the day the shares were purchased (the closing price of our common
stock on September 22, 1999, the closing date for this transaction, was $.812
per share). If the average bid price is equal to or greater than one-half (1/2)
the bid price on the purchase date, no new shares are to be issued. If the
average bid price falls below $0.409 (one-half (1/2) the bid price on the
purchase date), the following formula will determine the number of new shares to
be issued:
The difference between $0.409 and the average bid price during the
applicable period*, multiplied by 1,700,000, with the resulting product being
divided by the average bid price during the applicable period.
* This calculation is to be made for each of two "applicable periods," the first
such period being the first sixty (60) trading days following the purchase date,
and the second period being trading days 61 through 100 following the purchase
date.
The individuals who previously owned the shares of common stock of NYB
Foods, Inc., were granted the same "reset" rights for the 7,500,000 shares of
our common stock they were issued in the merger between NYB Foods, Inc., and NYB
Acquisitions Corp.
CHANGES IN CONTROL - WARRANT PURCHASE AGREEMENT. Investors purchased
warrants to purchase 3,485,000 shares of our common stock in September, 1999. In
the "Warrant Purchase Agreement," we agreed to issue additional shares of common
stock under certain circumstances. If the investor exercises all or part of his
warrants but, before the shares are issued, the effectiveness of our
registration statement is suspended for a reason other than that we possess
material non-public information, and the bid price immediately before the
suspension is greater than the bid price on the day after the suspension is
lifted, we will be obligated to issue more shares, according to the following
formula:
The number of shares the investor was entitled to receive pursuant to his
warrant exercise which were not otherwise freely-tradable, multiplied by the
product of (1) the number of shares he was entitled to under the warrant
exercise, (2) multiplied by the product of the bid price immediately before the
exercise, divided by the bid price immediately after the suspension was lifted.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000 shares
of no par value common stock. All shares have equal voting rights and are non-
assessable. Voting rights are not cumulative and, therefore, the holders of more
than 50% of the common stock of the Company could, if they chose to do so, elect
all the directors. Assuming sale of all the shares of common stock by the
selling shareholders offered by this prospectus, the present shareholders will
own, if the 7,983,883 shares offered hereby are sold, 64.45% of our outstanding
Common Stock, and, therefore, will be able to elect all directors and control
the Company.
Upon liquidation, dissolution or winding up of the Company, the assets of
the Company, after satisfaction of all liabilities, will be distributed pro rata
to the holders of the Common Stock. The holders of the Common Stock do not have
preemptive rights to subscribe for any securities of the Company and have no
right to require the Company to redeem or purchase their shares. The Shares of
Common Stock presently outstanding are, and the Shares of Common Stock to be
sold pursuant to this Offering will be, fully paid and non-assessable.
Holders of Common Stock are entitled to dividends when, and if, declared by
the Board of Directors of the Company out of funds legally available therefor.
The Company has not paid any cash dividends on its Common Stock to date. No
assurance can be given that funds will be available to the Company in the future
out of which dividends can be paid, or that the Company will declare such
dividends.
The Company has authorized 10,000,000 shares of no par value Preferred
Stock. Currently, 1,000 shares of Series B Preferred Stock are issued and
outstanding. We may issue Preferred Stock in one or more series at the
discretion of the Board of Directors. In establishing a series, the Board of
Directors are to give it a distinctive designation so as to distinguish it from
the shares of all other series and classes, fix the number of shares in the
series, and fix the preferences, rights and restrictions thereof. All shares of
any one series shall be alike in every particular unless otherwise provided in
the articles of incorporation or Colorado statutes.
SHARES ELIGIBLE FOR FUTURE SALE. 14,686,313 of our 18,966,313 currently-
outstanding Shares of Common Stock are "restricted securities" and, under
certain circumstances, may in the future be sold in compliance with Rule 144,
adopted under the Securities Act of 1933, as amended. Future sales of the
Company's Common Stock could depress the market price for such Common Stock.
"RESET" PROVISIONS. Two investors purchased 3,400,000 shares of common
stock in September, 1999, and, as part of the purchase agreement, we consented
to a "Reset" provision. According to this "Reset" agreement, we may be obligated
to issue more shares to these two investors if the average bid price for our
common stock falls below one-half (1/2) the bid price on the day the shares were
purchased (the closing price of our common stock on September 22, 1999, the
closing date for this transaction, was $.812 per share). If the average bid
price is equal to or greater than one-half (1/2) the bid price on the purchase
date, no new shares are to be issued. If the average bid price falls below one-
half (1/2) the bid price on the purchase date, the following formula will
determine the number of new shares to be issued:
The difference between one-half (1/2) the bid price on the purchase date
and the average bid price during the applicable period*, multiplied by
1,700,000, with the resulting product being divided by the average bid price
during the applicable period.
* This calculation is to be made for each of two "applicable periods," the first
such period being the first sixty (60) trading days following the purchase date,
and the second period being trading days 61 through 100 following the purchase
date.
The individuals who previously owned the shares of common stock of NYB
Foods, Inc., were granted the same "reset" rights when the merger between NYB
Foods, Inc., and NYB Acquisitions Corp. was finalized. (See "Security Ownership
of Certain Beneficial Owners - Changes in Control - Reset' Provisions.")
WARRANT PURCHASE AGREEMENT. One investor purchased warrants to purchase
3,000,000 shares of our common stock in September, 1999. In the "Warrant
Purchase Agreement," we agreed to issue additional shares of common stock under
certain circumstances. If the investor exercises all or part of his warrants
but, before the shares are issued, the effectiveness of our registration
statement is suspended for a reason other than that we possess material non-
public information, and the bid price immediately before the suspension is
greater than the bid price on the day after the suspension is lifted, we will be
obligated to issue more shares, according to the following formula:
The number of shares the investor was entitled to pursuant to his warrant
exercise which were not otherwise freely-tradable, multiplied by the product of
(1) the number of shares he was entitled to under the warrant exercise, (2)
multiplied by the product of the bid price immediately before the exercise,
divided by the bid price immediately after the suspension was lifted.
The holders of these common stock purchase warrants may exercise their
warrants and receive underlying common stock shares for no cash payment. This
"cashless" exercise option provides that the holders of the warrants may
exercise their warrants and receive underlying shares of common stock for no
cash price according to the following formula:
The number of shares issued to the warrantholder equals the average closing
bid price for five trading days immediately preceding the exercise minus the
exercise price of $.35, divided by the five-day average closing bid price; all
multiplied by the number of shares with respect to which the warrants are being
exercised.
As an example, if the average closing bid price for our common stock for a
five-trading-day period is $.50, and all 3,485,000 warrants are exercised
pursuant to the "cashless" exercise option, we would issue 1,045,500 shares of
common stock to the warrantholders for no cash price.
SERIES B PREFERRED STOCK. The Company previously issued 113,500 shares of
non-voting Series B Redeemable Convertible Preferred Stock, all but 1,000 of
which shares have subsequently been converted into three (3) shares of the
Company's common stock for each share of Series B Preferred (112,500 previously-
issued Series B Preferred shares have been exchanged for 337,500 shares of
common stock). Each of the 1,000 outstanding shares of Series B Preferred stock
has a face value of ten dollars ($10.00), with cumulative dividends payable at
the rate of ten percent (10%) annually, payable semi-annually in cash or
additional Series B shares, at the Company's option. No dividends are payable on
any other securities which are junior to the Series B shares (including our
common stock), unless all accrued dividends have been paid to the holders of
Series B shares. The Company may, at any time, redeem the Series B shares for
their face value ($10.00 per share), plus any accrued but unpaid dividends. In
the event of the liquidation, dissolution or winding up of the Company, Series B
shareholders are entitled to be paid $10.00 per share, plus any accrued but
unpaid dividends, out of the Company's assets before any payment may be made to
holders of the Company's common stock, or any other securities junior to Series
B Preferred shares. Series B Preferred shareholders may convert their Series B
shares to shares of preferred stock of the Company which are or become publicly
traded shares.
COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation indemnify, to the maximum extent permitted by
law, any person who is or was a director, officer, agent, fiduciary or employee
against any claim, liability or expense arising against or incurred by such
person made party to a proceeding because he is or was a director, officer,
agent, fiduciary or employee for us, or because he is or was serving another
entity or employee benefit plan as a director, officer, partner, trustee,
employee, fiduciary or agent at our request.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provision, 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 Act and is, therefore, unenforceable.
DESCRIPTION OF BUSINESS
We were incorporated in the State of Colorado on February 23, 1996 as HAI
Enterprises, Inc., and 976,200 shares of our no par value common stock were
issued to founders and initial investors.
On February 19, 1998, HAI Enterprises entered into a Plan of Merger with
Wrapsters, L.C., a Florida limited liability company. In connection with the
merger, the initial shareholders' shares were reverse-split 2-for-5, resulting
in 390,480 then-outstanding common shares, and an additional 3,800,000 shares
were issued to the owners of Wrapsters as follows: 1,900,00 shares to Clyde E.
Culp, III, and 1,900,000 shares to Thomas E. Metzger. At the same time,
3,800,000 shares of common stock and 113,500 shares of Series B Preferred stock
(see "Description of Securities") were issued to Santa Cruz Squeeze, Inc., a
Texas corporation, in exchange for an investment of $1,000,000.00. The surviving
corporation of the merger was HAI Enterprises, Inc., which changed its name to
Wrapsters, Inc. Thus, at the completion of this merger, we had 7,990,480 shares
of common stock, and 113,500 shares of Series B Preferred stock outstanding.
Wrapsters, Inc., was in the business of developing, operating and selling
franchises for fast food restaurants offering a variety of tortilla-wrapped
sandwiches and meals. The Company operated as Wrapsters, Inc., for approximately
eighteen (18) months, meeting with limited success with its restaurants. In
addition to selling and operating franchise restaurants, Wrapsters sought to
acquire or merge with other franchise companies.
In August of 1999, Wrapsters negotiated to acquire NYB Foods, Inc., a
Colorado corporation, by means of a merger between one of Wrapsters' wholly-
owned subsidiaries and NYB Foods, Inc. Wrapsters formed NYB Acquisitions Corp.,
a Colorado corporation, for the purpose of merging with NYB Foods, Inc., and
became the surviving corporation. In connection with the merger, the
shareholders of NYB Foods, Inc., exchanged all their shares for 7,500,000 shares
of Wrapsters' common stock and $500,000.00. NYB Foods was merged into NYB
Acquisitions Corp., and the surviving corporation subsequently changed its name
to "NYB Foods, Inc."
After the merger was approved, we used another wholly-owned Colorado
corporation, Wrapsters Acquisitions Corp., to acquire the existing franchisees,
trademarks, and other assets, including two (2) previously company-owned
restaurants, from 1 Potato 2, Inc., a Minnesota corporation. The consideration
given for these assets consisted of a promissory note from the subsidiary in the
amount of $400,000.00, payable semi-annually over a five (5) year term bearing
interest at 7.5% per annum, and 600,000 share of our common stock.
On December 15, 1999, our shareholders gave approval to change our name to
"UPTOWN RESTAURANT GROUP, INC.," and to increase the number of shares of common
stock we are authorized to issue from 25,000,000 to 50,000,000. Also, we changed
the name of NYB Acquisitions Corp. to NYB Foods, Inc., and we changed the name
of Wrapsters Acquisitions Corp. to 1 Potato 2 Franchising Corporation.
NEW YORK BURRITO. NYB Foods, Inc. ("NYB"), which is the surviving
corporation of the merger into our wholly-owned subsidiary, offers to
individuals, pursuant to a franchise agreement, the right to establish and
operate, from a single location, a limited-cooking "New York Burrito Gourmet
Wraps" specialty restaurant ("New York Burrito"). Each wrap, or burrito, is
made to order in full view for each customer. Operation of the restaurant
requires limited on-location cooking, as the bulk of the foods utilized are
centrally prepared and delivered to the restaurants through normal commercial
food distribution companies. Most major ingredients necessary for the
preparation of the food items are pre-cooked and quick-frozen, utilizing quick-
chill cooking and packaging techniques by various manufacturers. Other items,
including cheeses, greens and other condiments, are also pre-prepared and
packaged for use in the New York Burrito locations. Its menu consists mainly of
flavored tortillas filled with vegetarian-style pinto or black beans and rice,
along with spiced meats, such as steak, chicken, barbeque, deli, cajun or
teriyaki. An optional breakfast menu may also be served, which features
breakfast burritos, other breakfast items, juice and coffee.
NYB markets its franchises by means of advertising, trade shows and Area
Development Agents ("DA"). A DA contract grants a Territory to an individual,
giving him the exclusive right to sell New York Burrito franchises. The DA
agreement provides compensation, consisting of a portion of the initial
franchise fees and a percentage of the on-going royalties, but requires certain
levels of success, namely the selling and opening of an agreed-upon number of
franchises within set time limits. The initial franchise fee for a New York
Burrito restaurant is $15,000.00, and a reduced rate of $10,000.00 is offered to
certain existing franchisees for additional franchises. A franchisee pays 7% of
gross sales to NYB as a royalty, and 4% of gross sales for co-cooperative
advertising.
Franchisees are required to operate their restaurants in accordance with
standards and procedures established by NYB, including those contained in the
New York Burrito Operations Manual, prepared and distributed to franchisees. In
addition, franchisees are granted the right to operate their businesses under
the New York Burrito name with a "cactus skyline" trademark.
NYB maintains a full-time training center at its corporate headquarters in
Mesa, Arizona, and provides in-store training activities at its company-owned
operating New York Burrito restaurant in Chandler, Arizona, which is contiguous
to NYB's headquarters. NYB's primary business is the sale of franchises, rather
than the operation of company-owned restaurants.
New York Burrito restaurants generally operate from a retail location, such
as a strip-type shopping center, shopping mall food court, or a free-standing
location. Typical restaurant size varies from 750 to 2,000 square feet. A
franchisee's initial investment to "build out" a store location and open for
business, is estimated to range from $58,700.00 to $101,950.00, which amounts
include the initial franchise fee.
New York Burrito franchises must compete with other full-service and carry-
out restaurants and other outlets specializing in burritos (wraps) or Mexican
food, some of which are national or regional chains, or which may be more
established. New York Burrito franchises will, to some extent, also have to
compete with restaurants and food outlets offering other types of food products.
Established in 1995, NYB currently owns one (1) restaurant in Chandler,
Arizona, and has fifty four (54) New York Burrito franchise restaurants open in
twenty three (23) states and Puerto Rico. In addition, fifteen (15) franchise
restaurants are currently in development. In an unrelated transaction, on March
17, 1999, NYB sold the California franchise rights and entered into a License
Agreement for the State of California with NYB West, Inc., a California company,
which was the former Sub-Franchisor for California. NYB West, Inc., is now the
franchisor of the ten (10) New York Burrito franchise restaurants in California.
NYB leases corporate offices at 955 East Javelina Avenue, Suite 106, Mesa,
Arizona 85204, consisting of 3,606 square feet of office space, and general
office furniture, supplies and equipment. The lease runs for five (5) years,
commencing February 1, 1999, and the rent is $2,307.84 monthly, plus taxes. Its
company-owned New York Burrito restaurant, in Chandler, Arizona, is located at
1100 North Alma School Road, #5, Chandler, Arizona 85224, in leased space of
1,300 square feet, for $1,950 per month. The restaurant furniture and kitchen
equipment, fixtures and leasehold improvements are currently valued at $8,892.
The restaurant produces revenues for NYB, is used as a sales tool for
prospective franchisees to visit, and for training of new franchisees.
NYB owns its trademark (the New York Burrito name with a "cactus skyline"
trademark, which is registered with the United States Commissioner of Patents
and Trademarks on the Principal Register, Reg. No. 1,993,286, August 13, 1996,
with first use November 1, 1991), its UFOC, Franchise Agreements, Area
Development Agent agreements, and fifty four (54) New York Burrito Gourmet Wraps
franchisees in twenty three (23) states and Puerto Rico, with fifteen (15)
franchise restaurants currently in development.
NYB's corporate offices are located at 955 East Javelina Avenue, Suite 106,
Mesa, Arizona 85204, telephone number (602)503-3363 or (800)711-4036, and its
website can be found at www.newyorkburrito.com.
1 POTATO 2. On November 11, 1999, one of our wholly-owned subsidiaries
(Wrapsters Acquisitions Corp., a Colorado corporation) acquired assets,
including two (2) company-owned restaurants, franchise contract and rights, and
equipment, from "1 Potato 2, Inc.," a Minnesota corporation, in exchange for a
promissory note in the principal amount of $400,000.00 issued by the subsidiary,
payable semi-annually for five (5) years with interest at the rate of 7.5% per
annum, and 600,000 shares of our common stock. We later changed the name of the
subsidiary to "1 Potato 2 Franchising Corporation" ("1 Potato 2 Franchising").
1 Potato 2 Franchising operates and sells franchises for the operation of
"1 Potato 2" fast food restaurants specializing in baked potatoes and other
types of potato dishes. 1 Potato 2 restaurants are typically located in shopping
mall food courts. 1 Potato 2 opened its first restaurant in 1978 and expanded
the number of its company-owned restaurants until it began offering franchises
in 1984. In 1986, concurrent with its acquisition by Bankers Restaurants, Inc.,
1 Potato 2 began development of a more contemporary potato menu, including a
number of proprietary items such as "lite" potato offerings, potato skins,
potato soup, gourmet wraps and smoothies. Through 1991, 1 Potato 2 continued to
open company-owned stores at the same time it sold franchises, when it was
decided that, due to the relatively small size of a 1 Potato 2 unit, franchisee-
operated stores were preferable. Thereafter, until 1995, 1 Potato 2 continued to
sell its company-owned stores to franchisees. In March of 1995, 1 Potato 2 filed
a Chapter 11 reorganization case in Bankruptcy Court in order to cancel
unfavorable store leases and concentrate on selling franchises. The Plan of
Reorganization was confirmed within 115 days.
1 Potato 2 restaurants have typically been located in food courts in
regional shopping malls and downtown centers. Food courts are located in the
center or courtyard of shopping malls or city center shopping areas and feature
large capacity common seating surrounded by quick-service, convenience
restaurants. In the future, the Company expects new franchised restaurants will
be a combination of food courts and non-traditional locations, including high-
traffic strip centers, airports and downtown locations.
Marketing efforts have been minimal in the recent past, but the Company
intends to market 1 Potato 2 franchises in much the same manner as New York
Burrito franchises, by means of advertising, trade shows and Area Development
Agents ("DA"). The initial franchise fee for a 1 Potato 2 restaurant is
$15,000.00 for the first location, and $10,000.00 for each additional location
purchased by an existing franchisee. A franchisee will pay 6% of gross sales to
the franchisor as a royalty, and 2% of gross sales for co-cooperative
advertising.
The two (2) company-owned 1 Potato 2 restaurants are located in the
Minneapolis/St. Paul are, at the Mall of America food court, and Ridgedale,
Minnesota. The Mall of America store is 614 square feet for a base rent of
$75,000 per year, and the Ridgedale Mall store is 737 square feet for a base
rent of $25,757 per year. The restaurant furniture and kitchen equipment,
fixtures and leasehold improvements for the three restaurants are currently
valued at $63,800. The restaurants produces revenues for Wrap, is used as a
sales tool for prospective franchisees to visit, and for training of new
franchisees. 1 Potato 2 also owns its trademark ("1 Potato 2"), its UFOC,
Franchise Agreements, and twenty-seven (27) 1 Potato 2 franchisees in eleven
(11) states.
1 Potato 2's corporate headquarters are now located in the same office with
NYB, at 955 East Javelina Avenue, Suite 106, Mesa, Arizona 85204, telephone
number (602)503-3363 or (800)711-4036, and its website can be found at
www.1potato2.com
FUTURE ADDITIONAL BRANDS. In addition to expanding the number of franchise
operations of New York Burrito and 1 Potato 2, the Company will be seeking m
ergers with or acquisitions of other franchise operations. While the Company and
its officers and directors are seeking desirable merger or acquisition
candidates, none have yet been identified and no negotiations are currently
being pursued.
COMPETITION. Competition in the restaurant and fast food franchising
industry is intense. New York Burrito and 1 Potato 2 restaurants compete with
low-priced, casual dining and take-out restaurants primarily on the basis of
quality, atmosphere, location and value. New York Burrito's and 1 Potato 2's
takeout/takehome business competes not only with full service restaurants, but
also with take-out food service companies, fast-food restaurants, delicatessens,
cafeteria-style buffets, prepared food stores, supermarkets and convenience
stores. New York Burrito and 1 Potato 2 also compete with other restaurants and
retail establishments for quality sites and franchisees.
Many of our competitors are well established and have substantially greater
financial, marketing and other resources than we do. Regional and national
restaurant companies such as Taco Bell, Chipotle, Z-Teca and Taco John's have
expanded their operations in our current and anticipated market areas. This
competition could adversely affect our operating results.
Competition in the food service business is often affected by: (a) changes
in consumer tastes, (b) national, regional, and local economic and real estate
conditions, (c) demographic trends, (d) traffic patterns, (e) the cost and
availability of labor, (f) the type, number and location of competing
restaurants, (g) availability of product and local competitive factors, locale,
and (f) the ability of our franchisees to operate a profitable business. Some or
all of these factors could adversely affect us and our future franchisees.
GOVERNMENT REGULATION. A variety of federal, state and local laws apply to
us and our restaurant franchising businesses. Each of our restaurants, and those
of our franchisees, is subject to permitting, licensing, and regulation by a
number of governmental authorities, including zoning, health, safety,
sanitation, building, and fire agencies in the state or municipality in which
the restaurant is located. These restaurants must comply with federal, state and
local government regulations applicable to the consumer food service business,
including those relating to the preparation and sale of food, minimum wage
requirements, overtime, unemployment and sales taxes, working and safety
conditions, mandated health insurance coverage and citizenship requirements.
Significant numbers of the service, food preparation and other personnel
employed in our, and our franchisees', restaurants are compensated at rates
related to the federal minimum wage, and increases in the minimum wage could
increase our, and our franchisees', labor costs. Difficulties in obtaining or
failure to obtain required licenses or approvals could delay or prevent the
development of new restaurants and franchisees in a particular area.
AMERICANS WITH DISABILITIES ACT. The federal Americans with Disabilities
Act requires that places of public accommodation meet certain requirements
related to access and use by persons with disabilities. We design our
restaurants, and those of our franchisees, to be accessible to persons with
disabilities and believe that we are in substantial compliance with all current
applicable regulations relating to restaurant accommodation for persons with
disabilities.
FEDERAL AND STATE FRANCHISE LAW COMPLIANCE. Before a franchise can be
sold, we must, through our subsidiaries, prepare a Uniform Franchise Offering
Circular ("UFOC") in accordance with regulations promulgated by the Federal
Trade Commission of the U.S. Government, describing material aspects of the
franchise offered, estimated costs of opening and operating the business, a
description of the type of business offered, disclosure of information regarding
the officers and key employees of the franchisor, and generally making full and
fair disclosure of all material aspects of the franchise being offered and the
company offering it. This UFOC must be updated continually as any aspect of the
business changes, and requires time and effort of management, as well as
attorney's fees.
In addition, many of the states in which the Company now has franchise
operations, and in which the Company intends to offer franchises in the future,
require that a franchisor submit itself and its franchise offering to a
registration process prior to offering its franchises for sale in the state.
Failure to comply with these requirements can result in a franchisor being
permanently prohibited from offering franchises in that state, and could have
similar repercussions in other states.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the Company's
financial statements and related notes thereto.
LIQUIDITY. As of September 12, 1999, the Company's liquidity was poor. All
Company-owned and franchised "Wrapsters" restaurants had been closed, we had
significant negative working capital, and had no means to pay off debt of
$480,000.00 and lease obligations of $220,000.00. Improvement of our working
capital will depend on the ability of our two subsidiaries to produce
significant future revenues.
CAPITAL RESOURCES. As of September 12, 1999, the Company had no capital
resources. Checks issued in excess of cash balance equaled $771.00.
RESULTS OF OPERATIONS. From inception, we have not been successful in
generating revenues sufficient to meet our operating needs. For the years ended
December 31, 1998 and 1997, we had net losses of $1,282,682 and $340,364
respectively. For the third quarter ended September 30, 1999, the net loss from
operations was $871,624. In 1999, we closed all our "Wrapsters" restaurants.
Effective August of 1999, we acquired all the outstanding common stock of
NYB Foods, Inc., a Colorado corporation, through a merger with one of our
wholly-owned subsidiary corporations. The acquisition will be handled as a
pooling of interests for accounting purposes. Our financial statements as of
September 30, 1999, do not include the financial position or results of
operations of NYB Foods, Inc. For the years ended March 31, 1999 and 1998, NYB
Foods, Inc., showed results of operations of $68,412 and ($20,342) respectively.
NYB Foods, Inc., generates its operating revenue from the sale of its franchise
agreements, fees from such franchises and from its company-owned restaurant.
On November 11, 1999, we acquired substantially all the assets of 1 Potato
2, Inc., a Minnesota corporation, through another of our wholly-owned subsidiary
corporations, Wrapsters Acquisitions Corp., in exchange for a promissory note in
the principal amount of $400,000, payable in ten (10) semi-annual installments
at an interest rate of 7.5%, and 600,000 shares of our common stock. 1 Potato 2
generates its operating revenue from the sale of its franchise agreements, fees
from such franchises, and from the two (2) company-owned restaurants.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
We previously employed the firm of Porter Keadle Moore, LLP, of Atlanta,
Georgia, as our independent certified public accountants and auditors. They
audited our books and prepared our financial statements for the year ended
December 31, 1998. In 1999, we acquired NYB Foods, Inc., through a merger with
one of our subsidiaries, and, in connection with that merger, moved our
corporate offices from Atlanta, Georgia, to Mesa, Arizona, and replaced our
previous management team with the NYB Foods, Inc., management team. Due to the
management change and the geographical move, we found it more convenient to
employ NYB Foods, Inc.'s, auditor, James E. Raftery, CPA, PC, as our independent
certified public accountants and auditors.
We have no disagreements with Porter Keadle Moore, LLP, nor with any other
accountants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following-described transactions involve the Company and any of its
officers, directors, nominees for such positions, beneficial owners of 5% or
more of the outstanding common stock of the Company, or any of their family
members:
ACQUISITION OF NYB FOODS, INC. In the merger between our subsidiary, NYB
Acquisitions Corp., and NYB Foods, Inc., the NYB Foods shareholders received, in
exchange for 100% of the outstanding shares of common stock of NYB Foods,
7,500,000 shares of our common stock and $500,000.00 in cash, as follows:
Robert D. Palmer, Jr. 5,188,776 shares and $345,900.00
& Karene Palmer
Berg Family Trust 1,244,490 shares and $81,600.00
In addition to the above shares and cash, these shareholders received
registration rights for a portion of their shares, as reflected in this
registration statement.
EXCHANGE OF SHARES OF COMMON STOCK FOR PROMISSORY NOTE. Prior to the
acquisition of NYB Foods, Inc., one of our directors, Clyde E. Culp, III, agreed
to exchange a promissory note in the principal amount of $428,883.00, which was
owed to him by the Company, for 428,883 shares of our common stock. The Company
agree that it would include Mr. Culp's newly-issued shares of common stock in
this registration statement.
EXCHANGE OF SHARES OF COMMON STOCK FOR PROMISSORY NOTE. Prior to the
acquisition of NYB Foods, Inc., one of our shareholders, Santa Cruz Holdings,
Inc., agreed to exchange a promissory note in the principal amount of
$109,000.00, which was owed to it by the Company, for 109,000 shares of our
common stock.
ISSUANCE OF NOTE AND COMMON STOCK FOR 1 POTATO 2 ASSETS. William G.
Norton, one of our current directors, is also a director and shareholder of 1
Potato 2, Inc. As such, he will benefit indirectly from the transaction in which
our subsidiary acquired assets from 1 Potato 2, Inc., in exchange for 600,000
shares of our common stock and a promissory note in the principal amount of
$400,000.00.
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our no par value common stock is traded on the Over-The-Counter Bulletin
Board, under the symbol "UTRG." On December 23, 1999, the high and low bids for
the common stock were $.937 and $.687 respectively. The range of high and low
sales prices for the common stock as quoted on the OTC Bulletin Board are listed
below for the periods indicated. The quotes reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not represent actual
transactions.
________________________________________________________________________________
Calendar Quarter High Bid Low Bid
________________________________________________________________________________
1st Quarter, 1999 $2.625 $0.875
2nd Quarter, 1999 $2.00 $0.4375
3rd Quarter, 1999 $1.50 $0.6875
4th Quarter, 1999 $1.031 $0.562
________________________________________________________________________________
Because the bid price of the common stock has been below $5.00 per share,
the SEC's Rule 15g-9 may apply to the common stock. This rule imposes additional
sales practice requirements on a broker-dealer that sells Rule 15g-9 securities
to persons other than the broker-dealer's established customers and
institutional accredited investors. For transactions covered under Rule 15g-9,
the broker-dealer must make a suitability determination of the purchaser and
receive the purchaser's written agreement to the transaction before the sale. In
addition, broker-dealers, particularly if they are market makers in the common
stock, have to comply with the disclosure requirements of Rules 15g-2, 15g-3,
15g-4, 15g-5, and 15g-6 under the Exchange Act unless the transaction is exempt
under Rule 15g-1. Consequently, Rule 15g-9 and these other rules may adversely
affect the ability of broker-dealers to sell or to make markets in the common
stock and also may adversely affect the ability of purchasers of the shares
offered by this prospectus to resell their shares.
HOLDERS OF RECORD. We had approximately 299 holders of record of our
common stock as of the shareholder meeting on December 15, 1999.
DIVIDENDS. We have never paid cash dividends on our common stock and
intend to retain earnings, if any, to use in operating and expanding our
business. Our board of directors will determine the amount of future dividends,
if any, based upon our earnings, financial condition, capital requirements and
other conditions.
RESTRICTION ON ABILITY TO PAY DIVIDENDS. We currently have 1,000 shares of
Series B Preferred stock outstanding. Each share of Series B Preferred stock has
a face value of ten dollars ($10.00), with cumulative dividends at the rate of
ten percent (10%), payable in cash or additional Series B shares, at the
Company's option, semi-annually. No dividends are payable on any other
securities which are junior to the Series B shares, including on our common
shares, unless all accrued dividends have been paid to the holders of Series B
shares. The Company may, at any time, redeem the Series B shares for their face
value ($10.00 per share), plus any accrued but unpaid dividends. In the event
of the liquidation, dissolution or winding up of the Company, Series B
shareholders are entitled to be paid $10.00 per share, plus any accrued but
unpaid dividends, out of the Company's assets before any payment may be made to
holders of the Company's common stock, or any other securities junior to Series
B Preferred shares.
EXECUTIVE COMPENSATION
All compensation awarded to, earned by, or paid to the Company's chief
executive officer, its three (3) most highly paid executive officers, and two
other highly-paid officers, during the last fiscal year, are as follows:
________________________________________________________________________________
Name, Title Salary Bonus Other
Compensation
________________________________________________________________________________
Thomas E. Metzger $175,000 $0 issued options to
Chief Executive Officer to purchase 500,000
shares of our common
stock, which he later
released without
exercising
William Gallagher $0 $0 $20,000.00
Director
Clyde E. Culp, III $0 $0 $0
Director
________________________________________________________________________________
The following is a summary table containing compensation awarded to, earned
by, or paid to the Company's chief executive officer, its three (3) most highly
paid executive officers, and two other highly-paid officers, during the last
three (3) fiscal years:
SUMMARY COMPENSATION TABLE
________________________________________________________________________________
Long Term Compensation
___________________________________________
Annual Compensation Awards Payouts
______________________________________________________________________________
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Name Annual Restricted Under- All Other
and Compen- Stock lying LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#)($) ($) ($)
______________________________________________________________________________
Thomas E. Metzger 1998 $175,000 $0 $0 $0 500,000 shares $0 $0
1999 $175,000 $0 $0 $0 0 $0 $0
William Gallagher 1998 $0 $0 $0 $0 0 $0 $0
1999 $0 $0 $0 $0 0 $0 $0
Clyde E. Culp, III 1998 $0 $0 $0 $0 0 $0 $0
1999 $0 $0 $0 $0 0 $0 $0
________________________________________________________________________________
The following is a summary table containing information pertaining to the
granting of stock options and/or stock appreciation rights ("SARs") made during
the past fiscal year to each of the Company's executive officers:
________________________________________________________________________________
Option/SAR Grants in Last Fiscal Year
Individual Grants
______________________________________________________________________________
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs* Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
________________________________________________________________________________
Thomas E. Metzger 500,000** 62.5% $1.00 per share 1/12/2004
Steven J. Devine 85,000 10.6% $1.00 per share 9/3/2003
142,500 17.8% $1.00 per share 1/12/2004
Charles D. Barnett 25,000 3.1% $1.00 per share 9/3/2003
________________________________________________________________________________
* The previous board of directors adopted a Stock Appreciation Plan ("SAR")
on September 3, 1998, but no "SAR's" were issued to any executive officer or
employee. Our present board of directors repealed the "SAR" plan on December 15,
1999.
** The previous board of directors issued options to purchase 500,000 shares
of our common stock at an exercise price of $1.00 per share to our past
president, Thomas E. Metzger, on January 13, 1999. In connection with the
merger of NYB Foods into our subsidiary, Mr. Metzger released and waived his
rights to any such common stock purchase options, and the Stock Option Plan was
repealed by our current board of directors on December 15, 1999.
COMPENSATION OF DIRECTORS. Currently, the Company does not compensate its
directors for their service on the Board of Directors, other than to reimburse
them for their costs of travel and lodging to attend meetings, and payment of
$1,000 annually to each director for attendance at and participation in each
such meeting.
During our last fiscal year, our directors were not compensated.
LEGAL MATTERS
R. Michael Jackson, Attorney at Law, Lakewood, Colorado, will pass on the
validity of the common stock offered by this prospectus for us.
EXPERTS
Our audited financial statements as of December 31, 1998 and for the year
ended December 31, 1997, have been included in reliance of the report of Porter,
Keadle & Moore. The audited financial statements of NYB Foods, Inc. as of March
31, 1999 and for the year ended March 31, 1998, have been included in reliance
on the report of James Raftery & Associates, P.C., independent public accounts,
given on the authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We must comply with the information requirements of the Exchange Act, and
we file reports, proxy and information statements and other information with the
SEC. Those reports, proxy and information statements, and other information may
be inspected and copied at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549 on payment of the prescribed
fees. In addition, the SEC maintains a website (http:\\www.sec.gov) that
contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the SEC through the
Electronic Data Gathering, Analysis and Retrieval system, or EDGAR.
This prospectus is part of a registration statement on Form SB-2 that we
have filed with the SEC under the Securities Act. This prospectus does not
contain all the information contained in the registration statement, certain
parts of which we have omitted in accordance with SEC rules. For further
information about us and the shares covered by this prospectus, we refer you to
the registration statement. Statements contained in this prospectus concerning
the provisions of any document are not necessarily complete, and each of those
statements is qualified by reference to the copy of that document filed with the
SEC.
<PAGE>
FINANCIAL STATEMENTS
Uptown Restaurant Group, Inc.
f/k/a Wrapsters, Inc.
Consolidated Balance Sheet
For the Nine Months Ending
September 30,1999
Assets
Current Assets
Cash $ 62,175
Money Market Account 201,521
Accounts Receivable, net of allowance of
$20,000 for 1999 60,895
Inventory 3,209
Prepaid Expenses 315,727
Total Current Assets 643,526
Property and Equipment
Office Equipment 29,500
Office Furniture 21,319
Accumulated Depreciation (7,062)
Total Property & Equipment 43,757
Other Assets
Franchise Documents 40,000
Intangible Assets 59,461
Notes Receivable 25,500
Note Receivable (NYB West) 55,000
Total Other Assets 179,961
Total Assets $ 867,244
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts Payable $ 199,714
DA Commissions Payable 14,992
Credit Payable 13,802
Deferred Tax Payable 3,673
Deferred Revenue 690,483
Total Current Liabilities 922,665
Long Term Liabilities
Lease Commitments 95,217
Total Liabilities 1,017,882
Equity
Common Stock 2,205,895
Retained Earnings (1,532,703)
Net Income Y-T-D (823,831)
Total Capital (150,638)
Total Liabilities & Capital $867,244
<PAGE>
Uptown Restaurant Group, Inc.
f/k/a Wrapsters, Inc.
Balance Sheet
For the Nine Months Ending
September 30,1999
Assets
Current Assets
Cash ($771)
Money Market Account 0
Accounts Receivable, net of allowance
of $20,000 for 1999 0
Inventory 0
Prepaid Expenses 0
Total Current Assets (771)
Property and Equipment
Office Equipment 0
Office Furniture 0
Accumulated Depreciation 0
Total Property & Equipment 0
Other Assess
Franchise Documents 0
Deffered Loan Costs 31,461
Notes Receivable 0
Note Receivable (Other) 0
Total Other Assets 31,461
Total Assets $30,691
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts Payable $167,035
DA Commissions Payable 0
Credit Payable 3,957
Deferred Tax Payable 0
Deferred Revenue 50,000
Total Current Liabilities 220,992
Long Term Liabilities
Lease Commitments 85,815
Total Liabilities 306,808
Equity
Common Stock 2,124,264
Retained Earnings (1,546,257)
Net Income Y-T-D (854,125)
Total Capital (276,117)
Total Liabilities & Capital $30,691
<PAGE>
NYB Foods, Inc.
Balance Sheet
For the Six Months Ending
September 30,1999
Assets
Current Assets
Cash $62,946
Money Market Account 201,521
Accounts Receivable, net of allowance
of $20,000 for 1999 60,895
Inventory 3,209
Prepaid Expenses 315,727
Total Current Assets 644,296
Property and Equipment
Office Equipment 29,540
Office Furniture 21,319
Accumulated Depreciation (7,062)
Total Property & Equipment 43,757
Other Assets
Franchise Documents 40,000
Intangible Assets 28,000
Notes Receivable 25,500
Note Receivable (NYB West) 55,000
Total Other Assets 148,500
Total Assets $836,553
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts Payable $32,679
DA Commissions Payable 14,992
Credit Payable 9,844
Deferred Tax Payable 3,673
Deferred Revenue 640,483
Total Current Liabilities 701,672
Long Term Liabilities
Lease Commitments 9,402
Total Liabilities 711,074
Equity
Common Stock 81,631
Retained Earnings 13,554
Net Income Y-T-D 30,294
Total Capital 125,479
Total Liabilities & Capital $836,553
<PAGE>
Uptown Restaurant Group, Inc.
f/k/a Wrapsters, Inc.
Consolidated Y-T-D Income Statement
For the Nine Months Ending
September 30,1999
Sales
Franchise Sales $264,079
Royalty Revenue 199,077
Food Sales & Retail Food Sales 122,354
Misc. Income 21,000
NYB West 29,280
Total Sales 635,790
Cost of Sales
Administration 186,487
Bonus 29,750
DA Commission 126,568
Food Costs & Supplies 70,064
Show Fees 1,345
Training 16,033
Total Cost of Sales 430,247
Contribution
Franchise Sales 129,240
Royalty Revenue 72,509
Food Sales $ Retail Operations (19,918)
Other 23,712
Total Contribution $205,543
Expenses
Advertising 58,172
Auto Expense 6,093
Cleaning 947
Computer Supplies 6,582
Consulting Expense 22,431
Contract Labor 1,367
Depreciation 40,160
Dues & Subscriptions 2,878
Equipment Rental 11,356
Finance Charges 46,598
Insurance 16,181
Management Fees 173,060
Legal Expense 31,981
Office Supplies 11,578
Postage 16,763
Printing 7,863
Rent Office 136,639
Rent NYB 10,833
Repair & Maintenance 3,381
Telephone 17,047
Travel Expense 49,734
Conference & Meetings 3,869
Utilities Expense 16,004
Store Closings 337,856
Total Expenses 1,029,373
Net Income (Loss) ($823,830)
<PAGE>
Uptown Restaurant Group, Inc.
f/k/a Wrapsters, Inc.
Y-T-D Income Statement
For the Nine Months Ending
September 30,1999
Sales
Franchise Sales $ 0
Royalty Revenue 0
Retail Food Sales 93,138
Coupons 9,190
Other 0
Total Sales 102,328
Cost of Sales
Administration 81,398
Bonus 0
DA Commission 0
Food Costs & Supplies 48,863
Show Fees 0
Training 0
Total Cost of Sales 130,261
Contribution
Franchise Sales 0
Royalty Revenue 0
Retail Operas (27,933)
Other 0
Total Contribution (S27,933)
Expenses
Advertising 31,923
Auto Expense 4,221
Cleaning 786
Computer Supplies 0
Consulting Expense 11,114
Contract Labor 813
Depreciation 37,373
Dues & Subscriptions 1,698
Equipment Rental 1,473
Finance Charges 35,309
Insurance 10,767
Management Fees 134,010
Legal Expense 23,556
Office Supplies 7,780
Postage 4,264
Printing 1,613
Rent Stores 118,566
Rent 0
Repair & Maintenance 2,725
Telephone 9,132
Travel Expense 35,089
Conference & Meetings 3,498
Utilities Expense 12,626
Store Closings 337,856
Total Expenses 826,192
Net Income (Loss) ($854,125)
<PAGE>
Porter Keadle Moore, LLP
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Wrapsters, Inc.
We have audited the accompanying balance sheet of Wrapsters, Inc. as of January
3, 1999 and the related statements of operations, stockholders' equity (deficit)
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
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 financial statements referred to above present fairly, in
all material respects, the financial position of Wrapsters, Inc. as of January
3, 1999, and the results of its operations and its cash flows for the year then
ended.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8, the Company
has experienced significant net losses since inception, has been unable to
generate positive cumulative cash flows from operations, and, at January 3,
1999, has a significant working capital deficiency. These facts raise
substantial doubt about the Company's ability to continue as a going concern.
Note 8 also describes management's plans to alleviate these financial concerns.
Thefinancial statements do not include any adjustments that might result from
this uncertainty.
Porter Keadle Moore, LLP
Atlanta, Georgia
August 31, 1999
Certified Public Accountants
Suite 1800 235 Peachtree Street NE Atlanta, Georgia 30303 Phone 404-588-4200
Fax 404-588-4222
<PAGE>
WRAPSTERS, INC.
Financial Statements
January 3, 1999
(with Independent Accountants' Report thereon)
<PAGE>
WRAPSTERS, INC.
Balance Sheet
January 3,1999
Assets
Current assets:
Cash $ 26,046
Inventory 9,919
Due from stockholder 1,154
Total current assets 37,119
Property and equipment, net 271,920
Other assets 33,390
$ 342,429
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses $ 286,475
Deferred franchise fees 50,000
Note payable 20,000
Notes payable to affiliates 521,876
Total current liabilities 878,351
Commitments and contingencies (see note 7)
Stockholders' equity (deficit):
Series B redeemable convertible preferred
stock; no par value, 113,500 shares
authorized, issued and outstanding
(liquidation preference of $1,232,952) 990,594
Common stock; no par value, 25,000,000
shares authorized, 7,990,480 shares
issued and outstanding 19,741
Accumulated deficit (1,546,257)
Total stockholders' equity (deficit) (535,922)
$ 342,429
See accompanying notes to financial statements.
<PAGE>
WRAPSTERS, INC.
Statement of Operations
For the Year Ended January 3,1999
Revenue:
Restaurant sales revenue $ 315,026
Other income 27,472
Total revenue 342,498
Operating expenses:
Food, beverages and paper 124,944
Payroll and benefits 521,595
Occupancy 161,979
Other operating 571,406
Total operating expenses 1,379,924
Other expenses:
Interest expense 37,783
Loss on store closings 207,473
Total other expenses 245,256
Net loss $(1,282,682)
Basic and diluted loss per common share $ (0.17)
See accompanying notes to financial statements.
<PAGE>
WRAPSTERS, INC.
Statement of Changes in Stockholders' Equity (Deficit)
For the Year Ended January 3, 1999
Members' Preferred Stock Common Stock Accumulated
Equity Shares Amount Shares Amount Deficit Total
Wrapsters, LC
(see Note 1):
Balance,
December 31,
1997 $418,624 - - - - (263,575) 155,049
Capital
contributions 30,000 - - - - - 30,000
Net loss - - - - - (80,528) (80,528)
Balance
immediately
before merger 448,624 - - - - (344,103) 104,521
Wrapsters, Inc.
(see Note 1):
Conversion of
members' equity
to note
payable (428,883) - - - - - (428,883)
Issuance of
common stock (19,741) - - 7,600,000 19,741 - -
Existing HAI
stockholders - - - 390,480 - - -
Issue Series
B preferred
stock - 113,500 990,594 - - - 990,594
Net loss
post merger - - - - - (1,202,154) (1,202,154)
Balance,
January 3,
1999 $ - 113,500 990,594 7,990,480 19,741 (1,546,257) (535,922)
See accompanying notes to financial statements.
<PAGE>
WRAPSTERS, INC.
Statement of Cash Flows
For the Year Ended January 3, 1999
Cash flows from operating activities:
Net loss $ (1,282,682)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 40,459
Loss on store closings 207,472
Change in operating assets and liabilities:
Accounts receivable (1,154)
Other assets (20,300)
Inventory (4,961)
Accounts payable and accrued expenses 206,894
Deferred franchise fees 50,000
Net cash used by operating activities 804,272
Cash flows from investing activities:
Proceeds from disposal of property and equipment 16,500
Purchases of property and equipment 353,386
Net cash used by investing activities 336,886
Cash flows from financing activities:
Proceeds from notes payable to affiliate 92,993
Proceeds from note payable 10,000
Capital contribution 30,000
Issuance of Series B preferred stock 990,594
Net cash provided by financing activities 1,123,587
Net change in cash (17,571)
Cash, beginning of year 43,617
Cash, end of year $ 26,046
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 588
Noncash investing and financing activities:
Equity converted to debt $ 428,883
Conversion of limited liability corporation
interest into common stock $ 19,741
See accompanying notes to financial statement.
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
Company Background and Nature of Operations
On February 19, 1998, Wrapsters, Inc. (the "Company") was formed by the
merger of Wrapsters, L.C., a Florida limited liability company, with HAI
Enterprises, Inc. ("HAI"), a Colorado corporation. Wrapsters, L.C. was formed on
June 6, 1997 and operated two quick services restaurants in Boca Raton, Florida
specializing in freshly prepared, healthy flour tortilla wraps, fruit smoothies
and other related menu items. HAI was formed February 23, 1996 and had no
significant assets, liabilities or operations at the time of the merger. HAI was
the surviving entity from the merger and immediately changed its name to
Wrapsters, Inc.
The merger was effected by exchanging total members' equity in Wrapsters,
L.C. for 3,800,000 shares of HAI no par or stated value common stock and issuing
a note payable to one of the members in the amount of $428,883 (see Note 4).
For accounting purposes, this merger was accounted for as a purchase
transaction, and since the previous HAI stockholders only controlled 4.9% of the
Company's common stock following the merger while the previous members of
Wrapsters, L.C. owned 50% of the Company following the merger, this transaction
is considered a reverse merger and Wrapsters, L.C. is considered to be the
surviving entity. No goodwill or other intangible assets resulted from this
merger.
Following the merger, the Company opened five more stores during 1998 and
closed three stores during the year. At January 3, 1999, the Company was
operating four stores, three located in Atlanta, Georgia and one located in
Arlington, Virginia.
Basis of Presentation and Fiscal Year
The Company operates on a 52/53-week fiscal year ending on the Sunday
closest to December, 31 of each year. Accordingly, the financial statements
presented ended on January 3, 1999. All general references to years relate to
fiscal years unless otherwise noted.
The financial statements are prepared in accordance with generally accepted
accounting principles ("GAAP"). In preparing financial statements in accordance
with GAAP, management is required to make certain estimates. Actual results
could vary from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, beverages, paper products and supplies.
Property and Equipment
Property and equipment is recorded at cost, less accumulated depreciation.
Major additions and improvements are charged to the property accounts while
replacements, maintenance and repairs which do not improve or extend the life of
respective assets are expensed currently. When property is retired or otherwise
disposed, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss, if any, is recognized.
Depreciation is computed using the straight-line method. The following
represents the useful lives over which the assets are depreciated:
Leasehold improvements Life of lease
Furniture, fixtures and equipment 7 years
Signage 7 years
Computer equipment 3 years
Revenue Recognition
Revenue is recognized in the period for which related food and beverage
products are sold. Initial fees from the awarding of individual franchises are
deferred and recorded as revenue when the franchised restaurant is opened
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Pre-Opening Costs
Pre-opening costs are incurred before a restaurant is opened and consist
primarily of wages and salaries, hourly employee recruiting, license fees,
meals, lodging and travel plus the cost of hiring and training the management
teams. Pre-opening costs are expensed as incurred.
Advertising Costs
The Company expenses all advertising costs as incurred.
Loss on Store Closings
When the Company closes a store, management determines whether the
estimated net realizable value of property and equipment held at the store that
will not be transferred to another location but which will be sold or otherwise
disposed exceeds the assets' carrying value. To the extent that the estimated
net realizable value is less than the carrying value, the related loss is
immediately accrued. Likewise, management estimates the total net future lease
payments, including estimated lease settlement payments, that will be paid
before the Company can negotiate a release from the lease and accrues a loss for
this amount.
Income Taxes
Deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the assets and
liabilities 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 tax
expense in the period that includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities results in deferred tax assets, an evaluation of the probability of
being able to realize the future benefits indicated by such asset is required.
A valuation allowance is provided for the portion of the deferred tax asset
when it is more likely than not that some portion or all of the deferred tax
asset will not be realized. In assessing the realizability of the deferred tax
assets, management considers the scheduled reversals of deferred tax
liabilities, projected future taxable income and tax planning strategies. At
January 3, 1999, the Company's only significant deferred tax attribute was its
net operating loss since inception, and this deferred tax asset has been fully
reserved.
Earnings (Loss) Per Common Share
The Company is required to report on the face of the statement of
operations the income (loss) per common share with and without the dilutive
effects of potential common stock issuances from instruments such as options,
convertible securities and warrants. Basic earnings per common share is based on
the weighted average number of common shares outstanding during the period while
the effects of potential common shares outstanding during the period are
included in diluted earnings per common share. The Company excludes the
potentially dilutive securities from the calculation of loss per share because
their inclusion is anti-dilutive since the Company is operating at a loss. Due
to the merger, the Company believes the most meaningful presentation is to treat
all common shares outstanding immediately following the merger as outstanding
for the entire year.
The following table summarizes the calculation of basic and dilutive loss
per share:
Net loss $ (1,282,682)
Less dividends on Series B preferred stock (97,952)
Net loss attributable to common stockholders $ (1,380,634)
Weighted average common shares outstanding 7,990,480
Basic and dilutive loss per common share $ (0.17)
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements, continued
(2) Property and Equipment
Property and equipment at January 3, 1999 is summarized as follows:
Leasehold improvements $ 114,560
Furniture, fixtures and equipment 139,004
Signage 31,372
Computer equipment 5,727
290,663
Less accumulated depreciation 18,743
Net property and equipment $ 271,920
Depreciation expense amounted to $40,459 fiscal 1998.
(3) Note Payable
Notes payable consists of a $20,000 revolving line of credit with a bank.
The line of credit bears interest at 2% above the lender's index rate, as
defined, is guaranteed by the two of the Company's stockholders and is
collateralized by substantially all assets of the Company. The line of credit is
due on demand.
(4) Notes Payable to Affiliates
In connection with the merger discussed in Note 1, $428,883 of members'
equity belonging to one of the two members of Wrapsters, L.C. was converted into
an unsecured promissory note in that amount. The note bears interests at 10% per
year. Provisions in the promissory note state that the principal balance and all
accrued interest must be repaid upon the earlier to occur of either August 20,
1999 or the receipt by the Company of any financing subsequent to the merger and
the related stock sale described in Note 5 in the amount of at least $1,000,000.
The principal balance is to be repaid at the option of the holder in either cash
or the Company's registered common stock valued at the lesser of $1.00 per share
or 80% of the market price of the Company's common stock at the time of
conversion. If the Company does not repay this note by the maturity date, the
interest rate converts to the maximum amount allowed by law in the state of
Florida.
The Company has issued a convertible secured note to one of its
stockholders. This note allows the Company to borrow up to $150,000, bears
interest at 7% per year and is collateralized by all assets of the Company not
already encumbered by the note payable discussed in Note 3. The note plus all
accrued interest are due May 31, 1999 and are payable at the holder's option in
either cash or the Company's common stock valued at the lesser of $1.00 per
share or 80% of the market price of the Company's common stock at the time of
conversion. If the Company does not repay this note by the maturity date, the
interest rate converts to 18% per year. At January 3, 1999, $84,000 was
outstanding on this note. This note was not repaid at maturity (see note 9).
As a condition of the convertible secured note, the President of the
Company agreed to reduce the cash portion of his salary by one-half with the
other half being taken in the form of an unsecured promissory note with the same
terms and conditions as the convertible secured note, except for the lack of any
security interest. At January 3, 1999, $8,993 was outstanding on this salary
deferral note.
(5) Capital Structure and Transactions
As described in Note 1, Wrapsters, L.C. operated as a limited liability
company prior to the merger with HAI. As such, Wrapsters, L.C. had no
outstanding equity securities. Its equity was embodied in the members' equity
account. Upon the merger, the members' equity interests were exchanged for
3,800,000 shares of the Company's common stock and for an unsecured promissory
note.
Simultaneous with the merger, the Company sold 3,800,000 shares of its
common stock and 113,500 shares of Series B preferred stock ("Series B
Preferred") to an affiliate for $1,000,000 less offering costs of $9,406. For
accounting purposes, management has attributed all the proceeds to the Series B
Preferred based upon the cumulative dividend rights, redemption and conversion
features and the liquidation preference in the Series B Preferred and
management's belief that the common stock essentially had no significant value
at that time.
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements, continued
(5) Capital Structure and Transactions, continued
The Series B Preferred pays cumulative dividends at a 10% annual rate based
on the stock's face value of $10 per share. The Series B Preferred has a
liquidation preference of $10 per share plus unpaid cumulative dividends and is
nonvoting, except in limited situations. At the Company's option, the Series B
Preferred can be redeemed in whole or in part at any time at $10 per share plus
cumulative unpaid dividends. At the holder's option, the Series B Preferred can
be converted at any time into publicly traded preferred stock issued by the
Company at a conversion rate of one share of Series B Preferred for each share
of publicly traded preferred stock. At January 3, 1999, dividends in arrears on
this preferred stock totalled $97,952.
(6) Stock Options and Warrants
On September 3, 1998, the Company adopted the 1998 Stock Compensation Plan,
which reserves an aggregate of 800,000 shares of the Company's common stock for
issuance to certain officers, directors, employees and advisors in the form of
either incentive stock options or non-qualified stock options, within certain
limitations specified in the plan document. Options granted under this plan must
be granted at a minimum of the fair market value at the date of grant and the
Company can, in its discretion issue simultaneously alternative stock
appreciation rights. In that case, the optionee can choose whether to exercise
the option or the stock appreciation right. Options must be exercised within a
period of no more than ten years from the plan's inception. During fiscal 1998,
all options granted pursuant to this plan vested in no more than three years and
are exercisable for a period of five years.
The following summarizes stock option activity related to this plan through
January 3, 1999:
Exercise
Shares Price
Options granted 157,500 $ 1.00
Options canceled 7,500 1.00
Options outstanding at January 3, 1999 150,000 $ 1.00
At January 3, 1999, options on 136,668 shares were exercisable and all
options had weighted average remaining contractual life of approximately four
and two-thirds years.
The Company accounts for stock options pursuant to Accounting Principals
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, no compensation cost has been recognized in
connection with these options. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") encourages, but
does not require, entities to compute the fair value of options at the date of
grant and to recognize such costs as compensation expense immediately if there
is no vesting period or ratably over the vesting period of the options. The
Company has chosen not to adopt the cost recognition principles of SFAS No. 123.
Had compensation cost been determined based upon the fair value of the options
at the grant dates consistent with the method of SFAS No. 123, the Company's net
loss and loss per share would not have been effected to any measurable degree
based on management's use of the minimum value method with the following
weighted average grant date assumptions used for grants in 1998: fair value of
the underlying stock of $0.01, dividend yield of 0%, risk free interest rate
of 5.5% and an expected life of five years.
All of these options will be terminated in connection with the NYB Foods,
Inc. transaction discussed in note 9.
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements, continued
(7) Commitments and Contingencies
Leases
The Company leases certain store locations and equipment pursuant to
operating leases with initial terms ranging from three to five years, with
renewal options of up to five years. Future minimum lease payments (which do not
include amounts payable by the Company for maintenance costs, real estate taxes
and insurance, or contingent rentals payable on a percentage of sales in excess
of stipulated amounts for the store locations) under noncancelable operating
leases, including leases on the three stores that were closed during 1998, at
January 3, 1999 are as follows:
Fiscal Year Ended
1999 $ 149,000
2000 151,000
2001 113,000
2002 73,000
2003 47,000
Total minimum lease payments $ 533,000
The Company incurred rent expense during fiscal 1998 of approximately
$119,000.
Employment Agreements
Effective February 20, 1998, the Company entered into employment agreements
with its president, its Board chairman, and its Board vice chairman. The
employment agreements specified certain salaries and other benefits that would
be paid in exchange for their services to the Company. The agreements were for
one year terms and two of them expired in February 1999 and were not renewed;
however, the Company is continuing to honor these agreements as though they had
been renewed. The agreement with the vice chairman of the Board was modified on
July 8, 1998 to become effective on the date that individual was able to bring
to the Company financing of at least $750,000 and would then run for a term of
three years from that date. The financing has not yet been received, so the term
has not yet begun.
These employment agreements will be terminated in connection with the NYB
Foods, Inc. transaction discussed in Note 9.
Litigation
During 1998, the Company sold one franchise to an individual for a
franchise fee of $50,000. A dispute subsequently arose and the individual filed
suit against the Company in connection with that franchise. The Company is
negotiating a settlement with that individual and believes it is probable that a
settlement will be reached that will not involve any significant costs to the
Company. The franchise fee has been deferred pending resolution of this matter.
Litigation against the Company has commenced seeking eviction and possible
monetary damages against the Company in connection with leases on two closed
stores. Additionally, future similar litigation is possible in connection with
leases on other closed stores. At this time, management cannot reasonably
estimate any possible losses resulting from these matters.
The 1998 financial statements do not include any loss provision in
connection with the above matters.
(8) Going Concern Considerations
At January 3, 1999, the Company had an accumulated deficit of $1,546,257,
incurred a net loss during 1998 of $1,282,682, had negative cash flows from
operations of $804,272 and had negative working capital of $841,232. Since that
date, the Company has continued to loss money and has closed all but two of its
stores (see Note 9). Management is negotiating with certain parties to merge the
Company in an effort to strengthen its financial position and operations, and
they believe the financing available to them from affiliates as well as
negotiations with certain suppliers will enable the Company to continue
operations until a transaction is consummated that will strengthen its financial
position (see Note 9). The financial statements do not reflect any adjustments
that may be necessary in the event the Company does not successfully consummate
such a merger transaction.
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements, continued
(9) Subsequent Events
During 1999, the Company closed its two Florida stores leaving only the two
stores in Atlanta, Georgia in operation. The Company is also contemplating
closing the two remaining stores.
On August 31, 1999, the Company executed an Agreement and Plan of
Reorganization with NYB Foods, Inc. ("NYB") and NYB Acquisitions Corp.
("Acquisitions") a newly formed, wholly owned subsidiary of the Company, whereby
all 4,900,000 previously outstanding shares of NYB will be exchanged for
$500,000 and 7,500,000 newly issued shares of the Company's common stock, and
NYB will be merged with and into Acquisitions with Acquisitions being the
surviving entity. In connection with this agreement, two of the Company's
existing shareholders will surrender 1,250,000 shares of Company common stock
they own to the Company. Additionally, all notes payable to affiliates will be
converted to common stock of the Company at a rate of one share of common stock
for each dollar of indebtedness or will be repaid in full, and all Series B
preferred stock will be converted to the Company's common stock at a rate of
three shares of common stock for each share of preferred stock. As a part of the
merger, the Company will contribute $200,000 to Acquisitions for its working
capital from a private placement to be closed simultaneously with the merger,
and the Company will commit to raise an additional $1,000,000 of capital for
working capital purposes within six months of the closing of this merger. This
merger is expected to close during the fourth quarter of 1999.
<PAGE>
James E. Raftery, CPA, PC
946 S. Stapley Drive, Suite 103 (480)835-1040
Mesa, Arizona 85204 FAX (480)835-8832
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
NYB Foods, Inc.
I have audited the accompanying balance sheets of NYB Foods, Inc. as of March
31, 1999 and 1998, and the related statements of income and retained earnings
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted the audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and of the 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of NYB Foods, Inc. as of March 31,
1999 and 1998, and the results of its operations for the years then ended in
conformity with generally accepted accounting principles.
James E. Raftery, CPA
Mesa, Arizona
July 10, 1999
Member, American Institute of Certified Public Accountants and Arizona Society
of Certified Public Accountants
<PAGE>
NYB FOODS, INC.
FINANCIAL STATEMENTS
March 31, 1999
<PAGE>
TABLE OF CONTENTS
Page No.
I. Independent Auditor's Report 1
II. Financial Statements
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4-5
III. Notes to the Financial Statements 6-9
<PAGE>
James E. Raftery, CPA, PC
946 S. Stapley Drive, Suite 103 (480)835-1040
Mesa, Arizona 85204 FAX (480)835-8832
To the Shareholders
NYB Foods, Inc.
I have audited the accompanying balance sheets of NYB Foods, Inc. as of March
31, 1999 and 1998, and the related statements of income and retained earnings
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted the audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and of the 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of NYB Foods, Inc. as of March 31,
1999 and 1998, and the results of its operations for the years then ended in
conformity with generally accepted accounting principles.
James E. Raftery, CPA
Mesa, Arizona
July 10, 1999
Member, American Institute of Certified Public Accountants and Arizona Society
of Certified Public Accountants
<PAGE>
NYB FOODS, INC.
BALANCE SHEET
March 31,
1999 1998
ASSETS
Current Assets
Cash $68,808 $24,191
Accounts receivable, net of allowance
of $20,000 for 1999 64,054 35,630
Inventory (Note A) 1,857 -
Prepaid expenses 201,875 137,250
Advances to related parties (Note B) 229,459 122,963
Note receivable (Note C and K) 58,191 -
Deferred tax benefit (Note A and G) - 13,826
Total Current Assets 624,244 333,860
Property and Equipment (Note A and D) 105,986 8,549
Other Assets
Franchise documentation 40,000 40,000
Note receivable (Note C) 16,809 -
Refundable deposits 2,066 2,094
Organizational costs, net of amortization 50 100
58,925 42,194
$789,155 $384,603
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 28,762 $ 1,214
Commissions payable 15,580 21,365
Loan (Note B) 2,762 10,751
Note payable (Note F) 5,501 -
Deferred tax liability (Note A and G) 3,673 -
Deferred revenue (Note A) 633,500 324,500
Total Current Liabilities 689,778 357,830
Long Term Liabilities
Note Payable (Note F) 4,192 -
Total Liabilities 693,970 357,830
Equity
Common stock, 20,000,000 shares of no par value
authorized; 4,900,000 shares issued and
outstanding (Note H) 81,631 81,631
Retained earnings 13,554 (54,858)
95,185 26,773
$789,155 $384,603
The accompanying notes are an integral part of this financial statement.
<PAGE>
NYB FOODS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
Years Ended March 31,
1999 1998
Revenue $769,936 $420,571
Operating Expenses 760,621 458,417
Net Income from Operations 9,315 (37,846)
Other Income and (Expense)
Miscellaneous Income (Note K) 100,599 11,219
Miscellaneous Expense (Note K) (35,031) -
Interest Income 12,606 7,475
Interest Expense (1,577) -
76,597 18,694
Net Income Before Taxes and Discontinued Operations 85,912 (19,152)
Loss From Discontinued Operations (Note J) - (7,645)
Net Income (Loss) Before Taxes 85,912 (26,797)
Provision for Taxes
Deferred tax benefit (expense) (Note A and G) (17,500) 6,455
Net Income (Loss) 68,412 (20,342)
Accumulated Deficit, beginning of year (54,858) (34,516)
Retained Earnings, end of year $ 13,554 $(54,858)
The accompanying notes are an integral part of this financial statement
<PAGE>
NYB FOODS, INC.
STATEMENT OF CASH FLOWS
Years Ended March 31,
1999 1998
Cash Flow From Operating Activities
Cash received from customers $741,508 $413,846
Cash paid to employees and suppliers (496,404) (341,106)
Miscellaneous income 25,599 11,219
Miscellaneous expense (35,031) -
Interest expense (1,577) -
Net Cash Provided (Used) By Operating Activities 234,095 83,959
Cash Flow From Investing Activities
Investments (93,887) (34,367)
Acquisition of equipment (105,284) (7,762)
Net Cash Provided (Used) By Investing Activities (199,171) (42,129)
Cash Flow From Financing Activities
Proceeds from notes payable 9,693 (19,000)
Net Increase (Decrease) in Cash 44,617 22,830
Beginning cash balance 24,191 1,361
Ending cash balance $ 68,808 $ 24,191
The accompanying notes are an integral part of this financial statement
<PAGE>
1999 1998
Reconciliation Of Net Income (loss) To Cash
Provided (used) by Operating Activities
Net (Loss) $ 68,412 $(20,342)
Adjustments to reconcile net income to cash provided
(used) by operating activities
Depreciation 7,845 1,252
Amortization 50 50
Loss from discontinued operations - 7,645
(Increase) decrease in operating assets
Accounts receivable (28,424) (14,200)
Interest receivable (12,607) (7,475)
Inventory (1,857) -
Prepaid expenses (64,625) (60,750)
Note receivable (75,000) -
Deferred tax benefit - (6,455)
Refundable deposits 28 (478)
Increase (decrease) in operating liabilities
Accounts payable 12,901 20,375
Deferred tax liability 17,499 -
Accrued expenses 8,862 -
Deferred revenue 309,000 164,500
Advance (7,989) (163)
Net Cash Provided (Used) by Operating Activities $234,095 $ 83,959
The accompanying notes are an integral part of this financial statement
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE A - SAY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of NYB Foods, Inc. (NYB) is
presented to assist in understanding the Corporation's financial statements. The
financial statements and notes are the representation of the Corporation's
management, who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
1. Nature of Business
NYB was incorporated in the state of Colorado on April 21, 1995 and
maintains its principal place of business in Mesa, Arizona. The Corporation's
principal business activity is that of a franchiser granting qualified persons
franchises for the operation of quick serve restaurants that operate under the
name New York Burrito Gourmet Wraps.
2. Deferred Revenue
Income from initial franchise fees is deferred and recognized when the
franchisee commences operations. At March 31, 1999, fifty-five stores were sold
but not opened, however six have begun operations in the subsequent fiscal year
at which time the initial franchise fee will be recognized as revenue.
3. Property and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using the straight-line method for financial reporting
purposes over a estimated useful life of five, seven and thirty nine years.
Depreciation expense for the years ended March 31, 1999 and 1998 was $7,845 and
$1,252, respectively.
4. Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between basis of equipment for financial and
income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable of deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for capital losses that are not available to
offset future income taxes.
5. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Corporation considers all
short term debt securities purchased with a maturity of three months or less to
be cash equivalents.
6. Reclassifications
Certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current-year financial statements.
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE A - SAY OF SIGNIFICANT ACCOUNTING POLICIES CONT:
7. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reporting amounts and disclosures. Accordingly,
actual results could differ from those estimates.
8. Inventories
Inventory consists of spices, sauces, and packaging supplies, valued at
lower of cost or market, on a first in, first out basis.
NOTE B - ADVANCES TO RELATED PARTIES
An unsecured note receivable, bearing interest at 8% per annum from a
majority shareholder:
1999 1998
Loan $206,854 $112,963
Accrued interest 22,605 10,000
$229,459 $122,963
Interest income related to this note for the years ended March 31, 1999 and
1998 was $12,606 and $7,475, respectively.
The Corporation uses a credit card that is issued to a shareholder. As of
March 31, 1999 and 1998, the balance owing was $2,762 and $10,751, respectively.
NOTE C- NOTES RECEIVABLE
Note receivable (Note K), secured by all contract
rights, accounts receivable, and title and interest
in and to all New York Burrito franchise restraurants
within the state of California. The note receivable
bears interest at 8% per annum and is payable in
fifteen equal installments of $5,678 $ 75,000
Less current portion 58,191
16,809
<PAGE>
NYB FOODS, INC
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE D - PROPERTY AND EQUOPMENT
Property and equipment are summarized by major classification as follows:
Equipment $ 45,930 $ 9,273
Training Facility 68,268 -
Leasehold Improvement 1,157 800
115,355 10,073
Less: Accumulated Depreciation (9,369) (1,524)
$105,986 $ 8,549
NOTE E - LEASE OBLIGATIONS
The Corporation conducts its operations from facilities in both Colorado and
Arizona under operating leases. Future minimum rental payments required for the
operating leases are as follows:
1999 1998
Year Ended March 31,
1999 $ - $14,026
2000 $63,204 $14,480
2001 $63,204 $ 2,426
2002 $33,612 $ -
2003 $27,694 $ -
2004 $20,771 $ -
Rental expense for the years ended March 31, 1999 and 1998 was $15,600 and
$16,099, respectively.
NOTE F- NOTE PAYABLE
Notes payable consisted of the following at March 31,:
1999 1998
Note payable in monthly installments of $9,693 $ -
$470.08, including interest at a rate of
18.50% per annum, secured by vehicle
Less current maturities 5,501 -
$4,192 $ -
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE G - INCOME TAXES
The Corporation has loss carryforwards totaling $68,482 which will be fully
absorbed in the current year.
The provisions for income taxes consist of the following components:
1999 1998
Deferred tax (benefit) expense $17,500 $(6,455)
The deferred tax liability is associated with the use of accelerated
depreciation methods for income tax purposes.
NOTE H- STOCKHOLDER'S EQUITY
On April 16, 1997, the number of authorized shares of common stock was
increased from 5,000,000 to 20,000,000.
On May 17, 1997, 2,500,000 shares of outstanding common stock split at a
rate of 1.356. In addition, 1,510,000 shares of common stock were issued.
NOTE I - CONTINGENCIES
Subsequent to March 31, 1998, the Corporation filed an arbitration action
of $50,000 against Gourmet Wrapps, LLC and Glen Grishkowsky for breach of a
Development Agreement and damages resulting therefrom. The arbitrator found in
favor of NYB Foods, Inc., and awarded the Corporation $19,500.
NOTE J- DISCONTINUED OPERATIONS
In May 1997, the Corporation sold its investment in the franchise store
located in Mesa, Arizona. The franchise was sold for $25,000. The Corporation
recognized a loss of $7,645 and $65,225 at March 31, 1998.
NOTE K- MISCELLANEOUS ITEMS
Miscellaneous expense includes a settlement in October 1998 with a landlord
in the amount of $30,000 for unsettled rent payments.
Miscellaneous income includes the sale of California royalty rights to a
corporation for $100,000; $25,000 cash and a note for $75,000 (Note C).
<PAGE>
NYB FOODS, INC.
FINANCIAL STATEMENTS
March 31, 1998
<PAGE>
TABLE OF CONTENTS
Page No.
I. Independent Auditor's Report 1
II. Financial Statements
Balance Sheet 2
Statement of Operations and Accumulated Deficit 3
Statement of Cash Flows 4 - 5
III. Notes to the Financial Statements 6 - 9
<PAGE>
James E. Raftery, C.P.A.. P .C.
946 S. Stapley Drive, Suite 103 (602)835-1040
Mesa, Arizona 85204 FAX (602)835-8832
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
NYB Foods, Inc.
I have audited the accompanying balance sheets of NYB Foods, Inc. as of March
31, 1998 and 1997, and the related statements of operations and accumulated
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted the audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and of the disclosures in the financial statements. An audit also
includes assessing that accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the fin ' statements referred to above present fairly, in all
material respects, the financial position of NYB Foods, Inc. as of March 31,
1998 and 1997, and the results of its operations for the years then ended in
conformity with generally accepted accounting principles.
James E. Raftery, CPA
Mesa, Arizona
August 6, 1998
Member, American Institute of Certified Public Accountants and Arizona Society
of Certified Public Accountants.
<PAGE>
NYB FOODS, INC.
BALANCE SHEET
March 31,
1998 1997
ASSETS
Current Assets
Cash $ 24,191 $ 1,361
Accounts receivable 35,630 21,429
Prepaid expenses 137,250 76,500
Note receivable (Note B) 122,963 63,766
Deferred tax benefit (Note A and F) 13,826 7,371
Total Current Assets 333,860 170,427
Property and Equipment (Note A and C)
Furniture and equipment 9,273 2,311
Leasehold improvements 800 -
10,073 2,311
Less: accumulated depreciation (1,524) (271)
8,549 2,040
Other Assets
Organizational costs, net of amortization 100 150
Franchise documentation 40,000 40,000
Refundable deposits 2,094 1,616
Investment in partnership (Note G) - 25,000
42,194 66,766
$384,603 $239,233
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 1,214 $ -
D.A. commission payable 21,365 2,204
Loan (Note B) 10,751 10,914
Note payable (Note E) - 19,000
Deferred revenue (Note A) 324,500 160,000
Total Current Liabilities 357,830 192,118
Equity
Common stock, 20,000,000 shares of no par
value authorized; 5,000,000 shares issued
and outstanding (Note G) 81,631 56,631
Stock subscription (Note A) - 25,000
Accumulated Deficit (54,858) (34,516)
26,773 47,115
$384,603 $239,233
The accompanying notes are an integral part of this financial statement.
<PAGE>
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
Years Ended March 31,
1998 1997
Revenue $420,571 $214,592
Operating Expenses 458,417 182,045
Net Income from Operations (37,846) 32,547
Other Income and (Expense)
Miscellaneous Income 11,219 -
Interest Income 7,475 2,525
Interest Expense - (560)
18,694 1,965
Net Income Before Taxes and Discontinued Operations (19,152) 34,512
Loss From Discontinued Operations (Note I) (7,645) (65,225)
Net Income (Loss) Before Taxes (26,797) (30,713)
Provision for Taxes
Deferred tax benefit (Note A and F) 6,455 7,371
Net Income (Loss) (20,342) (23,342)
Accumulated Deficit, beginning of year (34,516) (582)
Prior Period Adjustment - (10,592)
Accumulated Deficit, end of year $(54,858) $(34,516)
The accompanying notes are an integral part of this financial statement.
<PAGE>
NYB FOODS, INC.
STATEMENT OF CASH FLOWS
Years Ended March 31,
1998 1997
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $406,371 $193,163
Cash paid to employees and suppliers (347,561) (157,266)
Interest income 7,475 2,525
Miscellaneous income 11,219 -
Income taxes 6,455 7,371
Interest expense - (560)
Net Cash Provided (Used) By Operating Activities 83,959 45,233
CASH FLOW FROM INVESTING ACTIVITIES
Investments (34,367) (61,793)
Acquisition of equipment (7,762) (2,311)
Net Cash Provided (Used) By Investing Activities (42,129) (64,104)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from notes payable (19,000) 10,000
Net Increase (Decrease) in Cash 22,830 (8,871)
Beginning cash balance 1,361 10,232
Ending cash balance $24,191 $ 1,361
The accompanying notes are an integral part of this financial statement.
<PAGE>
1998 1997
RECONCILIATION OF NET (LOSS) TO CASH
PROVIDED (USED) BY OPERA TING ACTIVITIES
Net (Loss) $(20,342) $(23,342)
Adjustments to reconcile net income to
cash provided (used) by operating activities
Depreciation 1,252 271
Amortization 50 50
Loss from discontinued operations 7,645 65,225
(Increase) decrease in operating assets
Accounts receivable (14,200) (21,429)
Notes receivable - (51,326)
Interest receivable (7,475) (2,525)
Prepaid expenses (60,750) (76,500)
Deferred tax benefit (6,455) (7,371)
Refundable deposits (478) (346)
Increase (decrease) in operating liabilities
Accounts payable 20,375 2,204
Deferred revenue 164,500 160,000
Advance (163) 322
Net Cash Provided (Used) by Operating Activities $83,959 $45,233
The accompanying notes are an integral part of this financial statement.
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of NYB Foods, Inc. (NYB) is
presented to assist in understanding the Corporation's financial statements.
The financial statements and notes are the representation of the Corporation's
management, who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and
have been consistently applied in the preparation of the financial statements.
1. Nature of Business
NYB was incorporated in the state of Colorado on April 21, 1995 and
maintains its principal place of business in Mesa, Arizona. The Corporation's
principal business activity is that of a franchisor granting qualified persons
franchises for the operation of quick serve restaurants that operate under the
name New York Burrito Gourmet Wraps.
2. Deferred Revenue
Income from initial franchise fees is deferred and recognized when the
franchisee commences operations. At March 31, 1998, twenty-seven stores were
sold but not opened, however they have begun operations in the subsequent
fiscal year at which time the initial franchise fee will be recognized as
revenue.
3. Property and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using the straight-line method for financial reporting
purposes over a estimated useful life of five years. Depreciation expense for
the years ended March 31, 1998 and 1997 was $1,524 and $271, respectively.
4. Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between basis of equipment for financial and
income tax reporting. The deferred tax assets and liibilities represent the
future tax return consequences of those differences, which will either be
taxable of deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for capital losses that are not available to
offset future income taxes.
5. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Corporation considers all
short term debt securities purchased with a maturity of three months or less to
be cash equivalents.
6. Reclassifications
Certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current-year financial statements.
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1998
NOTE B - RELATED PARTY TRANSACTIONS
An unsecured note receivable, bearing interest at 8% per annum from a
majority shareholder:
1998 1997
Loan $112,963 $ 61,241
Accrued interest 10,000 2,525
$122,963 $ 63,766
Interest income related to this note for the years ended March 31, 1998 and
1997 was $7,475 and $2,525, respectively.
The Corporation uses a credit card that is issued to a shareholder. As of
March 31, 1998 and 1997, the balance owing was $10,751 and $10,914,
respectively.
NOTE C- PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classification as follows:
1998 1997
Equipment $ 9,273 $ 2,311
Leasehold Improvement 800 -
10,073 2,311
Less: Accumulated Depreciation (1,524) (271)
$ 8,549 $ 2,040
NOTE D - LEASE OBLIGATIONS
The Corporation conducts its operations from facilities that are leased
under a 3 year operating lease expiring May 31, 2000. Future minimum rental
payments required for the. operating lease is as follows:
1998 1997
Year Ended March 31,
1998 $ - $12,518
1999 $14,026 $14,026
2000 $14,480 $14,480
2001 $ 2,426 $ 2,426
Rental expense for the years ended March 31, 1998 and 1997 was $16,099 and
$15,583, respectively.
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1998
NOTE E - NOTE PAYABLE
Notes payable consisted of the following at March 31,:
1998 1997
Two non-interest bearing demand
notes payable $ - $19,000
Less current maturities - 19,000
$ - $ -
NOTE F - INCOME TAXES
The Corporation has loss carryforwards totaling $57,809 that may offset
against future taxable income. If not used, the carryforwards will expire as
follows:
Year 18 $ 582
Year 19 30,713
Year 20 26,315
$57,610
The provisions for income taxes consist of the following components:
1998 1997
Deferred tax benefit $(6,455) $(7,371)
NOTE G - STOCKHOLDER'S EQUITY
On April 16, 1997, the number of authorized shares of common stock was
increased from 5,000,000 to 20,000,000.
On May 17, 1997, 2,500,000 shares of outstanding common stock split at a
rate of 1.356. In addition, 1,610,000 shares of common stock were issued.
NOTE H - CONTINGENCIES
Subsequent to March 31, 1998, the Corporation filed an arbitration action
of $50,000 against Gourmet Wrapps, LLC and Glen Grishkowsky for breach of a
Development Agreement and damages resulting therefrom. It is premature to
forecast the probability of success, however any amounts awarded will be
credited to earnings in the year received.
Simultaneously, Mr. Grishkowsky has filed a counter claim in the amount of
$50,000 alleging NYB Foods, Inc. breached its promise to register the NYB
franchises in various states. Legal counsel is reasonably confident the pending
arbitration will prevail in favor of NYB Foods, Inc. Consequently, no provision
has been.made in the accounts for any liability for this suit.
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1998
NOTE I - DISCONTINUED OPERATIONS
In May 1997, the Corporation sold its investment in the franchise store
located in Mesa, Arizona. The franchise was sold for $25,000. The Corporation
recognized a loss of $7,645 and $65,225 at March 31, 1998 and 1997,
respectively.
<PAGE>
NYB FOODS, INC.
FINANCIAL STATEMENTS
March 31, 1997
<PAGE>
TABLE OF CONTENTS
Page No.
I. Independent Auditor's Report 1
II. Financial Statements
Balance Sheet 2
Statement of Operations and Accumulated Deficit 3
Statement of Cash Flows 4
III. Notes to the Financial Statements 6 - 8
<PAGE>
James E. Raftery, C.P.A., P .C.
946 S. Stapley Drive, Suite 103 (602)835-1040
Mesa, Arizona 85204 FAX (602)835-8832
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
NYB Foods, Inc.
I have audited the accompanying balance sheet of NYB Foods, Inc. as of March 31,
1997, and the related statements of operations and accumulated deficit and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted the audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and of the disclosures in the financial statements. An audit also
includes assessing that accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of NYB Foods, Inc. as of March 31,
1997, and the results of its operations for the year then ended in conformity
with generally accepted accounting principles.
James E. Raftery, CPA
Mesa, Arizona
January 30, 1998
Member, American Institute of Certified Public Accountants and Arizona Society
of Certified Public Accountants.
<PAGE>
NYB FOODS, INC.
BALANCE SHEET
March 31, 1997
ASSETS
Current Assets
Cash $ 1,361
Accounts receivable 21,429
Prepaid expenses 76,500
Note receivable (Note B) 63,766
Deferred tax benefit (Note A and F) 7,371
Total Current Assets 170,427
Property and Equipment (Note A and C) 2,311
Less: accumulated depreciation (271)
2,040
Other Assets
Organizational costs, net of
amortization 150
Franchise documentation 40,000
Refundable deposits 1,616
Investment in partnership (Note G) 25,000
66,766
239,233
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 2,204
Advance (Note B) 10,914
Note payable (Note E) 19,000
Deferred revenue Note A) 160,000
Total Current Liabilities 192,118
Equity
Common stock, 5,000,000 shares of
no par value authorized; 2,500,000
shares issued and outstanding 81,631
Accumulated Deficit (34,516)
47,115
$239,233
The accompanying notes are an integral part of this financial statement.
<PAGE>
NYB FOODS, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
Year Ended March 31, 1997
Revenue $214,592
Operating Expenses 182,045
Other Income and (Expense)
Interest Income 2,525
Interest Expense (560)
1,965
Net Income Before Taxes and
Discontinued operations 34,512
Loss From Discontinued Operations
(Note G) (65,225)
Net Income (Loss) Before Taxes (30,713)
Provision for Taxes
Deferred tax benefit (Note A and F) 7,371
Net Income (Loss) (23,342)
Accumulated Deficit, beginning of year (582)
Prior Period Adjustment (Note H) (10,592)
Accumulated Deficit, end of year $(34,516)
The accompanying notes are an integral part of this financial statement.
<PAGE>
NYB FOODS, INC.
STATEMENT OF CASH FLOWS
Year Ended March 31, 1997
CASH FLOW FROM OPERATING ACTIVITIES
Cash received from customers $ 193,163
Cash paid to employees and suppliers (157,266)
Interest income 2,525
Income taxes 7,371
Interest expense (560)
Net Cash Provided (Used) By Operating Activities 45,233
CASH FLOW FROM INVESTING ACTIVITIES
Investments (61,793)
Acquisition of equipment (2,311)
Net Cash Provided (Used) By Investing Activities (64,104)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from notes payable 10,000
Net Increase (Decrease) in Cash (8,871)
Beginning cash balance 10,232
Ending cash balance $ 1,361
The accompanying notes are an integral part of this financial statement.
<PAGE>
RECONCILIATION OF NET (LOSS) TO CASH PROVIDED
(USED) BY OPERATING ACTIVITIES
Net (Loss) $ (23,342)
Adjustments to reconcile net income to
cash provided (used) by operating activities
Depreciation 271
Amortization 50
Loss from discontinued operations 65,225
(Increase) decrease in operating assets
Accounts receivable (21,429)
Notes receivable (51,326)
Interest receivable (2,525)
Prepaid expenses (76,500)
Deferred tax benefit (7,371)
Refundable deposits (346)
Increase (decrease) in operating liabilities
Accounts payable 2,204
Deferred revenue 160,000
Advance 322
Net Cash Provided (Used) by Operating Activities $ 45,233
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of NYB Foods, Inc. (NYB) is
presented to assist in understanding the Corporation's financial statements. The
financial statements and notes are the representation of the Corporation's
management, who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
1. Nature of Business
NYB was incorporated in the state of Colorado on April 21, 1995 and
maintains its principal place of business in Mesa, Arizona. The Corporation's
principal business activity is that of a franchisor granting qualified persons
franchises for the operation of fast food restaurants that operate under the
name New York Burrito Gourmet Wraps.
2. Deferred Revenue
Income from initial franchise fees is deferred and recognized when the
franchisee commences operations.
3. Property and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using the straight-line method for financial reporting
purposes over a estimated useful life of five years. Depreciation expense for
the year ended March 31, 1997 was $271.
4. Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between basis of equipment for financial and
income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable of deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for capital losses that are not available to
offset future income taxes.
NOTE B - RELATED PARTY TRANSACTIONS
An unsecured note receivable, bearing interest at 8% per annum from a
majority shareholder:
Loan $ 61,241
Accrued interest 2,525
$ 63,766
Interest income related to this note was $2,525 during the year ended March
31, 1997.
The Corporation uses a credit card issued to a minority shareholder. As of
March 31, 1997, the balance owing was $10,914.
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1997
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classification as follows:
Equipment $ 2,311
Less: Accumulated Depreciation (271)
$ 2,040
NOTE D -LEASE OBLIGATIONS
The Corporation conducts its operations from facilities that are leased
under a 3 year operating lease expiring May 31, 2000. Future minimum rental
payments required for the operating lease is as follows:
Year Ended March 31,
1998 $ 12,518
1999 $ 4,026
2000 $ 4,480
2001 $ 2,426
Rental expense for the year ended March 31, 1997 was $15,583.
NOTE E - NOTE PAYABLE
Notes payable at March 31, 1997 consisted of the following:
Two non-interest bearing demand notes payable $ 19,000
Less current maturities 19,000
$ -
NOTE F-INCOME TAXES
The Corporation has loss carryforwards totaling $31,295 that may offset
against future taxable income. If not used, the carryforwards will expire as
follows:
Year 19 $ 582
Year 20 30,713
$ 31,295
The provisions for income taxes consist of the following components:
Deferred tax benefit $ (7,371)
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1997
NOT G - SUBSEQUENT EVENTS
Subsequent to March 31, 1997, the Corporation sold its investment in the
partnership for $25,000 resulting in a loss of $65,225. The cost basis of this
investment was adjusted for the year ended March 31, 1997.
NOTE H - PRIOR PERIOD ADJUSTMENT
Accumulated deficit has been increased to recognized expenses not recorded
in the prior year. This increase has no effect on the current year net loss. The
cumulative effect of this adjustment increases accumulated deficit by $10,592.
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Colorado statutes and the Articles of Incorporation of the Issuer provide
for indemnification of officers and directors and for limitation on their
liability, as follows:
Colorado Revised Statutes Section 7-108-401: General standards of conduct
for directors and officers. (1) Each director shall discharge his or her duties
as a director, including his or her duties as a member of a committee, and each
officer with discretionary authority shall discharge his or her duties under
that authority:
(a) In good faith;
(b) With the care an ordinarily prudent person in a like position
would exercise under similar circumstances; and
(c) In a manner he or she reasonably believes to be in the best
interests of the corporation.
(2) In discharging his or her duties, a director or officer is entitled to
rely on information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by:
(a) One or more officers or employees of the corporation whom the
director or officer reasonably believes to be reliable and competent in the
matters presented;
(b) Legal counsel, a public accountant, or another person as to
matters the director or officer reasonably believes are within such person's
professional or expert competence; or
(c) In the case of a director, a committee of the board or directors
of which the director is not a member if the director reasonably believes the
committee merits confidence.
(3) A director or officer is not acting in good faith if he or she has
knowledge concerning the matter in question that makes reliance otherwise
permitted by subsection (2) of this section unwarranted.
(4) A director or officer is not liable as such to the corporation or its
shareholders for any action he or she takes or omits to take as a director or
officer, as the case may be, if, in connection with such action or omission, he
or she performed the duties of the position in compliance with this section.
Colorado Revised Statutes Section 7-108-402: Limitation of certain
liabilities of directors and officers. (1) If so provided in the articles of
incorporation, the corporation shall eliminate or limit the personal liability
of a director to the corporation or to its shareholders for monetary damages for
breach of fiduciary duty as a director; except that any such provision shall not
eliminate or limit the liability of a director to the corporation or to its
shareholders for monetary damages for any breach of the director's duty of
loyalty to the corporation or to its shareholders, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
acts specified in section 7-108-403, or any transaction from which the director
directly or indirectly derived an improper personal benefit. No such provision
shall eliminate or limit the liability of a director to the corporation or to
its shareholders for monetary damages for any act or omission occurring before
the date when such provision becomes effective.
(2) No director or officer shall be personally liable for any injury to
person or property arising out of a tort committed by an employee unless such
director or officer was personally involved in the situation giving rise to the
litigation or unless such director or officer committed a criminal offense in
connection with such situation. The protection afforded in this subsection (2)
shall not restrict other common-law protections and rights that a director or
officer may have. This subsection (2) shall not restrict the corporation's right
to eliminate or limit the personal liability of a director to the corporation or
to its shareholders for monetary damages for breach of fiduciary duty as a
director as provided in subsection (1) of this section.
Colorado Revised Statutes Section 7-108-403: Liability of directors for
unlawful distributions. (1) A director who votes for or assents to a
distribution made in violation of section 7-106-401 or the articles of
incorporation is personally liable to the corporation for the amount of the
distribution that exceeds what could have been distributed without violating
said section or the articles of incorporation if it is established that the
director did not perform the director's duties in compliance with section
7-108-401. In any proceeding commenced under this section, a director shall have
all of the defenses ordinarily available to a director.
(2) A director held liable under subsection (1) of this section for an
unlawful distribution is entitled to contribution:
(a) From every other director who could be held liable under
subsection (1) of this section for the unlawful distribution; and
(b) From each shareholder who accepted the distribution knowing the
distribution was made in violation of section 7-106-401 or the articles of
incorporation, the amount of the contribution from such shareholder being the
amount of the distribution to that shareholder that exceeds what could have
been distributed to that shareholder without violating said section or the
articles of incorporation.
Colorado Revised Statutes Section 7-108-501: Conflicting interest
transaction. (1)(a) As used in this section, "conflicting interest transaction"
means any of the following:
(i) A loan or other assistance by the corporation to a director
of the corporation or to an entity in which a director of the corporation is a
director or officer or has a financial interest;
(ii) A guaranty by a corporation of an obligation of a director
of the corporation or of an obligation of an entity in which a director of the
corporation is a director or officer or has a financial interest; or
(iii) A contract or transaction between a corporation and a
director of the corporation or between the corporation and an entity in which a
director of the corporation is a director or officer or has a financial
interest.
(b) "Conflicting interest transaction" shall not include any
transaction between a corporation and another entity that owns, directly or
indirectly, all of the outstanding shares of the corporation or all of the
outstanding shares or other equity interests of which are owned, directly or
indirectly, by the corporation.
(2) No conflicting interest transaction shall be void or voidable or be
enjoined, set aside, or give rise to an award of damages or other sanctions in
a proceeding by a shareholder or by or in the right of the corporation, solely
because the conflicting interest transaction involves a director of the
corporation or an entity in which a director of the corporation is a director or
officer or has a financial interest or solely because the director is present at
or participates in the meeting of the corporation's board of directors or of the
committee of the board of directors which authorizes, approves, or ratifies
the conflicting interest transaction or solely because the director's vote is
counted for such purpose if:
(a) The material facts as to the director's relationship or interest
and as to the conflicting interest transaction are disclosed or are known to the
board of directors or the committee, and the board of directors or committee in
good faith authorizes, approves, or ratifies the conflicting interest
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors are less than a quorum; or
(b) The material facts as to the director's relationship or interest and as to
the conflicting interest transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the conflicting interest transaction
is specifically authorized, approved, or ratified in good faith by a vote of the
shareholders; or
(c) The conflicting interest transaction is fair to the corporation.
(3) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes, approves, or ratifies the conflicting interest transaction.
(4) A board of directors or a committee thereof shall not authorize a
loan, by the corporation to a director of the corporation or to an entity in
which a director of the corporation is a director or officer or has a financial
interest, or a guaranty, by the corporation of an obligation of an obligation of
a director of the corporation or of an obligation of an entity in which a
director of the corporation is a director or officer or has a financial
interest, pursuant to paragraph (a) of subsection (2) of this section until at
least ten days after written notice of the proposed authorization of the loan or
guaranty has been given to the shareholders who would be entitled to vote
therein if the issue of the loan or guaranty were submitted to a vote of the
shareholders.
Colorado Revised Statutes Section 7-109-102: Authority to indemnify
directors. (1) Except as provided in subsection (4) of this section, a
corporation may indemnify a person made a party to a proceeding because the
person is or was a director against liability incurred in the proceeding if:
(a) The person conducted himself or herself in good faith; and
(b) The person reasonably believed:
(i) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best interests;
and
(ii) In all other cases, that his or her conduct was at least not
opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies the
requirement of subparagraph (II) of paragraph (b) of subsection (1) of this
section. A director's conduct with respect to an employee benefit plan for a
purpose that the director did not reasonably believe to be in the interests of
the participants in or beneficiaries of the plan shall be deemed not to
satisfy the requirements of paragraph (a) of subsection (1) of this section.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this section.
(4) A corporation may not indemnify a director under this section:
(a) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation; or
(b) In connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not involving action
in an official capacity, in which proceeding the director was adjudged liable on
the basis that he or she derived an improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
Colorado Revised Statutes Section 7-109-103: Mandatory indemnification of
directors. Unless limited by its articles of incorporation, a corporation shall
indemnify a person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the person
is or was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
Colorado Revised Statutes Section 7-109-104: Advance of expenses to
directors. (1) A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of the final
disposition of the proceeding if:
(a) The director furnishes to the corporation a written affirmation
of the director's good faith belief that he or she has met the standard of
conduct described in section 7-109-102;
(b) The director furnishes to the corporation a written undertaking,
executed personally or on the director's behalf, to repay the advance if it is
ultimately determined that he or she did not meet the standard of conduct; and
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this article.
(2) The undertaking required by paragraph (b) of subsection (1) of this
section shall be an unlimited general obligation of the director but need not
be secured and may be accepted without reference to financial ability to make
repayment.
(3) Determinations and authorizations of payments under this section shall
be made in the manner specified in section 7-109-106.
Colorado Revised Statutes Section 7-109-105: Court-ordered indemnification
of directors. (1) Unless otherwise provided in the articles of incorporation, a
director who is or was a party to a proceeding may apply for indemnification to
the court conducting the proceeding or to another court of competent
jurisdiction. On receipt of an application, the court, after giving any notice
the court considers necessary, may order indemnification in the following
manner:
(a) If it determines that the director is entitled to mandatory i
ndemnification under section 7-109-103, the court shall order indemnification,
in which case the court shall also order the corporation to pay the director's
reasonable expenses incurred to obtain court-ordered indemnification.
(b) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not the director met the standard of conduct set forth in section
7-109-102(1) or was adjudged liable in the circumstances described in section
7-109-102(4), the court may order such indemnification as the court deems
proper; except that the indemnification with respect to any proceeding in which
liability shall have been adjudged in the circumstances described in section
7-109-102(4) is limited to reasonable expenses incurred in connection with the
proceeding and reasonable expenses incurred to obtain court-ordered
indemnification.
Colorado Revised Statutes Section 7-109-106: Determination and
authorization of indemnification of directors. (1) A corporation may not
indemnify a director under section 7-109-102 unless authorized in the specific
case after a determination has been made that indemnification of the director is
permissible in the circumstances because the director has met the standard of
conduct set forth in section 7-109-102. A corporation shall not advance expenses
to a director under section 7-109-104 unless authorized in the specific case
after the written affirmation and undertaking required by section
7-109-104(1)(a) and (1)(b) are received and the determination required by
section 7-109-104(1)(c) has been made.
(2) The determinations required by subsection (1) of this section shall be
made:
(a) By the board of directors by a majority vote of those present at
a meeting at which a quorum is present, and only those directors not parties to
the proceeding shall be counted in satisfying the quorum; or
(b) If a quorum cannot be obtained, by a majority vote of a committee
of the board of directors designated by the board of directors, which committee
shall consist of two or more directors not parties to the proceeding; except
that directors who are parties to the proceeding may participate in the
designation of directors for the committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a) of
subsection (2) of this section, and a committee cannot be established under
paragraph (b) of subsection (2) of this section, or, even if a quorum is
obtained or a committee is designated, if a majority of the directors
constituting such quorum or such committee so directs, the determination
required to be made by subsection (1) of this section shall be made:
(a) By independent legal counsel selected by a vote of the board of
directors or the committee in the manner specified in paragraph (a) or (b) of
subsection (2) of this section or, if a quorum of the full board cannot be
obtained and a committee cannot be established, by independent legal counsel
selected by a majority vote of the full board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and advance of expenses shall be made
in the same manner as the determination that indemnification or advance of
expenses is permissible; except that, if the determination that indemnification
or advance of expenses is permissible is made by independent legal counsel,
authorization of indemnification and advance of expenses shall be made by the
body that selected such counsel.
Colorado Revised Statutes Section 7-109-107: Indemnification of officers,
employees, fiduciaries, and agents. (1) Unless otherwise provided in the
articles of incorporation:
(a) An officer is entitled to mandatory indemnification under section
7-109-103, and is entitled to apply for court-ordered indemnification under
section 7-109-105, in each case to the same extent as a director;
(b) A corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same extent as to a
director; and
(c) A corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a greater
extent, if not inconsistent with public policy, and if provided for by its
bylaws, general or specific action of its board of directors or shareholders, or
contract.
Colorado Revised Statutes Section 7-109-108: Insurance. A corporation may
purchase and maintain insurance on behalf of a person who is or was a director,
officer, employee, fiduciary, or agent of the corporation, or who, while a
director, officer, employee, fiduciary, or agent of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, fiduciary, or agent of another domestic or foreign
corporation or other person or of an employee benefit plan, against liability
asserted against or incurred by the person in that capacity or arising from
his or her status as a director, officer, employee, fiduciary, or agent,
whether or not the corporation would have power to indemnify the person
against the same liability under section 7-109-102, 7-109-103, or 7-109-107. Any
such insurance may be procured from any insurance company designated by the
board of directors, whether such insurance company is formed under the laws of
this state or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the corporation has an equity or
any other interest through stock ownership or otherwise.
Colorado Revised Statutes Section 7-109-109: Limitation on indemnification
of directors. (1) A provision treating a corporation's indemnification of, or
advance of expenses to, directors that is contained in its articles of
incorporation or bylaws, in a resolution of its shareholders or board of
directors, or in a contract, except an insurance policy, or otherwise, is valid
only to the extent the provision is not inconsistent with sections 7-109-101
to 7-109-108. If the articles of incorporation limit indemnification or advance
of expenses, indemnification and advance of expenses are valid only to the
extent not inconsistent with the articles of incorporation.
(2) Sections 7-109-1-1 to 7-109-108 do not limit a corporation's power to
pay or reimburse expenses incurred by a director in connection with an
appearance as a witness in a proceeding at a time when he or she has not been
made a named defendant or respondent in the proceeding.
Colorado Revised Statutes Section 7-109-110: Notice to shareholders of
indemnification of director. If a corporation indemnifies or advances expenses
to a director under this article in connection with a proceeding by or in the
right of the corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the notice of the
next shareholders' meeting. If the next shareholder action is taken without a
meeting at the instigation of the board of directors, such notice shall be given
to the shareholders at or before the time the first shareholder signs a writing
consenting to such action.
Article Seventh, Subsection (a), Articles of Incorporation: Conflicting
Interest Transactions. As used in this paragraph, "conflicting interest
transaction" means any of the following: (i) a loan or other assistance by the
corporation to a director of the corporation or to an entity in which a director
of the corporation is a director or officer or has a financial interest; (ii) a
guaranty by the corporation of an obligation of a director of the corporation or
of an obligation of an entity in which a director of the corporation is a
director or officer or has a financial interest; or (iii) a contract or
transaction between a corporation and a director of the corporation or between
the corporation and an entity in which a director of the corporation is a
director or officer or has a financial interest. No conflicting interest
transaction shall be void or voidable, be enjoined, be set aside, or give rise
to an award of damages or other sanctions in a proceeding by a shareholder or
by or in the right of the corporation, solely because the conflicting interest
transaction involves a director of the corporation or an entity in which a
director of the corporation is a director or officer or has a financial
interest, or solely because the director is present at or participates in the
meeting of the corporation's board of directors or of the committee of the
board of directors which authorizes, approves or ratifies the conflicting
interest transaction or solely because the director's vote is counted for
such purpose if: (A) the material facts as to the director's relationship or
interest and as to the conflicting interest transaction are disclosed or are
known to the board of directors or the committee, and the board of directors or
committee in good faith authorizes, approves, or ratifies the conflicting
interest transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors are less than a quorum; or
(B) the material facts as to the director's relationship or interest and as to
the conflicting interest transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the conflicting interest transaction
is specifically authorized, approved or ratified in good faith by a vote of the
shareholders; or (c) a conflicting interest transaction is fair to the
corporation as of the time it is authorized, approved or ratified by the board
of directors, a committee thereof, or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the board of directors or of a committee which authorizes, approves or ratifies
the conflicting interest transaction.
Article Seventh, Subsection (b), Articles of Incorporation: Loans and
Guaranties for the Benefit of Directors. Neither the board of directors nor any
committee thereof shall authorize a loan by the corporation to a director of the
corporation or to an entity in which a director of the corporation is a director
or officer or has a financial interest, or a guaranty by the corporation of an
obligation of an obligation of a director of the corporation or of an obligation
of an entity in which a director of the corporation is a director or officer or
has a financial interest, until at least ten days after written notice of the
proposed authorization of the loan or guaranty has been given to the
shareholders who would be entitled to vote thereon if the issue of the loan or
guaranty were submitted to a vote of the shareholders. The requirements of this
paragraph (b) are in addition to, and not in substitution for, the provisions of
paragraph (a) of Article SEVENTH.
Article Seventh, Subsection (c), Articles of Incorporation: The corporation
shall indemnify, to the maximum extent permitted by law, any person who is or
was a director, officer, agent, fiduciary or employee of the corporation against
any claim, liability or expense arising against or incurred by such person
made party to a proceeding because he is or was a director, officer, agent,
fiduciary or employee of the corporation or because he is or was serving another
entity or employee benefit plan as a director, officer, partner, trustee,
employee, fiduciary or agent at the corporation's request. The corporation shall
further have the authority to the maximum extent permitted by law to purchase
and maintain insurance providing such indemnification.
Article Seventh, Subsection (d), Articles of Incorporation: Limitation on
Director's Liability. No director of this corporation shall have any personal
liability for monetary damages to the corporation or its shareholders for breach
of his fiduciary duty as a director, except that this provision shall not
eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for: (i) any breach of the director's
duty of loyalty to the corporation or its shareholders; (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) voting for or assenting to a distribution in violation of Colorado
Revised Statutes Section 7-106-401 or the articles of incorporation if it is
established that the director did not perform his duties in compliance with
Colorado Revised Statutes Section 7-108-401, provided that the personal
liability of a director in this circumstance shall be limited to the amount of
the distribution which exceeds what could have been distributed without
violation of Colorado Revised Statutes Section 7-106-401 or the articles of
incorporation; or (iv) any transaction from which the director directly or
indirectly derives an improper personal benefit. Nothing contained herein will
be construed to deprive any director of his right to all defenses ordinarily
available to a director nor will anything herein be construed to deprive any
director of any right he may have for contribution from any other director or
other person.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration Statement Filing Fees $ 2,207.00
State Registration Fees $ 2,000.00
Printing Costs $ 2,500.00
Legal Fees $ 15,000.00
Accounting Fees $ 7,500.00
Listing Fees $ 1,500.00
RECENT SALES OF UNREGISTERED SECURITIES
1. 7,500,000 Shares of Common Stock were issued in the transaction whereby
NYB Foods, Inc., was merged with and into NYB Acquisitions Corp., a wholly-
owned subsidiary of the Company. The transaction was exempt from registration
under Section 4(2) of the Securities Act of 1933. The individual shareholders of
NYB Foods, Inc., received unregistered shares of common stock as follows:
Robert D. Palmer, Jr. 5,188,776 shares
& Karene Palmer
Berg Family Trust 1,244,490 shares
Gary D. Palmer 765,306 shares
Mary Jo DiVito 306,122 shares
Hank Rabin 15,306 shares
2. 3,400,000 Shares of Common Stock were issued to two investors as follows:
Kazi Family Partnership 1,700,000 shares
Dr. J.C. Joshi 1,700,000 shares
The Company received an opinion of counsel that the transaction was exempt from
registration pursuant to Regulation D, Rule 504, promulgated under Section 3(b)
of the Securities Act of 1933.
3. Warrants to purchase 3,000,000 shares of our common stock were issued to
one investor, Mohamed Khalifa. The transaction was exempt from registration
under Section 4(2) and Regulation S, promulgated under the Securities Act of
1933.
4. In connection with the above-referenced sale of 3,400,000 shares of our
common stock to the Kazi Family Partnership and Dr. J.C. Joshi, and the sale of
3,000,000 common stock purchase warrants to Mohamed Khalifa, 269,500 shares of
common stock and 485,000 common stock purchase warrants were issued, as fees and
expenses for assisting in the introduction, negotiation and closing of the said
transactions, to the following individuals:
Mohamed Ghaus Khalifa 201,250 shares and 144,000 warrants
DSF Capital, Inc. 24,750 shares and 161,000 warrants
Bicoastal Assocs., Inc. 37,250 shares and 100,000 warrants
Man Chu Chow 6,250 shares and 30,000 warrants
Pacific Basin 50,000 warrants
5. 337,500 Shares of Common Stock were issued to the holders of Series B
Preferred Stock of the Company in a 3-for-1 conversion, as follows:
Name Series B Shares Common Stock Shares
Converted Issued
Dr. Richard Wagner 53,500 160,500
Dr. Ronald Lang 10,500 31,500
Michael Tucker 2,500 7,500
Lewis/Mimi Myers 1,500 4,500
Frederick Garner 3,500 10,500
John Cristakes 2,500 7,500
Donald Clark 1,500 4,500
Charles Kuhter 1,000 3,000
Alan Haehle 1,000 3,000
Jeffrey/Yollande 2,500 7,500
Gottlieb
Roger/Darcy Brooks 1,500 4,500
Stanley Morton 2,500 7,500
Don Drews 4,000 12,000
Thomas Murphy 1,000 3,000
John/Sandra 1,000 3,000
Straetker
Norman/Barbara 2,500 7,500
Glutzer
Margaret Sanderson 1,000 3,000
Dr. Michael Grear 2,500 7,500
Bhagvan Vaghani 5,000 15,000
Santa Cruz Squeeze 2,500 7,500
Robert Henry 500 1,500
Michael Henry 500 1,500
Alan Wilson 1,000 3,000
Dieter Schulz 500 1,500
Kevin Vrba 500 1,500
Diane/William 2,500 7,500
Bennett
Dr. Robert Stoltz 1,500 4,500
William Throolin/ 500 1,500
Sharon Peterson
Dru/Dana Vowell 1,000 3,000
Scott Weber 500 1,500
These share exchanges were exempt from registration pursuant to Section 3(a)(9)
of the Securities Act of 1933.
6. 45,750 shares of common stock were issued to five individuals upon the
exercise of their common stock purchase warrants as listed below. The issuance
of these shares were exempt from registration pursuant to Section 3(a)(9) of the
Securities Act of 1933.
Richard J. Babjak 3,813 shares
Sean T. O'Keefe 21,000 shares
Robert D. Yarosz 3,813 shares
Anastasios Baharopoulos 3,000 shares
John H. Mathues 14,124 shares
7. 537,883 shares of common stock were issued to two of our shareholders in
exchange for the surrender and cancellation of promissory notes owed by the
Company which they held, as follows:
Clyde E. Culp, III 428,883 shares for note of $428,883.00
Santa Cruz Holdings, Inc. 109,000 shares for note of $109,000.00
These share exchanges were exempt from registration pursuant to Section 3(a)(9)
of the Securities Act of 1933.
EXHIBITS
1. Plan of Merger
2. Statement of Merger
3. Agreement and Plan of Reorganization
4. Asset Purchase Agreement
5. Articles of Incorporation
6. Articles of Amendment to Articles of Incorporation
7. Articles of Amendment to Articles of Incorporation
8. Bylaws
9. Minutes of Board of Directors, January 28, 1998
10. Promissory Notes held by Shareholders
11. Opinion re: legality
12. Voting Agreement
13. Subsidiaries of the registrant
14. Consent of experts and counsel
15. Financial data schedule
UNDERTAKINGS
I. Amendment of Registration Statement. Uptown Restaurant Group, Inc.,
is registering securities under Rule 415 of the Securities Act of 1933 (Section
230.415 of Regulation S-B), and therefore, the Company hereby undertakes the
following:
(1) The Company will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and notwithstanding the foregoing, and increase or
decrease in volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) (Section 230.424(b) of Regulation S-B) if, in the aggregate, the changes
in the volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(2) The Company, for determining liability under the Securities Act, will
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering; and
(3) The Company will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
II. Indemnification. Uptown Restaurant Group, Inc., may request
acceleration of the effective date of the registration statement under Rule 461
under the Securities Act, and therefore, the Issuer represents that, insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
Issuer pursuant to the foregoing provisions, or otherwise, the Issuer has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Issuer of expenses incurred or paid by a
director, officer or controlling person of the Issuer in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Mesa,
State of Arizona on January 21, 2000.
UPTOWN RESTAURANT GROUP, INC.
ROBERT D. PALMER, JR.
By: Robert D. Palmer, Jr.
Title: President and
Chairman of the Board
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
(Signature)
ROBERT HOSAC
(Title) Chief Financial Officer
(Date) 1/21/2000
(Signature)
L. BENNETT BERG
(Title) Director
(Date) 1/21/2000
(Signature)
WILLIAM G. NORTON
(Title) Director
(Date) 1/21/2000
(Signature)
ROBERT D. PALMER, JR.
(Title) Director
(Date) 1/21/2000
(Signature)
HAROLD L. KESTENBAUM
(Title) Director
(Date) 1/24/2000
(Signature)
CLYDE E. CULP, III
(Title) Director
(Date) 1/31/2000
[DESCRIPTION] Plan of Merger between HAI Enterprises and Wrapsters
PLAN OF MERGER
BETWEEN AND AMONG
WRAPSTER'S, L.C.
AND
HAI ENTERPRISES, INC.
THIS PLAN OF MERGER, dated this 19th day of February, 1998, pursuant to
Section 7-90-203 of the Colorado Corporations and Associations Act
(hereinafter referred to as the "Act"), are entered into by and between the
entities named in Section 2 below, which are referred to herein collectively
as the Constituent Entities.
1. AGREEMENT TO MERGE. The Constituent Entities hereby agree to merge,
and the terms and conditions of said merger, the method of carrying the same
into effect and the manner and basis of converting or exchanging the ownership
interests of the owners consisting of membership interests of the members of
Wrapster's, L.C., a Florida limited liability company, and shares of no par
common stock of HAI Enterprises, Inc., into different ownership interests or
other consideration, and the manner of dealing with the ownership interests
of the Constituent Entities not to be so converted or exchanged, are and shall
be as set forth herein.
2. PARTIES. The parties to this Plan of Merger are Wrapster's, L.C., a
Florida limited liability company (hereinafter referred to as "Wrapsters"), and
HAI Enterprises, Inc., a corporation organized under the laws of the State of
Colorado (hereinafter referred to as "HAI").
3. SURVIVING ENTITY. HAI shall be the surviving entity and shall remain
organized under the laws of the State of Colorado following the merger
(hereinafter sometimes referred to as "Successor").
4. NAME OF SURVIVING ENTITY. The name of the surviving entity, HAI
Enterprises, Inc. shall be changed to "Wrapsters, Inc."
5. PRINCIPAL OFFICES. The principal office of HAI in the State of Colorado
is 26 West Dry Creek Circle, Suite 600, Littleton, Colorado 80120. The
principal office of Wrapsters in the State of Florida is 10764 Maple Chase
Drive, Boca Raton, Florida 33498. The street address of the Successor following
the merger is 26 West Dry Creek Circle, Suite 600, Littleton, Colorado 80120.
6. MANNER AND BASIS OF CONVERSION OF LIMITED LIABILITY MEMBERSHIP
INTERESTS. The manner and basis of converting or exchanging the shares of no
par common stock of HAI (hereinafter "HAI Common Stock") with the membership
interests of the members of Wrapsters or other consideration and the treatment
of any membership interests of Wrapsters not to be so converted or exchanged on
the Effective Date shall be as follows:
(a) Each membership interest of Wrapsters, if any, which remains
unissued on the Effective Date of this merger shall be canceled.
(b) Each share of HAI Common Stock which is issued and outstanding
on the Effective Date of this merger shall remain issued and outstanding as one
share of HAI Common Stock.
8. MODIFICATIONS TO THIS PLAN. The Constituent Entities, by mutual consent
of their respective management groups, the managers of Wrapsters and the board
of directors of HAI, may amend, modify and supplement this Plan of Merger in
such manner as may be agreed upon by them in writing at any tine before or
after approval or adoption thereof by the members of Wrapsters or the
stockholders of HAI or all of them; provided, however, that no such amendment,
modification or supplement shall affect the rights of members or stockholders of
any of the Constituent Entities in a manner which is materially adverse to
such members or stockholders in the judgment of their respective management
groups.
9. CONTINGENCY. The merger provided for by this Plan of Merger shall be
subject to Santa Cruz Squeeze, Inc., a Texas corporation, purchasing 3,800,000
shares of Common Stock of HAI and 113,500 shares of Series B Redeemable
Convertible Preferred Stock of HAI for an aggregate of $1,000,000 on the
Effective Date as defined below.
10. EFFECTIVE DATE. The Merger provided for by this Plan of Merger shall
become effective, and the separate existence of Wrapsters, except insofar as
continued by statute, shall cease on the date (the "Effective Date") that a
Statement of Merger, duly advised, approved, signed, and delivered by Wrapsters
and Successor as required by the laws of the State of Colorado, is filed for
record with the Secretary of State.
IN WITNESS WHEREOF, Wrapsters and HAI, the Constituent Entities to the
merger, have caused this Plan of Merger to be signed in their respective
entity names and on their behalf by the persons authorized to sign on behalf
of such Constituent Entities by their respective Constituent Operating
Documents as of the 19th day of February, 1998.
WRAPSTER'S, L.C.
By: Thomas E. Metzger
Thomas e. Metzger, Manager
HAI ENTERPRISES INC.
By: Earnest Mathis
Earnest Mathis, President
[DESCRIPTION] Statement of Merger with Wrapsters
STATEMENT OF MERGER
THIS STATEMENT OF MERGER, dated as of the 19th day of February, 1998, pursuant
to Section 7-90-203(5) of the Colorado Corporations and Associations Act
(hereinafter referred to as the "Act"), are entered into by and between the
Constituent Entities named in Article FIRST below which are referred to herein
collectively as the Constituent Entities.
FIRST: The Constituent Entities are:
Wrapsters, L.C., a limited liability company, organized under the laws of
the State of Florida (sometimes hereinafter referred to as ("Wrapsters") and
HAI ENTERPRISES, INC., a corporation organized under the laws of the State
of Colorado (sometimes hereinafter referred to as "HAI").
SECOND: HAI shall be the surviving entity and shall remain organized under the
laws of the State of Colorado following the merger.
THIRD: The name of the surviving entity, HAI Enterprises, Inc. shall be changed
to "Wrapsters, Inc."
FOURTH: The principal office of Wrapsters in the State of Florida is 10764
Maple Chase Drive, Boca Raton, Florida 33498. The principal office of HAI in
the State of Colorado is 26 West Dry Creek Circle, Littleton, Colorado 80120.
The street address of HAI following the merger is 26 West Dry Creek Circle,
Littleton, Colorado 80120.
IN WITNESS WHEREOF, Wrapsters and HAI, the Constituent Entities to the merger,
have caused this Statement of Merger to be signed in their respective entity
names and on their behalf by the persons authorized to sign on behalf of such
Constituent Entities by their respective Constituent Operating Documents as of
the 19th day of February, 1998.
WRAPSTER'S, L.C.
By: Thomas E. Metzger
Thomas E. Metzger, Manager
HAI ENTERPRISES, INC.
By: Ernest Mathis, Jr.
Ernest Mathis, Jr., President
[DESCRIPTION] Plan of Reorganization
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), made and entered into
as of the 31st day of August, 1999, by and between NYB FOODS, INC., a Colorado
corporation ("NYB"), WRAPSTERS, INC., a Colorado corporation ("Wrapsters")
and NYB ACQUISITIONS CORP., a Colorado corporation ("Acquisitions").
WITNESSETH:
WHEREAS Acquisitions will be a corporation duly organized and existing under
the laws of the State of Colorado, to be incorporated October 8, 1999, and
will be a wholly-owned subsidiary of Wrapsters, a corporation duly organized
under the laws of the State of Colorado, having been incorporated on February
23, 1996 under the name of HAI Enterprises, Inc., and having changed its name
to Wrapsters, Inc., on February 20, 1998, and NYB is a corporation organized
and existing under the law of the State of Colorado, having been incorporated
on April 21, 1995; and
WHEREAS, the respective Boards of Directors of NYB, Wrapsters and Acquisitions
deem it to be advisable and in the best interests of NYB, Wrapsters and
Acquisitions and their respective shareholders that NYB merge with and into
Acquisitions pursuant to this Agreement and the applicable provisions of the
law of the State of Colorado, such transaction being herein called the
Merger; and
WHEREAS, the Boards of Directors of NYB, Wrapsters and Acquisitions,
respectively, have or will have approved and adopted this Agreement as a plan
of reorganization within the provisions of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code, as amended;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements,
warranties, provisions, and covenants herein contained, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1. DELIVERY AND FILING OF ARTICLES OF MERGER; EFFECTIVE TIME OF MERGER.
Acquisitions and NYB will cause Articles of Merger to be signed and delivered
to the Secretary of State of the State of Colorado, as provided in Section
7-111-105, Colorado Revised Statutes on or before the third day following the
day on which the last of the shareholder approvals shall have been obtained,
or such earlier or later date as may be mutually agreed to by NYB and
Acquisitions. The time of the delivery to the Secretary of State referred to
in the preceding sentence is herein referred to as the Time of Filing. The
effective time of the Merger shall be the close of business on the day the
Articles of Merger shall have been filed by the Secretary of State of the
State of Colorado. At the effective time of the Merger, the separate
existence of NYB shall cease and NYB shall be merged with and into Acquisitions.
Acquisitions and NYB are hereinafter sometimes referred to as the Constituent
Corporations and Acquisitions, the party to the Merger surviving the Merger
is hereinafter sometimes referred to as the Surviving Corporation.
2. CERTIFICATE OF INCORPORATION, BYLAWS AND BOARD OF DIRECTORS OF SURVIVING
CORPORATION.
(A) At the effective time of the Merger, the Certificate of Incorporation
of Acquisitions shall become the Certificate of Incorporation of the Surviving
Corporation. Subsequent to the effective time of the Merger, such Certificate
of Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation until changed as provided by law.
(B) At the effective time of the Merger, the Bylaws of Acquisitions shall
become the Bylaws of the Surviving Corporation. Subsequent to the effective
time of the Merger, such Bylaws shall be the Bylaws of the Surviving
Corporation until they shall thereafter be duly amended.
(C) The names and addresses of the persons who shall constitute the Board
of Directors of the Surviving Corporation at the effective time of the Merger
are as follows:
Robert Palmer 955 E. Javelina Ave., #106
Mesa, AZ 85204
Gregory Dawson 955 E. Javelins Ave., #106
Mesa, AZ 85204
unless, prior to the effective time of the Merger, any one or more of the
persons named above shall die or refuse or become unable to serve, in which
event the remaining persons named above shall be the directors of the
Surviving Corporation at the effective time of the Merger, and any vacancy
occurring by reason of death, refusal or inability to serve shall be filled
after the effective time of the Merger as provided in the Bylaws of the
Surviving Corporation. The Directors of the Surviving Corporation shall hold
office subject to the provisions of the law of the State of Colorado and of
the Articles of Incorporation and Bylaws of the Surviving Corporation.
3. CONVERSION AND EXCHANGE OF STOCK. The manner of converting the shares of
common stock, no par value per share, of Acquisitions ("Acquisitions Common
Stock") issued and outstanding immediately prior to the effective time of the
Merger into shares of common stock, no par value per share, of NYB ("NYB
Common Stock") and the manner of converting the shares of NYB Common Stock
issued and outstanding immediately prior to the effective time of the Merger
into the shares of common stock, no par value per share, of Wrapsters,
("Wrapsters Common Stock"), shall be as follows:
(A) At the effective time of the Merger:
(1) Each share of NYB Common Stock issued and outstanding immediately
prior to the effective time of the Merger (a total of 4,900,000 shares of NYB
Common Stock) shall, by virtue of the Merger and without any action on the part
of the holder thereof, automatically be converted into approximately 1.53 fully
paid and non-assessable shares of Wrapsters Common Stock (a total of 7,500,000
shares of Wrapsters Common Stock) and $500,000.00 as follows: (i) Robert Palmer
shall receive 5,188,776 shares of Wrapsters Common Stock and $345,900.00; (ii)
L. Bennett Berg shall receive 1,244,490 shares of Wrapsters Common Stock and
$81,600.00; (iii) Gary L. Palmer shall receive 765,306 shares of Wrapsters
Common Stock and $51,000.00; (iv) Mary Jo DeVito shall receive 306,122 shares
of Wrapsters Common Stock and $20,500.00; and (v) Hank Rabin shall receive
15,306 shares of Wrapsters Common Stock and $1,000.00. Each share of NYB
Common Stock held in the treasury of NYB immediately prior to the effective
time of the Merger shall not be converted into Wrapsters Common Stock but
shall automatically be canceled at the effective time of the Merger. The
exchange ratio of approximately 1.53 shares of Wrapsters Common Stock for each
share of NYB Common Stock outstanding immediately prior to the effective time
of the Merger, as set forth in the first sentence of this Section 3(a)(1),
shall be subject to adjustment as follows: In the event that, subsequent to
the date of this Agreement but prior to the effective time of the Merger, the
outstanding shares of Wrapsters Common Stock shall have been, without
consideration, increased, decreased, changed into, or exchanged for a
different number or kind of shares or securities through reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock split, or other like changes in Wrapsters' capitalization, then an
appropriate and proportionate adjustment shall be made in the manner and kind
of shares or securities to be thereafter delivered to the holders of NYB
Common Stock pursuant to the Merger, it being understood that in no event
shall other than Wrapsters Common Stock, as then constituted, be issued in
exchange for NYB Common Stock pursuant to the Merger.
(2) Each share of Acquisitions Common Stock issued and outstanding
immediately prior to the effective time of the Merger shall, by virtue of the
Merger and without any action on the part of the holder thereof, automatically
be converted into one fully paid and non-assessable share of NYB Common Stock.
Each share of Acquisitions Common Stock held in the treasury of Acquisitions
immediately prior to the effective time of the Merger shall automatically be
canceled.
(B) After the effective time of the Merger:
(1) Each holder of an outstanding certificate or certificates
theretofore representing shares of NYB Common Stock (other than shares issued
pursuant to Section 3(a)(2) of this Article I) shall be entitled, upon
surrender of such certificate or certificates to Corporate Stock Transfer, or
such other agent or agents as may be appointed by the Surviving Corporation
(the "Transfer Agent"), to receive therefor a certificate or certificates
representing the number of full shares of Wrapsters Common Stock into which
the shares of NYB Common Stock theretofore represented by the certificate or
certificates so surrendered shall have been converted as aforesaid. On or
before the fifth business day following the effective time of the Merger, the
Transfer Agent will send a notice and a transmittal form to each holder of an
outstanding certificate or certificates, which immediately prior to the
effective time of the Merger represented shares of NYB Common Stock, advising
such stockholders of the terms of the conversion effected by the Merger, and
the procedure for surrendering to the Transfer Agent (which may involve the
appointment of one or more forwarding agents for stockholders) such
certificate or certificates for exchange into one or more certificates
representing the number of full shares of Wrapsters Common Stock which such
stockholder is entitled to receive pursuant to the terms of this Agreement.
Until so surrendered, each such outstanding certificate which prior to the
effective time of the Merger represented shares of NYB Common Stock shall be
deemed for all corporate purposes (subject to the further provisions of this
Section 3(b)(1) to evidence ownership of the number of shares of Wrapsters
Common Stock into which such shares of NYB Common Stock shall have been so
converted. After the effective time of the Merger there shall be no further
registry of transfers on the records of NYB of shares of NYB Common Stock
outstanding immediately prior to the effective time of the Merger, and, if
certificates representing such shares are presented to the Surviving
Corporation they shall be canceled and exchanged for certificates
representing shares of Wrapsters Common Stock as herein provided. No dividends
or distributions will be paid to persons entitled to receive certificates for
shares of Wrapsters Common Stock pursuant to Section 3(a)(1) of this Article
I until such persons shall have surrendered their certificates which prior to
the effective time of the Merger represented NYB Common Stock, provided,
however, that when certificates which prior to the effective time of the
Merger represented NYB Common Stock shall have been so surrendered, there shall
be paid to the holders thereof; but without interest thereon, all dividends
and other distributions payable subsequent to the effective time of the Merger
on the shares of Wrapsters Common Stock into which such certificates shall have
been so converted.
(2) Each holder of an outstanding certificate or certificates
theretofore representing shares of Acquisitions Common Stock shall be entitled,
upon surrender of such certificate or certificates to NYB to receive therefor
a certificate or certificates representing the number of full shares of NYB
Common Stock into which the shares of Acquisitions Common Stock theretofore
represented by the certificate or certificates so surrendered shall have been
converted as aforesaid. Until so surrendered, each such outstanding certificate
which prior to the effective time of the Merger represented shares of
Acquisitions Common Stock shall be deemed for all corporate purposes to
evidence ownership of the number of shares of NYB Common Stock into which such
shares of Acquisitions Common Stock shall have been so converted.
(3) If any certificate for Wrapsters, Common Stock is to be issued in
a name other than that in which the certificate for NYB Common Stock
surrendered for exchange is registered, it shall be a condition of such
exchange that the certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange shall pay to the Transfer Agent any transfer or other taxes required
by reason of the issuance of such Wrapsters Common Stock in any name other than
that of the registered holder of the certificate surrendered, or establish to
the satisfaction of the Transfer Agent that such tax has been paid or is not
applicable.
(4) Neither certificates nor scrip for fractional shares of Wrapsters
Common Stock will be issued.
4. CERTAIN INFORMATION WITH RESPECT TO CAPITAL STOCK OF NYB AND ACQUISITIONS.
The respective designations and numbers of outstanding shares and voting rights
of each class of outstanding capital stock of NYB and Acquisitions are as
follows:
(A) As of the date of this Agreement, the authorized capital stock of NYB
consisted of 20,000,000 shares, no par value per share, of NYB Common Stock, of
which 4,900,000 were issued and outstanding. No shares of such capital stock
are held in the treasury of NYB. The number of outstanding shares of capital
stock of NYB may not be changed prior to the effective time of the Merger. The
holders of NYB Common Stock are entitled to vote as one class upon this
Agreement.
(B) As of the date of this Agreement, the authorized capital stock of
Acquisitions consisted of 10,000,000 shares, no par value per share, of
Acquisitions Common Stock, 100 shares of which were issued and outstanding.
The holder of Acquisitions Common Stock is entitled to vote upon this
Agreement.
5. EFFECT OF MERGER. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of Acquisitions shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NYB shall be
merged into Acquisitions and Acquisitions shall, as the Surviving Corporation,
be fully vested therewith. At the effective time of the Merger, the separate
existence of NYB shall cease, and in accordance with the terms of this
Agreement the Surviving Corporation shall possess all the rights, privileges,
powers, and franchises, as well of a public as of a private nature, and be
subject to all the restrictions, disabilities, and duties, of each of the
Constituent Corporations, and all and singular, the rights, powers, and
franchises and all property, real, personal and mixed, and all debts due on
whatever account, including stock subscriptions, and all other things in action
and all and every other interest of or belonging to or due to each of the
Constituent Corporations shall be taken and deemed to be transferred to and
vested in the Surviving Corporation without further act or deed; 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 the respective Constituent Corporations; and the
title to any real estate, or interest therein, whether by deed or otherwise,
under the laws of Colorado vested in either of said corporations, shall not
revert or be in any way impaired by reason of the Merger. The Surviving
Corporation shall thenceforth beresponsible and liable for all the liabilities
and obligations of the Constituent Corporations, and any claim existing or
action or proceeding pending by or against either of said Constituent
Corporations may be prosecutedas if the Merger had not taken place, or the
Surviving Corporation may be substituted in its place. Neither the rights of
creditors nor any liens upon the property of either of the Constituent
Corporations shall be impaired by the Merger, and all debts, liabilities, and
duties of each of said Constituent Corporations shall attach to the Surviving
Corporation, and may be enforced against it to the same extent as if said
debts, liabilities, and duties had been incurred or contracted by it.
ARTICLE II
REPRESENTATIONS OF NYB
1. AS TO NYB. NYB makes the following representations and warranties to
Wrapsters, which representations and warranties are true and correct, based on
all facts that NYB's officers' and directors' know or should know in the
exercise of reasonable diligence:
(A) GOOD STANDING. NYB Foods, Inc., is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado;
and NYB has the power and authority to carry on its business as the same is
presently conducted and to own and lease its properties where such properties
are now owned and leased.
(B) CAPITAL STRUCTURE. NYB has 20,000,000 shares of no par value voting
common stock authorized,-of which 4,900,000 shares are issued and outstanding.
(C) FINANCIAL STATEMENTS. Attached hereto as Exhibit "A" are the latest
financial statements of NYB Foods, Inc. Said financial statements are true and
accurate, to the best of NYB's knowledge and belief as of the date of said
financial statements.
(D) LITIGATION. To NYB's knowledge, there are no investigations, actions,
suits, or proceedings pending or threatened against or affecting NYB in any
court or before any governmental agency or instrumentality that would or could
affect the validity or enforceability of this Agreement; nor to iVYB's knowledge
is NYB now, and as of the date of closing, it will not be in default with
respect to any order, writ, injunction, judgment or decree of any court or
federal, state or municipal governmental department, commission, board, bureau
or instrumentality that would or could affect the validity or enforceability of
this Agreement.
(E) COMPLIANCE WITH OTHER DOCUMENTS AND INSTRUMENTS. NYB warrants that it
is in substantial compliance with the requirements and provisions of all
instruments and documents to which it is a party or to which it may be subject.
(F) TAXES. NYB warrants that it has filed or has made provisions for the
filing of all federal and state tax returns which are required to be filed; has
paid all taxes to be paid. As of the date hereof no tax liabilities have been
assessed or proposed which remain unpaid.
(G) CONTRACTS. All contracts or agreements, to which NYB is a party which
materially affect the Business and/or operations of NYB, and NYB has in all
respects substantially performed its obligations required of it to date under
all such contracts and agreements.
(H) COMPLIANCE WITH LAWS. NYB warrants that it has materially complied
with all laws, regulations and orders of governmental authorities in the
conduct of its business. NYB has not received any notice (which remains
outstanding) which asserts noncompliance in any respect with applicable laws,
rules and/or regulations of the United States of America or of any state,
county, municipality or other political subdivision having jurisdiction over it,
or any agency thereof. NYB warrants and represents that, to the best of its
knowledge and belief, there are no circumstances relative to legal compliance,
franchise compliance, lease compliance or other circumstances that would
prohibit the continued operations of NYB's restaurants.
(I) NO BREACH. The execution and delivery of this Agreement and the
performance by NYB of its obligations hereunder will not result in any material
breach or violation of or material default under any material agreement,
indenture, lease, license, mortgage, instrument, or understanding, nor result
in any violation of any law, rile, regulation, statute, order or decree of any
kind to which NYB or any of its affiliates is a party or by which any of them
or any of their property is or may be or become subject.
(J) FULL AND FAIR DISCLOSURE. NYB hereby represents and warrants that, in
connection with investigation and due diligence by Wrapsters, it has disclosed
all material facts pertaining to NYB to Wrapsters and its agents, it has made
no misstatements of material facts, and has not omitted to state any material
facts required to make any other statement not misleading.
2. NYB'S COVENANTS. NYB hereby covenants that, prior to closing, it will not
cause or permit any of the following without the written consent of Wrapsters:
(A) CHANGE OF BUSINESS. Make any substantial alteration in its business or
method of operation or take any action which will or may materially adversely
affect the value of any of its assets. NYB shall maintain the original
appearance of the Business until the date of closing.
(B) INDEBTEDNESS. Incur any indebtedness other than in its name and in the
ordinary course of business. Indebtedness for attorney fees and costs associated
with this transaction shall be allowed without the prior written consent of
Wrapsters and shall be paid at the time of closing.
(C) CONTRACTS. Enter into any material contract or substantially amend or
alter any existing contract.
(D) TRANSFER OF PROPERTIES. Except in the ordinary course of business, sell
or transfer any of the NYB's properties.
(E) PAYMENT OF EXPENSES. Fail to pay any employee, suppliers, creditors,
including its Lessor, and others doing business with NYB.
(F) OPERATION. Subject to the foregoing and to the provisions for
apportionment as herein provided, NYB shall operate the business in a normal
and prudent manner and take no actions that shall alter the character of NYBs'
Business.
ARTICLE III
REPRESENTATIONS OF WRAPSTERS
1. AS TO WRAPSTERS. Wrapsters makes the following representations and
warrantiesn to NYB, which representations and warranties are true and correct,
based on all facts that Wrapsters' officers' and directors' know or should know
in the exercise of reasonable diligence:
(A) GOOD STANDING. Wrapsters is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado; and
Wrapsters has the power and authority to carry on its business as the same is
presently conducted and to own and lease its properties where such properties
are now owned and leased.
(B) CAPITAL STRUCTURE. Wrapsters has 25,000,000 shares of no par value
voting common stock authorized, of which 8,875,680 shares were issued and
outstanding as of the date of this Agreement; and Wrapsters has 10,000,000
shares of no par value preferred stock authorized, of which 113,500 shares of
Series B Preferred are issued and outstanding. In addition, Wrapsters has
outstanding 45,750 warrants to purchase an equal number of shares of common
stock, exercisable at $.10 per warrant, and options to purchase shares of
Wrapsters' common stock at $1.00 share, issued to employees pursuant a 1996
compensation plan.
(C) PUBLIC TRADING. Wrapsters is a publicly-held and publicly-traded
corporation with approximately ten (10) securities broker-dealers currently
acting as market makers in Wrapsters' publicly-traded common stock.
(D) AUTHORIZATION. Wrapsters has full power and authority to enter into
this Agreement and to perform same. This Agreement, upon execution and delivery,
will constitute the binding and valid obligations of Wrapsters, enforceable
according to its terms, subject only to requirements of Colorado statute, if
any, for shareholder approval.
(E) NO CONSENTS. Wrapsters need not obtain any consent, approval,
authorization or any other action of any governmental authority, or of any third
party in order to execute and perform this Agreement. Wrapsters shall provide
the appropriate governmental entities with all required information to properly
apprise such governmental authorities of the proposed transfer and the names of
all proposed officers and directors of Wrapsters.
(F) FINANCIAL STATEMENTS. Attached hereto as Exhibit "B" are the latest
financial statements of Wrapsters. Said financial statements are true and
accurate, to the best of Wrapsters' knowledge and belief as of the date of said
financial statements. The financial statements, records and books of accounting
of Wrapsters are auditable for purposes of registration of common stock with the
Securities and Exchange Commission.
(G) LITIGATION. To Wrapsters' knowledge, there are no investigations,
actions, suits, or proceedings pending or threatened against or affecting
Wrapsters in any court or before any governmental agency or instrumentality
that would or could affect the validity or enforceability of this Agreement;
nor to Wrapsters' knowledge is Wrapsters now, and as of the date of closing,
it will not be in default with respect to any order, writ, injunction, judgment
or decree of any court or federal, state or municipal governmental department,
commission, board, bureau or instrumentality that would or could affect the
validity or enforceability of this Agreement, other than the following:
(1) An individual named Metz sued Wrapsters in Cincinnati, Ohio,
alleging breach of contract and fraud and requesting up to $100,000 in damages;
(2) Litigation concerning default of real estate leases at Ballston
Mall, Maryland, Deerfield Beach, Florida, has been commenced seeking eviction of
Wrapsters and possibly monetary damages; and the two Wrapsters locations in the
Atlanta, Georgia, area will be closed in the near future, which may lead to
litigation.
(H) TAXES. Wrapsters warrants that it has filed or has made provisions for
the filing of all federal and state tax returns which are required to be filed;
has paid all taxes to be paid. As of the date hereof, no tax liabilities have
been assessed or proposed which remain unpaid.
(I) CONTRACTS. All contracts or agreements, to which Wrapsters is a party
which materially affect the Business and/or operations of Wrapsters, are legal,
valid and binding, and Wrapsters has in all respects substantially performed its
obligations required of it to date under all such contracts and agreements.
(J) COMPLIANCE WITH LAWS. Wrapsters warrants that it has materially
complied with all laws, regulations and orders of governmental authorities in
the conduct of its business. Wrapsters has not received any notice (which
remains outstanding) which asserts noncompliance in any respect with applicable
laws, rules and/or regulations of the United States of America or of any state,
county municipality or other political subdivision having jurisdiction over it,
or any agency thereof. W rapsters warrants and represents that, to the best of
its knowledge and belief; there are no circumstances relative to legal
compliance, franchise compliance, lease compliance or other circumstances that
would prohibit the continued operations of Wrapsters' restaurants.
(K) NO BREACH. The execution and delivery of this Agreement and the
performance by Wrapsters of its obligations hereunder will not result in any
material breach or violation of or material default under any material
agreement, indenture, lease, license, mortgage, instrument, or understanding,
nor result in any violation of any law, rule, regulation, statute, order or
decree of any kind to which Wrapsters or any of its affiliates is a party or by
which any of them or any of their property is or may be or become subject.
(L) FULL AND FAIR DISCLOSURE. Wrapsters hereby represents and warrants
that, in connection with investigation and due diligence by NYB, it has
disclosed all material facts pertaining to Wrapsters to NYB and its agents, it
has made no misstatements of material facts, and have not omitted to state any
material facts required to make any other statement not misleading.
2. REPRESENTATIONS AND WARRANTIES OF WRAPSTERS. Wrapsters represents and
warrants as follows:
(A) SHARES. The Wrapsters Shares to be issued pursuant to this Agreement
will be validly issued, fully paid for and nonassessable.
(B) LIENS. The Wrapsters Shares to be issued pursuant to this Agreement are
not and shall not be or become subject to any lien, encumbrance, security
interest or financing statement whatsoever.
(C) CHANGE BUSINESS. Other than the imminent closing of the two remaining
Wrapsters locations in the Atlanta, Georgia, area, Wrapsters will not make any
substantial alteration in its business or method of operation or take any action
which will or may materially adversely affect the value of any of its assets.
Wrapsters shall maintain the original appearance of its business until the date
of closing.
(D) INDEBTEDNESS. Incur any indebtedness other than in its name and in the
ordinary course of business. Indebtedness for attorney fees and costs associated
with this transaction shall be allowed without the prior written consent of NYB
and shall be paid at the time of closing.
(E) CONTRACTS. Enter into any material contract or substantially amend or
alter any existing contract.
(F) TRANSFER OF PROPERTIES. Except in the ordinary course of business, or
in connection with the settlement of its outstanding liabilities, Wrapsters will
not sell or transfer any of its properties.
(G) PAYMENT OF EXPENSES. Fail to pay any employee, suppliers, creditors,
including its Lessor, and others doing business with Wrapsters.
(H) OPERATION. Subject to the foregoing and to the provisions for
apportionment as herein provided, Wrapsters shall operate the business in a
normal and prudent manner and take no actions that shall adversely affect
Wrapsters' Business.
ARTICLE IV
REPRESENTATIONS OF ACQUISITIONS
1. AS TO ACQUISITIONS. Acquisitions makes the following representations and
warranties, which representations and warranties are true and correct, based
on all facts that Acquisitions' officers' and directors' know or should know in
the exercise of reasonable diligence:
(A) GOOD STANDING. Acquisitions is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado; and
Acquisitions has the power and authority to carry on its business as the same
is presently conducted and to own and lease its properties where such properties
are now owned and leased.
(B) CAPITAL STRUCTURE. Acquisitions has 10,000,000 shares of no par value
voting common stock authorized, 100 shares of which are issued and outstanding,
being owned by Wrapsters.
(C) AUTHORIZATION. Acquisitions has full power and authority to enter into
this Agreement and to perform same. This Agreement, upon execution and delivery,
will constitute the binding and valid obligations of Acquisitions, enforceable
according to its terms, subject only to requirements of Colorado statute, if
any, for shareholder approval.
(D) NO CONSENTS. Acquisitions need not obtain any consent, approval,
authorization or any other action of any governmental authority, or of any third
party in order to execute and perform this Agreement. Acquisitions shall
provide the appropriate governmental entities with all required information to
properly apprise such governmental authorities of the proposed transfer and the
names of all proposed officers and directors of Acquisitions.
(E) FINANCIAL STATEMENTS. Acquisitions has no assets and has not provided
financial statements herewith.
(F) LITIGATION. There are no investigations, actions, suits, or proceedings
pending or threatened against or affecting Acquisitions in any court or before
any governmental agency or instrumentality that would or could affect the
validity or enforceability of this Agreement; nor is Acquisitions now, and as
of the date of closing, it will not be in default with respect to any order,
writ, injunction, judgment or decree of any court or federal, state or
municipal governmental department, commission, board, bureau or instrumentality
that would or could affect the validity or enforceability of this Agreement.
(G) TAXES. Acquisitions warrants that it has filed or has made provisions
for the filing of all federal and state tax returns which are required to be
filed; has paid all taxes to be paid. As of the date hereof no tax liabilities
have been assessed or proposed which remain unpaid.
(H) CONTRACTS. All contracts or agreements, to which Acquisitions is a
party which materially affect the business and/or operations of Acquisitions,
are legal, valid and binding, and Acquisitions has in all respects substantially
performed its obligations required of it to date under all such contracts and
agreements.
(I) COMPLIANCE WITH LAWS. Acquisitions warrants that it has materially
complied with all laws, regulations and orders of governmental authorities in
the conduct of its business. Acquisitions has not received any notice (which
remains outstanding) which asserts noncompliance in any respect with applicable
laws, rules and/or regulations of the United States of America or of any state,
county, municipality or other political subdivision having jurisdiction over it,
or any agency thereof.
(J) NO BREACH. The execution and delivery of this Ageement and the
performance by Acquisitions of its obligations hereunder will not result in any
material breach or violation of or material default under any material
agreement, indenture, lease, license, mortgage, instrument, or understanding,
nor result in any violation of any law, rule, regulation, statute, order or
decree of any kind to which Acquisitions or any of its affiliates is a party or
by which any of them or any of their property is or may be or become subject.
ARTICLE IV
AGREEMENTS OF PARTIES
1. WRAPSTERS' LIABILITIES. Attached hereto as "Exhibit C" is a true, accurate
and complete list of Wrapsters' liabilities. Before the Merger described herein
can be closed, Wrapsters shall have obtained the binding agreement of its
creditors, including opposing parties in any pending or threatened litigation,
in form agreeable to NYB, to settle and forgive any and all debt owed by
Wrapsters, except for the following, which shall be retained as obligations of
Wrapsters: [Thomas Metzger of Wrapsters hand wrote the following: "shall use its
best efforts too" to replace "shall have" in line 3, and "upon completion of the
merger Wrapsters Inc. will assume all remaining debt and pending settlements as
set forth herein."]
(A) Wrapsters shall retain shareholder debt in an amount not to exceed
$155,000.00;
(B) Shall retain the "Turbo Chef Oven" and its lease, in the approximate
amount of $11,000.00; and
(C) Wrapsters shall retain all trade debt which is more than ninety (90)
days old so long as an amount equal to one-half (1/2) the total of said trade
debt liabilities is provided with which to offset settlements. [Thomas Metzger
of Wrapsters crossed-out subsection (A), (B) and (C).]
2. SHARES TO BE ISSUED TO NYB SHAREHOLDERS. The issued and outstanding shares
of NYB common stock shall be converted to 7,500,000 shares of Wrapsters' common
stock pro-rata to the current shareholders of NYB in proportion to the number of
NYB shares they currently own. Of these shares of Wrapsters common stock,
3,500,000 shall be newly-issued shares subject to the registration rights
contained in paragraph 5.4 below, and 4,000,000 shall be restricted "Rule 144"
stock Before Wrapsters issues these shares, Culp and Metzger agree to
surrender 1,000,000 shares of Wrapsters common stock each to Wrapsters' treasury
for re-issue to NYB's shareholders.
3. EMPLOYMENT OF ROBERT PALMER. Robert Palmer, currently acting as President
of NYB, shall be employed for a period of three (3) years as Chief Executive
Officer and Chairman of the Board of Directors of Wrapsters, as well as Chief
Executive Officer of Acquisitions. Mr. Palmer shall receive a salary of
$125,000.00 per annum for his employment by Wrapsters. In addition, Mr. Palmer
shall be entitled to participate in stock option plans, pension and retirement
plans, health and dental insurance, and any and all other benefits currently
offered, or to be offered in the future by Wrapsters to its employees.
4. REGISTRATION RIGHTS.
(A) Wrapsters agrees that, subject to the availability of audited financial
statements which would comply with the requirements of Regulation S-X of the
Securities Act of 1933, as amended (the "Act"), upon written request of the then
holder(s) of any of the 3,500,000 Wrapsters Shares issued to NYB shareholders,
or the 428,833 shares to be issued to Culp under section 4.9 below, which are
subject to registration rights hereunder, Wrapsters will file, no more than
once, a Registration Statement or an Offering Circular on Form SB under the Act,
registering or qualifying, as the case may be, the Shares. Wrapsters will use
its best efforts, through its officers, directors, auditors and counsel in all
matters necessary or advisable to cause such Registration Statement or Offering
Statement to become effective as promptly as practicable. Wrapsters agrees to
use its best efforts to cause the above filing to become effective.
(B) Any or all of the owner(s) of the Shares shall have the right to join
with Wrapsters in any Registration Statement, other than an S-14, Form S-15, or
Form S-8, or Regulation A filing, to the maximum extent permissible, filed by
Wrapsters with the Securities and Exchange Commission. This right to join with
Wrapsters in a Registration Statement or a Regulation A filing is applicable
regardless of whether some of the owner(s) of the Shares shall have theretofore
availed itself (themselves) of the rights provided above. At any time Wrapsters
proposes to file with the Commission a Registration Statement or an Offering
Circular for its securities, it, at least thirty (30) days prior to such filing,
shall give written notice of such proposed filing to the owner(s) of the Shares
at their address appearing on the records of Wrapsters and shall offer to
include in such filing any proposed disposition of the Shares. Upon receipt by
Wrapsters, not less than twenty (20) days prior to the proposed filing date, of
a requestsetting forth the facts with respect to such proposed disposition, such
Shares shall be included in the Registration Statement or the Regulation A
filing, to the maximum extent permissible. Wrapsters shall supply said owners
with copies of such Registration Statement or Offering Statement and of the
Prospectus or the Offering Circular included therein in such quantities as may
be reasonably necessary for the purpose of the proposed disposition.
(C) Wrapsters shall bear the expenses of any registration or qualification
under this section, including but not limited to legal, accounting and printing
fees.
(D) In addition to the rights above provided, Wrapsters will cooperate with
the then Holder(s) of the Shares in preparing and in signing any Registration
Statement or Offering Statement, in addition to the Registration Statement and
the Offering Statement discussed above, required in order to sell or to transfer
the Shares and will supply all information required therefor but such additional
Registration Statement or Offering Statement shall be at the then Holder(s) cost
and expense.
(E) Wrapsters and the Holder(s) of the Shares will cooperate with each
other in the preparation and the filing of any Registration Statement or
Offering Statement and in any efforts to establish that any proposed disposition
by such Holder(s) is exempt under the Act. The Holder(s) will indemnify and will
hold Wrapsters and its officers, directors, and controlling persons harmless
against all losses, damages, expenses and liabilities based upon or arising out
of or in connection with any untrue statement of a material fact contained in
any Registration Statement or Offering Statement of any applicable Prospectus,
Offering Circular, amendment or supplement thereto, or arising out of or based
upon or in connection with an omission to state a material fact required to be
stated or necessary to make any statement therein not misleading, to the
extent that such untrue statement or omission was made by Wrapsters or by its
officers and directors in reliance upon information furnished by such Holder(s).
Wrapsters will indemnify and will hold each such Holder and each such person,
if any, who controls such Holder, harmless against all losses, damages,
expenses or liabilities based upon or arising out of or in connection with any
untrue statement of a material fact contained, on the effective date thereof,
in any such Registration Statement or Offering Statement or any applicable
Prospectus, Offering Circular, amendment or supplement thereto, or based upon
or arising out of or in connection with the investigation of an omission to
state a material fact required to be stated or necessary to make any statement
therein not misleading, but only to the extent that such untrue statement or
omission was not made by Wrapsters or by its officers or directors upon
information furnished by the Holder. Prior to the effective date of any such
Registration Statement or Offering Statement, Wrapsters and each Holder of
Shares shall enter into reciprocal indemnification agreements as herein
contemplated substantially in the form customarily used by reputable investment
bankers.
(F) Wrapsters' obligation under this section shall be conditioned as to
each such public offering upon a timely receipt by Wrapsters in writing of:
(1) Information as to the terms of such public offering furnished by
or on behalf of each Holder intending to make a public distribution of his or
its Shares; and
(2) Such other information as Wrapsters may reasonably require from
such Holder(s), or any underwriter for any of them, for inclusion in such
Registration Statement or Offering Statement.
5. BOARD OF DIRECTORS. Wrapsters shall cause its articles of incorporation or
bylaws, as appropriate, to be amended to provide for a board of directors of
five (5) individuals. The board of directors immediately following the closing
of the share exchange provided for herein shall consist of Robert Palmer, Clyde
Culp III, two (2) members designated by Mr. Palmer, and one (1) member
designated by Mr. Culp.
6. VOTING AGREEMENTS. Robert Palmer, Culp, Metzger, and Gallagher, hereby agree
to enter into voting agreements, by the terms of which all voting common shares
of Wrapsters will be voted for the slate of directors described in section 5.5
above. All previous voting agreements shall be rescinded and canceled. In
addition, Metzger shall give Palmer an irrevocable proxy to vote Metzger's
shares.
7. WORKING CAPITAL. Upon completion of the Merger contemplated herein,
Wrapsters shall make a contribution to the working capital of Acquisitions in
the amount of $200,000.00 from the proceeds of the private placement to be
closed substantially simultaneously with the closing of this Agreement.
8. COMMITMENT FOR FURTHER CAPITALIZATION. Wrapsters shall obtain a commitment
letter to raise an additional minimum amount of $1,000,000.00 for Wrapsters'
working capital within six (6) months of completion of the Merger contemplated
herein.
9. CONVERSION OF DEBT. Presently, Clyde Culp, III, is the holder of a promissory
note in the principal amount of $428,883.00, and various other shareholders are
holders of Wrapsters' debt in the amount of $433,000.00. Mr. Culp will convert
his debt to 428,883 shares of common stock of Wrapsters with registration
rights. $109,000 of the remaining debt shall likewise be converted to common
stock at the rate of one (1) share of common stock for each dollar of debt.
10. CONVERSION OF SERIES B PREFERRED SHARES. Presently, 113,500 shares of
Wrapsters' Series B Preferred Shares of stock is held by thirty-one (31)
individuals. All Series B Preferred Shares shall be converted to common stock
at the rate of three (3) shares of common stock for each one (1) outstanding
share of Series B Preferred stock.
11. TERMINATION OF EMPLOYMENT AGREEMENTS. Heretofore, Messrs. Metzger, Culp and
Gallagher have had employment agreements with Wrapsters. Said employment
agreements shall be terminated and rescinded, and no further amounts shall be
paid by Wrapsters thereon. In addition, Messrs. Metzger, Culp and Gallagher
shall forgive any indebtedness from Wrapsters currently existing under such
employment agreements.
12. FURTHER FRANCHISE ACQUISITIONS. Wrapsters shall not acquire, by cash
payment, share exchange or merger, any franchise businesses, other than NYB,
until such time as the Merger contemplated herein is consummated, and Robert
Palmer has assumed the position of President of Wrapsters and has been able to
review and approve the terms of the said acquisition. Specifically, Wrapsters
will not close on the acquisition of the "1 Potato 2" franchise business until
Mr. Palmer has reviewed and approved same. In addition, Metzger will agree to
return 400,000 shares of Wrapsters common stock to Wrapsters for the purpose of
consummating a purchase of "1 Potato 2" franchise company by Wrapsters, should
this acquisition be consummated. [Thomas Metzger crossed-out this last
sentence.]
13. USE OF PRIVATE PLACEMENT PROCEEDS. Wrapsters will disclose to NYB all terms
and conditions, and produce for inspection all documents relating to the private
placement to be closed substantially simultaneously with the closing of this
Merger. Wrapsters will not disburse any of the funds it anticipates receiving
from a private placement of common stock to be closed substantially
simultaneously with the closing of this Merger, other than disbursement
necessary to effect the Merger with NYB, and to contribute working capital to
Acquisitions, pay past due promissory notes totaling $190,000.00 and accrued
interest of $17,500.00, until such time as Robert Palmer has been able to
review such disbursement, discuss same with the Board of Directors and
approve of same.
14. FINANCIAL AFFAIRS AND ACCOUNTING. Upon closing this Agreement, all books of
accounting and financial affairs shall be tendered to Robert Palmer, and all
such accounting and financial operations of Wrapsters shall thereafter be
conducted from the Mesa, Arizona, business offices of New York Burrito.
ARTICLE V
INDEMNITY
NYB, Wrapsters and Acquisitions shall each indemnify, save, and hold the other
harmless from and against any and all damage, loss, cost or expense (including
reasonable attorney's fees) arising from any breach of this Agreement caused by
their own act or omission, including the breach of any representation, warranty
or covenant set forth herein or the untruth or inaccuracy thereof. NYB,
Wrapsters and Acquisitions each shall, at their own expense, defend the other
from and against any claims resulting hereunder from their own act or omission
with counsel reasonably satisfactory to the other; provided, however, that the
defending party shall allow the non-defending party to participate in any such
action to the extent such action such participation is reasonable and the
defending party deems it appropriate; and, provided further, that the defending
party shall not agree to settlement of any such action without the prior written
consent of the non-defending party, which consent shall not be unreasonably
withheld.
ARTICLE VI
ARBITRATION
1. ARBITRATION. Any dispute which arises between the parties with respect to
this Agreement or its enforcement or interpretation, or arising out of or
relating to any alleged breach, default or misrepresentation in connection with
any of the provisions under this Agreement, shall be resolved by submission to
binding arbitration at the offices of the Judicial Arbitration & Mediation
Services, Inc. ("JAMS/Endispute") or other similar arbitration offices located
in Phoenix, Arizona. Such arbitration shall be conducted in accordance with the
most recent version of the JAMS/Endispute Rules of Practice and Procedure for
the Arbitration of Commercial disputes (the "JAMS/Endispute Rules") as of the
date of this Agreement.
(A) INITIATION. The aggrieved party shall initiate arbitration by sending
written notice of its intention to arbitrate to the other party to this
Agreement at their respective business addresses and to JAMS/Endispute main
office or other similar arbitration offices in Phoenix, Arizona. Such notice
shall contain a description of the dispute, the amount in controversy and the
remedy sought. If and when any party to this Agreement shall make a demand for
arbitration, the parties shall execute any and all documents and statements
required by JAMS/Endispute or other similar arbitration offices for the
arbitration or settlement of the dispute in accordance with JAMS/Endispute
Rules. In no event shall any demand for arbitration be made after the date when
institution of a legal or equitable proceeding based on such claim, dispute or
other matter in question would be barred by the applicable statute of
limitations.
(B) ARBITRATORS. The parties may agree on an arbitrator from the
JAMS/Endispute panel or other similar arbitration offices for any arbitration
pursuant to this section 8. If the parties are unable to agree on an
arbitrator, JAMS/Endispute or other similar arbitration offices shall provide
a list of three prospective arbitrators and each party shall strike one in
accordance with JAMS\Endispute or other similar arbitration Rules. The
remaining arbitrator shall serve as the designated arbitrator during the
arbitration proceedings conducted pursuant to the JAMS\Endispute or other
similar arbitration rules. The final decision of the arbitrator shall be
binding on the parties and shall not be subject to appellate review. In the
event of any conflict between this section 8 and the JAMS\Endispute rules or
other similar arbitration rules, this section shall control.
(C) ARBITRATION RULES. With respect to the processing of controversies and
claims submitted to binding arbitration at the offices of JAMS\Endispute or
other similar arbitration offices, both parties hereto commit to proceed in
accordance with the JAMS\Endispute or other similar arbitration rules in a
good faith and expeditious manner so as to move towards resolution of such
controversies and claims in a speedy, fair, and thorough fashion.
(D) DECISIONS FINAL. The decision of the arbitrator or arbitrators shall be
deemed final and binding upon the parties hereto, and may be entered and
enforced in any court of competent jurisdiction. NYB and Wrapsters expressly
agree that each shall have and retain the right to apply under all the
applicable provisions of the Arizona Code of Civil Procedure or any other
similar code or procedure to a court for such provisional remedy or remedies as
may be necessary or appropriate under the circumstances.
ARTICLE VII
CLOSING
1. TIME AND PLACE. The closing shall take place at the offices of NYB, 955 East
Javelina Avenue, Suite 106, Mesa, Arizona 85204 at _____ m. o'clock, __________,
1999, or at such other time or such other place as the parties may mutually
agree, for the final payment of the purchase price and conveyance of stock
certificates.
2. CONDITIONS OF PARTIES' OBLIGATIONS. All obligations of NYB, Wrapsters, and
Acquisitions under this Agreement are subject to the fulfillment prior to or at
the closing of each of the following conditions, any one or more of which may be
waived by mutual consent of the parties:
(A) NYB, Wrapsters and Acquisitions shall have performed and complied with
all agreements, conditions and representations herein required to be performed
or complied with by them prior to or on the date of closing.
(B) All agreements pertaining to the operation of the Business, if any,
shall be approved for transfer.
3. EVENTS AT CLOSING. At the closing, the following events shall occur:
(A) Wrapsters shall present the signed settlement agreements for trade
debts, accounts payable and other operational liabilities, including any pending
or threatened litigation, except for those items listed in section 5.1 above,
and the funds to settle trade debts referred to in section 5.1(C).
(B) Culp will surrender 1,000,000 of his shares of Wrapsters common stock
to Wrapsters, and Metzger will surrender 1,400,000 [this number was crossed out
by Mr. Metzger and he hand-wrote "1,250,000"] of his shares of Wrapsters common
stock to Wrapsters, 400,000 of which shares are to be returned to Metzger should
the "1 Potato 2" acquisition not be consummated. [Thomas Metzger crossed out the
last sentence from "400,000" to the end and hand-wrote the following: "the
250,000 shares will be designated to resolve liabilities as follows: Metz
125,000 shares, 75,000 shares to Ed Schwartz, 45,000 shares to d.k. Thom
DiGiorgio, 5,000 shares to Steven DeVine".]
(C) Culp, Metzger and Gallagher will deliver rescission agreements
pertaining to their employment contracts with Wrapsters, and documents
sufficient to cancel any and all outstanding debt they may have been owed
pursuant to said employment agreements and any stock options granted them by
Wrapsters.
(D) Wrapsters shall present rescission agreements or surrender of any stock
options previously issued to any of Wrapsters' current or former employees;
(E) NYB shareholders shall present all outstanding share certificates;
(F) Wrapsters shall tender to the shareholders of NYB the funds and share
certificates representing the number of shares of Wrapsters' common stock listed
hereinabove, validly issued;
(G) Culp, Metzger and Gallagher will deliver rescission agreements
pertaining to the Voting Agreements they previously signed, and the voting
agreements referred to in section 5.6 above will be signed by Culp, Metzger,
Gallagher and Palmer;
(H) Proof that the articles of incorporation and/or bylaws of Wrapsters
have been amended to provide for a five (5) member Board of Directors shall be
presented by Wrapsters;
(I) Proof that a new board of directors of Wrapsters has been elected or
appointed, in accordance with the terms of section 5.5 above shall be presented
by Wrapsters;
(J) Wrapsters shall provide signed binding agreements from all Series B
Preferred Stock shareholders including their agreement to surrender said Series
B Preferred shares in exchange for the number of shares of Wrapsters common
stock indicated in section 5.10 above;
(K) Culp and the holder(s) of the $109,000 in Wrapsters investor notes
identified in section 5.9 above, shall present said notes, or other evidence of
indebtedness, for cancellation and be issued the Wrapsters shares indicated in
said section 5.9;
(L) Wrapsters, NYB and Acquisitions shall each present proof of authority
to close this Agreement in the form of resolutions of the board of directors
and/or shareholders, whichever is appropriate;
(M) Wrapsters shall contribute $200,000.00 to the working capital of NYB;
(N) Holders of the $190,000 in Wrapsters shareholder notes identified in
section 5.1 above shall present said notes for cancellation and be paid
$190,000 along with $17,500 accrued interest thereon;
(O) Wrapsters will provide the letter of commitment for the financing
referred to in section 5.8 above;
(P) The books of accounting, corporate minute books and any other records
of Wrapsters shall be delivered to Robert Palmer for the continuation of
business;
(Q) Wrapsters and NYB will deliver to the other a certificate, signed by
each member of the Board of Directors and Chief Executive Officer, certifying
that the representations and warranties made hereinabove are true and correct,
and that each covenant contained herein has been performed; and
(R) Each party shall deliver to the other such other documents,
certificates and the like as are reasonably required to perfect the transaction
contemplated hereby.
ARTICLE VIII
TERMINATION
1. DEFAULT AND TERMINATION. This Agreement may be terminated prior to or at
closing in the event of default by either party, the remedies upon default are
as set forth below, unless otherwise provided in this Agreement.
(A) IF WRAPSTERS IS IN DEFAULT. NYB may elect to treat this Agreement as
terminated, in which case all payments and things of value received hereunder
shall be returned to NYB.
(B) IF NYB IS IN DEFAULT. Wrapsters may elect to treat this Agreement as
terminated, in which case all payments and things of value received hereunder
shall be forfeited and retained on behalf of Wrapsters, and Wrapsters may
recover such damages as may be proper.
(C) Anything to the contrary herein notwithstanding, in the event of any
litigation arising out of this Agreement, the court may award to the prevailing
party all reasonable costs and expense, including attorney's fees.
ARTICLE IX
MISCELLANEOUS
1. ENTIRE AGREEMENT; MODIFICATION. This Agreement, together with the
Exhibits, if any, annexed hereto, sets forth and constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes any and all prior agreements, understandings, promises, and
representations made by either party to the other concerning the subject matter
hereof and the terms applicable hereto. This Agreement may not be released,
discharged, amended or modified in any manner except by an instrument in writing
signed by duly authorized representatives of the parties hereto.
2. SEVERABILITY. The invalidity or unenforceability of one or more provisions of
this Agreement shall not affect the validity or enforceability of any other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were omitted.
3. GOVERNING LAW. This Agreement shall be deemed to have been entered and shall
be construed and enforced in accordance with the laws of the State of Colorado.
4. PARAGRAPH HEADINGS. The paragraph headings are inserted only for convenient
reference and do not define, limit or prescribe the scope of this Agreement or
any Exhibit attached hereto.
5. TIME. Time is of the essence herein, and all payments and other conditions
herein must be made at the time specified herein.
6. WAIVERS. The failure of either party to insist, in any one or more instances,
upon the performance of any of the terms, covenants or conditions of this
Agreement or to exercise any rights hereunder, shall not be construed as a
waiver or relinquishment of the fixture performance of any such term, covenant
or condition or the future exercise of such right, but the obligations of the
other party with respect to such future performance shall continue in full force
and effect.
7. NOTICE. Any notice or other communication required or permitted to be made or
given to either party hereto shall be sufficiently made or given on the date of
receipt if sent to such party by certified or registered first class mail,
postage prepaid, addressed to the address as set forth next to the parties names
below, or to such other address as either party shall designate by written
notice, similarly given, to the other party.
8. SUCCESSOR AND ASSIGNS. Subject to the restrictions set forth herein, this
Agreement, and each and every provision hereof, shall be binding upon and shall
inure to the benefit of the parties, their respective successors, successors-in-
title, heirs and assigns, and each and every successor-in-interest to any party,
whether such successor acquires such interest by way of gift, purchase,
foreclosure, or by any other method, who shall hold such interest subject to all
the terms and conditions of this Agreement.
9. FINDER'S FEES. Wrapsters, NYB, and Acquisitions represent that there is no
obligation to pay any commission, finder's fee, or similar charge in connection
with the transactions provided for in this Agreement. Wrapsters, NYB, and
Acquisitions shall indemnify and hold the other harmless from and against any
and all loss, liability and damage, including expenses arising out of any claim
for any such commission, fee, or charge, so far as any arises by reason of
services alleged to have been rendered to, or at the instance of such party.
10. SURVIVAL OF REPRESENTATIONS. The representations, warranties and agreements
of Wrapsters, NYB, and Acquisitions contained in this Agreement shall survive
the execution hereof and shall be unaffected by any investigation made by any
party at any time.
11. COUNTERPARTS. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
12. EXPENSES. Each party shall pay all of its own expenses in connection with
the preparation and performance of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date first above written.
Thomas E. Metzger
WRAPSTERS, INC.
By: Thomas Metzger
Title: President
Robert D. Palmer, Jr.
NYB FOODS, INC.
By: Robert Palmer
Title: President
Robert D. Palmer, Jr.
NYB ACQUISITIONS CORP.
By: Robert Palmer
Title: President
James E. Raftery, CPA, PC
946 S. Stapley Drive, Suite 103 (480) 835-1040
Mesa, Arizona 85204 FAX(480) 835-8832
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
NYB Foods, Inc.
I have audited the accompanying balance sheets of NYB Foods, Inc. as of March
31, 1999 and 1998, and the related statements of income and retained earnings
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express
an opinion on these fnancial statements based on my audit.
I conducted the audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform :he audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and of the 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial positiion of NYB Foods, Inc. as of March 31,
1999 and 1998, and the results of its operations for the years then ended in
conformity with generally accepted accounting principles.
James E. Raftery
Mesa, Arizona
July 10, 1999
Member, American Institute of Certified Public Accountants and Arizona Society
of Certified Public Accountants
NYB FOODS, INC.
1999 1998
ASSETS
Current Assets
Cash $68,808 $24,191
Accounts receivable, net of allowance
of $20,000 for 1999 64,054 35,630
Inventory (Note A) 1,857 -
Prepaid expenses 201,875 137,250
Advances to related parties (Note B) 229,459 122,963
Note receivable (Note C and K) 58,191 -
Deferred tax benefit (Note A and G) - 13,826
Total Current Assets 624,244 333,860
Property and Equipment (Note A and D) 105,986 8,549
Other Assets
Franchise documentation 40,000 40,000
Note receivable (Note C) 16 809 -
Refundable deposits 2,066 2,094
Organizational costs, net of
amortization 50 100
58,925 42,194
$789,155 $384,603
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable and accrued expenses 28,762 1,214
Commissions payable 15,580 21,365
Loan (Note B) 2,762 10,751
Note payable (Note F) 5,501 -
Deferred tax liability (Note A and G) 3,673 -
Deferred revenue (Note A) 633,500 324,500
Total Current Liabilities 689,778 357,830
Long Term Liabilities
Note Payable (Note F) 4,192 -
Total Liabilities 693,970 357,830
Equity
Common stock, 20,000,000 shares of
no par value authorized; 4,900,000
shares issued and outstanding
(Note H) 81,631 81,631
Retained earnings 13,554 (54.858)
95,185 26,773
$789,155 $384,603
The accompanying notes are an integral part of this financial statement.
NYB FOODS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
Years Ended March 31,
1999 1998
Revenue $769,936 $420,571
Operating Expenses 760,621 458,417
Net Income from Operations 9,315 (37,846)
other Income and (Expense)
Miscellaneous Income (Note K) 100,599 11,219
Miscellaneous Expense (Note K) (35,031) -
Interest Income 12,606 7,475
Interest Expense (1,577) -
76,597 18,694
Net Income Before Taxes and
Discontinued Operations 85,912 (19,152)
Loss From Discontinued Operations
(Note J) - (7,645)
Net Income (Loss) Before Taxes 85,912 (26,797)
Provision for Taxes
Deferred tax benefit (expense)
(Note A and G) (17,500) 6,455
Net Income (Loss) 68,412 (20,342)
Accumulated Deficit, beginning of year (54,858) (34,516)
Retained Earnings, end of year $13,554 $(54,858)
The accompanying notes are an integral part this financial statement.
NYB FOODS, INC.
STATEMENT OF CASH FLOWS
Years Ended March 31,
1999 1998
Cash Flow From Operating Activities
Cash received from customers $741,508 $413,846
Cash paid to employees and suppliers (496,404) (341,106)
Miscellaneous income 25,599 11,219
Miscellaneous expense (35,031) -
Interest expense (1,577) -
Net Cash Provided (Used) By
Operating Activities 234,095 83,959
Cash Flow From Investing Activities
Investments (93,887) (34,367)
Acquisition of equipment (105,284) (7,762)
Net Cash Provided (Used) By
Investing Activities (199,171) (42,129)
Cash Flow From Financing Activities
Proceeds from notes payable 9,693 (19,000)
Net Increase (Decrease) in Cash 44,617 22,830
Beginning cash balance 24,191 1,361
Ending cash balance $68,808 $24,191
The accompanying notes are an integral part of this financial statement.
1999 1998
Reconciliation Of Net Income (loss) To Cash
Provided (used) by Operating Activities
Net (Loss) $68,412 $(20,342)
Adjustments to reconcile net income to
cash provided(used) by operating
activities
Depreciation 7, 845 1,252
Amortization 50 50
Loss from discontinued operations - 7,645
(Increase) decrease in operating
assets
Accounts receivable (28,424) (14,200)
Interest receivable (12,607) (7,475)
Inventory (1,857) -
Prepaid expenses (64,625) (60,750)
Note receivable (75,000) -
Deferred tax benefit - (6,455)
Refundable deposits 28 (478)
Increase (decrease) in operating
liabilities
Accounts payable 12,901 20,375
Deferred tax liability 17,499 -
Accrued expenses 8,862 -
Deferred revenue 309,000 164,500
Advance (7,989) (163)
Net Cash Provided (Used) by Operating
Activities $234,095 $83,959
The accompanying notes are an integral part of this financial statement.
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of NYB Foods, Inc. (NYB) is
presented to assist in understanding the Corporation's financial statements.
The financial statements and notes are the representation of the Corporation's
management, who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and
have been consistently applied in the preparation of the financial statements.
1. Nature of Business
NYB was incorporated in the state of Colorado on April 21, 1995 and maintains
its principal place of business in Mesa, Arizona. The Corporation's principal
business activity is that of a franchiser granting qualified persons franchises
for the operation of quick serve restaurants that operate under the name New
York Burrito Gourmet Wraps.
2. Deferred Revenue
Income from initial franchise fees is deferred and recognized when the
franchisee commences operations. At March 31, 1999, fifty-five stores were sold
but not opened, however six have begun operations in the subsequent fiscal year
at which time the initial franchise fee will be recognized as revenue.
3. Properry and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using the straight-line method for financial reporting
purposes over a estimated useful life of five, seven. and thirty nine years.
Depreciation expense for the years ended March 31, 1999 and 1998 was $7,845
and $1,252, respectively.
4. Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between basis of equipment for financial and
income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable of deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for capital losses that are not available
to offset future income taxes.
5. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Corporation considers all short
term debt securities purchased with a maturity of three months or less to be
cash equivalents.
6. Reclassifications
Certain accounts in the prior-year financial statements have been reclassified
for comparative purposes to conform with the presentation in the current-year
financial statements.
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT:
7. Use ofEstimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reporting amounts and disclosures. Accordingly, actual results
could differ from those estimates.
8. Inventories
Inventory consists of spices, sauces, and packaging supplies, valued at lower of
cost or market, on a first in, first out basis.
NOTE B - ADVANCES TO RELATED PARTIES
An unsecured note receivable, bearing interest at 8% per annum from a majority
shareholder:
1999 1998
Loan $206,854 $112,963
Accrued interest 22,605 10,000
$229,459 $122,963
Interest income related to this note for the years ended March 31, 1999 and 1998
was $12,606 and $7,475, respectively.
The Corporation uses a credit card that is issued to a shareholder. As of March
31, 1999 and 1998, the balance owing was $2,762 and $10,751, respectively.
NOTE C - NOTES RECEIVABLE
Note receivable (Note K), secured by all
contract rights, accounts receivable,
and title and interest in and to all New
York Burrito franchise restaurants within
the state of California. The note receivable
bears interest at 8% per annum and is payable
in fifteen equal installments of $5,678 $75,000
Less current portion 58,191
$16,809
NYB FOODS INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classification as follows:
1999 1998
Equipment $45,930 $9,273
Training Facility 68,268 -
Leasehold Improvement 1,157 800
115,355 10,073
Less: Accumulated Depreciation (9,369) (1,524)
$105,986 $8,549
NOTE E - LEASE OBLIGATIONS
The Corporation conducts its operations from facilities in both Colorado and
Arizona under operating leases. Future minimum rental payments required for the
operating leases are as follows:
1999 1998
Year Ended March 31.
1999 $- $14,026
2000 $63,204 $14,480
2001 $63,204 $2,426
2002 $33,612 $-
2003 $27,694 $-
2004 $20,771 $ -
Rental expense for the years ended March 31, 1999 and 1998 was $15,600 and
$16,099, respectively.
NOTE F- NOTE PAYABLE
Notes payable consisted of the following at March 31,:
1999 1998
Note payable in monthly installments of $470.08, $9,693 $-
including interest at a rate of 18.50% per annum,
secured by vehicle
Less current maturities 5,501 -
$4,192 $-
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE G - INCOME TAXES
The Corporation has loss carryforwards totaling $68,482 which will be fully
absorbed in the current year. The provisions for income taxes consist of the
following components:
1999 1998
Deferred tax (benefit) expense $17,500 $(6,455)
The deferred tax liability is associated with the use of accelerated
depreciation methods for income tax purposes.
NOTE H - STOCKHOLDER'S EQUITY
On April 16, 1997, the number of authorized shares of common stock was increased
from 5,000,000 to 20,000,000.
On May 17, 1997, 2,500,000 shares of outstanding common stock split at a rate of
1.356. In addition, 1,510,000 shares of common stock were issued.
NOTE I - CONTINGENCIES
Subsequent to March 31, 1998, the Corporation filed an arbitration action of
$50,000 against Gourmet Wraps, LLC and Glen Grishkowsky for breach of a
Development Agreement and damages resulting therefrom.: The arbitrator found
in favor of NYB Foods, Inc., and awarded the Corporation $19,500.
NOTE J - DISCONTINUED OPERATIONS
In May 1997, the Corporation sold its investment in the franchise store located
in Mesa, Arizona. The franchise was sold for $25,000. The Corporation recognized
a loss of $7,645 and $65,225 at March 31, 1998.
NOTE K- MISCELLANEOUS ITEMS
Miscellaneous expense includes a settlement in October 1998 with a landlord in
the amount of $30,000 for unsettled rent payments.
Miscellaneous income includes the sale of California royalty rights to a
corporation for $100,000; $25,000 cash and a note for $75,000 (Note C).
Wrapsters, Inc.
Balance Sheet
January 3,1999
Assets
Current assets:
Cash $26,046
Accounts receivable 1,154
Inventory 9,919
Total current assets 37,119
Property and equipment, net 271,920
Other assets 33,390
$342,429
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses $286,475
Deferred franchise fees 50,000
Note payable 20,000
Notes payable to affiliates 521,876
Total current liabilities 878,351
Commitments and contingencies (see notes - and -)
Stockholders' equity (deficit):
Series B redeemable convertible preferred stock;
no par value, 113,500 shares authorized, issued
and outstanding (liquidation preference of
$1,135,000) 990,594
Common stock; no par value, 25,000,000 shares
authorized, 7,990,480 shares issued and
outstanding 19,741
Accumulated deficit (1,546,257)
Total stockholders' equity (deficit) (535,922)
$342,429
See accompanying notes to financial statements.
Wrapsters, Inc.
Statement of Operations
For the Year Ended January 3,1999
Revenue:
Restaurant sales revenue $315,026
Other income 27,472
Total revenue 342,498
Operating expenses:
Food, beverages and paper 124,944
Payroll and benefits 521,595
Occupancy 161,979
Other operating 571,406
Total operating expenses 1,379,924
Other expenses:
Interest expense 37,783
Loss on store closings 207,473
Total other expenses 245,256
Net loss $(1,282,682)
Basic and diluted loss per common share
See accompanying notes to financial statements.
Wrapsters, Inc.
Statement of Changes in Stockholders' Equity Deficit
For the Year Ended January 3, 1999
Members' Preferred Stock Common Stock Accumulated
Equity Shares Amount Shares Amount Deficit Total
WRAPSTERS, L.C:
Balance, 12/31/97 $418,624 - - - - (263,575) 155,049
Capital
contributions 30,000 - - - - - 30,000
Net loss - - - - - (80,528) (80,528)
Balance immediately
before merger 448,624 - - - - (344,103) 104,521
Wrapsters, Inc:
Convert members'
equity to note
payable (428,883) - - - - - (428,883)
Issue common
stock (19,741) - - 7,600,000 19,741 - -
Existing HAI
shareholders - - - 390,480 - - -
Issue Series B
preferred stock - 113,500 990,594 - - - 990,594
Net loss post
merger - - - - - (1,202,154) (1,202,154)
Balance, January
3, 1999 $0 113,500 990,594 7,990,480 19,741 (1,546,257) (535,922)
See accompanying notes to financial statements.
Wrapsters, Inc.
Statement of Cash Flows
For the Year Ended January 3, 1999
Cash flows from operating activities:
Net loss $(1,282,682)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 40,459
Loss on store closings 207,472
Change in operating assets and liabilities:
Accounts receivable (1,154)
Other assets (20,300)
Inventory (4,961)
Accounts payable and accrued expenses 206,892
Deferred franchise fees 50,000
Other, net 2
Net cash used by operating activities (804,272)
Cash flows from investing activities:
Proceeds from disposal of property and equipment 16,500
Purchases of property and equipment (353,386)
Net cash used by investing activities (336,886)
Cash flows from financing activities:
Proceeds from notes payable to affiliates 92,993
Proceeds from note payable 10,000
Capital contribution 30,000
Issuance of Series B preferred stock 990,594
Net cash provided by financing activities 1,123,587
Net change in cash (17,571)
Cash, beginning of year 43,617
Cash, end of year $26,046
See accompanying notes to financial statements.
Wrapsters, Inc.
Statement of Cash Flows
For the Year Ended December 31, 1998
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $588
Noncash investing and financing activities:
Equity converted to debt $428,883
Conversion of limited liability corporation
interest into common stock $19,741
See accompanying notes to financial statement.
Wrapsters, Inc.
Summary of Open Liabilities
Estimated
Cash
Estimated Requirements
Payee: Description Liability For Closing Status
Trade Accts Per Attached
Payable. Est Detail 28,056.18 20,987.48 100% Trade less
than < 90 days +
50% > 90 days
Wrapsters has closed all Its operations.
During its history, Wrapsters entered Into 8
Real Estate Leases.
1 Boca, FL 0.00 Subleased
2 Central Freeway, FL 0.00 Settled/Released
3 Deerfield, FL 10,000.00 Settlement Offer
Accepted
4 Arlington, VA (GreenBriar) 10,000.00 (Estimated) Verbal
Agreement to release
upon sublease
5 Atlanta, GA (Powers Fairy) 10,000.00 (Estimated Verbal
Agreement to release
upon sublease
6 Fairfax, VA (Ballston Mall) 10,000.00 Settlement Offer
Accepted
7 Marieta, GA (Abernathy) 0.00 Verbal
Agreement to
release upon
sublease
8. Pro Players Stadium (2 sites) 0.00 Lease Term
Expired
Subtotal RE Leases 0.00 40,000.00
Equipment Leases (Payoff Amount):
American Credit Card
General Machines 2,600.00 0.00 settled with return
Finance of equipment
Copelco
Capital,
Inc. Micros Cash
Registers 34,395.74 34,395.74 Paydown/Sell Equip
Less: est. cash sale value
of the registers (20,000.00)
Textron Financial Group
Turbo Chef Oven 11,973.00 11,973.00 Assumed by NYB
Less: est. cash sale value
of the Turbo Chef (7,500.00)
Subtotal Equip
Leases 48,968.74 18,868.74
Contractors
Design
Kontractors,
Inc. Contractor
for L/H 41,600.00 12,000.00 Offer Accepted
Improvements
Bank Loan
1st of
America
Bank Revolving Bank
Loan 18,000.00 18,000.00 Pay-off at
closing
Pending Lawsuit
Metz
Suit Open Lawsuit 7,500.00 Settlement Offer
Accepted
Promissory Notes
1/31/99
Notes
Payable
Robert Lippincott 25,000 25,000 Payoff at closing
Robert Rynarzewski 20,000 20,000 Payoff at closing
Joseph Kostoff 10,000 10,000 Payoff at closing
Richard Wagner 100,000 100,000 Payoff at closing
Stanely Morton 25,000 25,000 Payoff at closing
William Bennett 10,000 10,000 Payoff at closing
Total 1/31/99 Notes 190,000 190,000
Plus: accrued-
interest to 9/15/99 11,875 11,875 past due interest
2/28/99 Notes Payable
Robert Rynarzewki 25,000 Due 2/28/01, interest semi-annual
Joseph Kostoff 15,000 Due 2/28/01, interest semi-annual
Richard Wagner 50,000 Due 2/28/01, interest semi-annual
Stanely Morton 25,000 Due 2/28/01, interest semi-annual
Total 2/28/99 Notes 115,000
Plus: accrued interest
to 6/30/99 3,833.33 3,833.33 June Interest
payment in arrears
6/30/99 Notes Payable
Richard Wagner 40,000 Due 6/30/01, interest semi-annual
Stana Cruz Squeeze Corp 109,000 0 Converted to 109,000 shs
common stock
Clyde Clup, IIII 428,883 0 Converted to 428,883 shs
common stock
Total Estimated Cash Requirements
for Closing 323,064.53
Wrapsters, Inc.
Open Payables Detall
As of September 14, 1999
Total Open Payables Per Detail 172,986.26
Less Non-Trade Items Separately Listed in Attached Summary:
Real Estate Payables:
Forest City Management (16,394.64)
IRT Property Co. (2,221.01)
National City (9,365.32)
Regency Realty Corp Deerfield, FL (8,672.01)
Equipmant Leases:
Copelco Capital. Inc. (registers) (35,234.10)
Textron Financial Corp. (Turbo Chef) (11,443.00)
Note Payable to Southtrust Bank (20,000.00)
Payable to Design Kontractor (41,600.00)
Net Vendor Trade Payables per Detail 28,056.18
Aging of Trade Debt:
Vendor Trade payables aged less
than 90 days 11,470.73
Vendor Trade payables aged greater
than 90 days 16,585.45
28,056.18
Plus Additional Trade Liabilities not in Detail:
Joe Fazzone - Reimbursable Travel Expenses 474.00
Law Office of Michael Tauger 750.00
ARTICLES OF MERGER
WHEREAS, Wrapsters, Inc., a Colorado corporation (hereinafter "Wrapsters") NYB
Foods, Inc., a Colorado corporation (hereinafter "NYB"), and NYB Acquisitions
Corp., a Colorado corporation (hereinafter "Acquisitions"), have entered into an
Agreement and Plan of Reorganization; and
WHEREAS, the boards of directors of Wrapsters, NYB and Acquisitions have
approved said Agreement and Plan of Reorganization, and NYB and Acquisitions
have submitted same to their respective shareholders for approval; and
WHEREAS, the shareholders of both NYB and Acquisitions have approved the said
Agreement and Plan of Reorganization by at least a majority of each class of the
outstanding voting shares of stock authorized to vote thereon;
NOW, THEREFORE, these Articles of Merger are hereby presented to and filed with
the Secretary of State for the State of Colorado, as follows:
ARTICLE I
PLAN OF MERGER
A. The Agreement and Plan of Reorganization between Wrapsters, NYB and
Acquisitions was signed August 31, 1999, and contemplated a tax-free merger of
NYB with and into Acquisitions in a reorganization pursuant to Internal Revenue
Code Section 368(a)(1)(A).
B. THE MERGER. On October 8, 1999, NYB was merged with and into Acquisitions
(the "Merger") in accordance with the applicable provisions of the Colorado
Revised Statutes,and the separate corporate existence of NYB thereupon ceased.
Acquisitions is the surviving corporation in the Merger (as such, the "Surviving
Corporation").
C. CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING CORPORATION.
(1) The certificate of incorporation of Acquisitions will be the
certificate of incorporation of the Surviving Company from and after October
8, 1999, until amended in accordance with its terms and Colorado Revised
Statutes.
(2) The By-Laws of Acquisitions will be the By-Laws of the Surviving
Corporation from and after the Effective Time until amended in accordance with
the terms of Colorado Revised Statutes. There were no changes or amendments made
to said by-laws.
D. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
(1) The members of the Board of Directors of the Surviving Corporation
shall be Robert Palmer and Gregory Dawson. All of the members of the Board or
Directors of the Surviving Corporation will serve until their successors are
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the certificate of incorporation and
the bylaws of the Surviving Corporation.
(2) The officers of the Surviving Corporation shall be Robert Palmer,
President, and Gregory Dawson, Secretary. Such persons will continue as officers
of the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the certificate of incorporation and the by-laws of the
Surviving Corporation.
E. CONVERSION OF SECURITIES.
(1) On October 8, 1999, the 8,875,680 shares of Common Stock, no par value,
of Wrapsters issued and outstanding immediately prior thereto, by virtue of the
Merger and without any action on the part of Wrapsters or the holders thereof;
remained an issued and outstanding share of Common Stock of Wrapsters
thereafter, except for 2,000,000 shares of common stock which were surrendered
and tendered back to Wrapsters, to become treasury stock. In addition, 428,883
shares of common stock were issued to a shareholder in exchange for cancellation
of a promissory note in the principal amount of $428,883; 109,000 shares of
common stock were issued to another shareholder in exchange for cancellation of
a promissory note in the principal amount of $109,000; and 340,500 shares of
common stock were issued to shareholders in a conversion of all 113,500
outstanding shares of Series B Preferred Stock of Wrapsters.
(2) On October 8, 1999, the 4,900,000 shares of Common Stock, no par value,
of NYB issued and outstanding immediately prior thereto, by virtue of the Merger
and without any action on the part of NYB or the holder thereof, was converted
into 7,500,000 shares of common stock, no par value per share, of the Surviving
Corporation, and the sum of $500,000.
(3) On October 8, 1999, the 100 shares of Common Stock, no par value, of
Acquisitions issued and outstanding immediately prior thereto, by virtue of the
Merger and without any action on the part of Acquisitions of the holder thereof,
remained an issued and outstanding share of Common Stock of the Surviving
Corporation.
ARTICLE II
SHAREHOLDER APPROVAL
A. The Board of Directors of Acquisitions approved the Merger and submitted it
to a vote of the holders of Acquisitions' voting common stock on October 8,
1999. On that date, 100 shares of Acquisitions' no par value common stock were
issued and outstanding, and the holders of Acquisitions' common stock approved
the Merger by a vote of 100 shares for, 0 against. No other shares were issued
or authorized to vote thereon.
B. The Board of Directors of NYB approved the Merger and submitted it to a vote
of the holders of NYB's voting common stock on October 8, 1999. On that date,
4,900,000 shares of NYB's no par value common stock were issued and outstanding,
and the holders of NYB's common stock approved the Merger by a vote of 4,900,000
shares for, 0 against. No other shares were issued or authorized to vote
thereon.
ARTICLE III
MISCELLANEOUS
A. COPY OF PLAN. An executed Agreement and Plan of Reorganization is on file at
the principal place of business of Acquisitions, the Surviving Corporation,
which is located at 955 East Javelina Avenue, Suite 106, Mesa, Arizona 85204. A
copy of this Agreement and Plan of Reorganization will be furnished by
Acquisitions free of charge on written request to any shareholder of
Acquisitions or NYB.
B. AUTHORITY. The Agreement and Plan of Reorganization described herein, and the
performance of its terms were duly authorized by all actions required by the
laws of the states under which each constituent corporation was incorporated
or organized and by their respective constituent documents.
WHEREAS, the undersigned, being the officers and directors of Wrapsters, Inc.,
hereby certify to the foregoing.
Robert D. Palmer, Jr. Gregory Dawson
Robert Palmer, President Gregory Dawson, Secretary
WHEREAS, the undersigned, being the officers and directors of NYB Foods, Inc.,
hereby certify to the foregoing.
Robert D. Palmer, Jr. Gregory Dawson
Robert Palmer, President Gregory Dawson, Secretary
WHEREAS, the undersigned, being the officers and directors of NYB Acquisitions,
Inc., hereby certify to the foregoing.
Robert D. Palmer, Jr. Gregory Dawson
Robert Palmer, President Gregory Dawson, Secretary
[DESCRIPTION] ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of October 15, 1999, by and between "1
POTATO 2, INC.", a Minnesota corporation ("Seller"), and WRAPSTERS ACQUISITIONS
CORP., a Colorado corporation ("Purchaser").
RECITALS
Seller owns the assets of the business known as "1 Potato 2" ("Business"),
located at 7000 Bass Lake Road, Suite 200, Minneapolis, Minnesota 55428,
including the franchises, franchise rights, franchise agreements, contracts,
contract rights, UFOC's, accounts receivable, trademarks, trade names,
service marks, equipment, and other assets used in connection with the operation
of the Business and desire to sell said assets to the Purchaser.
AGREEMENT
In consideration of the mutual covenants of the parties herein contained,
it is hereby agreed as follows:
ARTICLE I
PURCHASE AND SALE
Section 1.1. TRANSFER OF ASSETS. At the closing (as defined in Section 6.1)
Seller shall transfer to Purchaser, and Purchaser shall purchase the assets
listed on Exhibit "A," subject to the following terms and conditions:
(A) All financial obligations pertaining to the Assets included in Exhibit
"A"shall be paid current to the date of closing by Seller or, if not paid
current, the payment of said financial obligations up to the date of closing
shall be the sole responsibility and liability of Seller.
(B) From the date of closing and henceforth, Purchaser shall be entitled
to own and operate the said Assets pursuant to the terms and conditions of the
franchise agreements and other operative contracts, and shall be entitled to
collect and retain any and all revenues resulting from said operation. With
respect to this clause, Seller represents and warrants that the actions taken
by the parties herein shall not violate or breach any term of said financial
obligations or result in the termination thereof.
Section 1.2 PURCHASE PRICE. The Purchase Price for the Assets listed on
Exhibit "A" shall be the issuance of 600,000 shares of the no par value common
stock of Purchaser's parent corporation, Wrapsters, Inc., with registration
rights pertaining to 400,000 of said shares, and the payment of the sum of
$400,000.00, payable as follows:
(A) Purchaser shall execute a Promissory Note in the form attached as
Exhibit "B" payable to Seller in the principal amount of $400,000.00 with
interest at the rate of 7.5% per annum, and will be amortized over a period of
five (5) years, in equal semi-annual installments of principal and interest
commencing six months after the signing of said note.
Section 1.3. Taxes, utilities and insurance shall be prorated to the day of
closing.
Section 1.4. Other than as specifically otherwise designated herein,
accounts payable up to the date of closing shall be paid by Seller and accounts
payable subsequent to the day of closing shall be paid by Purchaser, and
accounts receivable up to the date of closing shall be retained by Seller and
accounts receivable subsequent to the day of closing shall be paid to Purchaser.
Section 1.5. All contracts, franchises, franchise rights, deposits and all
other Assets shall be transferred to Purchaser at closing and Purchaser shall be
entitled to retain the entire proceeds therefrom.
ARTICLE II
REPRESENTATIONS OF SELLER
Section 2.1. AS TO SELLER. The Seller makes the following representations
and warranties to Purchaser:
(A) GOOD STANDING. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Minnesota; and the
Seller has the power and authority to carry on its business as the same is
presently conducted and to own and lease its properties where such properties
are now owned and leased.
(B) ASSETS. Attached hereto as Exhibit "A" is a list of assets to be
transferred under this Contract. The Seller has good title to all of the Assets
free and clear of all liens, claims, encumbrances, and/or equities of others
of any nature as of the date of transfer. Purchaser accepts said Assets "AS IS."
All equipment shall be in good working condition on the date of closing. To
the extent such assets are not in good working condition, the Seller shall be
solely responsible for any necessary repairs.
(C) LICENSES. The Seller warrants that it has applied for all business
licenses.
(D) LITIGATION. To the Seller's knowledge, there are no investigations,
actions, suits, or proceedings pending or threatened against or affecting the
Seller in any court or before any governmental agency or instrumentality that
would or could affect the validity or enforceability of this Agreement; nor to
the Seller's knowledge is the Seller now, and as of the date of closing, it
will not be in default with respect to any order, writ, injunction, judgment or
decree of any court or federal, state or municipal governmental department,
commission, board, bureau or instrumentality that would or could affect the
validity or enforceability of this Agreement.
(E) COMPLIANCE WITH OTHER DOCUMENTS AND INSTRUMENTS. The Seller warrants
that it is in substantial compliance with the requirements and provisions of all
instruments and documents to which it is a party or to which it may be subject.
(F) TAXES. The Seller warrants that it has filed or has made provisions for
the filing of all federal and state tax returns which are required to be filed;
has paid all taxes to be paid, and at final closing shall provide Purchaser
with sufficient evidence that payment of all taxes anticipated to be payable
with respect to the periods subsequent to the latest taxes paid through the date
of final closing have been paid.
As of the date hereof, no tax liabilities have been assessed or proposed
which remain unpaid and the Seller will furnish such additional information as
it may have in its possession which is necessary to enable Purchaser to cause
proper tax returns to be prepared.
(G) CONTRACTS. All contracts or agreements, to which the Seller is a party
which materially affect the Business and/or operations of the Seller are
described in detail in Exhibit "A" attached hereto, and the Seller has in all
respects substantially performed its obligations required of it to date under
all such contracts and agreements.
(H) COMPLIANCE WITH LAWS. The Seller warrants that it has materially
complied with all laws, regulations and orders of governmental authorities in
the conduct of its business. The Seller has not received any notice (which
remains outstanding) which asserts noncompliance in any respect with
applicable laws, rules and/or regulations of the United States of America or of
any state, county, municipality or other political subdivision having
jurisdiction over it, or any agency thereof.
(I) Seller warrants that all accounts payable due on or before the date of
closing shall be paid in full on or before said date or, if not paid current,
the payment of said accounts payable up to the date of closing shall be the
sole responsibility and liability of Seller. Should Purchaser receive any
invoices for goods or services purchased by Seller subsequent to the date of
closing, Purchase shall forward such invoices to Seller. Seller agrees to hold
harmless and indemnify Purchaser for such invoices.
Section 2.2. SURVIVAL. The representations and warranties contained in this
Agreement shall survive the closing date, and bind all parties hereto.
ARTICLE III
REPRESENTATIONS OF PURCHASER
Section 3.1. GENERAL VALIDITY. Purchaser represents and warrants to the
Seller as follows:
(A) GOOD STANDING. The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado; and the
Purchaser has the power and authority to carry on its business as the same is
presently conducted and to own and lease its properties where such properties
are now owned and leased.
(B) AUTHORIZATION. Purchaser has full power and authority to enter into
this Asset Purchase Agreement and to perform same. This Asset Purchase
Agreement, upon execution and delivery, will constitute the binding and valid
obligations of Purchaser, enforceable according to its terms.
(C) NO CONSENTS. Purchaser need not obtain any consent, approval,
authorization or any other action of any governmental authority, or of any
third party in order to execute and perform this Asset Purchase Agreement.
Purchaser shall provide the appropriate governmental entities with all
required information to properly apprise such governmental authorities of the
proposed transfer and the names of all proposed officers and directors of the
Purchaser.
Section 3.2. SURVIVAL. The representations and warranties contained in this
Agreement shall survive the closing date, and bind all parties hereto until all
obligations created hereunder are paid in full pursuant to the terms herein and
the obligations of the Promissory Note attached as Exhibit "C," are performed
according to its terms.
ARTICLE IV
COVENANTS OF SELLER
Section 4.1. The Seller hereby covenants that, prior to closing, it will
not cause or permit any of the following without the written consent of
Purchaser:
(A) CHANGE BUSINESS. Make any substantial alteration in its business or
method of operation or take any action which will or may materially adversely
affect the value of any of its assets. Seller shall maintain the original
appearance of the Business until the date of closing.
(B) INDEBTEDNESS. Incur any indebtedness other than in its name and in the
ordinary course of business. Indebtedness for attorney fees and costs associated
with this transaction shall be allowed without the prior written consent of
Purchaser and shall be paid at the time of closing.
(C) CONTRACTS. Enter into any material contract or substantially amend or
alter any existing contract.
(D) TRANSFER OF PROPERTIES. Except in the ordinary course of business,
sell or transfer any of the Seller's properties.
(E) PAYMENT OF EXPENSES. Fail to pay any employee, suppliers, creditors,
including its Lessor, and others doing business with the Business being sold
herein.
(F) OPERATION. Subject to the foregoing and to the provisions for
apportionment as herein provided, the Seller shall operate the business in a
normal and prudent manner and take no actions that shall alter the character of
the Seller's Business.
(G) INCOME TAX LIABILITY. The Seller shall be solely liable for payment of
all state and federal taxes, whether income, or payroll, or property allocated
to Seller for the period prior to the date of closing. The Seller agrees to
defend, indemnify and hold Purchaser harmless from any claim against the
Seller or its assets relating to any period prior to the date of closing.
ARTICLE V
CLOSING
Section 5.1. TIME AND PLACE. The closing shall take place at the offices
of the Seller, 955 East Javelina Avenue, Suite 106, Mesa, Arizona 85024 at 10
a.m. o'clock, November 10, 1999, or at such other time or such other place as
the parties may mutually agree, for the final payment of the purchase price,
conveyance of property, and adjustments of all other values.
Section 5.2. CONDITIONS OF PARTIES' OBLIGATIONS. All obligations of
Purchaser and Seller under this Agreement are subject to the fulfillment prior
to or at the closing of each of the following conditions, any one or more of
which may be waived by mutual consent of the parties:
(A) Seller and Purchaser shall have performed and complied with all
agreements, conditions and representations herein required to be performed or
complied with by them prior to or on the date of closing.
(B) All agreements pertaining to the operation of the Business, if any,
shall be approved for transfer.
(C) All franchises, franchise contracts, contracts, contract rights,
accounts receivable, trademarks, trade names, service marks, and other Assets
that are transferred pursuant to this Agreement shall be transferred at closing.
Section 5.3. EVENTS AT CLOSING. At the closing, the following events shall
occur:
(A) Purchaser shall execute and deliver the Promissory Note attached
hereto as Exhibit ".B."
(B) Seller shall deliver to Purchaser such other documents, keys, and the
like as are required to run the Business.
(C) Seller shall deliver to Purchaser a Bill of Sale conveying title to
all Business Assets.
(D) Each party shall deliver to the other such other documents,
certificates and the like as are reasonably required to perfect the transaction
contemplated hereby.
ARTICLE VI
REMEDIES
Section 6.1. The Purchaser shall not assume and shall not be obligated to
pay any liability or obligation of the Seller or any lien or encumbrance on the
Assets except the liability specifically and expressly assumed by the Purchaser
under this Agreement. The Seller agrees to indemnify, defend and hold the
Purchaser harmless from and against any loss or liability (including reasonable
attorney's fees) arising out of; or resulting from, operation of the Business
prior to the date of closing, including but not limited to all obligations and
liabilities of the Seller, except any liability which the Purchaser has agreed
to pay or assume; and from and against any and all loss, liability or deficiency
(including reasonable attorney's fees) arising out of or resulting from any
misrepresentation, breach of warranty or covenant of the Seller under this
Agreement, or under any certificate, agreement, appendix, schedule or
instrument furnished to the Purchaser pursuant to this Agreement or in
connection with any of the transactions contemplated hereby. The above
notwithstanding, the Seller shall have no responsibility for breach of a
representation or warranty, or for failure to perform any covenant under this
Agreement unless Purchaser gives Seller written notice of any such claim prior
to the expiration of six months following the date such claim arises, or six
months following the date of discovery or the date such claim should have been
discovered with reasonable diligence.
Section 6.2. The Purchaser shall notify the Seller in writing after the
occurrence of any event or the discovery of any fact which, in its opinion,
entitles or may entitle it to indemnification under this paragraph, provided
that the failure to give such notice shall not affect the liability of the
Seller under this paragraph except to the extent that it can prove that a
failure to give such notice adversely affects to a material degree its ability
to defend itself against a claim or to cure a default giving rise to a claim.
With respect to a threatened or asserted claim by third parties, the Seller,
subject to the provisions of this paragraph, shall, at its expense, promptly
defend such claim in a manner which would be required by the exercise of
reasonable prudence by counsel of its own choosing acting in the exercise of
its reasonable discretion. The Purchaser shall cooperate with the Seller in
such defense, but the Purchaser shall not be required to incur any expense.
Section 6.3. If the Seller, within a reasonable time after notice of
claim, fails to defend the Purchaser in a manner which would be required by
the exercise of reasonable prudence, in the judgment of the Purchaser acting
in the exercise of its reasonable discretion, the Purchaser shall be entitled
to undertake the defense, compromise or settlement at the expense of and for the
account and risk of the Seller.
Section 6.4. The Purchaser agrees to indemnify, defend and hold the Seller
harmless from and against any loss or liability arising out of, or resulting
from, operation of the Business of the Purchaser from and after the closing
date (including the liabilities assumed by the Purchaser); and from and against
any and all loss, liability or deficiency (including reasonable attorney's fees)
arising out of, or resulting from, any misrepresentation, breach of warranty or
covenant of the Purchaser under this Agreement or under any certificate,
agreement, appendix, schedule or instrument furnished to the Seller pursuant
to this Agreement or in connection with any of the transactions contemplated
hereby, provided that the following limitations shall be applicable:
(A) The Seller will notify the Purchaser in writing after the occurrence
of any event, or the discovery of any fact which, in its opinion, entitles it
or may entitle it to indemnification under this paragraph, provided that the
failure to give such notice shall not affect the liability of the Purchaser
under this paragraph except to the extent it can prove that the failure to give
such notice adversely affected to a material degree its ability to defend
against a claim or to cure a default giving rise to a claim. With respect to
asserted or threatened claims by third parties, the Purchaser, at its expense,
shall promptly defend such claim in a manner which would be required by the
exercise of reasonable prudence by counsel of its own choosing acting in the
exercise of its reasonable discretion. Without the written consent of the
Seller (which shall not be unreasonably withheld), the Purchaser will not
settle or compromise any claim or consent to the entry of any judgment which
does not include as an unconditional term thereof, the giving by the claimant
or plaintiff to the Seller of a release of all liability in respect to such
claim.
(B) If the Purchaser, within a reasonable time after notice of claim,
fails to defend the Seller in a manner required by reasonable prudence, the
Seller shall be entitled to undertake the defense, compromise or settlement
of such claim at the expense of and for the account and risk of the Purchaser.
Section 6.5. The Purchaser shall have no liability for breach of a
representation or a warranty or failure to perform any covenant under this
Agreement unless the Seller gives Purchaser written notice of a claim prior to
the expiration of six months from the date of this Agreement, or unless the
claim relates to a tax liability, or unless the claim was not known or
discoverable by Seller with reasonable diligence within such six month period,
in which event notice must be given within six months following the date of
discovery, or the date such claim should have been discovered with reasonable
diligence.
Section 6.6. If, after the closing, any claim is asserted against
Purchaser or the Assets as a result of an unsatisfied obligation of Seller,
then Purchaser will notify Seller of such claim and, within ten days following
such notification, Seller shall commence proceedings to contest the claim or to
defend the Purchaser against the claim. If Seller fails to contest or defend the
claim, or if contested, a final and nonappealable order in favor of the
claimant is entered, then Purchaser may pay the claim and set off the amount
paid against all sums due on the notes delivered to Seller at the closing.
Section 6.7. Any dispute regarding indemnification shall be resolved by
arbitration conducted pursuant to the Rules of the American Arbitration
Association. The arbitrator shall be selected by agreement of the parties, but
if they cannot agreed within twenty days of any objection to a claim for
indemnification, or if not objection is made thereto prior to twenty following
the demand, the selection shall be made pursuant to the Rules of the American
Arbitration Association. Any award rendered by an arbitrator shall be conclusive
and binding on the parties hereto. The parties shall each pay their own
expenses of arbitration and the expense of the arbitrator shall be shared
one-half by the Purchaser and one-half by the Seller, provided that the
arbitrator shall be entitled to award the prevailing party reasonable expenses
(including reasonable legal fees and costs) from the other party.
Section 6.8. DEFAULT AND TERMINATION. In the event of default by either
party, the remedies upon default are as set forth below, unless otherwise
provided in this Agreement.
(A) If Seller is in Default. Purchaser may elect to treat this Agreement
as terminated, in which case all payments and things of value received hereunder
shall be returned to Purchaser.
(B) If Purchaser is in Default. Seller may elect to treat this Agreement
as terminated, in which case all payments and things of value received hereunder
shall be forfeited and retained on behalf of Seller, and Seller may recover such
damages as may be proper.
(C) Anything to the contrary herein notwithstanding, in the event of any
litigation arising out of this Agreement, the court may award to the prevailing
party all reasonable costs and expense, including attorney's fees.
ARTICLE VII
RISK OF LOSS
In the event the premises shall be damaged by fire or other casualty prior
to the time of final closing, Seller shall bear the risk of loss and shall be
obligated to repair the same before the final date of closing as adjusted.
Seller shall be entitled to all the credit for the insurance proceeds resulting
from any such damage. Should any fixtures or services fail between the date of
this Agreement and the date of possession or the date of delivery of assignment,
whichever shall be earlier, then the Purchaser shall be responsible for the
repair or replacement of such fixtures or services with a unit of similar size
and quality, or an equivalent credit. Purchaser acknowledges that it is
purchasing all Assets on an "AS IS" basis as of the date of this Agreement.
Purchaser shall be responsible for the general upkeep and repair of the
premises.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. BINDING ON PARTIES. This Agreement shall be binding upon and
inure to the benefit of Purchaser and Seller and their respective heirs,
personal representatives, successors and assigns.
Section 8.2. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties and may not be modified in any manner except by
an instrument in writing signed by all parties.
Section 8.3. PARAGRAPH HEADINGS. The paragraph headings are inserted only
for convenient reference and do not define, limit or prescribe the scope of this
Agreement or any Exhibit attached hereto.
Section 8.4. TIME. Time is of the essence herein, and all payments and
other conditions herein must be made at the time specified herein.
Section 8.5. GOVERNING LAW. This Asset Purchase Agreement shall be
construed in accordance with and governed by the laws of the State of Colorado.
Section 8.6. COUNTERPARTS. This Asset Purchase Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original.
Section 8.7. EXPENSES. Each party shall pay all of its own expenses in
connection with the preparation and performance of this Asset Purchase
Agreement.
Section 8.8. COMMISSIONS. The parties warrant that there are no commissions
or finders fees due and owing as a result of this transaction. Each party agrees
to hold the other party harmless from any liability for payment of any
commission or finders fee.
IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase
Agreement as of the day and year first above written.
PURCHASER
Robert D. Palmer, Jr.
WRAPSTERS ACQUISITIONS CORP.
By: Robert Palmer
Title: President
SELLER
William G. Norton
By: William G. Norton
Title: President
EXHIBIT A
ASSET PURCHASE AGREEMENT
EXHIBIT B
ASSET PURCHASE AGREEMENT
PROMISSORY NOTE
Principal Amount: $400,000.00 DENVER, COLORADO
DATE: October ___, 1999
FOR VALUE RECEIVED, WRAPSTERS ACQUISITIONS CORP., a Colorado Corporation,
(hereinafter "Maker"), promises to pay 1 POTATO 2, INC., (hereinafter "Holder"),
its successors and assigns, or order, the principal sum of $400,000.00 with
interest on the unpaid balance from the date hereof; until paid, at the rate of
7.5% per annum.
Principal and interest shall be payable at such place as Holder may designate,
in equal semi-annual installments of principal and simple interest due on the
six (6) month anniversary of the signing of this note and each six-month
anniversary thereafter, which shall be due, without demand on each such six-
month anniversary thereafter for a term of five (5) years, until this note shall
be paid in full, as follows:
1st Payment $55,000.00
2nd Payment $53,500.00
3rd Payment $52,000.00
4th Payment $50,500.00
5th Payment $49,000.00
6th Payment $47,500.00
7th Payment $46,000.00
8th Payment $44,500.00
9th Payment $43,000.00
10th Payment $41,500.00
If any payment required by this Note is not paid in full, including late
charges, within ten (10) days after the payment is due, the entire principal
amount of the Note outstanding, and accrued interest thereon, may be Accelerated
without notice, at the option of the Holder and, upon Acceleration, shall at
once become due and payable at the option of the Holder.
Maker may prepay the principal amount outstanding under this Note, in whole or
in part, at any time during the term of this Note, without penalty. Any partial
prepayment shall be applied against the principal amount outstanding and shall
not postpone the due date of any subsequent payments or change the amount of
such payments.
This Note shall be the joint and several obligation of Maker and all other
makers, sureties, guarantors, endorsers, and their successors and assigns.
Any notice to Maker provided for in this Note shall be in writing and shall be
given and be effective upon (1) delivery to Maker, or (2) by mailing such notice
by first class mail, to Maker at Maker's last known address, or to such other
address as Maker may designate by notice to Holder. Any notice to Holder shall
be in writing and shall be given and be effective upon (1) delivery to Holder,
or (2) by mailing such notice by first class mail, to the Holder at Holder's
last known address, or to such other address as Holder may designate by notice
to Maker.
The obligation of the Maker under this Note shall not be transferred or
assigned, without the express written consent of the Holder, which consent the
Holder may reasonably withhold.
This Note has been executed and delivered in Colorado and all questions and
disputes regarding the validity, enforcement, interpretation and construction of
its terms and provisions shall be determined in accordance with the local laws
and decisions of the State of Colorado. Maker hereby waives any right to
transfer or change the venue of any litigation brought against Maker by Holder
in accordance with this paragraph.
Maker, Maker, endorser, guarantors, sureties, accommodation parties and all
other persons liable for all or any part of the indebtedness evidenced by this
Note, or the performance of the covenants contained herein, jointly and
severally waive diligence, presentment, protest, and demand, and also notice
of protest, dishonor, and maturity; and consent to any and all renewals,
extensions or modifications of the terms of this Note, including time for
payment and further agree that any such renewal, extensions or modifications
of the terms of this Note, including time for payment and further agree that any
such renewal, extension, modification of the terns of the Note shall not affect
the liability of any of said parties for the indebtedness evidenced by this
Note; and any such renewals, extensions or modifications may be made without
notice to any of said parties.
Words in this Note in one gender shall be deemed to include other genders, and
the singular shall be deemed to include the plural and the plural the singular
where appropriate.
No failure by the Holder to strictly enforce any term or provision of this Note,
including the acceptance by the Holder of any late or partial payment, shall
operate or be construed or interpreted as a waiver of any default or of the
Holder's right to Accelerate this Note or take any other action to which the
Holder is entitled under the terms of this Note.
This Note shall be binding upon and enforceable against the Maker as well as the
Maker's respective heirs, devisees, representatives, transferees, successors,
and assigns.
MAKER:
By:
WRAPSTERS ACQUISITIONS CORP.
By:
Title:
MALL OF AMERICA EQUIPMENT LIST
1. Storefront Sign Local
2. Custom cabinet O'Keefe Cabinet
3. P.O.S. Terminal (4) Sharp 3100
4. P.O.S. Monitor (3) Sharp
5. P.O.S. Controller (3) Sharp
6. Hot Food Table Delfield #8731
7. Steam Table Wells
8. Work Table NSF Approved
9. Cold Food Table (4 Well) Delfield 14260-24
10. Sneeze Guard (8'0") Custom/Palm
11. Custom Cabinet (Pick-up) O'Keefe Cabinet
12. Custom Cabinet (Microwaves) O'Keefe Cabinet
13. Microwave Ovens (9) Amana #RC-14SE 1400 Watt
14. Under Counter Refrigerator Delfield 4048 w/SS
top and b-splash (2 door)
15. U/C Fridge Delfield #402 (1 door)
16. Deep Fryer 3 ea. - Gas
w/quick disc. Frymaster GE-14SD 35lb.
17. Exhaust Hood (Fryers) (5'0") Ansul/Captive Ave
18. Blanching Rack -- 2 ea. New Age 1210
19. Custom Cabinet (Drinks) O'Keefe Cabinet
20. Iced Tea Dispenser Curtis
21. Coffee Brewer Bunnmatic, Brewmatic
22. Neon Script Signs Local
23. Neon Fry Sign/Neon Potato Zuleen Design
24. Neon Smothered Mashed Potatoes Juleen Design
25. Lite Writer
26. Menu Board - 10 panel O'Keefe Cabinet
MALL of AMERICA EQUIPMENT LIST
(continued)
27. Hand Sink (w/faucets) - ea. Advance #7-PS-60 147.00
28. Soap Dispenser - 2 ea. Local
29. 2-Compartment Prep Sink Advance 810.00
30. Towel Dispenser - 2 ea. Local
31. Convection Oven (2) Marathoner 5,667.00
32. Exhaust Hood (Ovens) Captive Ave
4'6"x4'x2"
33. Fire Protection System Ansul or as req.
34. Fire Extinguisher - 2 ea. Local
35. Ice Machine (600# or larger) Manitowoc/series 1000
36. Soft Drink System Pepsi
37. Reach-In Refrigerator Delfield
38. Reach-In Refrigerator (2 door) Victory
39. Reach-In Refrigerator (1 door) Delfield
40. Reach-In Freezer (I door) Delfield
41. Storage Shelves - 5 ea. Metro Wire
42. Wall Mounted Shelves - 10 ea. Metro/Local
43. Work Table w/Drawer - 2 ea. NSF Approved
5' and 4'
44. Food Processor Hobart PD-35
45. Fry Cutter/Mounting Rack Nemco
46. 3-Compartment Sink NSF Approved
47. File Cabinets - 2 ea. Local
48. Chair Local
49. Bulletin Board Local
50. Floor Safe Local
51. Time Clock Simplex
52. Employee Lockers Local
RIDGEDALE EQUIPMENT LIST
1. Storefront Sign Local
2. Custom Cabinet (order) O'Keefe Cabinet
3. Sharp 3100 Registers (3) #99014144
#99014134
#99014314
4. P.O.S. Monitor (2) Sharp/DPM
5. P.O.S. Controller Sharp/DPM
6. Bev Disp/Ice Bin/Cup Disp Pepsi
7. Hot Food Table Delfield #8731 2-Well
Drop-In Hot Food Unit -
Add for drains & manifold
SN #28207
8. Work Table Custom 6'9" X 2'9"
Stainless Steel Hot/Cold
Counters w/cutouts for
drop-ins, stainless legs
& shelf below, stainless
apron for mounting
controls
9. Cold Food Table Delfield #8145 3-Well
Drop-In Cold Food Unit,
(Wrapped rail const.)
with 5 year warranty
SN #28932
10. Sneeze Guard Custom/Palm
11. Custom cabinet (Pick-up) O'Keefe Cabinet
12. Custom Cabinet (Microwaves) O'Keefe Cabinet
13. Amana Microwave Ovens (6) #AK51031592 #EE52300605
#LF50642014
#BK50642127
#BK50642148
#BK50642140
14. Under counter Refrigerator #229169-F, #255813T
Delfield #406 Under-
counter Refrigerator with
5-year warranty
SN #255813 - Add for
3-1/2 casters
RIDGEDALE EQUIPMENT LIST
(continued)
15. Deep Fryer 3 ea. #9112FM0057
w/quick disc. #9112FMOO59
Frymaster GF-14SD Gas
Fryer w/stainless steel
front, fry pot, casters.
SN #9303FM0325 - Add for
3/4"x4'0" Quick
Disconnect w/restraining
cable - Add for stainless
steel Connecting strips
(2)
16. Exhaust Hood (Fryers) Ansul/Captive Ave
17. Blanching Rack New Age 1210
18. Custom Cabinet (Drinks) O'Keefe Cabinet
19. Iced Tea Dispenser Curtis
20. Coffee Brewer Bunnmatic, Brewmatic
21. Neon Fry Sign Juleen Design
22. Lite Writer Corporate office
23. Menu Board O'Keefe Cabinet
24. Hand Sink (w/faucets) Advance - 7 -PS-60 S/S
25. Soap Dispenser Local
26. Towel Dispenser Local
27. Convection Oven (2) USED Montague #2-115A
Double Deck Gas
Convection Oven on
casters. (USED #6683 and
6684) - Add for 3/4"x
4'0" Quick Disconnects
(2) with restraining
cable
28. Exhaust Hood (Ovens) Captive-Air 4'0" x 4'0"
x 2'0" high Stainless
Steel Exhaust Hood with
baffle filters, light
29. Fire Protection System Aqua Fog Factor Pre-piped
Fire Protection System
for exhaust hoods as
required by the Fire
Marshall
RIDGEDALE EQUIPMENT LIST
(continued)
30. Fire Extinguisher Local
31. Ice Machine Manitowoc #920463183
32. Soft Drink System Pepsi
33. Reach-In Refrigerator Hobart/Delfield
34. Reach-In Freezer Hobart/Delfield
35. Storage Shelves Metro Wire
36. Wall Mounted Shelves Metro/Local
37. Spare
38. Work Table w/Drawer NSF Approved
39. Food Processor Hobart PD-35.
40. Fry Cutter/Mounting Rack Nemco
41. 3-Compartment Sink NSF Approved
42. Produce Sink (If Req'd) Custom 3'2"x2'3"
Stainless Steel Produce
sink with drainboard on
right
43. Desk Local
44. Chair Local
45. Bulletin Board Local
46. Floor Safe Local
47. Time Clock Simplex or equiv.
48. Employee Lockers Local
BURNSVILLE EQUIPMENT LIST
1. Storefront Sign Local
2. Custom Cabinet
3. P.O.S. Terminal (3) Sharp 3100
4. P.O.S. Monitor (2) Sharp
5. P.O.S. Controller Sharp
6. Hot Food Table Delfield #48334
7. Cold Food Table
8. Sneeze Guard Custom
9. Custom Cabinet (Pick-up)
10. Custom Cabinet (Microwaves)
11. Microwave Ovens (6) Amana RS14SE
12. Under Counter Refrigerator Delfield 402 w/SS
top and b-splash
13. Deep Fryer 3 ea.
w/quick disc. Frymaster GF-14
14. Exhaust Hood (Fryers) Ansul
15. Blanching Rack New Age 1210
16. Custom Cabinet (Drinks)
17. Iced Tea Dispenser Curtis
18. Coffee Brewer
19. Neon script signs Juleen Design
20. Neon Fry Sign Juleen Design
21. Lite Writer Corporate office
22. Menu Board - 8 panel
23. Hand Sink (w/faucets) - 1 ea. Advance
24. Soap Dispenser - 1 ea. Local
25. Towel Dispenser - 1 ea. Local
26. Convection Oven (2) Hobart
BURNSVILLE EQUIPMENT LIST
(continued)
27. Exhaust Hood (Ovens) Ansul
28. Fire Protection System Ansul
29. Fire Extinguisher - 7. ea. Local
30. Ice Machine (400#) Manitowoc
31. Soft Drink System Pepsi
32. Reach-In Refrigerator (3 door) Hobart
33. Reach-In Refrigerator (2 door)
34. Reach-In Freezer (1 door) Hobart
35. Storage Shelves - 4 ea. Metro Wire
36. Wall Mounted Shelves - 1 ea. Metro/Local
37. Work Table w/Drawer - 2 ea. NSF Approved
5' and 6'
38. Food Processor Hobart PD-35
39. Fry Cutter/Mounting Rack Nemco
40. 3-Compartment Sink NSF Approved
41. Produce Sink NSF Approved
42. Desk Local
43. Chair Local
44. Bulletin Board Local
45. Floor Safe Local
46. Time Clock Simplex
47. Employee Lockers Local
FRANCHISES 12/16/99
Store Telephone
Franchise Owner Store Location & Store Manager
Dan Clarine Southwest Plaza 303/904-2624
385 Wellington Street Space 2-C-499
North Glenn, CO 80234 8501 W. Bowles Ave.
Littleton, CO 80123 Alliant - Denver
Crossroads Center 320/529-8214
Space A-20
4101 W. Division Street Reinhart-Marshall
St. Cloud, MN 56301
David & Laurie Ellis Westminster Mall 714/893-8334
31003 Wild Oak Drive 2104 Westminster Mall
P.O. Box 451 Westminster, CA 92683
Running Springs, CA 92382 Sysco - Los Angeles
909/867-3105 (H)
909/337-5199 (Postal Store)
John Farley Oak Park Mall 913/894-1713
4452 West 130th Terrace 11531 W. 95th St., PIP-B
Leawood, KS 66209 Overland Park, KS 66214 Reinhart-Cedar
Rapids
Richard Heinen Southridge Mall 414/421-3250
N58 W33138 Road M 5300 S. 76th St., Space 775
Nashotah, WI 53058 Greendale, MI 53129 Sheila Sidebottom
414/966-1092 (H) East Towne Mall 608/244-1543
414/491-6094 (Cell 231 East Towne Mall
414/966-7008 (O) & (Fax) Madison, WI 53704
West Towne Mall 608/833-2368
108 West Towne Mall
Madison, WI 53719
Reinhart -
Mayfair Mall Oak Creek
2500 N. Mayfair Rd., Space 709
Wauwatosa, W I 53226
414/257-9083 co-owned w/R.Wiarda
Patricia A. Goyette Fox River Mall 920/735-9630
2661 Northern Rd., # F 4301 W. Wisconsin Avenue
Appleton, WI 54914 Appleton, WI 54915
920/830-6565 (H) Reinhart-
920/739-3566 (H) (Charlie Yonts) Shawano
Leo & Michele Hunstiger Oxmoor Center 502/339-9410
8818 Linn Station Rd 7900 Shelbyville Road
Louisville, KY 40222 Space MF-9 Gary Carter
Louisville, KY 40222
502/426-9484 (H) Alliant -
502/ Steak Escape Indianapolis
Nasir Jamal/Najmee Khan Southridge Mall (pending 11/1) 414/421-3250
1210 Pippin Court 5300 S. 76th St., Space 775
Mequon, WI 53092 Greendale, WI 53129
414/241-9758 (H)
414/241-0498 (Fax) The Grand Avenue
414/651-4328 275 W. Wisconsin Avenue Reinhart -
Space 3117 Oak Creek
Milwaukee, WI 53203
Lee Kayyali Brea Mall 714/990-8439
5807 Topanga Canyon Blvd.2166 Brea Mall Way
#M103 Space 204
Woodland Hills, CA 91367 Brea, CA 92821 Sysco -
714/990-0440 Los Angeles
714-990-0694 fax
Ahmed Koubaytari City Center 612/332-4481
10493 Sherman Drive 327 City Center
Eden Prairie, MN 55347 40 South 7th Street
Minneapolis, MN 55402
Burnsville Center -5083.593103
113 Burnsville Center Reinhart -
Burnsville, MN 55337 Rogers
Ae Soon & Maing Lee Northbrook Center 847/480-0470
717 Price Lane 2256 Northbrook Center
Deerfield, IL 60015 Northbrook, IL 60062 Reinhart -
(847) 940-7542 (H) Oek Creek
Roberto Made Topanga Plaza 818/887-1908
Ovidio Covarrubia 6600 Topanga Canyon Blvd.
Space 1-F Sysco- Los Angeles
Ed & Julie Murphy Eastridge Mall 307/234-0205
330 Jessie Avenue 601 Wyoming Blvd.
P.O. Box 263 Space 189
Maynard, MN 56260 Casper, WY 82609 Stephanie LeClair
320/367-2475 (H) Impact Plastics Advert., Inc.
320/847-2355 (O) 223 SouthEast First Avenue
320/367-2377 (Fx) Box 550 Alliant - Denver
Clara City, MN 56222
William M. Norton Oakwood Mall 715/831-1646
920 Oxford Avenue, #10 Unit #210
Eau Claire, WI 54701 4800 Golf Road
Eau Claire, WI 54701
715/830-2472 Pager)
612/925-4243 (Bill G)
William G. Norton
4829 Minnetonka Blvd, Suite 202 Reinhart - Lacrosse
St. Louis Park, MN 55416
Ed Olson Maplewood Mall 0.870320856
4349 Beaver Dam Road 3001 White Bear Ave.
Eagan, MN 55122 Space 2312 Reinhart - Rogers
Maplewood, MN 55109
Young & David Park Spring Hill Mall 847/428-1433
1073 Skokie Ridge Road 1060 Spring Hill Mall Reinhart-Oak Creek
Glencoe, IL 60022-1143 West Dundee, IL 60118
Robert Roos Apache Mall 507/252-0711
804 SE 140th Avenue 403 Apache Mall
Eyota, MN 55934 Rochester, MN 55902 Reinhart-Rogers
507/545-2324 (H) 507/529-9182(W) (507)545-2307 fax
Hohn/Holly Rosenberger Westroads Mall 402/398-1802
811 So. Harrison Street Space FC3
Papillion, NE 68046-2521 Dodge Street & Regency Pkwy. Christine M.
Omaha, NE 68114
402/592-9275 (H)
402/690-3050 (Holly Car Phone) Oak View Mall 402/330-0788
402/690-2580 (John Cellular) 3001 S. 144th Street Space VC3
402/339-9043 (John Fax)-Office Omaha, NE 68144 Reinhart-Marshall
Ebrahim/Leyla Shahisaman Montclair Plaza 714/625-1339
Alta Loma, CA 91701 2040 Montclair Plaza S.D. 825
Montclair, CA 91763
909/944-5099 (H)
Acct: Stephen Garakanian
714/261-7727 (Office) Sysco-Los Angeles
714/261-7797 (Fax)
Robert Wiarda Empire Mall 605/361-3412
47512-248th Street 1740 Empire Mall
Dell Rapids, SD 57022 Sioux Falls, SD 57116-1740 Robert Wiarda
605/428-5690 (0-Home)
605/339-3557 (H) 605/428-5690 (fax)
605/361-7714 (0) EIN#46-0393369 Reinhart-Marshall
State Tax #1-97026883-M &
97-RS-0039260
Bob/Chris Wigman Bay Park Square 920/490-4632
1300 Longtail Beach Road 207 Bay Park Square
Suamico, WI 54173 Green Bay, WI 54304 Laurie Anderson
920/434-9000 (H) Reinhart-Shawano
920/434-9077 (Fax)
Tom/Sandra Woodward Fashion Show 702/369-1656
4630 Dennis Way 3200 Las Vegas Blvd. S. S.D. 810
Las Vegas, NV 89121 Space #2
Las Vegas, NV 89109 Susan Woodward
702/451-2303 (H)
702/451-9859 (Fax)
PROMISSORY NOTE
Principal Amount $400,000.00 DENVER, COLORADO
DATE: November 10, 1999
FOR VALUE RECEIVED, WRAPSTERS ACQUISITIONS CORP., a Colorado Corporation,
(hereinafter "Maker"), promises to pay 1 POTATO 2, INC., (hereinafter "Holder"),
its successors and assigns, or order, the principal sum of $400,000.00 with
interest on the unpaid balance from the date hereof, until paid, at the rate of
7.5% per annum.
Principal and interest shall be payable at such place as Holder may
designate, in equal semiannual installments of principal and simple interest
due on the six (6) month anniversary of the signing of this note and each six-
month anniversary thereafter, which shall be due, without demand on each such
six-month anniversary thereafter for a term of five (5) years, until this note
shall be paid in full, as follows:
1st Payment $55,000.00
2nd Payment $53,500.00
3rd Payment $52,000.00
4th Payment $50,500:00
5th Payment $49,000.00
6th Payment $47,500.00
7th Payment $46,000.00
8th Payment $44,500.00
9th Payment $43,000.00
10th Payment $41,500.00
If any payment required by this Note is not paid in full, including late
charges, within ten (10) days after the payment is due, the entire principal
amount of the Note outstanding, and accrued interest thereon, may be Accelerated
without notice, at the option of the Holder and, upon Acceleration, shall at
once become due and payable at the option of the Holder.
Maker may prepay the principal amount outstanding under this Note, in whole
or in part, at any time during the term of this Note, without penalty. Any
partial prepayment shall be applied against the principal amount outstanding
and shall not postpone the due date of any subsequent payments or change the
amount of such payments.
This Note shall be the joint and several obligation of Maker and all other
makers, sureties, guarantors, endorsers, and their successors and assigns.
Any notice to Maker provided for in this Note shall be in writing and shall
be given and be effective upon (1) delivery to Maker, or (2) by mailing such
notice by first class mail, to Maker at Makers last known address, or to such
other address as Maker may designate by notice to Holder. Any notice to Holder
shall be in writing and shall be given and be effective upon (1) delivery to
Holder, or (2) by mailing such notice by first class mail, to the Holder at
Holders last known address, or to such other address as Holder may designate by
notice to Maker.
The obligation of the Maker under this Note shall not be transferred or
assigned, without the express written consent of the Holder, which consent the
Holder may reasonably withhold.
This Note has been executed and delivered in Colorado and all questions and
disputes regarding the validity, enforcement, interpretation and construction of
its terms and provisions shall be determined in accordance with the local laws
and decisions of the State of Colorado. Maker hereby waives any right to
transfer or change the venue of any litigation brought against Maker by Holder
in accordance with this paragraph.
Maker, endorser, guarantors, sureties, accommodation parties and all other
persons liable for all or any part of the indebtedness evidenced by this Note,
or the performance of the covenants contained herein, jointly and severally
waive diligence, presentment, protest, and demand, and also notice of protest,
dishonor, and maturity; and consent to any and all renewals, extensions or
modifications of the terms of this Note, including time for payment and further
agree that any such renewal, extensions or modifications of the terms of this
Note, including time for payment and further agree that any such renewal,
extension, modification of the terms of the Note shall not affect the liability
of any of said parties for the indebtedness evidenced by this Note; and any such
renewals, extensions or modifications may be made without notice to any of said
parties.
Words in this Note in one gender shall be deemed to include other genders,
and the singular shall be deemed to include the plural and the plural the
singular where appropriate.
No failure by the Holder to strictly enforce any term or provision of this
Note, including the acceptance by the Holder of any late or partial payment,
shall operate or be construed or interpreted as a waiver of any default or of
the Holder's right to Accelerate this Note or take any other action to which
the Holder is entitled under the terms of this Note.
This Note shall be binding upon and enforceable against the Maker as well
as the Makers respective heirs, devisees, representatives, transferees,
successors, and assigns.
MAKER:
By: Robert D. Palmer. Jr.
WRAPSTERS ACQUISITIONS CORP.
By: Robert D. Palmer, Jr.
Title: President
[DESCRIPTION] Articles of Incorporation
ARTICLES OF INCORPORATION
OF
HAI ENTERPRISES, INC.
The undersigned, who, if a natural person, is eighteen years of age or older,
hereby establishes a corporation pursuant to the Colorado Business Corporation
Act as amended and adopts the following Articles of Incorporation:
FIRST: The name of the corporation is HAI ENTERPRISES, INC.
SECOND: The corporation shall have and may exercise all of the rights, powers
and privileges now or hereafter conferred upon corporations organized under the
laws of Colorado. In addition, the corporation may do everything necessary,
suitable or proper for the accomplishment of any of its corporate purposes. The
corporation may conduct part or all of its business in any part of Colorado,
the United States or the world and may hold, purchase, mortgage, lease and
convey real and personal property in any of such places.
THIRD: (a) The aggregate number of common shares which the corporation shall
have authority to issue is 25,000,000 shares of Common Stock. The shares of this
class of Common Stock shall have unlimited voting rights and shall constitute
the sole voting group of the corporation, except to the extent any additional
voting group or groups may hereafter be established in accordance with the
Colorado Business Corporation Act. The shares of this class shall also be
entitled to receive the net assets of the corporation upon dissolution.
(b) Each shareholder of record shall have one vote for each share of stock
standing in his name on the books of the corporation and entitled to vote,
except that in the election of directors each shareholder shall have as many
votes for each share held by him as there are directors to be elected and for
whose election the shareholder has a right to vote. Cumulative voting shall not
be permitted in the election of directors or otherwise. Preemptive rights to
purchase additional shares of stock are denied.
(c) Unless otherwise ordered by a court of competent jurisdiction, at all
meetings of shareholders one-third of the shares of a voting group entitled to
vote at such meeting, represented in person or by proxy, shall constitute a
quorum of that voting group. Unless otherwise required by law, a majority vote
of those shareholders represented in person or by proxy will be sufficient to
take any corporate action.
(d) The corporation shall have the authority to issue 10,000,000 shares of
Preferred Stock, which may be issued in one or more series at the discretion of
the board of directors. In establishing a series, the board of directors shall
give to it a distinctive designation so as to distinguish it from the shares of
all other series and classes, shall fix the number of shares in such series,
and the preferences, rights and restrictions thereof. All shares of any one
seriesshall be alike in every particular except as otherwise provided by these
Articles of Incorporation or the Colorado Business Corporation Code.
(1) DIVIDENDS. Dividends in cash, property or shares shall be paid upon the
Preferred Stock for any year on a cumulative or noncumulative basis as
determined by a resolution of the board of directors prior to the issuance of
such Preferred Stock, to the extent earned surplus for each such year is
available, in an amount as determined by a resolution of the board of
directors. Such Preferred Stock dividends shall be paid pro rata to holders of
Preferred Stock as determined by a resolution of the board of directors prior
to the issuance of such Preferred Stock. No other dividend shall be paid on the
Preferred Stock.
Dividends in cash, property or shares of the corporation may be paid upon the
Common Stock, as and when declared by the board of directors, out of funds of
the corporation to the extent and in the manner permitted by law, except that
no Common Stock dividend shall be paid for any year unless the holders of
Preferred Stock, if any, shall receive the maximum allowable Preferred Stock
dividend for such year.
(2) DISTRIBUTION IN LIQUIDATION. Upon any liquidation, dissolution or
winding up of the corporation, and after paying or adequately providing for the
payment of all its obligations, the remainder of the assets of the corporation
shall be distributed, either in cash or in kind, first pro rata to the holders
of the Preferred Stock until an amount to be determined by a resolution of the
board of directors prior to issuance of such Preferred Stock has been
distributed per share, and, then, the remainder pro rata to the holders of the
Common Stock.
(3) REDEMPTION. The Preferred Stock may be redeemed in whole or in part as
determined by a resolution of the board of directors prior to the issuance of
such Preferred Stock, upon prior notice to the holders of record of the
Preferred Stock, published, mailed and given in such manner and form and on
such other terms and conditions as may be prescribed by the Bylaws or by
resolution of the board of directors, by payment in cash or Common Stock for
each share of the Preferred Stock to be redeemed, as determined by a resolution
of the board of directors prior to the issuance of such Preferred Stock. Common
Stock used to redeem Preferred Stock shall be valued as determined by a
resolution of the board of directors prior to the issuance of such Preferred
Stock. Any rights to or arising from fractional shares shall be treated as
rights to or arising from one share. No such purchase or retirement shall be
made if the capital of the corporation would be impaired thereby.
FOURTH: The number of directors of the corporation shall be fixed by the
bylaws, or if the bylaws fail to fix such a number, then by resolution adopted
from time to time by the board of directors, provided that the number of
directors shall not be less than three nor more than nine. Three directors
shall constitute the initial board of directors. The following persons are
elected to serve as the corporation's initial directors until the first annual
meeting of shareholders or until their successors are duly elected and
qualified:
Name Address
Earnest Mathis, Jr. 14 Red Tail Road
Highlands Ranch, Colorado 80126
Gary McAdam 14 Red Tail Road
Highlands Ranch, Colorado 80126
Gary A. Agron 5445 DTC Parkway, Suite 520
Englewood, Colorado 80111
FIFTH: The street address of the initial registered office of the corporation
is 4 W. Dry Creek Circle, Suite 140, Littleton, Colorado 80120. The name of the
initial registered agent of the corporation at such address is Earnest Mathis,
Jr.
SIXTH: The address of the initial principal office of the corporation is 4 W.
Dry Creek Circle, Suite 140, Littleton, Colorado 80120.
SEVENTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the corporation, and the same
are in furtherance of and not in limitation or exclusion of the powers
conferred by law.
(a) CONFLICTING INTEREST TRANSACTIONS. As used in this paragraph,
"conflicting interest transaction" means any of the following: (i) a loan or
other assistance by the corporation to a director of the corporation or to an
entity in which a director of the corporation is a director or officer or has
a financial interest; (ii) a guaranty by the corporation of an obligation of
a director of the corporation or of an obligation of an entity in which a
director of the corporation is a director or officer or has a financial
interest; or (iii) a contract or transaction between the corporation and a
director of the corporation or between the corporation and an entity in which
a director of the corporation is a director or officer or has a financial
interest. No conflicting interest transaction shall be void or voidable, be
enjoined, be set aside, or give rise to an award of damages or other sanctions
in a proceeding by a shareholder or by or in the right of the corporation,
solely because the conflicting interest transaction involves a director of the
corporation or an entity in which a director of the corporation is a director
or officer or has a financial interest, or solely because the director is
present at or participates in the meeting of the corporation's board of
directors or of the committee of the board of directors which authorizes,
approves or ratifies a conflicting interest transaction, or solely because the
director's vote is counted for such purpose if: (A) the material facts as to
the director's relationship or interest and as to the conflicting interest
transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes,
approves or ratifies the conflicting interest transaction by the affirmative
vote of a majority of the disinterested directors, even though the disinterested
directors are less than a quorum; or (B) the material facts as to the director's
relationship or interest and as to the conflicting interest transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
conflicting interest transaction is specifically authorized, approved or
ratified in good faith by a vote of the shareholders; or (C) a conflicting
interest transaction is fair as to the corporation as of the time it is
authorized, approved or ratified by the board of directors, a committee
thereof, or the shareholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes, approves or ratifies the conflicting interest
transaction.
(b) LOANS AND GUARANTIES FOR THE BENEFIT OF DIRECTORS. Neither the board of
directors nor any committee thereof shall authorize a loan by the corporation
to a director of the corporation or to an entity in which a director of the
corporation is a director or officer or has a financial interest, or a guaranty
by the corporation of an obligation of a director of the corporation or of an
obligation of an entity in which a director of the corporation is a director
or officer or has a financial interest, until at least ten days after written
notice of the proposed authorization of the loan or guaranty has been given to
the shareholders who would be entitled to vote thereon if the issue of the loan
or guaranty were submitted to a vote of the shareholders. The requirements of
this paragraph (b) are in addition to, and not in substitution for, the
provisions of paragraph (a) of Article SEVENTH.
(c) INDEMNIFICATION. The corporation shall indemnify, to the maximum extent
permitted by law, any person who is or was a director, officer, agent,
fiduciary or employee of the corporation against any claim, liability or
expense arising against or incurred by such person made party to a proceeding
because he is or was a director, officer, agent, fiduciary or employee of the
corporation or because he is or was serving another entity or employee benefit
plan as a director, officer, partner, trustee, employee, fiduciary or agent at
the corporation's request. The corporation shall further have the authority to
the maximum extent permitted by law to purchase and maintain insurance
providing such indemnification.
(d) LIMITATION ON DIRECTOR'S LIABILITY. No director of this corporation shall
have any personal liability for monetary damages to the corporation or its
shareholders for breach of his fiduciary duty as a director, except that this
provision shall not eliminate or limit the personal liability of a director to
the corporation or its shareholders for monetary damages for: (i) any breach of
the director's duty of loyalty to the corporation or its shareholders; (ii)
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) voting for or assenting to a distribution in
violation of Colorado Revised Statutes Section 7-106-401 or the articles of
incorporation if it is established that the director did not perform his duties
in compliance with Colorado Revised Statutes Section 7-108-401, provided that
the personal liability of a director in this circumstance shall be limited to
the amount of the distribution which exceeds what could have been distributed
without violation of Colorado Revised Statutes Section 7-106-401 or the
articles of incorporation; or (iv) any transaction from which the director
directly or indirectly derives an improper personal benefit. Nothing contained
herein will be construed to deprive any director of his right to all defenses
ordinarily available to a director nor will anything herein be construed to
deprive any director of any right he may have for contribution from any other
director or other person.
(e) NEGATION OF EQUITABLE INTERESTS IN SHARES OR RIGHTS. Unless a person is
recognized as a shareholder through procedures established by the corporation
pursuant to Colorado Revised Statutes Section 7-107-204 or any similar law, the
corporation shall be entitled to treat the registered holder of any shares of
the corporation as the owner thereof for all purposes permitted by the Colorado
Business Corporation Act, including without limitation all rights deriving from
such shares, and the corporation shall not be bound to recognize any equitable
or other claim to, or interest in, such shares or rights deriving from such
shares on the part of any other person including without limitation, a
purchaser, assignee or transferee of such shares, unless and until such other
person becomes the registered holder of such shares or is recognized as such,
whether or not the corporation shall have either actual or constructive notice
of the claimed interest of such other person. By way of example and not of
limitation, until such other person has become the registered holder of such
shares or is recognized pursuant to Colorado Revised Statutes Section 7-107-204
or any similar applicable law, he shall not be entitled: (i) to receive notice
of the meetings of the shareholders; (ii) to vote at such meetings; (iii) to
examine a list of the shareholders; (iv) to be paid dividends or other
distributions payable to shareholders; or (v) to own, enjoy and exercise any
other rights deriving from such shares against the corporation. Nothing,
contained herein will be construed to deprive any beneficial shareholder, as
defined in Colorado Revised Statutes Section 7-113-101(1), of any right he may
have pursuant to Article 113 of the Colorado Business Corporation Act or any
subsequent law.
(f) MERGER WITH OR ACQUISITION OF ANOTHER ENTITY. Inasmuch as the corporation
has been formed to merge with or to acquire another business entity, it shall
not be necessary for the corporation to obtain shareholder approval for such a
transaction. Any such determination shall be at the discretion of the
corporation's board of directors.
EIGHTH: The name and address of the incorporator is:
Earnest Mathis, Jr.
4 W. Dry Creek Circle, Suite 140
Littleton, Colorado 80120
DATED the 22 day of February, 1996.
Ernest Mathis, Jr.
Incorporator
Earnest Mathis, Jr. hereby consents to the appointment as the initial
registered agent for the Corporation.
Earnest Mathis, Jr.
Initial Registered Agent
[DESCRIPTION] Articles of Amendment to Articles of Incorporation
HAI ENTERPRISES, INC.
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, HAI
Enterprises, Inc., (hereinafter referred to as the "Corporation"), adopts the
following Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the Corporation is HAI Enterprises, Inc.
SECOND: The Articles of Incorporation of the Corporation are hereby amended as
follows:
Article FOURTH is amended by deleting the first sentence of Article FOURTH
in its entirety and substituting in lieu thereof the following:
"The number of directors of the corporation shall be fixed by the
bylaws, or if the bylaws fail to fix such a number, then by resolutions adopted
from time to time by the board of directors, provided that the number of
directors shall not be less than one."
THIRD: The amendment was advised to the shareholders by written informal
action, unanimously taken by the Board of Directors of the Corporation,
pursuant to and in accordance with the Colorado Business Corporation Act on the
28th day of January, 1998.
FOURTH: The amendment was adopted by action taken by the shareholders of the
Corporation in accordance with the Colorado Business Corporation Act on the
10th day of February, 1998.
FIFTH: The number of votes cast which were represented by the action by
shareholders approving the amendment was sufficient for approval.
HAI ENTERPRISES, INC.
By: Ernest Mathis, Jr.
Ernest Mathis, Jr., President
[DESCRIPTION] Articles of Amendment to Articles of Incorporation
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
FOR A COLORADO PROFIT CORPORATION.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is WRAPSTERS, INC.
SECOND: The following amendments to the Articles of Incorporation were adopted
on the 15th day of December, 1999, as prescribed by the Colorado Business
Corporation Act, in the following manner:
Such amendments were adopted by a vote of shareholders. The number of shares
voted for the amendments were sufficient for approval.
AMENDMENT: Article FIRST of the Articles of Incorporation of the corporation
shall be amended to read as follows:
The name of the corporation is UPTOWN RESTAURANT GROUP, INC.
AMENDMENT: Article THIRD, subsection (a) of the Articles of Incorporation of
the corporation shall be amended to read as follows:
The aggregate number of common shares which the corporation shall
have authority to issue is 50,000,000 shares of Common Stock. The shares of
this class of Common Stock shall have unlimited voting rights and shall
constitute the sole voting group of the corporation, except to the extent any
additional voting group or groups may hereafter be established in accordance
with the Colorado Business Corporation Act. The shares of this class shall also
be entitled to receive the net assets of the corporation upon dissolution.
WRAPSTERS, INC.
n/k/a UPTOWN RESTAURANT GROUP, INC.
Robert D. Palmer, Jr.
Robert D. Palmer, Jr., President
ATTEST:
Gregory W. Dawson
Gregory W. Dawson, Secretary
[DESCRIPTION] Bylaws
BYLAWS
OF
HAI ENTERPRISES, INC.,
a Colorado corporation
BYLAWS
Table of Contents
Article Page
I. Offices 1
II. Shareholders 1
III. Board of Directors 8
IV. Officers and Agents 12
V. Stock 15
VI. Indemnification of Certain Persons 17
VII. Provision of Insurance 20
VIII. Miscellaneous 20
Effective: March 15, 1996
BYLAWS
OF
HAI ENTERPRISES, INC.
ARTICLE I
OFFICES
The principal office of the corporation shall be designated from time to time by
the corporation and may be within or outside of Colorado.
The corporation may have such other offices, either within or outside Colorado,
as the board of directors may designate or as the business of the corporation
may require from time to time.
The registered office of the corporation required by the Colorado Business
Corporation Act to be maintained in Colorado may be, but need not be, identical
with the principal office, and the address of the registered office may be
changed from time to time by the board of directors.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the shareholders shall be held
during the month of January of each year on a date and at a time fixed by the
board of directors of the corporation (or by the president in the absence of
action by the board of directors), beginning with the year 1997, for the purpose
of electing directors and for the transaction of such other business as may come
before the meeting. If the election of directors is not held on the day fixed as
provided herein for any annual meeting of the shareholders, or any adjournment
thereof, the board of directors shall cause the election to be held at a special
meeting of the shareholders as soon thereafter as it may conveniently be held.
A shareholder may apply to the district court in the county in Colorado where
the corporation's principal office is located or, if the corporation has no
principal office in Colorado, to the district court of the county in which the
corporation's registered office is located to seek an order that a shareholder
meeting be held (i) if an annual meeting was not held within six months after
the close of the corporation's most recently ended fiscal year or fifteen months
after its last annual meeting, whichever is earlier, or (ii) if the shareholder
participated in a proper call of or proper demand for a special meeting and
notice of the special meeting was not given within thirty days after the date of
the call or the date the last of the demands necessary to require calling of the
meeting was received by the corporation pursuant to C.R.S. Section
7-107-102(1)(b), or the special meeting was not held in accordance with the
notice.
Section 2. SPECIAL MEETINGS. Unless otherwise prescribed by statute, special
meetings of the shareholders may be called for any purpose by the president or
by the board of directors. The president shall call a special meeting of the
shareholders if the corporation receives one or more written demands for the
meeting, stating the purpose or purposes for which it is to be held, signed and
dated by holders of shares representing at least ten percent of all the votes
entitled to be cast on any issue proposed to be considered at the meeting.
Section 3. PLACE OF MEETING. The board of directors may designate any place,
either within or outside Colorado, as the place for any annual meeting or any
special meeting called by the board of directors. A waiver of notice signed by
all shareholders entitled to vote at a meeting may designate any place, either
within or outside Colorado, as the place for such meeting. If no designation is
made, or if a special meeting is called other than by the board, the place of
meeting shall be the principal office of the corporation.
Section 4. NOTICE OF MEETING. Written notice stating the place, date, and hour
of the meeting shall be given not less than ten nor more than sixty days before
the date of the meeting, except that (i) if the number of authorized shares is
to be increased, at least thirty days' notice shall be given, or (ii) any other
longer notice period is required by the Colorado Business Corporation Act. The
secretary shall be required to give such notice only to shareholders entitled to
vote at the meeting except as otherwise required by the Colorado Business
Corporation Act.
Notice of a special meeting shall include a description of the purpose or
purposes of the meeting. Notice of an annual meeting need not include a
description of the purpose or purposes of the meeting except the purpose or
purposes shall be stated with respect to (i) an amendment to the articles of
incorporation of the corporation, (ii) a merger or share exchange in which the
corporation is a party and, with respect to a share exchange, in which the
corporation's shares will be acquired, (iii) a sale, lease, exchange or other
disposition, other than in the usual and regular course of business, of all or
substantially all of the property of the corporation or of another entity which
this corporation controls, in each case with or without the goodwill, (iv) a
dissolution of the corporation, (v) restatement of the articles of
incorporation, or (vi) any other purpose for which a statement of purpose is
required by the Colorado Business Corporation Act. Notice shall be given
personally or by mail, private carrier, telegraph, teletype, electronically
transmitted facsimile or other form of wire or wireless communication by or at
the direction of the president, the secretary, or the officer or persons calling
the meeting, to each shareholder of record entitled to vote at such meeting. If
mailed and if in a comprehensible form, such notice shall be deemed to be given
and effective when deposited in the United States mail, properly addressed to
the shareholder at his address as it appears in the corporation's current record
of shareholders, with first class postage prepaid. If notice is given other than
by mail, and provided that such notice is in a comprehensible form, the notice
is given and effective on the date actually received by the shareholder.
If requested by the person or persons lawfully calling such meeting, the
secretary shall give notice thereof at corporate expense. No notice need be sent
to any shareholder if three successive notices mailed to the last known address
of such shareholder have been returned as undeliverable until such time as
another address for such shareholder is made known to the corporation by such
shareholder. In order to be entitled to receive notice of any meeting, a
shareholder shall advise the corporation in writing of any change in such
shareholder's mailing address as shown on the corporation's books and records.
When a meeting is adjourned to another date, time or place, notice need not be
given of the new date, time or place if the new date, time or place of such
meeting is announced before adjournment at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
which may have been transacted at the original meeting. If the adjournment is
for more than 120 days, or if a new record date is fixed for the adjourned
meeting, a new notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting as of the new record date.
A shareholder may waive notice of a meeting before or after the time and date of
the meeting by a writing signed by such shareholder. Such waiver shall be
delivered to the corporation for filing with the corporate records, but this
delivery and filing shall not be conditions to the effectiveness of the waiver.
Further, by attending a meeting either in person or by proxy, a shareholder
waives objection to lack of notice or defective notice of the meeting unless the
shareholder objects at the beginning of the meeting to the holding of the
meeting or the transaction of business at the meeting because of lack of notice
or defective notice. By attending the meeting, the shareholder also waives any
objection to consideration at the meeting of a particular matter not within the
purpose or purposes described in the meeting notice unless the shareholder
objects to considering the matter when it is presented.
Section 5. FIXING OF RECORD DATE. For the purpose of determining shareholders
entitled to (i) notice of or vote at any meeting of shareholders or any
adjournment thereof, (ii) receive distributions or share dividends, (iii) demand
a special meeting, or (iv) make a determination of shareholders for any other
proper purpose, the board of directors may fix a future date as the record date
for any such determination of shareholders, such date in any case to be not more
than seventy days, and, in case of a meeting of shareholders, not less than ten
days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed by the
directors, the record date shall be the day before the notice of the meeting is
given to shareholders, or the date on which the resolution of the board of
directors providing for a distribution is adopted, as the case may be. When a
determination of shareholders entitled to vote at any meeting of shareholders is
made as provided in this section, such determination shall apply to any
adjournment thereof unless the board of directors fixes a new record date, which
it must do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting. Unless otherwise specified when the record
date is fixed, the time of day for such determination shall be as of the
corporation's close of business on the record date.
Notwithstanding the above, the record date for determining the shareholders
entitled to take action without a meeting or entitled to be given notice of
action so taken shall be the date a writing upon which the action is taken is
first received by the corporation. The record date for determining shareholders
entitled to demand a special meeting shall be the date of the earliest of any of
the demands pursuant to which the meeting is called.
Section 6. VOTING LISTS. After a record date is fixed for a shareholders'
meeting, the secretary shall make, at the earlier of ten days before such
meeting or two business days after notice of the meeting has been given, a
complete list of the shareholders entitled to be given notice of such meeting or
any adjournment thereof. The list shall be arranged by voting groups and within
each voting group by class or series of shares, shall be in alphabetical order
within each class or series, and shall show the address of and the number of
shares of each class or series held by each shareholder. For the period
beginning the earlier of ten days prior to the meeting or two business days
after notice of the meeting is given and continuing through the meeting and any
adjournment thereof, this list shall be kept on file at the principal office of
the corporation, or at a place (which shall be identified in the notice) in the
city where the meeting will be held. Such list shall be available for inspection
on written demand by any shareholder (including for the purpose of this Section
6 any holder of voting trust certificates) or his agent or attorney during
regular business hours and during the period available for inspection. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
Any shareholder, his agent or attorney may copy the list during regular business
hours and during the period it is available for inspection, provided (i) the
shareholder has been a shareholder for at least three months immediately
preceding the demand or holds at least five percent of all outstanding shares of
any class of shares as of the date of the demand, (ii) the demand is made in
good faith and for a purpose reasonably related to the demanding shareholder's
interest as a shareholder, (iii) the shareholder describes with reasonable
particularity the purpose and the records the shareholder desires to inspect,
(iv) the records are directly connected with the described purpose, and (v) the
shareholder pays a reasonable charge covering the costs of labor and material
for such copies, not to exceed the estimated cost of production and
reproduction.
Section 7. RECOGNITION PROCEDURE FOR BENEFICIAL OWNERS. The board of directors
may adopt by resolution a procedure whereby a shareholder of the corporation may
certify in writing to the corporation that all or a portion of the shares
registered in the name of such shareholder are held for the account of a
specified person or persons. The resolution may set forth (i) the types of
nominees to which it applies, (ii) the rights or privileges that the corporation
will recognize in a beneficial owner, which may include rights and privileges
other than voting, (iii) the form of certification and the information to be
contained therein, (iv) if the certification is with respect to a record date,
the time within which the certification must be received by the corporation, (v)
the period for which the nominee's use of the procedure is effective, and (vi)
such other provisions with respect to the procedure as the board deems necessary
or desirable. Upon receipt by the corporation of a certificate complying with
the procedure established by the board of directors, the persons specified in
the certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the registered holders of the number of shares specified in
place of the shareholder making the certification.
Section 8. QUORUM AND MANNER OF ACTING. A majority of the votes entitled to be
cast on a matter by a voting group represented in person or by proxy, shall
constitute a quorum of that voting group for action on the matter. If less than
a majority of such votes are represented at a meeting, a majority of the votes
so represented may adjourn the meeting from time to time without further notice,
for a period not to exceed 120 days for any one adjournment. If a quorum is
present at such adjourned meeting, any business may be transacted which might
have been transacted at the meeting as originally noticed. The shareholders
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, unless the meeting is adjourned and a new record date is set for
the adjourned meeting.
If a quorum exists, action on a matter other than the election of directors by a
voting group is approved if the votes cast within the voting group favoring the
action exceed the votes cast within the voting group opposing the action, unless
the vote of a greater number or voting by classes is required by law or the
articles of incorporation.
Section 9. PROXIES. At all meetings of shareholders, a shareholder may vote by
proxy by signing an appointment form or similar writing, either personally or by
his duly authorized attorney-in-fact. A shareholder may also appoint a proxy by
transmitting or authorizing the transmission of a telegram, teletype, or other
electronic transmission providing a written statement of the appointment to the
proxy, a proxy solicitor, proxy support service organization, or other person
duly authorized by the proxy to receive appointments as agent for the proxy, or
to the corporation. The transmitted appointment shall set forth or be
transmitted with written evidence from which it can be determined that the
shareholder transmitted or authorized the transmission of the appointment. The
proxy appointment form or similar writing shall be filed with the secretary of
the corporation before or at the time of the meeting. The appointment of a proxy
is effective when received by the corporation and is valid for eleven months
unless a different period is expressly provided in the appointment form or
similar writing.
Any complete copy, including an electronically transmitted facsimile, of an
appointment of a proxy may be substituted for or used in lieu of the original
appointment for any purpose for which the original appointment could be used.
Revocation of a proxy does not affect the right of the corporation to accept the
proxy's authority unless (i) the corporation had notice that the appointment was
coupled with an interest and notice that such interest is extinguished is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment, or (ii) other
notice of the revocation of the appointment is received by the secretary or
other officer or agent authorized to tabulate votes before the proxy exercises
his authority under the appointment. Other notice of revocation may, in the
discretion of the corporation, be deemed to include the appearance at a
shareholders' meeting of the shareholder who granted the proxy and his voting in
person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not affect
the right of the corporation to accept the proxy's authority unless notice of
the death or incapacity is received by the secretary or other officer or agent
authorized to tabulate votes before the proxy exercises his authority under the
appointment.
The corporation shall not be required to recognize an appointment made
irrevocable if it has received a writing revoking the appointment signed by the
shareholder (including a shareholder who is a successor to the shareholder who
granted the proxy) either personally or by his attorney-in-fact, notwithstanding
that the revocation may be a breach of an obligation of the shareholder to
another person not to revoke the appointment.
Subject to Section 11 and any express limitation on the proxy's authority
appearing on the appointment form, the corporation is entitled to accept the
proxy's vote or other action as that of the shareholder making the appointment.
Section 10. VOTING OF SHARES. Each outstanding share, regardless of class, shall
be entitled to one vote, except in the election of directors, and each
fractional share shall be entitled to a corresponding fractional vote on each
matter submitted to a vote at a meeting of shareholders, except to the extent
that the voting rights of the shares of any class or classes are limited or
denied by the articles of incorporation as permitted by the Colorado Business
Corporation Code. Cumulative voting shall not be permitted in the election of
directors or for any other purpose. Each record holder of stock shall be
entitled to vote in the election of directors and shall have as many votes for
each of the shares owned by him as there are directors to be elected and for
whose election he has the right to vote.
At each election of directors, that number of candidates equaling the number of
directors to be elected, having the highest number of votes cast in favor of
their election, shall be elected to the board of directors.
Except as otherwise ordered by a court of competent jurisdiction upon a finding
that the purpose of this Section would not be violated in the circumstances
presented to the court, the shares of the corporation are not entitled to be
voted if they are owned, directly or indirectly, by a second corporation,
domestic or foreign, and the first corporation owns, directly or indirectly, a
majority of the shares entitled to vote for directors of the second corporation
except to the extent the second corporation holds the shares in a fiduciary
capacity.
Redeemable shares are not entitled to be voted after notice of redemption is
mailed to the holders and a sum sufficient to redeem the shares has been
deposited with a bank, trust company or other financial institution under an
irrevocable obligation to pay the holders the redemption price on surrender of
the shares.
Section 11. CORPORATION'S ACCEPTANCE OF VOTES. If the name signed on a vote,
consent, waiver, proxy appointment, or proxy appointment revocation corresponds
to the name of a shareholder, the corporation, if acting in good faith, is
entitled to accept the vote, consent, waiver, proxy appointment or proxy
appointment revocation and give it effect as the act of the shareholder. If the
name signed on a vote, consent, waiver, proxy appointment or proxy appointment
revocation does not correspond to the name of a shareholder, the corporation, if
acting in good faith, is nevertheless entitled to accept the vote, consent,
waiver, proxy appointment or proxy appointment revocation and to give it effect
as the act of the shareholder if:
(i) the shareholder is an entity and the name signed purports to be that of
an officer or agent of the entity;
(ii) the name signed purports to be that of an administrator, executor,
guardian or conservator representing the shareholder and, if the corporation
requests, evidence of fiduciary status acceptable to the corporation has been
presented with respect to the vote, consent, waiver, proxy appointment or proxy
appointment revocation;
(iii) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests, evidence of this
status acceptable to the corporation has been presented with respect to the
vote, consent, waiver, proxy appointment or proxy appointment revocation;
(iv) the name signed purports to be that of a pledgee, beneficial owner or
attorney-in-fact of the shareholder and, if the corporation requests, evidence
acceptable to the corporation of the signatory's authority to sign for the
shareholder has been presented with respect to the vote, consent, waiver, proxy
appointment or proxy appointment revocation;
(v) two or more persons are the shareholder as co-tenants or fiduciaries
and the name signed purports to be the name of at least one of the co-tenants or
fiduciaries, and the person signing appears to be acting on behalf of all the
co-tenants or fiduciaries; or
(vi) the acceptance of the vote, consent, waiver, proxy appointment or
proxy appointment revocation is otherwise proper under rules established by the
corporation that are not inconsistent with this Section 11.
The corporation is entitled to reject a vote, consent, waiver, proxy appointment
or proxy appointment revocation if the secretary or other officer or agent
authorized to tabulate votes, acting in good faith, has reasonable basis for
doubt about the validity of the signature on it or about the signatory's
authority to sign for the shareholder.
Neither the corporation nor its officers nor any agent who accepts or rejects a
vote, consent, waiver, proxy appointment or proxy appointment revocation in good
faith and in accordance with the standards of this Section is liable in damages
for the consequences of the acceptance or rejection.
Section 12. INFORMAL ACTION BY SHAREHOLDERS. Any action required or permitted to
be taken at a meeting of the shareholders may be taken without a meeting if a
written consent (or counterparts thereof) that sets forth the action so taken is
signed by all of the shareholders entitled to vote with respect to the subject
matter thereof and received by the corporation. Such consent shall have the same
force and effect as a unanimous vote of the shareholders and may be stated as
such in any document. Action taken under this Section 12 is effective as of the
date the last writing necessary to effect the action is received by the
corporation, unless all of the writings specify a different effective date, in
which case such specified date shall be the effective date for such action. If
any shareholder revokes his consent as provided for herein prior to what would
otherwise be the effective date, the action proposed in the consent shall be
invalid. The record date for determining shareholders entitled to take action
without a meeting is the date the corporation first receives a writing upon
which the action is taken.
Any shareholder who has signed a writing describing and consenting to action
taken pursuant to this Section 12 may revoke such consent by a writing signed by
the shareholder describing the action and stating that the shareholder's prior
consent thereto is revoked, if such writing is received by the corporation
before the effectiveness of the action.
Section 13. MEETINGS BY TELECOMMUNICATION. Any or all of the shareholders may
participate in an annual or special shareholders' meeting by, or the meeting may
be conducted through the use of, any means of communication by which all persons
participating in the meeting may hear each other during the meeting. A
shareholder participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation shall be
managed under the direction of, its board of directors, except as otherwise
provided in the Colorado Business Corporation Act or the articles of
incorporation.
Section 2. NUMBER, QUALIFICATIONS AND TENURE. The number of directors of the
corporation shall be fixed from time to time by the board of directors, within
a range of no less than three or more than nine, but no decrease in the number
of directors shall have the effect of shortening the term of any incumbent
director. A director shall be a natural person who is eighteen years of age or
older. A director need not be a resident of Colorado or a shareholder of the
corporation.
Directors shall be elected at each annual meeting of shareholders. Each
director shall hold office until the next annual meeting of shareholders
following his election and thereafter until his successor shall have been
elected and qualified. Directors shall be removed in the manner provided by
the Colorado Business Corporation Act. Any director may be removed by the
shareholders of the voting group that elected the director, with or without
cause, at a meeting called for that purpose. The notice of the meeting shall
state that the purpose or one of the purposes of the meeting is removal of the
director. A director may be removed only if the number of votes cast in favor
of removal exceeds the number of votes cast against removal.
Section 3. VACANCIES. Any director may resign at any time by giving written
notice to the secretary. Such resignation shall take effect at the time the
notice is received by the secretary unless the notice specifies a later
effective date. Unless otherwise specified in the notice of resignation, the
corporation's acceptance of such resignation shall not be necessary to make it
effective. Any vacancy on the board of directors may be filled by the
affirmative vote of a majority of the shareholders at a special meeting called
for that purpose or by the board of directors. If the directors remaining in
office constitute fewer than a quorum of the board, the directors may fill the
vacancy by the affirmative vote of a majority of all the directors remaining in
office. If elected by the directors, the director shall hold office until the
next annual shareholders' meeting at which directors are elected. If elected by
the shareholders, the director shall hold office for the unexpired term of his
predecessor in office; except that, if the director's predecessor was elected
by the directors to fill a vacancy, the director elected by the shareholders
shall hold office for the unexpired term of the last predecessor elected by the
shareholders.
Section 4. REGULAR MEETINGS. A regular meeting of the board of directors shall
be held without notice immediately after and at the same place as the annual
meeting of shareholders. The board of directors may provide by resolution the
time and place, either within or outside Colorado, for the holding of
additional regular meetings without other notice.
Section 5. SPECIAL MEETINGS. Special meetings of the board of directors may be
called by or at the request of the president or any one (1) of the directors.
The person or persons authorized to call special meetings of the board of
directors may fix any place, either within or outside Colorado, as the place
for holding any special meeting of the board of directors called by them,
provided that no meeting shall be called outside the State of Colorado unless a
majority of the board of directors has so authorized.
Section 6. NOTICE. Notice of the date, time and place of any special meeting
shall be given to each director at least two days prior to the meeting by
written notice either personally delivered or mailed to each director at his
business address, or by notice transmitted by private courier, telegraph,
telex, electronically transmitted facsimile or other form of wire or wireless
communication. If mailed, such notice shall be deemed to be given and to be
effective on the earlier of (i) five days after such notice is deposited in
the United States mail, properly addressed, with first class postage prepaid,
or (ii) the date shown on the return receipt, if mailed by registered or
certified mail return receipt requested, provided that the return receipt is
signed by the director to whom the notice is addressed. If notice is given by
telex, electronically transmitted facsimile or other similar form of wire or
wireless communication, such notice shall be deemed to be given and to be
effective when sent, and with respect to a telegram, such notice shall be
deemed to be given and to be effective when the telegram is delivered to the
telegraph company. If a director has designated in writing one or more
reasonable addresses or facsimile numbers for delivery of notice to him,
notice sent by mail, telegraph, telex, electronically transmitted facsimile or
other form of wire or wireless communication shall not be deemed to have been
given or to be effective unless sent to such addresses or facsimile numbers,
as the case may be.
A director may waive notice of a meeting before or after the time and date of
the meeting by a writing signed by such director. Such waiver shall be
delivered to the secretary for filing with the corporate records, but such
delivery and filing shall not be conditions to the effectiveness of the
waiver. Further, a director's attendance at or participation in a meeting
waives any required notice to him of the meeting unless at the beginning of the
meeting, or promptly upon his later arrival, the director objects to holding
the meeting or transacting business at the meeting because of lack of notice
or defective notice and does not thereafter vote for or assent to action
taken at the meeting. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. QUORUM. A majority of the number of directors fixed by the board of
directors pursuant to Article III, Section 2 or, if no number is fixed, a
majority of the number in office immediately before the meeting begins, shall
constitute a quorum for the transaction of business at any meeting of the board
of directors.
Section 8. MANNER OF ACTING. The act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the board of
directors.
Section 9. COMPENSATION. By resolution of the board of directors, any director
may be paid any one or more of the following: his expenses, if any, of
attendance at meetings, a fixed sum for attendance at each meeting, a stated
salary as director, or such other compensation as the corporation and the
director may reasonably agree upon. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
Section 10. PRESUMPTION OF ASSENT. A director of the corporation who is present
at a meeting of the board of directors or committee of the board at which
action on any corporate matter is taken shall be presumed to have assented to
all action taken at the meeting unless (i) the director objects at the
beginning of the meeting, or promptly upon his arrival, to the holding of the
meeting or the transaction of business at the meeting and does not thereafter
vote for or assent to any action taken at the meeting, (ii) the director
contemporaneously requests that his dissent or abstention as to any specific
action taken be entered in the minutes of the meeting, or (iii) the director
causes written notice of his dissent or abstention as to any specific action
to be received by the presiding officer of the meeting before its adjournment
or by the secretary promptly after the adjournment of the meeting. A director
may dissent to a specific action at a meeting, while assenting to others. The
right to dissent to a specific action taken at a meeting of the board of
directors or a committee of the board shall not be available to a director who
voted in favor of such action.
Section 11. COMMITTEES. By resolution adopted by a majority of all the
directors in office when the action is taken, the board of directors may
designate from among its members an executive committee and one or more other
committees, and appoint one or more members of the board of directors to serve
on them. To the extent provided in the resolution, each committee shall have
all the authority of the board of directors, except that no such committee
shall have the authority to (i) authorize distributions, (ii) approve or
propose to shareholders actions or proposals required by the Colorado Business
Corporation Act to be approved by shareholders, (iii) fill vacancies on the
board of directors or any committee thereof, (iv) amend articles of
incorporation, (v) adopt, amend or repeal the bylaws, (vi) approve a plan of
merger not requiring shareholder approval, (vii) authorize or approve the
reacquisition of shares unless pursuant to a formula or method prescribed by
the board of directors, or (viii) authorize or approve the issuance or sale of
shares, or contract for the sale of shares or determine the designations and
relative rights, preferences and limitations of a class or series of shares,
except that the board of directors may authorize a committee or officer to do
so within limits specifically prescribed by the board of directors. The
committee shall then have full power within the limits set by the board of
directors to adopt any final resolution setting forth all preferences,
limitations and relative rights of such class or series and to authorize an
amendment of the articles of incorporation stating the preferences, limitations
and relative rights of a class or series for filing with the Secretary of State
under the Colorado Business Corporation Act.
Sections 4, 5, 6, 7, 8 or 12 of Article III, which govern meetings, notice,
waiver of notice, quorum, voting requirements and action without a meeting of
the board of directors, shall apply to committees and their members appointed
under this Section 11.
Neither the designation of any such committee, the delegation of authority to
such committee, nor any action by such committee pursuant to its authority
shall alone constitute compliance by any member of the board of directors or a
member of the committee in question with his responsibility to conform to the
standard of care set forth in Article III, Section 14 of these bylaws.
Section 12. INFORMAL ACTION BY DIRECTORS. Any action required or permitted to
be taken at a meeting of the directors or any committee designated by the board
of irectors may be taken without a meeting if a written consent (or
counterparts thereof) that sets forth the action so taken is signed by all of
the directors entitled to vote with respect to the action taken. Such consent
shall have the same force and effect as a unanimous vote of the directors or
committee members and may be stated as such in any document. Unless the consent
specifies a different effective time or date, action taken under this Section
12 is effective at the time or date the last director signs a writing
describing the action taken, unless, before such time, any director has revoked
his consent by a writing signed by the director and received by the president
or the secretary of the corporation.
Section 13. TELEPHONIC MEETINGS. The board of directors may permit any director
(or any member of a committee designated by the board) to participate in a
regular or special meeting of the board of directors or a committee thereof
through the use of any means of communication by which all directors
participating in the meeting can hear each other during the meeting. A director
participating in a meeting in this manner is deemed to be present in person at
the meeting.
Section 14. STANDARD OF CARE. A director shall perform his duties as a
director, including without limitation his duties as a member of any
committee of the board, in good faith, in a manner he reasonably believes to
be in the best interests of the corporation, and with the care an ordinarily
prudent person in a like position would exercise under similar circumstances.
In performing his duties, a director shall be entitled to rely on
information, opinions, reports or statements, including financial statements
and other financial data, in each case prepared or presented by the persons
herein designated. However, he shall not be considered to be acting in good
faith if he has knowledge concerning the matter in question that would cause
such reliance to be unwarranted. A director shall not be liable to the
corporation or its shareholders for any action he takes or omits to take as a
director if, in connection with such action or omission, he performs his
duties in compliance with this Section 14.
The designated persons on whom a director is entitled to rely are (i) one or
more officers or employees of the corporation whom the director reasonably
believes to be reliable and competent in the matters presented, (ii) legal
counsel, public accountant, or other person as to matters which the director
reasonably believes to be within such person's professional or expert
competence, or (iii) a committee of the board of directors on which the
director does not serve if the director reasonably believes the committee
merits confidence.
ARTICLE IV
OFFICERS AND AGENTS
Section 1. GENERAL. The officers of the corporation shall be a president, a
secretary and a treasurer, and may also include one or more vice presidents,
each of which officer shall be appointed by the board of directors and shall
be a natural person eighteen years of age or older. One person may hold more
than one office. The board of directors or an officer or officers so
authorized by the board may appoint such other officers, assistant officers,
committees and agents, including a chairman of the board, assistant
secretaries and assistant treasurers, as they may consider necessary. Except
as expressly prescribed by these bylaws, the board of directors or the officer
or officers authorized by the board shall from time to time determine the
procedure for the appointment of officers, their authority and duties and
their compensation, provided that the board of directors may change the
authority, duties and compensation of any officer who is not appointed by the
board.
Section 2. APPOINTMENT AND TERM OF OFFICE. The officers of the corporation to be
appointed by the board of directors shall be appointed at each annual meeting
of the board held after each annual meeting of the shareholders. If the
appointment of officers is not made at such meeting or if an officer or
officers are to be appointed by another officer or officers of the
corporation, such appointments shall be made as determined by the board of
directors or the appointing person or persons. Each officer shall hold office
until the first of the following occurs: his successor shall have been duly
appointed and qualified, his death, his resignation, or his removal in the
manner provided in Section 3.
Section 3. RESIGNATION AND REMOVAL. An officer may resign at any time by
giving written notice of resignation to the president, secretary or other
person who appoints such officer. The resignation is effective when the
notice is received by the corporation unless the notice specifies a later
effective date.
Any officer or agent may be removed at any time with or without cause by
the board of directors or an officer or officers authorized by the board.
Such removal does not affect the contract rights, if any, of the corporation
or of the person so removed. The appointment of an officer or agent shall not
in itself create contract rights.
Section 4. VACANCIES. A vacancy in any office, however occurring, may be
filled by the board of directors, or by the officer or officers authorized by
the board, for the unexpired portion of the officer's term. If an officer
resigns and his resignation is made effective at a later date, the board of
directors, or officer or officers authorized by the board, may permit the
officer to remain in office until the effective date and may fill the pending
vacancy before the effective date if the board of directors or officer or
officers authorized by the board provide that the successor shall not take
office until the effective date. In the alternative, the board of directors, or
officer or officers authorized by the board of directors, may remove the officer
at any time before the effective date and may fill the resulting vacancy.
Section 5. PRESIDENT. The president shall preside at all meetings of
shareholders and all meetings of the board of directors unless the board of
directors has appointed a chairman, vice chairman, or other officer of the
board and has authorized such person to preside at meetings of the board of
directors. Subject to the direction and supervision of the board of
directors, the president shall be the chief executive officer of the
corporation, and shall have general and active control of its affairs and
business and general supervision of its officers, agents and employees.
Unless otherwise directed by the board of directors, the president shall
attend in person or by substitute appointed by him, or shall execute on
behalf of the corporation written instruments appointing a proxy or proxies
to represent the corporation, at all meetings of the stockholders of any other
corporation in which the corporation holds any stock. On behalf of the
corporation, the president may in person or by substitute or by proxy execute
written waivers of notice and consents with respect to any such meetings. At
all such meetings and otherwise, the president, in person or by substitute or
proxy, may vote the stock held by the corporation, execute written consents
and other instruments with respect to such stock, and exercise any and all
rights and powers incident to the ownership of said stock, subject to the
instructions, if any, of the board of directors. The president shall have
custody of the treasurer's bond, if any. The president shall have such
additional authority and duties as are appropriate and customary for the
office of president and chief executive officer, except as the same may be
expanded or limited by the board of directors from time to time.
Section 6. VICE PRESIDENTS. The vice presidents shall assist the president
and shall perform such duties as may be assigned to them by the president or
by the board of directors. In the absence of the president, the vice
president, if any (or, if more than one, the vice presidents in the order
designated by the board of directors, or if the board makes no such
designation, then the vice president designated by the president, or if
neither the board nor the president makes any such designation, the senior
vice president as determined by first election to that office), shall have the
powers and perform the duties of the president.
Section 7. SECRETARY. The secretary shall (i) prepare and maintain as
permanent records the minutes of the proceedings of the shareholders and the
board of directors, a record of all actions taken by the shareholders or
board of directors without a meeting, a record of all actions taken by a
committee of the board of directors in place of the board of directors on
behalf of the corporation, and a record of all waivers of notice of meetings
of shareholders and of the board of directors or any committee thereof, (ii)
see that all notices are duly given in accordance with the provisions of these
bylaws and as required by law, (iii) serve as custodian of the corporate
records and of the seal of the corporation and affix the seal to all
documents when authorized by the board of directors, (iv) keep at the
corporation's registered office or principal place of business a record
containing the names and addresses of all shareholders in a form that permits
preparation of a list of shareholders arranged by voting group and by class or
series of shares within each voting group, that is alphabetical within each
class or series and that shows the address of, and the number of shares of
each class or series held by, each shareholder, unless such a record shall be
kept at the office of thecorporation's transfer agent or registrar, (v)
maintain at the corporation's principal office the originals or copies of the
corporation's articles of incorporation, bylaws, minutes of all shareholders'
meetings and records of all action taken by shareholders without a meeting for
the past three years,all written communications within the past three years to
shareholders as a group or to the holders of any class or series of shares as
a group, a list of the names and business addresses of the current directors
and officers, a copy of the corporation's most recent corporate report filed
with the Secretary of State, and financial statements showing in reasonable
detail the corporation's assets and liabilities and results of operations for
the last three years, (vi) have general charge of the stock transfer books of
thecorporation, unless the corporation has a transfer agent, (vii) authenticate
records of the corporation, and (viii) in general, perform all duties incident
to the office of secretary and such other duties as from time to time may be
assigned to him by the president or by the board of directors. Assistant
secretaries, if any, shall have the same duties and powers, subject to
supervision by the secretary. The directors and/or shareholders may however
respectively designate a person other than the secretary or assistant
secretary to keep the minutes of their respective meetings.
Any books, records, or minutes of the corporation may be in written form or in
any form capable of being converted into written form within a reasonable time.
Section 8. TREASURER. The treasurer shall be the principal financial officer of
the corporation, shall have the care and custody of all funds, securities,
evidences of indebtedness and other personal property of the corporation and
shall deposit the same in accordance with the instructions of the board of
directors. Subject to the limits imposed by the board of directors, he shall
receive and give receipts and acquittances for money paid in on account of the
corporation, and shall pay out of the corporation's funds on hand all bills,
payrolls and other just debts of the corporation of whatever nature upon
maturity. He shall perform all other duties incident to the office of the
treasurer and, upon request of the board, shall make such reports to it as may
be required at any time. He shall, if required by the board, give the
corporation a bond in such sums and with such sureties as shall be
satisfactory to the board, conditioned upon the faithful performance of his
duties and for the restoration to the corporation of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation. He shall have such other powers and
perform such other duties as may from time to time be prescribed by the board
of directors or the president. The assistant treasurers, if any, shall have the
same powers and duties, subject to the supervision of the treasurer.
The treasurer shall also be the principal accounting officer of the
corporation. He shall prescribe and maintain the methods and systems of
accounting to be followed, keep complete books and records of account as
required by the Colorado Business Corporation Act, prepare and file all
local, state and federal tax returns, prescribe and maintain an adequate
system of internal audit and prepare and furnish to the president and the
board of directors statements of account showing the financial position of the
corporation and the results of its operations.
ARTICLE V
STOCK
Section 1. CERTIFICATES. The board of directors shall be authorized to issue
any of its classes of shares with or without certificates. The fact that the
shares are not represented by certificates shall have no effect on the rights
and obligations of shareholders. If the shares are represented by certificates,
such shares shall be represented by consecutively numbered certificates signed,
either manually or by facsimile, in the name of the corporation by the
president. In case any officer who has signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer before
such certificate is issued, such certificate may nonetheless be issued by the
corporation with the same effect as if he were such officer at the date of its
issue. All certificates shall be consecutively numbered, and the names of the
owners, the number of shares, and the date of issue shall be entered on the
books of the corporation. Each certificate representing shares shall state upon
its face:
(i) That the corporation is organized under the laws of Colorado;
(ii) The name of the person to whom issued;
(iii) The number and class of the shares and the designation of the
series, if any, that the certificate represents;
(iv) The par value, if any, of each share represented by the certificate;
(v) Any restrictions imposed by the corporation upon the transfer of the
shares represented by the certificate.
If shares are not represented by certificates, within a reasonable time
following the issue or transfer of such shares, the corporation shall send the
shareholder a complete written statement of all of the information required to
be provided to holders of uncertificated shares by the Colorado Business
Corporation Act.
Section 2. CONSIDERATION FOR SHARES. Certificated or uncertificated shares
shall not be issued until the shares represented thereby are fully paid. The
board of directors may authorize the issuance of shares for consideration
consisting of any tangible or intangible property or benefit to the
corporation, including cash, promissory notes, services performed or other
securities of the corporation. Future services shall not constitute payment or
partial payment for shares of the corporation. The promissory note of a
subscriber or an affiliate of a subscriber shall not constitute payment or
partial payment for shares of the corporation unless the note is negotiable and
is secured by collateral, other than the shares being purchased, having a fair
market value at least equal to the principal amount of the note. For purposes
of this Section 2, "promissory note" means a negotiable instrument on which
there is an obligation to pay independent of collateral and does not include a
non-recourse note.
Section 3. LOST CERTIFICATES. In case of the alleged loss, destruction or
mutilation of a certificate of stock, the board of directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as the board may prescribe. The board of directors may in
its discretion require an affidavit of lost certificate and/or a bond in such
form and amount and with such surety as it may determine before issuing a new
certificate.
Section 4. TRANSFER OF SHARES. Upon surrender to the corporation or to a
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and receipt of such documentary stamps as may be required by law and
evidence of compliance with all applicable securities laws and other
restrictions, the corporation shall issue a new certificate to the person
entitled thereto, and cancel the old certificate. Every such transfer of stock
shall be entered on the stock books of the corporation which shall be kept at
its principal office or by the person and at the place designated by the board
of directors.
Except as otherwise expressly provided in Article II, Sections 7 and 11, and
except for the assertion of dissenters' rights to the extent provided in
Article 113 of the Colorado Business Corporation Act, the corporation shall be
entitled to treat the registered holder of any shares of the corporation as the
owner thereof for all purposes, and the corporation shall not be bound to
recognize any equitable or other claim to, or interest in, such shares or
rights deriving from such shares on the part of any person other than the
registered holder, including without limitation any purchaser, assignee or
transferee of such shares or rights deriving from such shares, unless and until
such other person becomes the registered holder of such shares, whether or not
the corporation shall have either actual or constructive notice of the claimed
interest of such other person.
Section 5. TRANSFER AGENT, REGISTRARS AND PAYING AGENTS. The board may at its
discretion appoint one or more transfer agents, registrars and agents for
making payment upon any class of stock, bond, debenture or other security of
the corporation. Such agents and registrars may be located either within or
outside Colorado. They shall have such rights and duties and shall be entitled
to such compensation as may be agreed.
ARTICLE VI
INDEMNIFICATION OF CERTAIN PERSONS
Section 1. INDEMNIFICATION. For purposes of Article VI, a "Proper Person" means
any person (including the estate or personal representative of a director) who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether formal or informal, by reason of
the fact that he is or was a director, officer, employee, fiduciary or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, fiduciary or agent of any
foreign or domestic profit or nonprofit corporation or of any partnership,
joint venture, trust, profit or nonprofit unincorporated association, limited
liability company, or other enterprise or employee benefit plan. The
corporation shall indemnify any Proper Person against reasonably incurred
expenses (including attorneys' fees), judgments, penalties, fines (including
any excise tax assessed with respect to an employee benefit plan) and amounts
paid in settlement reasonably incurred by him in connection with such action,
suit or proceeding if it is determined by the groups set forth in Section 4 of
this Article that he conducted himself in good faith and that he reasonably
believed (i) in the case of conduct in his official capacity with the
corporation, that his conduct was in the corporation's best interests, or (ii)
in all other cases (except criminal cases), that his conduct was at least not
opposed to the corporation's best interests, or (iii) in the case of any
criminal proceeding, that he had no reasonable cause to believe his conduct
was unlawful. Official capacity means, when used with respect to a director,
the office of director and, when used with respect to any other Proper Person,
the office in a corporation held by the officer or the employment, fiduciary or
agency relationship undertaken by the employee, fiduciary, or agent on behalf
of the corporation. Official capacity does not include service for any other
domestic or foreign corporation or other person or employee benefit plan.
A 'director's conduct with respect to an employee benefit plan for a purpose
the director reasonably believed to be in the interests of the participants in
or beneficiaries of the plan is conduct that satisfies the requirement in (ii)
of this Section 1. A director's conduct with respect to an employee benefit
plan for a purpose that the director did not reasonably believe to be in the
interests of the participants in or beneficiaries of the plan shall be deemed
not to satisfy the requirement of this section that he conduct himself in good
faith.
No indemnification shall be made under this Article VI to a Proper Person with
respect to any claim, issue or matter in connection with a proceeding by or in
the right of a corporation in which the Proper Person was adjudged liable to
the corporation or in connection with any proceeding charging that the Proper
Person derived an improper personal benefit, whether or not involving action in
an official capacity, in which he was adjudged liable on the basis that he
derived an improper personal benefit. Further, indemnification under this
section in connection with a proceeding brought by or in the right of the
corporation shall be limited to reasonable expenses, including attorneys' fees,
incurred in connection with the proceeding.
Section 2. RIGHT TO INDEMNIFICATION. The corporation shall indemnify any Proper
Person who was wholly successful, on the merits or otherwise, in defense of any
action, suit, or proceeding as to which he was entitled to indemnification
under Section 1 of this Article VI against expenses (including attorneys' fees)
reasonably incurred by him in connection with the proceeding without the
necessity of any action by the corporation other than the determination in
good faith that the defense has been wholly successful.
Section 3. EFFECT OF TERMINATION OF ACTION. The termination of any action, suit
or proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent shall not of itself create a presumption that
the person seeking indemnification did not meet the standards of conduct
described in Section 1 of this Article VI. Entry of a judgment by consent as
part of a settlement shall not be deemed an adjudication of liability, as
described in Section 2 of this Article VI.
Section 4. GROUPS AUTHORIZED TO MAKE INDEMNIFICATION DETERMINATION. Except
where there is a right to indemnification as set forth in Sections 1 or 2 of
this Article or where indemnification is ordered by a court in Section S, any
indemnification shall be made by the corporation only as determined in the
specific case by a proper group that indemnification of the Proper Person is
permissible under the circumstances because he has met the applicable standards
of conduct set forth in Section 1 of this Article. This determination shall be
made by the board of directors by a majority vote of those present at a meeting
at which a quorum is present, which quorum shall consist of directors not
parties to the proceeding ("Quorum"). If a Quorum cannot be obtained, the
determination shall be made by a majority vote of a committee of the board of
directors designated by the board, which committee shall consist of two or more
directors not parties to the proceeding, except that directors who are parties
to the proceeding may participate in the designation of directors for the
committee. If a Quorum of the board of directors cannot be obtained and the
committee cannot be established, or even if a Quorum is obtained or the
committee is designated and a majority of the directors constituting such
Quorum or committee so directs, the determination shall be made by (i)
independent legal counsel selected by a vote of the board of directors or the
committee in the manner specified in this Section 4 or, if a Quorum of the fill
board of directors cannot be obtained and a committee cannot be established, by
independent legal counsel selected by a majority vote of the fill board
(including directors who are parties to the action) or (ii) a vote of the
shareholders.
Authorization of indemnification and advance of expenses shall be made in the
same manner as the determination that indemnification or advance of expenses is
permissible except that, if the determination that indemnification or advance
of expenses is permissible is made by independent legal counsel, authorization
of indemnification and advance of expenses shall be made by the body that
selected such counsel.
Section 5. COURT-ORDERED INDEMNIFICATION. Any Proper Person may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction for mandatory indemnification under Section 2 of this
Article, including indemnification for reasonable expenses incurred to obtain
court-ordered indemnification. If a court determines that the Proper Person is
entitled to indemnification under Section 2 of this Article, the court shall
order indemnification, including the Proper Person's reasonable expenses
incurred to obtain court-ordered indemnification. If the court determines that
such Proper Person is fairly and reasonably entitled to indemnification in view
of all the relevant circumstances, whether or not he met the standards of
conduct set forth in Section I of this Article or was adjudged liable in the
proceeding, the court may order such indemnification as the court deems proper
except that if the Proper Person has been adjudged liable, indemnification
shall be limited to reasonable expenses incurred in connection with the
proceeding and reasonable expenses incurred to obtain court-ordered
indemnification.
Section 6. ADVANCES OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred in defending an action, suit or proceeding as described in
Section 1 may be paid by the corporation to any Proper Person in advance of
the final disposition of such action, suit or proceeding upon receipt of (i)
a written affirmation of such Proper Person's good faith belief that he has
met the standards of conduct prescribed by Section 1 of this Article VI, (ii) a
written undertaking, executed personally or on the Proper Person's behalf, to
repay such advances if it is ultimately determined that he did not meet the
prescribed standards of conduct (the undertaking shall be an unlimited general
obligation of the Proper Person but need not be secured and may be accepted
without reference to financial ability to make repayment), and (iii) a
determination is made by the proper group (as described in Section 4 of this
Article VI) that the facts as then known to the group would not preclude
indemnification. Determination and authorization of payments shall be made in
the same manner specified in Section 4 of this Article VI.
Section 7. ADDITIONAL INDEMNIFICATION TO CERTAIN PERSONS OTHER THAN
DIRECTORS. In addition to the indemnification provided to officers, employees,
fiduciaries or agents because of their status as Proper Persons under this
Article, the corporation may also indemnify and advance expenses to them if
they are not directors of the corporation to a greater extent than is
provided in these bylaws, if not inconsistent with public policy, and if
provided for by general or specific action of its board of directors or
shareholders or by contract.
Section 8. WITNESS EXPENSES. The sections of this Article VI do not limit the
corporation's authority to pay or reimburse expenses incurred by a director in
connection with an appearance as a witness in a proceeding at a time when he
has not been made or named as a defendant or respondent in the proceeding.
Section 9. REPORT TO SHAREHOLDERS. Any indemnification of or advance of
expenses to a director in accordance with this Article VI, if arising out of a
proceeding by or on behalf of the corporation, shall be reported in writing to
the shareholders with or before the notice of the next shareholders' meeting.
If the next shareholder action is taken without a meeting at the instigation of
the board of directors, such notice shall be given to the shareholders at or
before the time the first shareholder signs a writing consenting to such action.
ARTICLE VII
Section 1. PROVISION OF INSURANCE. By action of the board of directors,
notwithstanding any interest of the directors in the action, the corporation
may purchase and maintain insurance, in such scope and amounts as the board of
directors deems appropriate, on behalf of any person who is or was a director,
officer, employee, fiduciary or agent of the corporation, or who, while a
director, officer, employee, fiduciary or agent of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, fiduciary or agent of any other foreign or domestic profit
or nonprofit corporation or of any partnership, joint venture, trust, profit or
nonprofit unincorporated association, limited liability company, other
enterprise or employee benefit plan, against any liability asserted against,
or incurred by, him in that capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of Article VI or applicable law. Any such
insurance may be procured from any insurance company designated by the board
of directors of the corporation, whether such insurance company is formed under
the laws of Colorado or any other jurisdiction of the United States or
elsewhere, including any insurance company in which the corporation has an
equity interest or any other interest, through stock ownership or otherwise.
ARTICLE VIII
MISCELLANEOUS
Section 1. Seal. The board of directors may adopt a corporate seal, which shall
contain the name of the corporation and the words, "Seal, Colorado."
Section 2. FISCAL YEAR. The fiscal year of the corporation shall be as
established by the board of directors.
Section 3. AMENDMENTS. The board of directors shall have power, to the maximum
extent permitted by the Colorado Business Corporation Act, to make, amend and
repeal the bylaws of the corporation at any regular or special meeting of the
board unless the shareholders, in making, amending or repealing a particular
bylaw, expressly provide that the directors may not amend or repeal such bylaw.
The shareholders also shall have the power to make, amend or repeal the bylaws
of the corporation at any annual meeting or at any special meeting called for
that purpose.
Section 4. RECEIPT OF NOTICES BY THE CORPORATION. Notices, shareholder writings
consenting to action, and other documents or writings shall be deemed to have
been received by the corporation when they are actually received: (1) at the
registered office of the corporation in Colorado; (2) at the principal office
of the corporation (as that office is designated in the most recent document
filed by the corporation with the secretary of state for Colorado designating a
principal office) addressed to the attention of the secretary of the
corporation; (3) by the secretary of the corporation wherever the secretary may
be found; or (4) by any other person authorized from time to time by the board
of directors or the president to receive such writings, wherever such person is
found.
Section 5. GENDER. The masculine gender is used in these bylaws as a matter of
convenience only and shall be interpreted to include the feminine and neuter
genders as the circumstances indicate.
Section 6. CONFLICTS. In the event of any irreconcilable conflict between these
bylaws and either the corporation's articles of incorporation or applicable
law, the latter shall control.
Section 7. DEFINITIONS. Except as otherwise specifically provided in these
bylaws, all terms used in these bylaws shall have the same definition as in
the Colorado Business Corporation Act.
[DESCRIPTION] Minutes defining rights of Series B Preferred Stock
MINUTES OF ACTION TAKEN BY
CONSENT OF THE BOARD OF DIRECTORS OF
HAI ENTERPRISES, INC.
a Colorado corporation
The undersigned, constituting all of the Directors of HAI Enterprises, Inc., a
Colorado corporation (the "Company"), hereby consent to the adoption of the
following resolutions without the holding of a meeting, and the undersigned
hereby consent to, vote in favor of, and adopt these resolutions.
I.
AUTHORIZATION OF SERIES "B" REDEEMABLE
CONVERTIBLE PREFERRED STOCK
RESOLVED, that pursuant to authority expressly vested in the Board of Directors
of the Company in Article III of the Articles of Incorporation of the Company,
the Board of Directors hereby duly classifies up to 113,500 shares of the
Preferred Stock of the Corporation, as a class designated "Series B Redeemable
Convertible Preferred Stock," and it be
FURTHER RESOLVED, that a description of such "Series B Redeemable
Convertible Preferred Stock," including the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions for redemption, all as set by the
Board of Directors of the Company, is as follows:
1. DESIGNATION AND INITIAL NUMBER. The class of shares of Preferred Stock
hereby classified shall be designated the "Series B Redeemable Convertible
Preferred Stock" (hereinafter referred to as the "Series B Stock"). The initial
number of authorized shares of the Series B Stock shall be 113,500.
2. DIVIDENDS. The dividend rate for the Series B Stock shall be ten
percent (10%) per annum of the face value of $10.00 per share, and no more.
Dividends on the Series B Stock shall at payable at the Company's election
either in cash or Series B Stock at face value semi-annually on June 1 and
December 1 of each calendar year. Dividends on shares of Series B Stock shall
commence and accrue and shall be cumulative from the date in which the Series B
Stock is issued. No dividends shall be paid or set apart for payment on any
shares ranking junior to the Series B Stock unless and until all accrued and
unpaid dividends on the Series B Stock shall have been declared and paid or a
sum sufficient for payment thereof set apart.
3. REDEMPTION. At the option of the Company, shares of Series B Stock
may be redeemed, in whole or in part, at any time and from time to time after
the date of issuance of the shares of Series B Stock to be redeemed, upon the
terms and conditions set forth in the Articles of Incorporation of the Company,
as amended, and as follows:
3.1 The redemption price per share under this paragraph 3 shall be
Ten Dollars ($10.00) per share, plus an amount equal to unpaid cumulative
dividends accrued to the date of redemption (whether or not declared), which
shall be accrued at the dividend rate provided in paragraph 2, pro rata to the
date of redemption.
3.2 Notice to the holders of shares of Series B Stock to be redeemed
shall be given by mailing to such holders a notice of such redemption, first
class, postage prepaid, not later than 30 days prior to the date fixed for
redemption, at their last addresses as they shall appear upon the books of the
Company. Any notice which is mailed herein shall be conclusively presumed to
have been duly given, whether or not the stockholder receives such notice; and
failure duly to give such notice by mail, or any defect in such notice, to the
holders of any stock designated for redemption shall not affect the validity of
the proceedings for the redemption of any other shares of Series B Stock.
3.3 The notice of redemption to each stockholder whose shares of
Series B Stock are to be redeemed shall specify the number of shares of Series
B Stock of such stockholder to be redeemed, the date fixed for redemption and
the redemption price at which shares of Series B Stock are to be redeemed, and
shall specify where payment of the redemption price is to be made upon
surrender of such shares, shall state the conversion rate then in effect, and
shall state that accrued dividends to the date fixed for redemption w111 be
paid as specified in said notice, that from and after said date dividends
thereon will cease to accrue, and that conversion rights of such shares shall
cease and terminate at the close of business on the date fixed for redemption.
4. LIQUIDATION OR DISSOLUTION. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of Series B Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders,
an amount per share equal to Ten Dollars ($10.00) per share (plus an amount
equal to unpaid cumulative dividends) without interest, and no more, before any
payment shall be made to the holders of any common stock or stock of the
Company ranking junior to Series B Stock.
A merger or consolidation of the Company with or into any other corporation,
share exchange or a sale or conveyance of all or any part of the assets of the
Company (which shall not in fact result in the liquidation of the Company and
the distribution of assets to stockholders) shall not be deemed to be a
voluntary or involuntary liquidation, dissolution or winding up of the Company
within the meaning of this paragraph 4.
5. SINKING FUND. The shares of Series B Stock may, at the discretion of
the Board of Directors, be subject to the operation of a purchase, retirement
or sinking fund.
6. CONVERSION PRIVILEGE. The holders of shares of Series B Stock shall
have the right, at their option, to convert such shares into any shares of
preferred stock of the Company which are or become publicly traded shares
("Publicly Traded Preferred Stock") at any time after the date of issue, on
and subject to the following terms and conditions:
6.1 The shares of Series B Stock shall be convertible into fully
paid and non-assessable shares of publicly traded Preferred Stock of the
Company at the option of the holder thereof and in the manner hereinafter
provided- In case shares of Series B Stock are called for redemption, the
right to convert such shares shall terminate at the close of business on the
date fixed for redemption unless default shall be made in payment of the
redemption price.
6.2. Shares of the Series B Stock may be converted into full shares
of Publicly Traded Preferred Stock of the Company at the rate of one (1) share
of Publicly Traded Preferred Stock for each one (1) share of Series B Stock,
subject to adjustment as hereinafter provided. The conversion price shall be
on the basis of face value of the Series B Stock ($10.00) for the face value of
the Publicly Traded Preferred Stock.
6.2.1 Anything in this paragraph 6 to the contrary
notwithstanding, the Corporation shall be entitled to make such increases in
the conversion rate, in addition to those required by the provisions of this
paragraph 6, as it in its discretion may determine to be advisable in order
that any stock dividend, subdivision of shares, distribution of rights to
purchase stock or securities, or distribution of securities convertible or
exchangeable for stock, hereafter made by the Corporation to its stockholders,
shall not be taxable.
6.2.2 Except as provided in sub-paragraph 6.2.1, no
adjustment in the conversion rate of the Series B Stock shall occur upon the
issuance of any stock of the Company or for any other reason.
6.3 Any conversion rate determined or adjusted as herein provided
shall remain in effect until further adjustment as required herein. Upon each
adjustment of the conversion rate a written instrument signed by an officer of
the Company setting forth such adjustment and the computation and a summary of
the facts based upon which it is based, and accompanied by copies of the
resolutions, if any, of the Board of Directors passed in connection therewith
shall forthwith be filed with the Transfer Agent or Agents for the Series B
Stock and made available for inspection by the holders of Series B Stock; and
any adjustment so evidenced, made in good faith, shall be binding upon all
stockholders and upon the Company. The Company shall also promptly cause a
notice, stating that such an adjustment has been made and setting forth the
adjusted conversion rate, to be mailed, first-class postage prepaid, to all
holders of record of outstanding shares of this Series B Stock, at their
addresses as the same appear on the stock records of the Company.
Notwithstanding the foregoing notice provisions, failure of the Company to
give such notice shall not invalidate such corporate action of the Company.
6.4 No fraction of shares of stock of any class of the Company
at any time authorized shall be issuable upon any conversion of the Series B
Stock. In lieu of any such fraction of a share, the person entitled to an
interest in respect of such fraction shall be entitled to the cash equivalent
of such fraction based upon the face value thereof.
6.5 Any conversion of Series B Stock shall be made by the surrender
to the Company, at the office of any Transfer Agent for the Series B Stock and
at such other office or offices as the Board of Directors may designate, of the
certificate or certificates representing the share or shares of Series B Stock
to be converted, duly endorsed or assigned (unless such endorsement or
assignment be waived by the Company, together with a written request for
conversion. All shares which may be issued upon conversion of shares of the
Series B Stock shall upon issue be fully paid and non-assessable by the Company
and free from all taxes, liens, charges and security interests with respect to
the issue thereof. The Company shall not, however, be required to pay any tax
which may be payable in respect to any transfer involved in the issue and
delivery of shares of Publicly Traded Preferred Stock upon conversion in a
name other than that of the holder of the shares of the Series B Stock
converted, and the Company shall not be required to issue or deliver any such
share unless and until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of any such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
6.6 All shares of Series B Stock which shall have been surrendered
for conversion as herein provided shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the rights, if any, to
receive notices and to vote, shall forthwith cease except only the right to
the holders thereof to receive Publicly Traded Preferred Stock (or other
securities or property herein provided) in exchange therefor. No payment or
adjustment shall be made upon any conversion on account of any dividends
accrued on the shares of the Series B Stock surrendered for conversion or on
account of any dividends on the Publicly Traded Preferred Stock issued upon
such conversion.
6.7 In the event the Company authorizes any shares of preferred
stock to be issued which are or become publicly traded, a number of shares of
such preferred stock sufficient to provide for the conversion of the Series B
Stock outstanding upon the basis hereinbefore provided shall at all times be
reserved, free from pre-emptive rights, for. such conversion.
7. VOTING RIGHTS. Holders of shares of the Series B Stock shall have no
general right to vote and shall not be entitled to notice of the meetings of
the stockholders of the Company, or to participate in such meetings, except as
specifically required under C.R.S. Section 7-110-104, or other applicable law
and except for the special voting rights set forth in the following sub-
paragraph 7.1 below.
7.1 So long as any shares of the Series B Stock are outstanding, the
Company shall not (a) without the affirmative vote of at least one-half of the
votes entitled to be cast by all shares of the Preferred Stock (including
Series B Stock) at the time outstanding amend or change any terms of the
Preferred Stock in Article III of the Articles of Incorporation of the Company
or other provisions of the Articles of Incorporation generally applicable to
the Preferred Stock, so as to affect materially and adversely any such terms;
(b) without the affirmative vote of at least one-half of the vote entitled to
be cast by shares of the Series B Stock at the time outstanding, amend or
change any terms of the Series B Stock particularly applicable to the Series B
Stock, so as to affect materially and adversely any such terms; and (c) without
the affirmative vote of one-half of the votes entitled to be cast by all shares
of Preferred Stock at the time outstanding, (i) increase the authorized number
of shares of Preferred Stock in excess of 10,000,000 or (ii) authorize shares
of any other class of stock ranking on a parity with shares of Preferred Stock
as to dividends or assets.
8. NO IMPLIED LIMITATIONS. Except as otherwise provided by express
provisions of this Statement, nothing herein shall limit, by influence or
otherwise, the discretionary right of the Board of Directors to classify
and reclassify and issue any shares of Preferred Stock and to fix or alter all
terms thereof to the full extent provided in the Articles of Incorporation of
the Company.
9. GENERAL PROVISIONS. In addition to the above provisions with respect to
the Series B Stock, such Series B Stock shall be subject to and be entitled to
the benefits of, the provisions set forth in the Company's Articles of
Incorporation with respect to Preferred Stock generally.
II.
APPROVAL OF AGREEMENT FOR MERGER
WHEREAS, the Company has entered into an Agreement ("Agreement") dated
effective January 28, 1998 between the Company, Wrapsters, L.L.C. (legally
named "Wrapster's, L.C.), Santa Cruz Squeeze (legally named "Santa Cruz
Squeeze Corp."), Mathis Family Partners, Ltd., Thomas E Metzger, Clyde E.
Culp, III and William Gallagher; and
WHEREAS, the Agreement provides in part that Wrapster's, L.C. be merged into
the Company in exchange for 3,800,000 shares of the Company's no par value
common stock ("Common Stock") after the Company affects a 5 for 2 reverse
split of its currently issued and outstanding shares of Common Stock (the
"Reverse Split"); and
WHEREAS, the Agreement further provides that as part of the merger of
Wrapster's, L.C. into the Company, Santa Cruz Squeeze Core. is to purchase
3,800,000 shares of Common Stock after the Reverse Split together with
113,500 shares of the Company's Series B Redeemable Convertible Preferred
Stock for an aggregate of $1,000,000; and
WHEREAS, the Company deems that the terms and conditions of the Agreement are
fair and equitable to the Company.
NOW THEREFORE BE IT RESOLVED, that the Agreement attached as Exhibit "A" hereto
and made a part hereof is approved and ratified and that the terms and
conditions of the Agreement are deemed to be fair and equitable to the Company.
FURTHER RESOLVED, that the offer of Wrapster's, L.C. to merge into the Company
in exchange for 3,800,000 shares of Common Stock after the Reverse Split and as
conditioned by the Agreement is accepted and the appropriate officers of the
Company are hereby authorized and directed to issue such shares pursuant to the
Agreement upon the closing of the transactions contemplated by the Agreement.
FURTHER RESOLVED, that the offer of Santa Cruz Squeeze Corp. to purchase
3,800,000 shares of Common Stock after the Reverse Split and 113,500 shares of
the Company's Series B Redeemable Convertible Preferred Stock for $1,000,000
cash is accepted and the appropriate officers of the Company are hereby
authorized and directed to issue such shares upon the closing of the
transactions contemplated by the Agreement and upon receipt by the Company of
$1,000,000 from Santa Cruz Squeeze Corp.
III.
APPROVAL OF MERGER
RESOLVED, that the merger of the Company on substantially the terms and
conditions as set forth in the form of the Plan of Merger of the Company
which is a summary of the basic terms of the Agreement for the merger of
Wrapster's, L.C. into the Company and which Plan of Merger is attached hereto
as Exhibit "B" and incorporated by reference herein, be and the same is
hereby approved and advised.
FURTHER RESOLVED, that the Plan of Merger be submitted for consideration by the
shareholders of the Company entitled to vote thereon at a special meeting of the
shareholders to be called, noticed and scheduled as provided in the Company's
By-Laws and as provided by the Colorado Business Corporation Act.
FURTHER RESOLVED, that the proper officers of the Company be and they are
hereby authorized and directed in the name and on behalf of the Company to
execute and file with the Secretary of State of Colorado such Statement of
Merger following the due approval thereof by the Shareholder of the Company,
and to take any and all other actions and to execute and file any and all
instruments and documents deemed necessary or proper in connection therewith.
IV.
APPROVAL OF REVERSE STOCK SPLIT
RESOLVED, that the proposed reverse stock split (the "Reverse Stock Split") to
effect a five (5) to two (2) reverse split of the issued and outstanding shares
of the Company's no par common stock ("Common Stock") whereby each five (5)
shares of the Company's issued and outstanding Common Stock will be converted
to two (2) shaers of Common Stock is hereby authorized and approved.
FURTHER RESOLVED, that the Reverse Stock Split is subject to and effective only
upon the closing of the merger as set forth in the Plan of Merger.
FURTHER RESOLVED, that the Reverse Stock Split be submitted for consideration
by the shareholders of the Company entitled to vote thereon at a special
meeting of the shareholders to be called, noticed and scheduled as provided in
the Company's By-Laws and as provided by the Colorado Business Corporation Act.
FURTHER RESOLVED, that upon shareholder approval and the closing of the merger
as set forth in the Plan of Merger, the Company's Secretary is hereby
authorized and directed to collect the outstanding pre-split certificates from
each shareholder and to exchange them for post-split certificates in the
appropriate amounts.
V.
APPROVAL OF AMENDMENT
TO ARTICLES OF INCORPORATION
RESOLVED, that the Company's Articles of Incorporation be amended as follows:
The first sentence of Article FOURTH shall read as follows:
"The number of directors of the corporation shall be fixed by the
bylaws, or if the bylaws fail to fix such a number, then by resolutions adopted
from time to time by the board of directors, provided that the number of
directors shall not be less than one."
FURTHER RESOLVED, that the Amendment to the Articles of Incorporation be
submitted for consideration by the shareholders of the Company entitled to vote
thereon at a special meeting of the shareholders to be called, noticed and
scheduled as provided in the Company's By-laws and as provided by the Colorado
Business Corporation Act.
FURTHER RESOLVED, that upon the shareholder's approval of the Amendment to the
Articles of Incorporation, the Company shall file the appropriate Articles of
Amendment with the Colorado Secretary of State.
VI.
ACCEPTANCE OF RESIGNATIONS
RESOLVED, that the resignation of Gary McAdam and Gary A. Agron, as officers
and directors of the Company effective upon the filing of the Amendment to the
Articles of Incorporation are hereby accepted.
FURTHER RESOLVED, that the resignation of Earnest Mathis as an officer and
director of the Company, effective upon the closing of the merger set forth in
the Plan of Merger is hereby accepted.
VII.
ELECTION OF OFFICER
RESOLVED, that upon the effectiveness of the resignation of Gary McAdam as
Secretary of the Company, Earnest Mathis is hereby elected as Secretary of the
Company in addition to his current office as President.
VIII.
ELECTION OF DIRECTORS
RESOLVED, that the following personsare nominated to be directors of the
Company upon the closing of the merger set forth in the Plan of Merger and
upon the closing of the merger set forth in the Plan of Merger and upon the
resignations of the current directors.
a. Tom Metzger
b. Clydde Culp
c. Bill Gallagher
FURTHER RESOLVED, that the election of the nominated directors be submitted for
consideration by the shareholders of the Company entitled to vote thereon at a
special meeting of the shareholders to be called, noticed and scheduled as
provided in the Company's By-Laws and as provided by the Colorado Business
Corporation Act.
IX.
AMENDMENT OF BY-LAWS
RESOLVED, that in accordance with Article VIII, Section 3 of the Company's
By-Laws, the first sentence of Article III, Section 2 of the Company's By-Laws
is hereby amended to read as follows: "The number of directors of the
Corporation shall be fixed from time to time by the board of directors so long
as there is at least one director; but no decrease in the number of directors
shall have the effect of shortening the term of any incumbent director."
This Consent of Directors may be executed in counterparts. This Consent
of Directors is executed on, and is effective as of January 28, 1998.
ALL MEMBERS OF THE BOARD OF
DIRECTORS OF HAI ENTERPRISES, INC., a
Colorado corporation
Earnest Mathis, Jr.
Gary McAdam
Gary Agron
[DESCRIPTION] Promissory Notes held by Shareholders
PROMISSORY NOTE
U.S. $15,000.00 February 28, 1999
Bexar County, Texas
FOR VALUE RECEIVED, the undersigned, Wrapsters, Inc. ("Borrower")
promises to pay to the order JOSEPH K. KOSTOFF or his successors or assigns
(the "Lender"), the principal sum of Fifteen Thousand Dollars ($15,000.00) to
be paid in lawful money of the United States of America. Interest will accrue
on the Promissory Note at a rate of 10% per annum from the date of funding from
the escrow account and will be payable semi-annually on June 30, and December
31, of each year until maturity. The entire principal balance of the Promissory
Note, together with accrued interest, shall become due and payable an the
earlier of (1) the maturity date of thePromissory Note in February 2001 (two
years from the date of issuance), or (2) Upon the closing of a future financing
resulting in proceeds to the Borrowers of at least $2,000,000.
Interest on the Promissory Note shall be computed on the basis of a 360-day
year from the actual days elapsed.
This Promissory Note may be prepaid in whole or in part at any time without
penalty.
The Promissory Notes are unconditionally guaranteed as to the payment of
principal and interest, jointly and severally by all of the direct and indirect
subsidiaries of Wrapsters, Inc.
Should an acquisition be completed in the future, the Promissory Note will be
secured by a first lien on the monthly royalty payments to be received from
franchisees of the acquired companies. If any required payment of principal or
interest is not paid the Lender with 15 days of the due date, then this
Promissory Note shall be in default and become due and payable at once without
notice and demand at the option of the Lender. While in default, amounts
outstanding under the Promissory Note shall continue to bear interest at the
rate of ten percent (10%) per annum.
This Promissory Note is to be construed and enforced in accordance with the
laws of the State of Texas.
BORROWER:
WRAPSTERS, INC.
By: Thomas E. Metzger
Thomas E. Metzger
President
<PAGE>
PROMISSORY NOTE
U.S. $25,000.00 February 28, 1999
Bexar County, Texas
FOR VALUE RECEIVED, the undersigned, Wrapsters, Inc. ("Borrower") promises
to pay to the order STANLEY G. MORTON or his successors or assigns (the
"Lender"), the principal sure of Twenty Five Thousand Dollars ($25,000.00) to
be paid in lawful money of the United States of America. Interest will accrue
on the Promissory Note at a rate of 10% per annum from the date of funding from
the escrow account and will be payable semi-annually on June 30, and December
31, of each year until maturity. The entire principal balance of the Promissory
Note, together with accrued interest, shall become due and payable on the
earlier of (1) the maturity date of the Promissory Note in February 2001 (two
years from the date of issuance), or (2) Upon the closing of a future financing
resulting in proceeds to the Borrowers of at least $2,000,000.
Interest on the Promissory Note shall be computed on the basis of a 360-day
year from the actual days elapsed.
This Promissory Note may be prepaid in whole or in part at any time without
penalty.
The Promissory Notes are unconditionally guaranteed as to the payment of
principal and interest, jointly and severally by all of the direct and
indirect subsidiaries of Wrapsters, Inc.
Should an acquisition be completed in the future, the Promissory Note will be
secured by a first lien on the monthly royalty payments to be received from
franchisees of the acquired companies. If any required payment of principal or
interest is not paid the Lender with 15 days of the due date, then this
Promissory Note shall be in default and become due and payable at once without
notice and demand at the option of the Lender. While in default, amounts
outstanding under the Promissory Note shall continue to bear interest at the
rate of ten percent (10%) per annum.
This Promissory Note is to he construed and enforced in accordance with the
laws of the State of Texas.
BORROWER:
WRAPSTERS, INC.
By: Thomas E. Metzger
Thomas E Metzger
President
<PAGE>
PROMISSORY NOTE
U.S. $50,000.00 February 28, 1999
Bexar County, Texas
FOR VALUE RECEIVED, the undersigned, Wrapsters, Inc. ("Borrower") promises
to pay to the order RICHARD O. WAGNER or his successors or assigns (the
"Lender"), the principal sum of Fifty Thousand Dollars ($50,000.00) to be paid
in lawful money of the United States of America. Interest will accrue on the
Promissory Note at a rate of 10% per annum from the date of funding from the
escrow account and will be payable semi-annually on June 30, and December 31,
of each year until maturity. The entire principal balance of the Promissory
Note, together with accrued interest, shall become due and payable on the
earlier of (1) the maturity date of the Promissory Note in February 2001 (two
years from the date of issuance), or (2) Upon the closing of a future
financing resulting in proceeds to the Borrowers of at least $2,000,000.
Interest on the Promissory Note shall be computed on the basis of a 360-day
year from the actual days elapsed.
This Promissory Note may be prepaid in whole or in part at any time without
penalty.
The Promissory Notes are unconditionally guaranteed as to the payment of
principal and interest, jointly and severally by all of the direct and indirect
subsidiaries of Wrapsters, Inc.
Should an acquisition be completed in the future, the Promissory Note will be
secured by a first lien on the monthly royalty payments to be received from
franchisees of the acquired companies. If any required payment of principal or
interest is not paid the Lender with 15 days of the due date, then this
Promissory Note shall be in default and become due and payable at once without
notice and demand at the option of the Lender. While in default, amounts
outstanding under the Promissory Note shall continue to bear interest at the
rate of ten percent (10%) per annum.
This Promissory Note is to be construed and enforced in accordance with the
laws of the State of Texas.
BORROWER:
WRAPSTERS, INC.
By: Thomas E. Metzger
Thomas E Metzger
President
<PAGE>
PROMISSORY NOTE
U.S. $40,000.00 June 30, 1999
Bexar County, Texas
FOR VALUE RECEIVED, the undersigned, Wrapsters, Inc. ("Borrower)
promises to pay to the order of Richard Wagner or their successors or assigns
(the "Lender", the principal sum of forty thousand Dollars ($40,000.00) to be
paid in lawful money of the United States of America. Interest will accrue on
the Promissory Note at a rate of 10% per annum from the date of funding from
the escrow account and will be payable semi-annually on June 30, and December
31, of each year until maturity. The entire principal balance of the Promissory
Note, together with accrued interest, shall become due and payable on the
earlier of (1) the maturity date of the Promissory Note in June 2001 (two years
from the date of issuance), or (2) Upon the closing of a future public
financing resulting in proceeds to the Borrowers of at least $2,000,000.
Interest on the Promissory Note shall be computed on the basis of a 360-day
year from the actual days elapsed.
This Promissory Note may be prepaid in whole or in part at any time without
penalty.
The Promissory Notes are unconditionally guaranteed as to the payment of
principal and interest, jointly and severally by all of the direct and
indirect subsidiaries of Wrapsters, Inc.
Should an acquisition be completed in the future, the Promissory Note will be
secured by a first lien on the monthly royalty payments to be received from
franchisees of the acquired companies. If any required payment of principal or
interest is not paid the Lender with 15 days of the due date, then this
Promissory Note shall be in default and become due and payable at once without
notice and demand at the option of the Lender. While in default, amounts
outstanding under the Promissory Note shall continue to bear interest at the
rate of ten percent (10%) per annum.
This Promissory Note is to be construed and enforced in accordance with the
laws of the State of Texas.
BORROWER:
WRAPSTERS, INC.
BY: Thomas E. Metzger
Thomas E Metzger
President
[DESCRIPTION] Legal Opinion
R. MICHAEL JACKSON
Attorney at Law
705 Union Tower, 165 S. Union Boulevard
Lakewood, Colorado 80228
Office: (303)969-0808 Email: [email protected] Fax:(303)986-5191
January 20, 2000
Uptown Restaurant Group, Inc.
955 East Javelina Ave., Suite 106
Mesa, AZ 85204
Re: Opinion re Legality of Corporation and Shares
Gentlemen:
I hereby certify that I have examined the following:
1. The Articles of Incorporation and amendments thereto of the above
Corporation on file with the Secretary of State of the State of Colorado;
2. The Bylaws of the above Corporation as they are presently existing and
in force;
3. The minutes of the meetings of the Board of Directors of the above
Corporation containing all of the minutes of said meetings since the inception
of the Corporation on February 23, 1996;
4. The opinion of the Corporation's previous legal counsel, Charles D.
Barnett, dated September 15, 1999, opining to certain matters relevant to the
Corporation (a copy of which is attached hereto);
5. The Form 1OSB Registration Statement of the above Corporation to be
filed with the Securities and Exchange Commission.
It is my opinion that Uptown Restaurant Group, Inc., is a corporation duly
organized and existing under and by virtue of the laws of the State of
Colorado, with full power to issue its shares of no par value common stock and
its no par value preferred stock. It is my opinion that the Corporation has
full power to issue its 31,033,687 shares of authorized but unissued common
stock, and to issue its 9,999,000 shares of authorized but unissued preferred
stock, and that, when properly issued by the Corporation, countersigned by its
transfer agent, sold and delivered to purchasers, the shares will be in the
hands of such purchasers, fully paid and nonassessable shares of common stock
or preferred stock of the Corporation with the rights, privileges and
preferences set forth in the Articles of Incorporation or as set forth in the
resolution of the board of directors of the Corporation issuing the preferred
stock, as the case may be.
The Corporation currently has outstanding 18,966,313 shares of common stock,
and 1,000 shares of Series B Preferred stock, all of which shares are fully
paid and nonassessable shares of common stock or preferred stock of the
Corporation with the rights, privileges and preferences set forth in the
Articles of Incorporation or as set forth in the resolution of the board of
directors of the Corporation issuing the preferred stock, as the case may be.
Yours truly,
R. Michael Jackson
[DESCRIPTION] Voting Agreement
VOTING AGREEMENT
THIS VOTING AGENT ("Voting Agreement") dated as of September 10, 1999,
by and among WRAPSTERS, INC., a Colorado corporation ("Wrapsters"), NYB FOODS,
INC., a Colorado corporation ("NYB"), Robert Palmer ("Palmer"), Clyde E. Culp,
III ("Culp"), Thomas E. Metzger ("Metzger"), and William Gallagher
("Gallagher").
In order to induce the parties hereto to enter into and perform the Share
Exchange Agreement dated August 31, 1999, among such parties (the "Agreement"),
the parties hereto agree as follows:
1. Any previous Voting Agreements entered into by the parties to this
Agreement, or any of them, are hereby rescinded and revoked.
2. In connection with the transactions contemplated in the Agreement,
Culp, Metzger and Gallagher, majority shareholders of Wrapsters, shall call a
meeting of the shareholders and shall vote their shares so that the following
shall occur:
A. The transactions contemplated in the Agreement are approved
by the shareholders of Wrapsters, to the extent required by applicable law; and
B. The Wrapsters' Board of Directors shall consist of five (5)
members who, following the acquisition of shares of stock in Wrapsters by
Palmer, shall consist of Palmer, Culp, two (2) members designated by Palmer,
and one (1) member designated by Culp.
3. Following the acquisition of shares of stock in Wrapsters by
Palmer, Palmer, Culp, Metzger and Gallagher shall vote the shares of Wrapsters
now or hereafter owned or controlled by them so as to cause:
A. The number of directors on the Board of Directors to be five
(5); and
B. The election of Palmer, Culp, two (2) members designated by
Palmer, and one (1) member designated by Culp, as directors.
4. Each party shall act in all capacities to cause any transferee of
the shares of its stock in Wrapsters to assume the obligations of its or his
transferor hereunder.
5. All certificates for the shares of stock heretofore or hereafter
issued to the parties hereto shelf bear substantially the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE PROVISIONS OF A VOTING AGREEMENT DATED AS OF SEPTEMBER
10, 1999, A COPY OF WHICH IS ON FILE AT WRAPSTERS' PRINCIPAL
OFFICE, AND ANY HOLDER HEREOF IS SUBJECT TO TI3E PROVISIONS OF
SUCH VOTING AGREEMENT."
6. This Agreement and all its provisions shall continue in effect
until the earlier of:
A. Three (3) years from the date hereof; or
B. The consummation of an underwritten public offering of the
securities of Wrapsters pursuant to a Registration Statement filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, where the aggregate sales price of such securities (before deduction
of underwriting discounts and expenses of sale) is not less than $10,000,000.00.
7. This Agreement shall in all respects be governed by, and construed
and enforced in accordance with, the laws of the State of Colorado.
8. This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original, and such
counterparts together shall constitute one instrument.
9. The invalidity or unenforceability of any provision of this
Agreement shall not invalidate or affect the enforceability of any other
provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
WRAPSTERS, INC.
Clyde E. Culp, III By:
Title:
Robert Palmer NYB FOODS, INC.
By:
Title:
Tomas E. Metzger
William Gallagher
[DESCRIPTION] List of Subsidiaries
SUBSIDIARIES OF UPTOWN RESTAURANT GROUP, INC.
1. NYB FOODS, INC., a Colorado corporation, doing business under the
names "NYB Foods, Inc.," and "New York Burrito."
2. 1 POTATO 2 FRANCHISING CORPORATION, a Colorado corporation, doing
business under the names "1 Potato 2 Franchising Corporation" and "1 Potato 2."
[DESCRIPTION] Consent of Accountant and Attorney
James E. Raftery, CPA, PC
12946 S. Stapley Drive, Suite 103 (480)835-1040
Mesa, Arizona 85204 FAX: (480)835-8832
CONSENT OF AUDITOR
I hereby consent to the use of my name in the Form SB-2 Registration
Statement of Uptown Restaurant Group, Inc.
James E. Raftery CPA
Febrary 8, 2000
Member, American Institute of Certified Public Accountants and Arizona Society
of Certified Public Accountants.
<PAGE>
R. MICHAEL JACKSON
Attorney at Law
705 Union Tower, 165 S Union Boulevard
Lakewood, Colorado 80228
Office:(303)969-0808 Email:[email protected] Fax:(303)986-5191
CONSENT OF ATTORNEY
I hereby consent to the use of my name in the Form SB-2 Registration Statement
of Uptown Restaurant Group, Inc.
R. Michael Jackson
January 24, 2000
Lakewood, Colorado
[ARTICLE] 5
<TABLE>
<S> <C> <C>
[PERIOD-TYPE] 9-MOS YEAR
[FISCAL-YEAR-END] SEP-30-1999 DEC-31-1998
[PERIOD-END] SEP-30-1999 DEC-31-1998
[CASH] $263,696 $26,046
[SECURITIES] $0 $0
[RECEIVABLES] $80,895 $0
[ALLOWANCES] $20,000 $0
[INVENTORY] $3,209 $9,919
[CURRENT-ASSETS] $643,526 $37,119
[PP&E] $50,819 $271,920
[DEPRECIATION] $7,062 $0
[TOTAL-ASSETS] $867,244 $342,429
[CURRENT-LIABILITIES] $922,665 $878,351
[BONDS] $95,217 $0
[PREFERRED-MANDATORY] $0 $0
[PREFERRED] $10,000 $1,135,000
[COMMON] $2,205,895 $19,741
[OTHER-SE] $(1,532,703) $(535,922)
[TOTAL-LIABILITY-AND-EQUITY] $867,244 $342,429
[SALES] $264,079 $315,026
[TOTAL-REVENUES] $635,790 $342,498
[CGS] $126,568 $124,944
[TOTAL-COSTS] $430,247 $1,379,924
[OTHER-EXPENSES] $691,517 $0
[LOSS-PROVISION] $0 $0
[INTEREST-EXPENSE] $0 $37,783
[INCOME-PRETAX] $(485,974) $(1,075,209)
[INCOME-TAX] $0 $0
[INCOME-CONTINUING] $(485,974) $(1,075,209)
[DISCONTINUED] $(337,856) $(207,473)
[EXTRAORDINARY] $0 $0
[CHANGES] $0 $0
[NET-INCOME] $0 $0
[EPS-BASIC] $(0.043) $(0.17)
[EPS-DILUTED] $0 $0
</TABLE>
