As filed with the Securities and Exchange Commission on ______, 1996
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICA'S COFFEE CUP, INC.
(Name of Small Business Issuer as specified in its charter)
________________
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COLORADO 5499 88-1078201
<S> <C> <C>
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
12528 KIRKHAM COURT, NOS. 6 & 7 ROBERT MARSIK
POWAY, CALIFORNIA 92064 12528 KIRKHAM COURT, NOS. 6&7
(619) 679-3290 POWAY, CALIFORNIA 92064
(Address, including zip code, and (619) 679-3290
telephone number, including (Address, including zip code, and
area code, of registrant's telephone number, including
principal executive offices) area code, of agent for service)
________________
Copies to:
Robert A. Forrester, Esq. Maurice J. Bates, L.L.C.
1215 Executive Drive West 8214 Westchester
Suite 102 Suite 500
Richardson, Texas 75081 Dallas, Texas 75225
Phone (214) 437-9898 Phone (214) 692-3566
Fax (214) 480-8406 Fax (214) 987-2091
________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is 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 the delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [X]
________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
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(Registration Statement cover page cont'd)
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CALCULATION OF REGISTRATION FEE
==========================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
(1) (1) (1)
==========================================================================================================================
<S> <C> <C> <C> <C>
Preferred Stock Units(2) 230,000 $20.00 $4,600,000 $1,586.21
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$0.40(2)(3) 2,760,000 (3) (3) (3)
- --------------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants (2)(3) 2,760,000 (3) (3) (3)
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$0.40(4) 2,760,000 $1.50 $4,140,000 $1,427.59
- --------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants 20,000 $0.01 $100.00 $0.07
- --------------------------------------------------------------------------------------------------------------------------
Units Underlying the
Underwriter's Warrants 20,000 $24.00 $480,000 $165.52
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$0.40(5) 240,000 (5) (5) (5)
- --------------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock
Purchase Warrants(5) 240,000 (5) (5) (5)
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$0.40(6) 240.000 $1.50 $360,000 $124.14
- --------------------------------------------------------------------------------------------------------------------------
Total $3,303.53
===========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) These figures include the 30,000 Shares of Preferred Stock covered by the
Underwriters' Over-Allotment Option, as well as the 360,000 shares of
Common Stock and 360,000 Redeemable Common Stock Purchase Warrants
included therein.
(3) Included in the Units. No additional registration fee is required.
(4) Issuable upon exercise of Redeemable Common Stock Purchase Warrants.
Pursuant to Rule 416 there are also registered an indeterminate number of
shares of Common Stock which may be issued pursuant to the anti-dilution
provisions applicable to the Redeemable Common Stock Purchase Warrants,
the Underwriter's Warrants and the Redeemable Common Stock Purchase
Warrants issuable under the Underwriter's Warrants.
(5) Included in the Units Underlying the Underwriter's Warrants. No
additional registration fees are required.
(6) Issuable upon exercise of the Redeemable Common Stock Purchase Warrants
underlying the Underwriter's Warrants.
================================================================================
<PAGE>
AMERICA'S COFFEE CUP, INC.
Cross-Reference Sheet
showing location in the Prospectus of
Information Required by Items of Form SB-2
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<CAPTION>
Form SB-2 Item Number and Caption Location In Prospectus
- --------------------------------- ----------------------
<C> <S> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus.................................................... Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus.................................................................. Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information and Risk Factors................................................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................................................... Use of Proceeds
5. Determination of Offering Price...................................................... Risk Factors; Underwriting
6. Dilution............................................................................. Dilution
7. Selling Security Holders............................................................. *
8. Plan of Distribution................................................................. Outside Front Cover Page; Risk Factors;
Underwriting
9. Legal Proceedings.................................................................... Legal Proceedings
10. Directors, Executive Officers, Promoters
and Control Persons.................................................................. Business; Management
11. Security Ownership of Certain Beneficial
Owners and Management................................................................ Principal Shareholders
12. Description of Securities............................................................ Description of Securities
13. Interest of Named Experts and Counsel................................................ *
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................................................................... Underwriting
15. Organization Within Last Five Years.................................................. *
16. Description of Business.............................................................. Business
17. Management's Discussion and Analysis
or Plan of Operation................................................................. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
18. Description of Property.............................................................. Business-Facilities
19. Certain Relationships and Related
Transactions......................................................................... Certain Relationships and Related
Transactions
20. Market for Common Equity and Related
Stockholder Matters.................................................................. Risk Factors; Common Stock Price Range
21. Executive Compensation............................................................... Management-Executive Compensation
22. Financial Statements................................................................. Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure........................................................................... *
</TABLE>
_____________________________
(*) None or Not Applicable
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated ______, 1996
AMERICA'S COFFEE CUP, INC.
200,000 Units
Each Unit consisting of One Share of Series A Preferred Stock and
Ten Redeemable Common Stock Purchase Warrants
_________________
America's Coffee Cup, Inc. (the "Company") is hereby offering 200,000
units (the "Units"), each Unit consisting of one Series A Preferred share
(the "Series A Preferred Stock") , $0.40 par value per share (the "Preferred
Stock"), and ten Redeemable Common Stock Purchase Warrants (the "Series A
Warrants"). The Units, the Series A Preferred Stock, and the Series A
Warrants are sometimes referred to as the "Securities." The Series A Preferred
Stock and Series A Warrants included in the Units may not be separately traded
until _____, 1996, unless earlier separated upon three days' prior notice form
La Jolla Securities Corporation and First London Securities Corporation (the
"Representatives") to the Company at the discretion of the Representatives.
The Series A Preferred Share will automatically convert into ten shares of the
Company's Common Stock, par value $0.40 per share on October 1, 1998. If the
Company fails to have $300,000 or more pre-tax earnings for the twelve months
ended June 30, 1997, exclusive of extraordinary items or, upon such failure,
the Company's Common Stock does not trade for at least $2.50 for ten days
between June 30, 1997 and August 15, 1997, then the Company will declare a
dividend on each Series A Preferred Stock of one-fifth share of Series A
Preferred Stock and two Series A Warrants. The Company will declare a similar
dividend on the Series A Preferred Stock unless the Common Stock
trades above $2.50 per share for 20 consecutive days after
August 14, 1997, but before August 15, 1998,
or the Company fails to have pre-tax earnings of $450,000, exclusive of
extraordinary and non-recurring items. Each Series
A Warrant entitles the holder thereof to purchase one share of Common Stock (a
"Warrant Share") at an exercise price of $1.50 per share at anytime after they
become separated from the Preferred Stock and separately traded until
_____, 2001, unless earlier redeemed. The Warrants are subject to redemption by
the Company at a price of $0.05 per Warrant at any time after August 15, 1997,
on thirty days prior written notice provided that the closing sale price per
share for the Common Stock has equalled or exceed $3.00 for ten consecutive
trading days. See "Description of Securities" and "Underwriting."
The Common Stock is traded on the Bulletin Board maintained by the
National Association of Securities Dealers, Inc. under the symbol "ACFF." On
May ____, 1996, the last reported sales price for the Common Stock was $____ per
share. The Company intends to apply for quotation of its securities on the
Nasdaq Small-Cap Market at such time as it believes it meets the listing
requirements.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION FROM THE PUBLIC OFFERING PRICE.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTIONS
ENTITLED "RISK FACTORS" BEGINNING ON PAGE 7 AND "DILUTION"
CONCERNING THE COMPANY AND THIS OFFERING.
_________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSE UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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====================================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY (2)
- -------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit (3) ............................... $ $ $
- ----------------------------------------------------------
Total ............................................. $ $ $
===================================================================
</TABLE>
(1) Does not include compensation in the form of a non-accountable expense
allowance equal to 3.0% of the gross proceeds of this offering. The Company
has also agreed to sell to the Representatives warrants (the "Underwriters'
Warrants") exercisable for four years commencing one year from the date
hereof to purchase 28,000 Units at 120% of the offering price per Unit. For
information concerning indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting estimated offering expenses of $148,500 payable by the
Company.
(3) The Company has granted to the Underwriters a 45-day option beginning on
the date of this Prospectus to purchase up to 52,500 additional Units at
the Price to Public less the Underwriting Discount solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, the Underwriting Discounts and Commissions and Proceeds to
the Company will be $____, $____ and $____ respectively. See
"Underwriting."
The Securities are being offered, subject to prior sale, when, as and
if delivered to and accepted by the Representatives, and subject to approval of
certain legal matters by counsel and other conditions. The Representatives
reserve the right to reject any order, in whole or in part. It is expected that
delivery of the certificates representing the Shares and Warrants will be made
against payment therefor at the offices of the La Jolla Securities Corporation
in Dallas, Texas on or about ______, 1996.
_________________
LA JOLLA SECURITIES FIRST LONDON SECURITIES
CORPORATION CORPORATION
THE DATE OF THIS PROSPECTUS IS _____, 1996.
<PAGE>
[ARTIST'S RENDERING OF SERVICE CONCESSION]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information in this Prospectus. This
summary should be read in conjunction with, and is qualified in its entirety by,
the more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus assumes that the Underwriters' over-allotment
option will not be exercised. The Securities involve a high degree of risk.
Investors should carefully consider the information set forth under the heading
"Risk Factors." All references to share and per share data have been adjusted to
reflect reverse stock splits in the Common Stock prior to this offering.
THE COMPANY
America's Coffee Cup, Inc. is engaged in the sale of gourmet coffee and
related products to retail customers through end cap sales concessions in
supermarkets in southern California. The Company, as of January 31, 1996, had
installed, and was maintaining and operating end-cap sales concessions at 66
supermarkets. During February 1996, eleven of these locations were closed for
the purpose of relocating ten, which is scheduled to be completed by the end of
June 1996. An end-cap sales concession is a semi-circle structure that is
constructed around the end of an aisle in a supermarket. These end-caps are
normally placed in the heaviest traffic areas in the supermarket. Each
concession offers approximately 35 varieties of fresh whole-bean and pre-bagged
whole-bean gourmet coffee, including flavored coffee, as well as related
products and accessories.
The Company has been conducting its operations from one supermarket chain
in Southern California, Ralph's Grocery Company ("Ralph's"), since 1988, and on
July 1, 1994, entered into an agreement with Ralph's for a four year term. In
1996 the Company entered into a new agreement with Ralph's that effectively
extends the term during which the Company is licensed until December 31, 1999.
The Company agreed to pay $100,000 for this new term. See "Use of Proceeds."
This new agreement can be cancelled by Ralph's only for cause and, if not
terminated pursuant to a material breach, Ralph's is obligated to repay a pro
rata portion of the $100,000 plus all of the $1,500 fees the Company pays upon
opening each concession. Ralph's will retain ownership of the inventory in the
event of termination. This agreement gives the Company the exclusive right to
operate its service concessions in Ralph's, but the Company is also allowed to
conduct its business outside of Ralph's. Although the Company has agreed to test
sites in supermarkets other than Ralph's, the loss of Ralph's as a distribution
outlet would have a material adverse effect on the Company's operations, whether
Ralph's terminated the agreement for cause or failed to extend the agreement
after December 31, 1999. See "Business - Distribution of Coffee."
There were approximately 268 Ralph's stores at September 30, 1995. Ralph's
has been expanding by building new locations in Southern California. Ralph's was
recently acquired by a private entity, which owns Alpha Beta stores, among other
supermarkets. Approximately 15 Alpha Beta stores will be remodeled and renamed
Ralph's during 1996. These remodeled stores will support end-cap concessions and
all of these concessions will be installed by the end of 1996. Management
believes that the Company will have approximately 80 concessions within Ralph's
by the end of 1996 and that none of the proceeds from this offering are
necessary for this expansion.
In August 1995, the Company terminated its relationship with its former
coffee supplier and began purchasing coffee from an unaffiliated entity pursuant
to a contract which is currently on a month-to-month basis, allowing for
termination by either party on 30 days' prior written notice. The Company's new
supply arrangement will result in an average savings of $1.45 per pound of
coffee. The Company purchased 299,538 pounds of coffee in 1995; thus, if the
foregoing benefits had been previously available to the Company, a price savings
of approximately $434,330 would have resulted. There can be no assurance that
the price of coffee will not vary widely in the future.
Subsequent to the termination of the supply agreement with its former
supplier, the Company entered into new agreements with the former supplier to
satisfy outstanding debt and accounts payable. The Company subsequently settled
litigation arising out of these agreements. See "Business - Supply of Coffee,"
"Litigation - Brothers Litigation."
The Company concentrates on the marketing and sales of its products
directly to the retail consumer at each location through its own employees. The
employees offer free samples of freshly-brewed coffee at the concessions during
peak traffic hours and the concessions are "self serve" when the Company's
employees are not present. All employees are required to complete a Company
training program which enables them to provide information on the various types
of coffee and to sell the coffees being offered.
The Company is currently negotiating with several additional supermarket
chains in Southern California to further expand its distribution base. One chain
has orally agreed to test sites in six stores, another to test sites in ten
stores and a third to test sites in six stores. The locations are in the process
of being identified and the concessions will be opened in the first half of
1996. The tests are scheduled to run over a six month period. Negotiations with
additional chains are ongoing. In addition, the Company has recently hired a
Marketing Director to identify and pursue opportunities with other supermarket
chains in Southern and Northern California, Arizona and Illinois and other
targeted regions in the nation.
3
<PAGE>
The Company plans to establish or acquire a roasting facility to further
enhance its operating margins and assure the quality of its coffee. To
accommodate further growth, the Company has established two delivery systems in
Southern California, with a third to be established in late 1996.
America's Coffee Cup, Inc. has been in operation since 1988. In January of
1996 the Company changed its domicile from Delaware to Colorado. The executive
offices of the Company are located at 12528 Kirkham Court, Nos. 6 & 7, Poway,
California, 92064. The telephone number at this address is (619) 679-3290.
CALIFORNIA RESIDENTS
California residents must meet the following suitability standards to purchase
Units in the offering: A liquid net worth of $250,000 (i.e. a net worth
exclusive of home, home furnishings, and automobile) and $65,000 annual gross
income or $500,000 liquid net worth.
FLORIDA RESIDENTS
Florida residents may not be able to sell the stock underlying their warrants
if the Common Stock is not traded on the Nasdaq National Market or Nasdaq
Small Cap Market unless an exemption is available under the Florida
Securities Act.
4
<PAGE>
THE OFFERING
Securities offered..................... 200,000 Units, each Unit consisting of
one share of Series A Preferred Stock
and Ten Series AWarrants. The Series A
Preferred Stock and Series AWarrants may
be separated immediately. See
"Description of Securities" and
"Underwriting."
Description of Series A Preferred Stock. Each share of Series A Preferred Stock
will convert into ten shares of the
Company's Common Stock, par value
$0.40 per share on October 1, 1998.
If the Company fails to have earnings
of at least $300,000, exclusive of
extraordinary and non-recurring items,
for the twelve months ended June 30,
1997 or if the Common Stock trades
for less than $2.50 for ten days between
June 30, 1997, and August 15, 1997,
then the Company
shall have a dividend declared on
the Series A Preferred Stock
of one-fifth share of Series A Preferred
Stock and two Series A Warrants. A like
dividend shall be declared unless
the Common Stock trades
for more than $2.50 for 20 consecutive
days after August 14, 1997, but before
July 1, 1998, or the Company has pre-tax
earnings of $450,000 for the twelve
months ended June 30, 1998, exclusive of
extraordinary and non-recurring items.
Description of Series A Warrants........Each Series A Warrant entitles the
holder to purchase one share of
Common Stock at an
exercise price of $1.50 per share. The
Warrants are exercisable until the fifth
anniversary of the date of this
Prospectus. The Warrants are redeemable
by the Company at $0.05 per Warrant
under certain conditions. See
"Description of Securities" and
"Underwriting."
Common Stock outstanding:
Before the offering................ 845,567 Shares
After the offering................. 845,567 Shares (1)
After Conversion of
Series A Preferred Stock... 2,845,567 (1) (2)
Warrants outstanding:
Series A Warrants
Before the offering.............. None
Series A Warrants
After the offering............... 2,000,000 (3)
Bridge Loan Warrants............... Two (4)
Use of Proceeds..................... Pay debt, acquire or establish a coffee
roaster, enhance distribution systems,
purchase inventory and working capital.
See "Use of Proceeds."
Risk Factors........................ The Securities are speculative, involve
a high degree of risk and should not be
purchased by investors who cannot afford
the loss of their entire investment. See
"Risk Factors."
Proposed Bulletin Board Symbols
Series A Preferred Stock........ ACFFP
Common Stock.................... ACFF
Warrants........................ ACFFW
_________
(1) Excludes shares issuable upon the exercise of options and warrants
outstanding on the date of this Prospectus or to be issued as follows: (i)
2,000,000 shares issuable upon the exercise of warrants in this offering;
(ii) up to 2,000,000 shares issuable upon conversion of the Series A
Preferred Stock; (iii) up to 300,000 that may be issued upon conversion
of Series A Preferred Stock underlying the Underwriters over-allotment
option; (iv) 200,000 shares underlying the Underwriters' Warrants; (v)
approximately 500,000 shares reserved for issuance under the Company's Stock
Option Plan; (vi) 393,000 shares underlying the units acquirable upon
exercise of the Bridge Loan Warrants; (vii) 393,000 shares underlying the
warrants included in those units underlying the Bridge Loan Warrants; and
(viii) 403,000 shares reserved for issuance in the event that the Bridge
Loan Promissory Notes are not repaid when due and the holders elect to
take Common Stock in exchange.
(2) Excludes dividend of 400,000 shares of Common Stock to be declared on the
Series A Preferred Stock and 400,000 shares of Common Stock underlying
the Series A Warrants issued in part of such dividend if the Company
fails to have pre-tax earnings of $300,000 for the twelve months ended
June 30, 1997, excluding extraordinary and non-recurring items, and an
additional 400,000 shares of Common Stock that may be issued pursuant to
a second dividend as well as 400,000 shares underlying additional Series A
Warrants that would be issued as part of such dividend in the event the
Company's stock trades below $2.50 for 20 consecutive days between
August 14, 1997 and July 1, 1998. If the Underwriters over-allotment is
exercised, then an additional 60,000 shares of Common Stock would be
issued in each dividend and an additional 60,000 shares of Common Stock
would underly the Series A Warrants.
(3) Excludes warrants issuable upon the date of this Prospectus or to be issued
as follows: (i) up to 30,000 warrants underlying the Underwriters' over-
allotment option; and (ii) 200,000 warrants underlying the Underwriters'
Warrants.
(4) The two Warrants entitle the holders to purchase an aggregate of 78,600
Bridge Loan Units. The exercise price of each unit is $6.50, and the unit
consists of five shares of Common Stock and five warrants. The exercise
price of the warrants is $1.50 per share. The Bridge Loan Warrants expires
five years from the effective date of this Prospectus. See "Description
of Securities - Bridge Loan Warrants."
5
<PAGE>
________________________________________________________________________________
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, March 31,
----------------------------- ------------------------
OPERATING DATA: 1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales.................................. $3,278,938 $3,095,955 $749,637 $616,581
Operating Income (Loss)...................... 63,982 (737,778) (36,210) (215,948)
Net Income (Loss) Before Extraordinary Item.. 2,961 (865,635) (56,441) (224,493)
Extraordinary Item........................... - 248,697 - -
Net Income (Loss)............................ 2,961 (616,938) (56,441) (224,493)
Net Income (Loss) Per Common Share
Before Extraordinary Item.................... $0.01 $(2.11) $(0.07) $(0.26)
Extraordinary Item........................... - 0.61 - -
Net Income (Loss) Per Common Share........... $0.01 $(1.50) $(0.07) $(0.26)
Supplemental Earnings Per Share Data:
Net Income (Loss) per Common Share (1)....... $(0.01) $(0.71) - -
Weighted Average Shares Outstanding (1)...... 210,825 845,447 - -
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(2)(3)
------ -----------------
<S> <C> <C>
Working Capital.......................... $(1,123,527) $ 1,212,023 (4)
Total Assets............................. 1,187,803 3,523,353
Total Liabilities........................ 1,855,817 787,274 (5)
Stockholders' Equity (Deficit)........... $(671,014) $2,686,986 (5)
</TABLE>
________
(1) The loss per common share data is presented on a per share basis as if the
retirement of certain convertible debt in August 1995 and February 1996 in
exchange for the issuance of Common Stock had occurred prior to 1995 and
such Common Stock had been outstanding throughout that year; thus, the
supplemental earnings per share data reflect the issuance of 589,848 and
43,524 shares during that year as if retirement of the debt had occurred
prior to that period. See "Financial Statements - Note K."
(2) As adjusted to give effect to the sale of 200,000 Units at an offering price
of $20.00 per Unit and the application of the net proceeds therefrom of
approximately $3,300,000. See "Use of Proceeds" and "Capitalization."
(3) Does not reflect an extraordinary gain anticipated to occur upon the payment
of the Brothers obligation.
(4) Does not reflect expenditure of $600,000 or $337,500 to be applied from the
proceeds of this offering for the establishment or acquisition of a coffee
roaster and the enhancement of distribution systems, respectively, because
such funds will not be expended immediately following the close of this
offering but rather expended over an extended period or expended
significantly following the close of this offering.
________________________________________________________________________________
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE
INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THE OTHER
INFORMATION SET FORTH IN THE PROSPECTUS BEFORE PURCHASING THE SECURITIES.
AUDITOR OF FINANCIAL STATEMENTS HAS EXPRESSED ITS CONCERN AS TO WHETHER COMPANY
MAY CONTINUE AS A GOING CONCERN
The Company has had recurring losses from operations and has a net capital
deficiency, each of which raise substantial doubt about its ability to continue
as a going concern. Accordingly, the accountant's report and opinion on the
financial statements for the fiscal years ended December 31, 1995 and December
31, 1994 includes an explanatory paragraph which serves to inform the users of
these financial statements about these uncertainties. The auditors have not
reassessed the future viability of the Company since the date of their opinion
on these financial statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Financial Statements."
VIABILITY OF COMPANY ABSENT THIS OFFERING
Since the rendering by the auditors of their opinion on the financial
statements of the Company for the fiscal years ended December 31, 1995 and
December 31, 1994 expressing concern on the future viability of the Company,
management has taken a number of steps which they believe will assure the future
viability of the Company irrespective of the outcome of this offering; however,
there can be no assurance that these efforts will be successful. If not
successful, the Company probably will not be able to expand beyond its current
chain of distribution, but management believes it would be able to pay its
existing and recurring debts as they become due because of increased margins to
be derived from price savings in the cost of its coffee, including the 38
remaining monthly payments of $30,246 to be made to a former supplier of coffee.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business - Supply of Coffee" and "Financial Statements."
COMPANY MAY NOT BE ABLE TO MANAGE EXPANSION
The funds from this offering will permit the Company to (i) fully provide
for the establishment of three delivery systems within Southern California, (ii)
vertically integrate its operations into the roasting of gourmet coffee beans,
(iii) expand the number of its sales facilities within Southern California and
(iv) expand outside of Southern California. This, management believes, will
allow for significant growth relative to the past operating results of the
Company. This proposed expansion will subject the Company to greater overhead,
marketing and support costs, and to other risks associated with entry into new
markets. In order to manage this growth, the Company must improve and expand its
operational, financial and management information and executive systems, and
hire, train and manage new employees. If the Company is not able to manage this
growth effectively, its operating results will be significantly and adversely
impacted. See "Business - Expansion Within Ralph's" and "Use of Proceeds."
ADDITIONAL FINANCING BEYOND THIS OFFERING MAY BE REQUIRED FOR EXPANSION
The Company has exerted its best efforts to estimate its costs of
expansion; however, any expansion is problematical and extremely difficult to
accurately gauge in terms of costs. If the estimates of management are not
accurate and there are cost overruns, the proceeds from this offering may be
inadequate to sustain the proposed expansion. This will require the Company to
obtain additional sources of capital, for which it currently has no commitment,
and which it may not be able to acquire when needed, or, if acquirable, not on
terms favorable to the Company. Any additional financing which may be required
to provide for the expansion of the Company, to the extent it is obtained
through the issuance of equity, may further dilute the interests of investors in
this offering. See "Business - Other Expansion Plans" and "Use of Proceeds."
COMPANY HAS NO ROASTING EXPERIENCE
Management has no previous experience in the acquisition, start-up,
ownership or operation of a coffee roaster. A portion of the proceeds of this
offering has been allocated to either acquiring or establishing such an
operation. Although management believes that the Company will be able to locate
an acquisition candidate for these purposes or that it will be able to establish
a roasting operation, there can be no assurance that it will be successful in
these endeavors or that, if successful, such operations will be profitable. See
"Business - Other
7
<PAGE>
Expansion Plans," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Use of Proceeds."
SERVICE CONCESSION EXPANSION NOT ASSURED AND COMPANY MAY NOT BE ABLE TO MANAGE
THIS EXPANSION
The immediate expansion plans of the Company for the installation of
service concessions rest entirely upon its current sole channel of distribution.
Although the Company has been informed by its supermarket outlet that additional
service concessions are scheduled to be installed during 1996, and some
installations have been scheduled, the Company has no binding agreement in this
regard. There can be no assurance that this expansion will in fact occur, or if
it does occur, it will be profitable or that management is capable of managing
the expansion. See "Business - Expansion Within Ralph's - Other Expansion Plans"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SUBSTANTIAL PART OF NET PROCEEDS FROM THIS OFFERING WILL BE USED TO REDUCE
PREVIOUSLY INCURRED DEBT
Approximately 19% of the net proceeds to be derived from this offering are
allocated to the repayment of debt which was previously incurred in favor of the
sole source of gourmet coffee supply to the Company until August 25, 1995, and
approximately 11% are allocated to repay interim financing incurred by the
Company. The proceeds which will be used to repay this debt, therefore, will not
be available for the future development and expansion of the business of the
Company. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operation - Liquidity and Capital Resources,"
"Business - Supply of Coffee -- Litigation" and "Description of Securities -
Bridge Loan Warrants".
PART OF NET PROCEEDS FROM THIS OFFERING NOT SPECIFICALLY ALLOCATED
Approximately 35% of the net proceeds which are to be derived from this
offering are allocated to working capital reserves, and their uses have not been
specifically identified by management. These proceeds will be applied as
business exigencies arise, none of which management may presently anticipate.
Decisions as to the application of these funds will be made without shareholder
input; thus, investors in this offering will be entrusting this portion of their
funds to management without any commitment as to their use. See "Use of
Proceeds."
RECENT WHOLESALE COFFEE PRICES HAVE FLUCTUATED WIDELY
The price of raw coffee and the transportation costs of delivering roasted
coffee to the service concessions of the Company significantly increased during
the final month of 1994 and the first six months of 1995, although these prices
began receding to previous levels during the second quarter of 1995 and have
steeply declined since that time. These price fluctuations significantly and
detrimentally impacted the revenues of the Company during the final month of
1994 and the first nine months of 1995. Although management believes these
fluctuations were an anomaly, there can be no assurance that such price
fluctuations will not reappear in the future, to the detriment of the operating
results of the Company. See "Business - Supply of Coffee" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations."
BUSINESS AND REVENUES OF COMPANY ARE SEASONAL IN NATURE
The Company's business is seasonal in nature and is subject to economic
fluctuations. As a result of this seasonality, the Company has historically
reported substantial operating losses during the second and third calendar
quarters of each year, while posting positive operating cash flows during the
first and final quarters of each year, the effect of which has been a
substantial reduction in the net losses incurred by the Company for the year as
a whole. The business is seasonal because coffee is a warm drink which is more
heavily consumed during the late fall, winter and early spring. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and "Business - Business of Company is Seasonal in Nature."
COMPANY SELLS ITS PRODUCTS SOLELY THROUGH ONE DISTRIBUTION OUTLET
The Company maintains its service concessions solely in Southern
California, and all in one supermarket chain. Although the Company has an
exclusive license agreement with this chain, the agreement may be terminated
without cause by the supermarket chain. If the Company were to lose its primary
sales outlet, it would have to replace it, and there is no assurance the Company
would be successful. Also, the immediate expansion plans of the Company within
the Southern California market rest entirely on this sole source of
distribution, although the Company is not contractually obligated to maintain
its operations solely within this chain of stores. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business -
Distribution of Coffee."
8
<PAGE>
INDUSTRY IN WHICH COMPANY COMPETES IS HIGHLY COMPETITIVE
The Company maintains the only full-serve gourmet bin coffee sales center
in each of its locations; however, at least three other competitors, including
its previous sole supplier, sell pre-bagged gourmet coffee to the supermarkets
in which the Company is located. Although the shelves provided its competitors
are generally several aisles away, their coffee products compete directly with
the Company. These entities are all better capitalized than the Company and
could, if they chose to do so, intensify this competition by, for instance,
charging lower prices for their products, although as of the date of this
Prospectus, they have not chosen to do so. The Company has no competition of
which it is aware in its particular niche in the coffee industry. Regarding the
coffee market in general and the gourmet coffee market in particular, the
Company is not a significant participant. Almost all of its competitors are
better capitalized and have greater financial resources available to them. The
Company will, therefore, continue to be at a competitive disadvantage vis-a-vis
its competitors. See "Business - Competition."
LACK OF DIVERSIFICATION INCREASES COMPANY'S EXPOSURE TO ECONOMIC DOWNTURNS IN
THE COFFEE INDUSTRY
The Company operates within one industry, that of full-service, retail,
gourmet coffee bean sales through supermarkets. The current plan of operation
calls for expansion within, but does not anticipate diversification beyond, this
industry. The plan of operation, therefore, subjects the Company to the economic
fluctuations within this industry and increases the risks associated with its
operations. If this industry experiences a downturn, the operating results of
the Company would be materially and adversely affected, which may impair the
ability of the Company to continue as a going concern. See "Business - Other
Expansion Plans" and "Use of Proceeds."
SUCCESS OF COMPANY DEPENDS ON KEY PERSONNEL
The success of the Company is dependent upon the efforts of Mr. Robert W.
Marsik, the loss of whose services would be difficult to replace, particularly
on a short-term basis. The Company has an employment agreement with Mr. Marsik,
but has not obtained key man life insurance on his life. See "Management."
COMPANY HAS NOT PAID AND DOES NOT ANTICIPATE PAYING DIVIDENDS
Since inception, the Company has not paid any cash dividends on the Common
Stock. Any declaration of dividends in the future will be at the discretion of
the Board of Directors and will depend upon, among other things, earnings, the
operating and financial condition of the Company, capital expenditure
requirements, and general business conditions. There are no restrictions
currently in effect which preclude the Company from paying dividends. It is the
current intention of the Company, however, to retain any earnings in the
foreseeable future to finance the growth and development of its business. See
"Description of Securities - Common Stock" and "Dividend Policy."
NO PROTECTION, OTHER THAN COMMON LAW, FOR INTANGIBLE ASSETS
The Company has limited protection for its intangible assets, such as
copyright, tradename or trademark protection, and has no plans to apply for
such. Thus, the Company is relying upon common law protection for these assets,
including the tradename "America's Coffee Cup." There is no assurance the
Company would be successful in any suit to protect its intangible assets. Any
loss of the exclusive right to the use of these assets would result in increased
competition to the Company and have a negative effect on cash flows and
revenues. See "Business - Proprietary Rights Protection."
REPRESENTATIVES ARE NOT EXPERIENCED IN PUBLIC OFFERINGS
The Representatives do not have substantial experience in public offerings.
La Jolla Securities Corporation has co-managed and completed four underwritings.
First London Securities Corporation has co-managed and completed one offering.
There can be no assurance that the Representatives' lack of experience will not
adversely affect the offering. See "Underwriting."
UNDERWRITERS ARE NOT OBLIGATED TO MAKE A MARKET IN THE SECURITIES
There is no assurance the Underwriters will participate as market makers
for the Common Stock. Although they are not currently obligated to do so, if the
Underwriters should choose to become market makers for the Units, the Warrants
and/or the Common Stock, the Underwriters would not be under any obligation to
continue. See "Underwriting."
9
<PAGE>
REDEMPTION OF WARRANTS WOULD DEPRIVE HOLDERS OF VALUE
Commencing six months from the date of this Prospectus, the Company may
redeem the Warrants for $0.05 per Warrant, at any time, provided that the
average closing inside bid price per share of the Common Stock has equaled or
exceeded $4.50 for ten consecutive trading days within thirty days of the date
on which notice of redemption is given. Notice of redemption of the Warrants
could force the holders thereof (i) to exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous or difficult for the
holders to do so, (ii) to sell the Warrants at the then current market price
when they might otherwise wish to hold the Warrants, or (iii) to accept the
redemption price, which could be less than the market value of the Warrants at
the time of redemption. See "Description of Securities - Warrants."
REDUCTION OF WARRANT EXERCISE PRICE WOULD IMPAIR VALUE TO PRIOR EXERCISING
HOLDERS
The exercise price of the Warrants may be reduced at any time and from time
to time when it appears in the best interests of the Company to do so. Any such
reduction would impair the value to holders exercising their Warrants prior to
the effective date of the price reduction. See "Description of Securities -
Warrants."
INABILITY TO EXERCISE WARRANTS MAY RESULT IN LOSS OF ALL VALUE IN WARRANTS
The Company must have an effective registration statement on file with the
Commission before any Warrant may be exercised or redeemed. It is possible that
the Company may be unable to cause a registration statement covering the Common
Stock underlying the Warrants to be effective. It is also possible that the
Warrants could be acquired by persons residing in states where the Company is
unable to qualify the Common Stock underlying the Warrants for sale. In either
event the Warrants may expire unexercised, which would result in the holders
losing all of the value of the Warrants. See "Description of Securities -
Warrants."
PREFERRED STOCK AUTHORIZED MAY BE ISSUED AT DILUTIVE PRICE TO THWART TAKEOVER
The Articles of Incorporation of the Company authorize the issuance of a
maximum of 1,000,000 shares of preferred stock, $0.40 par value per share (the
"Preferred Stock"), without shareholder approval and subject to such terms and
conditions as the Board of Directors in its discretion determines on a blank
check basis. As of April 30, 1996, there were no shares of Preferred Stock
outstanding. A series of this stock could be issued in the future, for example,
to thwart a possible takeover and may, in any event, operate to the significant
disadvantage of the holders of the Common Stock by including convertibility
features which are lower than the market price for the Common Stock, which would
dilute the value of existing shareholdings including the Securities. See
"Description of Securities - Preferred Stock."
OWNERSHIP OF MANAGEMENT
Upon completion of the offering, Messrs. Robert W. Marsik and Mark S.
Pierce will own or control approximately 6.67% and 6.60%, respectively, of the
outstanding voting shares of the Company; therefore, even following the
completion of this offering, they will continue to be in a position to
significantly influence the election of directors and to otherwise control the
Company due to the quorum and voting requirements of the Company. See
"Management" and "Principal Shareholders."
IMMEDIATE AND SUBSTANTIAL DILUTION WILL BE SUFFERED BY INVESTORS IN THIS
OFFERING
Purchasers of Units will suffer an immediate, substantial dilution of
approximately 55% in the net tangible book value of their shares of Common
Stock since the purchase price of the Units substantially exceeds the current
tangible book value per share of Common Stock. See "Dilution."
DETERMINATION OF OFFERING AND EXERCISE PRICES OF UNITS AND WARRANTS WAS
ARBITRARY
The proposed offering and exercise prices of the Units and Warrants and the
number of shares and Warrants constituting the Units were determined in
negotiations between the Company and the Representatives of the Underwriters
based upon an assumed market price of approximately $2.00 per share of Common
Stock. The number of shares of Common Stock and Warrants constituting the Units
may change at the time the Registration Statement of which this Prospectus is a
part is ordered effective by the Securities and Exchange Commission based upon
the then current market price of the Common Stock, the Company's financial
condition and results of operations for the fiscal year ended December 31, 1995
and other pertinent factors at the time of the effective date. See "Underwriting
- - Price of Offering."
10
<PAGE>
DISCLOSURE RELATING TO PENNY STOCKS
The Securities may be subject to the "penny stock rules" adopted pursuant
to Section 15 (g) of the Securities Exchange Act of 1934. The "penny stock
rules" apply to companies whose common stock trades at less than $5.00 per share
or which have a tangible net worth of less than $5,000,000 ($2,000,000 if the
company has been operating for three or more years). Such rules require, among
other things, that brokers who trade "penny stock" to persons other than
"established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided not to trade
"penny stocks" because of the requirements of the penny stock rules and, as a
result, the number of broker-dealers willing to act as market makers in such
securities in limited.
LACK OF PRESENT MARKET FOR SECURITIES
The Common Stock is currently quoted on the Bulletin Board, maintained by
the National Association of Securities Dealers, Inc. ("Nasdaq"), and there is
presently only a very limited market for the Common Stock. Historically the
spread between the bid and the asked prices of the Company's Common Stock has
been large reflecting the limited trading in the stock. The trading price for
the Common Stock has fluctuated widely in the recent past. See "Common Stock
Price Range."
VOLATILITY OF COMMON STOCK
The price range of the Company's Common Stock has varied significantly in
the past three years, ranging from a high bid of $16.00 per share in the fourth
quarter of 1993 to a low bid of $0.20 per share in the third quarter of 1995.
The Company cannot account for the fluctuations in price except that it believes
that because of the thin market, any sales significantly impact the price.
11
<PAGE>
USE OF PROCEEDS
The net proceeds of this offering are anticipated to be $3,300,000, after
deducting the Underwriters' discount, non-accountable expense allowance and
estimated offering expenses ($3,822,000 if the over-allotment option is
exercised). No value has been assigned to the Warrants included in the Units.
The Company intends to use the net proceeds of this offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
APPLICATION OF NET PROCEEDS AMOUNT PERCENT OF PROCEEDS
----------- -------------------
<S> <C> <C>
Payment of Brothers Obligation (1) $612,450 18.6%
Payment of 12% Bridge Loan Notes (2) 352,000 10.7
Payment of License Fee to Ralph's 100,000 3.0
Establishment or acquisition of a coffee roaster (3) 600,000 18.2
Enhancement of distribution systems 337,500 10.2
Inventory 150,000 4.5
Working capital 1,148,050 34.8
---------- -----
Total $3,300,000 100.0%
========== =====
</TABLE>
__________
(1) These proceeds will be used to discharge debts of the Company in favor of
its former coffee supplier consisting of unpaid trade accounts, slotting
fees paid on behalf of the Company to Ralph's, and from the buy-out of a
supply contract. This amount will increase to $1,025,280 if not repaid by
June 7, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and
"Business - Supply of Coffee -- Litigation."
(2) These proceeds will be used to discharge the Bridge Loan Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources," and "Description of
Securities - Bridge Loan Warrants."
(3) It is unknown at the present time whether the Company will use these
proceeds to establish or acquire a roasting facility. The Company has not
identified any assets or business for acquisition. Thus, it is not possible
to describe the assets or business. No assets or businesses will be acquired
from affiliates of the Company. See "Risk Factors."
The foregoing represents the best estimates by the Company of its use of
net proceeds based upon present planning and business conditions. The proposed
application of proceeds is subject to change as market and financial conditions
change. The Company, therefore, has reserved the right to vary its use of
proceeds in response to events which may arise and have not been anticipated.
Pending use, it is anticipated that the proceeds to the Company resulting
from this offering will be primarily invested in short-term, investment grade
obligations or bank certificates of deposit. It is anticipated that the net
proceeds of this offering will satisfy the financial needs of the Company for 24
months following the date of this Prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "Business - Other Expansion Plans."
12
<PAGE>
DILUTION
As of March 31, 1996, the net tangible book value of the Company was
($1,134,155), or ($1.34) per share of Common Stock. The net tangible book value
of the Company is the aggregate amount of its tangible assets less its total
liabilities. The net tangible book value per share represents the total tangible
assets of the Company, less total liabilities of the Company, divided by the
number of shares of Common Stock outstanding. After giving effect to the sale
of 200,000 Units (200,000 shares of Series A Preferred Stock convertible into
2,000,000 shares of Common Stock and 2,000,000 Warrants) at an offering price
per unit of $20.00, or $2.00 per share of Common Stock (assuming the automatic
conversion of Series A Preferred Stock on October 1, 1998, and no value
assigned to theWarrants), and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value per share would increase from
($1.34) to $0.80. This represents an immediate increase in net tangible book
value of $2.14 per share to current shareholders and an immediate dilution of
$1.20 per share to new investors, or 60%, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Public offering price per share (1)......................... $2.00
Net tangible book value per share before this offering... ($1.34)
Increase per share attributable to new investors......... $2.14
-----
Adjusted net tangible book value per share after this offering $0.80
-----
Dilution per share to new investors......................... $1.20
=====
Percentage dilution 60%
===
</TABLE>
The following table sets forth as of March 31, 1996 (i) the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid by the current shareholders,
and (ii) the number of shares of Common Stock included in the Units to be
purchased from the Company and total consideration to be paid by new investors
(before deducting underwriting discounts and other estimated expenses and
assuming immediate conversion of the Series A Preferred Stock into Common Stock)
at the offering price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
---------------------- ------------------- -------------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Current shareholders 845,567 (1) 29.7% $ 774,236 16.2% $0.92
New investors (1) 2,000,000 70.3 4,000,000 83.8 $2.00
--------- ----- --------- -----
Total 2,845,567 100.0% $4,774,236 100.0%
========= ====== ========== ======
</TABLE>
(1) Assumes immediate conversion of Series A Preferred Stock into 2,000,000
shares of Common Stock and thereby gives a benefit to the Series A Preferred
Stock liquidation preference over the Common Stock.
(2) Excludes shares issuable upon the exercise of options and warrants
outstanding on the date of this Prospectus or to be issued as follows: (i)
2,000,000 shares issuable upon the exercise of warrants in this offering;
(ii) up to 2,000,000 shares issuable upon conversion of the Series A
Preferred Stock; (iii) up to 300,000 that may be issued upon conversion
of Series A Preferred Stock underlying the Underwriters over-allotment
option; (iv) 200,000 shares underlying the Underwriters' Warrants; (v)
approximately 500,000 shares reserved for issuance under the Company's Stock
Option Plan; (vi) 393,000 shares underlying the units acquirable upon
exercise of the Bridge Loan Warrants; (vii) 393,000 shares underlying the
warrants included in those units underlying the Bridge Loan Warrants; and
(viii) 403,000 shares reserved for issuance in the event that the Bridge
Loan Promissory Notes are not repaid when due and the holders elect to take
Common Stock in exchange.
13
<PAGE>
CAPITALIZATION
The following table sets forth the audited capitalization of the Company as
of March 31, 1996, and as adjusted to give effect to the sale of the Units
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
<S> <C> <C>
Short-term debt:
License Fee Payable $ 100,000 -
Current portion notes payable and
capital lease obligations....................... $ 962,217 $ 92,779
Long-term debt:
Notes payable and capital lease obligations..... 457,660 44,555
Shareholders' equity (deficit):
Preferred Stock, $0.40 par value,
1,000,000 shares authorized, no
shares issued and outstanding - 80,000
Common Stock, $0.40 par value,
10,000,000 shares authorized, 845,567
outstanding................................. 338,226 338,226
Additional paid in capital ..................... 436,010 3,656,010
Accumulated deficit............................. (1,445,250) (1,445,250)
----------- ------------
Total shareholders' equity (deficit).......... (671,014) 2,686,986
----------- ------------
Total Capitalization.......................... $ 848,863 $ 2,766,320
=========== ============
</TABLE>
___________________
(1) Excludes shares issuable upon the exercise of options and warrants
outstanding on the date of this Prospectus or to be issued as follows: (i)
2,000,000 shares issuable upon the exercise of warrants in this offering;
(ii) up to 2,000,000 shares issuable upon conversion of the Series A
Preferred Stock; (iii) up to 300,000 that may be issued upon conversion
of Series A Preferred Stock underlying the Underwriters over-allotment
option; (iv) 200,000 shares underlying the Underwriters' Warrants; (v)
approximately 500,000 shares reserved for issuance under the Company's Stock
Option Plan; (vi) 393,000 shares underlying the units acquirable upon
exercise of the Bridge Loan Warrants; (vii) 393,000 shares underlying the
warrants included in those units underlying the Bridge Loan Warrants; and
(viii) 403,000 shares reserved for issuance in the event that the Bridge
Loan Promissory Notes are not repaid when due and the holders elect to take
Common Stock in exchange.
14
<PAGE>
COMMON STOCK PRICE RANGE
The Common Stock is currently quoted on the Bulletin Board maintained by
the National Association of Securities Dealers, Inc., under the symbol "ACFF."
The following table sets forth the range of high and low bid prices per share of
the Common Stock as reported by National Quotation Bureau, Inc. for the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993: High Bid (1) Low Bid (1)
---------------------------- ------------ -----------
<S> <C> <C>
1st Quarter.................... $0.50 $0.40
2nd Quarter.................... 7.50 4.00
3rd Quarter.................... 13.75 5.00
4th Quarter.................... 16.00 16.00
YEAR ENDED DECEMBER 31, 1994:
-----------------------------
1st Quarter.................... $16.00 $16.00
2nd Quarter.................... 16.00 4.00
3rd Quarter.................... 13.00 4.00
4th Quarter.................... 8.00 1.00
YEAR ENDED DECEMBER 31, 1995:
-----------------------------
1st Quarter.................... $8.00 $4.00
2nd Quarter.................... 4.00 4.00
3rd Quarter.................... 1.25 0.20
4th Quarter.................... 1.00 0.28
Three Months Ended March 31, 1996
</TABLE>
________
(1) The Company is unaware of the factors which resulted in the
significant fluctuations in the bid prices per share during the
periods being presented, although it is aware that there is a very
thin market for the Common Stock, that there are very few shares being
traded and that any sales significantly impact the market. See "Risk
Factors."
The above prices represent inter-dealer quotations without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
On March 12, 1996 there were three broker-dealers publishing quotes for the
Common Stock. The high bid and low asked prices on that date were $1.00 and
$1.50, respectively. During 1993 and 1995, the Company effectuated a one for ten
(1:10) and a one for four (1:4) reverse stock-split, respectively. The above
prices have been revised to reflect these splits. As of March 12, 1996, there
were 845,567 shares of Common Stock issued and outstanding which were held by
313 holders of record.
DIVIDEND POLICY
Since inception, the Company has not paid, and it has no current plans to
pay, cash dividends on the Common Stock. The Company currently intends to retain
all earnings to support the Company's operations and future growth. The payment
of any future dividends will be determined by the Board of Directors based upon
the Company's earnings, financial condition and cash requirements, possible
restrictions in future financing agreements, if any, business conditions and
such other factors deemed relevant. See "Risk Factors."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of financial condition and results of operations
should be read in conjunction with the Company's audited financial statements
and notes thereto appearing elsewhere in this Prospectus.
The Company has had recurring losses from operations since inception and
has a net capital deficiency, each of which raise substantial doubts about its
ability to continue as a going concern. Accordingly, the auditors' report and
opinion on the financial statements for the fiscal years ended December 31, 1995
and December 31, 1994 included in this Prospectus includes an explanatory
paragraph about these uncertainties. However, management has taken a number of
steps which it believes will assure the future of the Company irrespective of
the outcome of this offering. Management believes that operations of the Company
would provide sufficient liquidity for the Company to be able to service the
remaining 38 monthly payments of $30,246 payable to a former coffee supplier.
There can be no assurance that such efforts will be successful. See "Risk
Factors" and "Business."
The Company opened its first service concession in August of 1988, and, as
of January 31, 1996, had expanded to 66 locations, all of which are located in
Southern California in a single supermarket chain, Ralph's. During February
1996, the Company agreed with Ralph's to close concessions at eleven locations
and relocate ten of the fixtures to stores with higher sales volume in
neighborhoods with higher per capital income. As of April 30 , 1996, four of
these locations had been installed and a schedule implemented to install the
remaining nine locations by the end of May 1996. The eleven closed locations
were operating, at best, at break even. Management believes that the ten new
locations have better prospects and will increase revenues on a per location
basis with a greater likelihood of profitability because of their favorable
locations. The following discussion should be read with the understanding that
the Company was a start-up entity with limited working capital. The Company has
historically shown substantial losses during the second and third calendar
quarters of each year, while posting positive operating cash flows during the
first and final quarters of the year, the effect of which has been a substantial
reduction in the net losses incurred by the Company in each year. See "Risk
Factors" and "Business - General" -- "Distribution of Coffee" -- "Facilities"
and "Business of Company is Seasonal in Nature."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996, AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues $616,581 $749,637
Cost of Sales 245,582 312,595
Operating Expenses 586,947 473,252
Income (Loss) from Operations 215,948 (36,210)
Other Income (Expenses) (8,545) (19,431)
Net Income (224,493) (15,641)
</TABLE>
The Company incurred a net loss in the quarter ended March 31, 1996, of
$244,043 compared to a net loss of $55,641 in the same quarter in 1995.
Revenues decreased $133,056 in the 1996 quarter compared to the 1995 quarter,
a decrease of approximately 18%. Most of this decrease in revenues is
attributable to the closing of eleven concessions in February of 1996. See
"Business - Distribution of Coffee." In addition to the lost revenues
attributable to the closing of concessions, approximately half the decline
in revenues is attributable to the repurchase of coffee from Ralph's made in
connection with the closed concessions. The amount of this repurchase was
subtracted from the first quarter of 1996's revenues.
The Company's cost of goods sold as a percentage of revenue improved in the
1996 quarter as compared to the 1995 quarter, 39.8% and 41.7% respectively.
This improvement in margin reflects the beginning of the margin improvements
the Company anticipates from purchasing coffee from a new supplier at lower
costs. See "Business - Supply of Coffee." Gross Profit in the 1996 quarter
was $370,999 compared to $437,042 in the 1995 quarter, a dercrease of $66,043
or approximately 15%. Management of the Company believes approximately
$45,000 of this decrease in gross profit is attributable to the lost margin
incurred by the repurchase of coffee from Ralph's discussed above. In
addition gross margins in the 1996 quarter were reduced by the cost of removing
equipment, fixtures and inventory from the closed concessions.
The increase in the loss in the 1996 quarter from the comparable 1995
quarter is also attributable to an increase of $113,695, or approximately 24%
in operating expenses to $586,947 from $473,252, generel and administrative
expenses increased approximately $114,220. Management of the Company believes
that most of the increase in general and administrative expenses is attributable
to the Company's planned expansion with approximately $34,000 in design and
production costs incurred in introducing a new coffee bag for a new product
line and an approximately $33,000 increase in marketing expense. The Company's
amortization expense increased approximately $27,500 largely because of the
Supply Termination Agreement with Brothers.
Interest expense was substantially reduced during the first quarter of 1996
because of the conversion of approximately $205,000 in debt securities in the
last six months of 1995 and in February of 1996.
The Company generated negative cash flows from operations of $205,118
during the first three months of 1996 due primarily to the relocation within
Ralph's, the build out of the warehouse and delivery systems discussed above,
and the purchase of inventory. This compared to a positive operating cash flow
of $44,051 from operations in the first quarter of 1995. Cash was used outside
of operations to purchase property and equipment ($111,558) and repay the
Brothers Debt ($5,000). Cash was generated from the sale of the Bridge Loan
Notes ($262,000) and the conversion of outstanding debt ($69,637) which, when
combined with the cash flows used in operations during the first quarter of
1996, resulted in a decrease in cash of $30,039 during the period, as compared
to an increase of $107,640 in cash during the comparable period of 1995.
YEAR ENDED DECEMBER 31, 1995, AS COMPARED TO YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Revenues $3,278,938 $3,095,955
Cost of Sales 2,697,708 2,823,160
Operating Expenses 517,248 1,010,573
Income (Loss) from Operations 63,982 (737,778)
Other Income (Expenses) (60,221) (127,057)
Extraordinary Item - 248,697
Net Income $ 2,961 $ (616,938)
</TABLE>
Revenues for the year ended December 31, 1995, decreased by $182,983
(5.58%) to $3,095,955 from $3,278,938 during 1994, while the cost of these sales
increased by $125,452 (4.65%) to $2,823,160 from $2,697,708. The loss in
revenues and increase in costs were the results of price increases for raw
coffee which Brothers began charging the Company effective April 1, 1995. In
1995 the Company opened 16 new concessions. In 1994 the Company sold
approximately 330,000 pounds of coffee at an average price of $7.99 per pound
compared to approximately 300,000 pounds in 1995 at an average price of $9.32
per pound. These price increases were the direct result of significantly rising
prices in the green bean market which took place in the last month of 1994 and
the first six months of 1995. By the third quarter of 1995, green bean prices
had fallen back to 1994 levels, and have steeply declined since that time, but
the impact of these price decreases was not felt by the Company until the final
quarter of 1995. Fourth quarter 1995 sales exceeded the comparable period of
1994, as sales began to rebound due to the decrease in price and cost. These
fluctuations in green bean prices are believed by management to have been an
anomaly, but there can be no assurance that these fluctuations will not occur
again in the future. See "Risk Factors."
16
<PAGE>
Costs of sales, as a percentage of sales, increased to 91.18% in 1995 from
82.27% in 1994. This increase was due entirely to the coffee price increases
discussed in the preceding paragraph, which also affected the sales of the
Company. These price increases were mitigated somewhat by increased operating
efficiencies implemented by management, as discussed below. The material
variations within the sales costs were (i) an increase of $103,215 (7.56%) in
the aggregate cost of coffee to $1,467,735 from $1,364,520, (ii) a decrease in
wages of $21,579 (3.31%) to $629,803 from $651,382, and (iii) an increase of
$79,825 (11.83%) in store rent to $754,427 from $674,602, which was directly due
to the additional concessions opened during 1995.
Operating expenses during 1995 increased $493,325 (169.25%) to $1,010,573
from $517,248 during 1994 principally due to a $475,764 (96.60%) increase to
$968,285 from $492,521 of general and administrative expenses, which were the
result of expenses incurred in the sale of debt securities by the Company which
were expensed in 1995 as well as expenses incured in connection with the
conversion of debt by Mr. Pierce, an officer of the Company. Of the increase,
$231,230 was deemed by the Company's Board of Directors to be a compensation
expense. See "Certain Relationships and Related Transactions." In July of 1995
an officer to the Company converted $117,970 in principal and interest to Common
Stock for $0.20 per share. Based upon the Board of Directors assessment of the
value of the Common Stock, the Company requires total consideration of $530,863
or $0.90 per share. Of this amount, $231,230 was accrued as compensation expense
related to the conversion. Previously, $44,387 of legal services had been
accrued in general and administrative expenses that were also allocated to the
total consideration. Other expenses include an additional financing cost of
$19,036 relating to this transaction.
The result of the above was a loss from operations of $619,808 due
principally to the increase in whole bean coffee prices, which negatively
affected sales and costs, and to a $79,825 increase in rent expenses due to new
concession openings and the compensation expense discussed above.
Interest expense of $85,052 during the 1995 fiscal year also increased, as
compared to $63,679 during 1994. This increase was due almost entirely to the
interest accruing on the notes (described below), $110,000 principal amount
which was converted into Common Stock in August 1995, and $78,750 principal
amount which was converted into Common Stock in February, 1996.
The net loss for the year, however, did not increase in direct proportion
to operating losses due to a one-time, non-recurring, extraordinary gain of
$248,617 posted by the Company as a result of its renegotiation and termination
of its supply contract with its former coffee roaster, Brothers. The net loss
for the year was $616,938 net of the extraordinary gain.
The Company generated positive cash flows from its operations for the 1995
fiscal year, primarily because of the cash flows generated during the fourth
quarter of 1995, even though it expended an additional $93,570 during 1995 in
expanding its inventory of coffee and $68,181 in the pursuit of its proposed
public offering. These operating cash flows of $3,302 compared to an operating
cash deficit of $56,604 during 1994. Cash was used outside of operations to
purchase property and equipment ($76,148) and pay slotting fees ($5,000). Cash
was further used to repay a portion of the debt to Brothers ($223,291), a
portion of which was funded through the receipt in 1995 of additional proceeds
from the sale of debt securities in 1994 ($105,000). The foregoing resulted in a
deficit in cash from financing activities of $118,291 which, when combined with
the cash flows generated by operations in 1995, resulted in a decrease in cash
of $196,137 from 1994.
YEAR ENDED DECEMBER 31, 1994, AS COMPARED TO YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1994
---------- ----------
<S> <C> <C>
Revenues $3,086,733 $3,278,938
Cost of Sales 2,611,701 2,697,708
Operating Expenses 533,088 517,248
Income (Loss) from Operations (58,056) 63,982
Other Income (Expenses) (55,785) (60,221)
Net Income (Loss) (114,641) 2,961
</TABLE>
Revenues increased during 1994 by $192,205 (6.2%) to $3,278,938 from
$3,086,733 in 1993. This increase was due primarily to the opening of an
additional six service concessions and the resulting impact on sales, as well as
ongoing sales contributed from these locations. The maturing sales base of
locations existing at the end of 1993 also contributed to the increase. The cost
of sales increased $86,007 (3.29%) to $2,697,708 in 1994 from
17
<PAGE>
$2,611,701 in 1993, which was largely the result of the increased volume of
coffee sold by the Company. As a percentage of sales, however, the cost of sales
decreased 2.34% in 1994, as compared to 1993, due to favorable fluctuations in
the price of coffee. Operating expenses decreased $15,840 (2.97%) to $517,248 in
1994 from $533,088 in 1993, and, more significantly, as a percentage of
revenues, decreased 1.5% to 15.77% from 17.27%. The decrease in these costs was
due to the ongoing implementation of operating efficiencies and strict
management cost controls and the streamlining of the administrative functions of
the Company. Other income and expenses were largely comprised of the interest
expenses incurred in the obligations of the Company to its former coffee
supplier. As a result of the above, the Company generated net income of $2,961
in 1994, as compared to a loss of $114,641 in 1993.
For the fiscal year ended December 31, 1994, the Company generated a
negative cash flow of $56,604, as compared to a positive cash flow of $112,923
during 1993, due to principally an increase in accounts receivable and inventory
and a decrease in accounts payable during the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company, since inception, has principally relied upon two sources for
its working capital for operations and expansion, cash flow generated from
operations and the extension of credit by Brothers in the forms of trade account
repayment terms, the advancement of fixture and delivery costs and the
advancement of slotting fees to Ralph's on behalf of the Company. In early 1995,
the Company began a program to increase cash flow from operations, the most
significant result of which was the replacement of Brothers with other
suppliers. New suppliers provide coffee to the Company at an average cost
savings per pound of $1.45, a decrease of approximately 33%. The Company expects
further revenue enhancements and other cost savings and expense reductions to
come from additional employee training to improve sales efforts at the service
concessions, from the conversion of debt aggregating $117,970 in principal and
accrued interest to Common Stock in August of 1995, which resulted in an
approximate savings of $13,200 per year in interest, from the termination on
July 31, 1995, of a consulting agreement with Fidiparex, S.A., which resulted in
an approximate savings of $40,000 per year, from the conversion to Common Stock
in February of this year of debt evidenced by debentures aggregating $87,047 in
principal and accrued interest, which resulted in an approximate savings of
$7,830 per year in interest expense, and the establishment of new supply
contracts for coffee accessory products. The Company plans to further increase
revenues through the expansion of concession stands in Ralph's. These savings
will be offset by a $20,000 consulting fee payable to the Underwriters, a recent
consulting agreement with one of the holders of the Bridge Loan Notes for $4,000
per month, a $15,000 increase in the annual salary of Mr. Marsik and the
employment of Mr. Vandenberg at an annual salary of $67,200. See "Management -
Employment Agreements" and "Underwriting."
Prior to August 25, 1995, the Company was obligated to purchase its
supply of gourmet coffee exclusively from Brothers, the country's largest
wholesale and retail supplier of gourmet coffee. On that date, the Company
entered into an agreement (the "Supply Termination Agreement") with Brothers to
supersede all previous agreements between the parties. Under the terms of the
Supply Termination Agreement, the Company and Brothers terminated the obligation
of the Company to purchase its supply of coffee exclusively from Brothers and
agreed to the consolidation, satisfaction and structured repayment of certain
debt which had been accrued by the Company in favor of Brothers during the term
of their relationship, which dated back to 1989. On the date of execution, the
Company paid to Brothers the sum of $75,000 and paid another $50,000
approximately 30 days later. The Company further agreed to pay Brothers
approximately $740,000, as evidenced by two unsecured promissory notes. Pursuant
to the Supply Termination Agreement, the Company and Brothers mutually released
all claims, demands and liabilities between them, with the exception of those
obligations specifically set forth in the agreement, as well as those accounts
payable accrued after June 1, 1995. Included within the debt released was
$350,000 in slotting fees which Brothers had paid on behalf of the Company to
Ralph's. The debt remaining to be repaid arose principally from the start-up and
expansion of the Company and consisted of (i) unpaid trade accounts accrued to
April 1, 1993, and (ii) slotting fees paid by Brothers on behalf of the Company
to obtain space for the concessions of the Company in Ralph's. Additionally, the
Company acquired from Brothers under this agreement all concession fixtures and
equipment in those stores installed prior to the date of the agreement, valued
at approximately $200,000.
On November 22, 1995, the Company executed a promissory note in the
principal amount of $292,312.78, which evidenced accrued accounts payable due
Brothers after the execution and delivery of the Supply Termination Agreement.
The Company made its first payment under this note on December 15, 1995, but
Brothers initiated suit on this note after this date in the Circuit Court for
the 15th Judicial District in and for Palm Beach County, Florida. The Company
and Brothers settled the matter without the necessity of an answer to the
complaint by the Company on January 25, 1996, by agreeing to a joint stipulation
for the settlement of all obligations between Brothers and the Company,
including the obligations under the Supply Termination Agreement and the note
discussed immediately above, an aggregate of $1,025,280 in principal as of
January 25, 1996. Brothers agreed to reduce this amount to $717,696 if paid by
April 1, 1996, and if not paid by April 1, 1996, the $1,025,280 would be payable
in 40 equal monthly installments of $30,246 beginning April 1, 1996 and ending
July 1, 1999. Brothers subsequently extended the April 1, 1996 due date until
June 7, 1996. Pursuant to the settlement agreement, the Company paid Brothers
$15,000 on January 25, February 17, and March 13, 1996, and $30,246 on April 1,
and May 1, 1996, which amounts were credited against the $717,696 due Brothers.
In consideration for the extension until June 7, 1996, the Company agreed to pay
interest at 10% per annum from April 1, 1996 on the balance then due, which
interest was paid with the $30,246 payment on May 1, 1996. See "Use of Proceeds"
and "Business - Litigation."
Beginning in January of 1996, the Company sold, directly and through an
unaffiliated intermediary, $262,000 of promissory notes (the "Bridge Loan
Notes") to two unaffiliated third parties. The Bridge Loan Notes bear interest
at the rate of 12% per annum and are due to be paid at the earlier of the close
of this offering or July 30, 1996. The Bridge Loan Notes are secured by a second
position in all tangible and intangible property which the Company now owns and
may subsequently acquire. The first three months of interest on these notes was
paid in advance at each closing, as were the due diligence and/or placement
fees, the result of which was a net of $235,800 in loan proceeds to the Company.
See "Description of Securities - Bridge Loan Warrants."
In conjunction with the Bridge Loan Notes, the Company issued to the
purchasers warrants (the "Bridge Loan Warrants") which allow the holders thereof
to acquire during a period ending five years from the commencement of this
offering up to 78,600 units, each unit consisting of four shares of Common Stock
and four warrants at a price of $6.50 per unit. When recorded in the financial
statements, the units are anticipated to be recorded at $786,000 and the
difference between these $786,000 and the proceeds of $510,900 will be recorded
as a finance expense. The shares of Common Stock and warrants underlying these
units have been included in this offering for sale by the holders of the Bridge
Loan Warrants. The agreements which led to the issuance of the Bridge Loan
Warrants have customary anti-dilution protections against such matters as
reverse stock splits, reclassifications and reorganizations. See "Underwriting -
Plan of Distribution for Bridge Loan Securities."
In addition, in May of 1996, the Company sold an additional note. The then
principal amount of $40,000 with $800 of said loan being paid in advance as
interest (the "May Note"). In addition, an affiliate of the holder of the May
Note became a consultant to the Company for $4,000 per month.
If this offering is not closed by July 30, 1996, the Company will (i) repay
the Bridge Loan Notes and May Note in full and (ii) at the option of the
holders thereof, issue a second warrant, in lieu of and on substantially similar
terms as the Bridge Loan Warrants, to purchase up to 135,000 shares of Common
Stock which are included in the Registration Statement at a price per share
which will equal 65% of the average bid price for these shares for the 20
trading days preceding the maturity date. If the Bridge Loan Notes are not
repaid from the proceeds of this offering, the holders thereof at their option
may either (i) call the Bridge Loan Notes and May Note and proceed against the
collateral or (ii) surrender the Bridge Loan Notes and May Note to the Company
in exchange for 403,000 shares of Common Stock which are also included in the
18
<PAGE>
Registration Statement of which this Prospectus is a part. See "Risk Factors,"
"Use of Proceeds" and "Description of Securities - Bridge Loan Warrants ."
The Company raised approximately $233,750 in working capital during the
final month of 1994 from (i) a group of European investors who purchased two
year, unsecured, 9% interest bearing promissory notes in the principal amount of
$123,750 which are presently convertible into shares of Common Stock at a price
per share of $9.00 and (ii) parties then affiliated with a director who
purchased one year, unsecured, 11.5% interest bearing promissory notes in the
principal amount of $110,000 which were converted on August 17, 1995, into
589,848 "restricted" shares of Common Stock. In February of 1996, two European
investors converted $78,750 and $8,296.77, principal and interest, respectively,
for a total amount of $87,047 into 43,524 shares of Common Stock at $2.00 per
share. See "Management," "Certain Relationships and Related Transactions" and
"Description of Securities - Debt Securities."
Management expects that operations and the proceeds of this offering will
be sufficient to provide operating capital and capital for expansion. The lower
cost of coffee derived from new supply sources is anticipated to improve
operating cash flow as well as to pay any remaining indebtedness following the
close of this offering. See "Capitalization." The acquisition of a coffee
roaster, anticipated to cost approximately $600,000 and enhancement of the
distribution system, estimated to cost approximately $337,500 will be funded
from the proceeds of this offering. See "Use of Proceeds." Additional coffee
concessions are self funding. See "Business - Expansion Within Ralph's."
19
<PAGE>
BUSINESS
GENERAL
The Company is engaged in the sale of gourmet coffee, related products
and accessories through service concessions which are located in a chain of
grocery stores in Southern California. These concessions are located at the end
of an aisle that is near the entrance of each store, which allows maximum
exposure to customer traffic. Each concession occupies approximately 24 square
feet and is approximately six feet long, four feet deep and six and one-half
feet high. The existing concessions have, depending upon customer traffic in the
location, from 16 to 36 plastic bins displaying whole bean coffee which a
customer may bag himself. Located among the bins are one or two coffee grinders
which allow customers to grind the whole-bean coffee prior to bagging. The
Company also offers pre-bagged whole-bean coffee on shelves underneath the bins.
The selection between bin and pre-bagged coffee overlaps somewhat, but the
customer is offered a minimum selection of 35 varieties of coffee at each
concession. Next to the bins, coffee related products and accessories such as
carafes, grinders and French press pots are displayed for sale. The Company
sells its coffee under its own brand name, "America's Coffee Cup." This trade
name carries no trademark or copyright protection. See "Risk Factors" and
"Business-Proprietary Rights Protection."
Each concession also has a coffee brewer. The Company brews and offers
free samples of coffee by the cup at each concession during peak hours; however,
the principal purpose of the brewer is to entice customers to stop at the
concession through the aroma of coffee and free samples. Customers are then
offered taste tests of a variety of gourmet coffees. This sampling not only
assists in the sale of coffee and related products and accessories, but also
allows the Company to test market new flavors of coffee and whole-bean varieties
directly to the public in order to determine whether offering them for sale will
be commercially viable and to determine which of its flavors and bean varieties
are losing their appeal. Management believes, as a result of this sampling, that
the Company has a higher dollar volume of sales per square foot than that of its
competitors.
CORPORATE PHILOSOPHY
The Company's first objective is to become the leading specialty
coffee company in the distribution of gourmet coffee, coffee related products
and accessories through select supermarkets located in high income
neighborhoods. The Company intends to achieve this objective through a corporate
philosophy designed to differentiate and reinforce its coffee and engender a
high degree of customer loyalty. The essential elements of this philosophy
include: (i) The Highest Qualify Coffee. The Company buys only the highest
quality arabica beans available from the world's coffee-producing regions and
engages a roasting process that maximizes each coffee's individual taste and
aroma. The Company believes that its coffee is of the highest quality coffee
sold. (ii) Customer Services. The Company is establishing regional distribution
centers which will enable the Company to continue to promptly supply fresh,
high-quality coffee to the service concessions for sale to customers. Critical
to this sales process and the long-term success of the Company is the personal
interaction which employees of the Company have with the customer. (iii)
Customer Education. The Company educates its retail customers about the origin
and preparation of its coffees through in-store brewing demonstrations and
coffee tasting during peak traffic hours at all of its service concessions. The
Company believes that this has developed and will continue to develop a loyal
customer base and brand recognition. (iv) Employee Development. Through a
variety of educational workshops, seminars and other programs, the Company
trains its employees to provide each customer with a level of service and
quality that fosters a long-term relationship. The Company believes that its
dedication to employee training attracts highly qualified and motivated
employees.
DISTRIBUTION OF COFFEE
The Company, as of January 31, 1996, owned and operated 66 service
concessions, all of which were located in one supermarket chain in Southern
California, Ralph's. During February, the Company agreed with Ralph's to close
concessions at eleven stores and move ten of these concessions to stores with
higher sales volume in neighborhoods with higher per capita income. As of April
30, 1996, four of these locations had been installed and a schedule implemented
to complete the move to the remaining nine stores by the end of June.
On July 1, 1994, the Company and Ralph's renegotiated their
relationship, which began in 1988, and entered into a license which allows the
Company to operate its service concessions with Ralph's. In 1996 the Company and
Ralph's again renegotiated their relationship, extending the term of their
agreement to December 31, 1999, subject to mutual consent of both parties to
extend this term for successive one-year periods. The agreement is exclusive as
to Ralph's, but not to the Company. Under the July 1, 1994, contract, the
Company paid a one-time licensing fee of $700,000 to procure the license and
under the most recent contract, the Company agreed to pay an additional
licensing fee of $100,000. See "Use of Proceeds." The Company is also required
to pay $1,500 to Ralph's at the completion of installation at each location as
an additional license fee, as well as rent for each location during each four
week period equal to 10% of gross sales during the period or $1,000, whichever
is greater. Sales are
20
<PAGE>
electronically tracked by the store at the register. (At March 12, 1996 there
were two service concessions which were incurring rent expense based upon gross
sales.) The Company bears the cost and expense of installing each concession,
and at the termination of the agreement is required to remove all concessions at
its own expense. The Company is also obligated to operate, maintain and staff
the concessions at its own expense. Ralph's provides all light, heat,
electricity and air conditioning, and oversees the selection of the coffee,
coffee related products and accessories which are sold at these concessions, as
well as all advertising at each concession. The Company and Ralph's mutually
agree upon and select which stores have the market demographics necessary to
support a concession. Pursuant to this agreement, all inventory is billed to
Ralph's when delivered to a store, and the invoice is paid within 15 days; thus,
the Company recognizes revenue at delivery and invoicing and Ralph's becomes the
owner of the inventory at that time. This agreement may be terminated for cause
by Ralph's on 30 days' prior, written notice for failure to (i) make payments
under the agreement, (ii) follow the rules and regulations established by
Ralph's from time to time, or (iii) observe the other terms of the agreement.
If terminated without cause, a pro rata portion of the $100,000 fee would be
returned to the Company, and the Company would be returned all the one time
fees of $1,500 per location paid by the Company. If terminated, Ralph's remains
the owner of the inventory. In the event of a material breach of the agreement,
Ralph's can terminate the agreement upon ten days written notice without charge
to Ralph's. See "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business - Expansion Within
Ralph's."
EXPANSION WITHIN RALPH'S
There were approximately 268 Ralph's stores at January 31, 1996.
Ralph's began an expansion program in Southern California during 1995.
Management of Ralph's and the Company previously estimated that approximately 15
of these new locations would support the concessions of the Company. During
1995, five of these locations were installed with coffee concessions. If the
current construction schedule of Ralph's remains in place, the Company estimates
that an additional ten concessions will be installed and in operation by the end
of 1996. As of April 30, 1996 four concessions had been installed.
Ralph's was acquired in 1995 by The Yucaipa companies ("Yucaipa")
through the merger of Ralph's with Food-4-Less, a wholly-owned subsidiary of
Yucaipa. Food-4-Less operated, as of September 30, 1995, 468 supermarkets in
Southern California, Northern California and the Midwest under the Alpha Beta,
Food-4-Less, Boys, Viva, Cala, Bell, FoodsCo and Falley's names. The combined
entities own and operate 385 supermarkets in Southern California, primarily
under the Ralph's and Food-4-Less names, 25 in Northern California and 38 in the
Midwest. During 1995 and 1996, 117 Alpha Beta stores have been or will be
remodeled and renamed as Ralph's stores. Ralph's management anticipates
concluding this construction by mid-1996. Management of Ralph's and the Company
believe that approximately 15 of these remodels will support the Company's
concessions. Management believes that all of these remodels will be installed by
the end of 1996.
The direct cost of installing a fixture averages approximately $3,500,
which includes the approximate average cost of purchasing and installing the
fixture ($2,700) and the approximate average cost of purchasing and installing
the equipment for the fixture, including the brewer and grinders ($800). The
Company is invoiced for these costs by the vendors on the first day of the month
following delivery to the store. In addition, when the installation of a
fixture is complete, the Company is required to pay Ralph's under their
exclusive license agreement $1,500 as a construction fee.
The Company purchases on average approximately 1,000 pounds of coffee
from its supplier for each new concession. The coffee is invoiced to Ralph's at
retail when it is received at the store in accordance with the terms of the
license agreement between the Company and Ralph's. Ralph's pays the invoice
within 15 days; thus, the full retail price of the inventory, approximately
$10,250, is received by the Company within 15 days of the opening of each
location. The wholesale price for the coffee, approximately $3,050, is billed
to the Company by the supplier on the first day of the month following delivery
to a warehouse of the Company, which is generally within five days of delivery
to the store. The invoice from the supplier is due 30 days after receipt by the
Company.
The Company receives approximately $10,250 within 15 days of the
opening of each concession from the purchase of coffee, and immediately pays
Ralph's $1,500 for the concession. The Company pays approximately $3,500 in
direct costs for the purchase and installation of the fixture and $3,050 in
inventory costs, each of which do not become due until 30 days after the
invoices arrive, which is after the Company is paid by Ralph's. This leaves the
Company approximately $2,200 from the opening of each location to provide
working capital.
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<PAGE>
Given the foregoing, and assuming construction and remodeling continue
as planned and that the identified locations are installed with service
concessions, the Company expects to have approximately 80 concessions in
operation within Ralph's by the end of 1996. Management does not believe that
any of the proceeds from this offering will be necessary to provide for the
expansion within Ralph's. See "Risk Factors," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Business - Distribution of
Coffee."
The immediate expansion plans of the Company for the installation of
service concessions are dependent upon the Company maintaining its current
channel of distribution. Although the Company has been informed by Ralph's that
additional service concessions are to be installed during 1996 and some
installations have been scheduled, there can be no assurance that this expansion
will in fact occur since the Company has no binding agreement in this regard or
that, if such does occur, it will be profitable to the Company or that
management is capable of managing the expansion. See "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SUPPLY OF COFFEE
Prior to August 25, 1995, the Company was obligated to purchase its
supply of gourmet coffee exclusively from Brothers, the country's largest
wholesale and retail supplier of gourmet coffee. On that date, the Company
entered into an agreement (the "Supply Termination Agreement") with Brothers to
supersede all previous agreements between the parties. Under the terms of the
Supply Termination Agreement, the Company and Brothers terminated the obligation
of the Company to purchase its supply of coffee exclusively from Brothers and
agreed to the consolidation, satisfaction and structured repayment of certain
debt which had been accrued by the Company in favor of Brothers during the term
of their relationship, which dated back to 1989. On the date of execution, the
Company paid to Brothers the sum of $75,000 and paid another $50,000
approximately 30 days later. The Company further agreed to pay Brothers
approximately $740,000, as evidenced by two unsecured promissory notes. Pursuant
to the Supply Termination Agreement, the Company and Brothers mutually released
all claims, demands and liabilities between them, with the exception of those
obligations specifically set forth in the agreement, as well as those accounts
payable accrued after June 1, 1995. Included within the debt released was
$350,000 in slotting fees which Brothers had paid on behalf of the Company to
Ralph's. The debt remaining to be repaid arose principally from the start-up and
expansion of the Company and consisted of (i) unpaid trade accounts accrued to
April 1, 1993, and (ii) slotting fees paid by Brothers on behalf of the Company
to obtain space for the concessions of the Company in Ralph's. Additionally, the
Company acquired from Brothers under this agreement all concession fixtures and
equipment in those stores installed prior to the date of the agreement, valued
at approximately $200,000.
On November 22, 1995, the Company executed a promissory note in the
principal amount of $292,312.78, which evidenced accrued accounts payable due
Brothers after the execution and delivery of the Supply Termination Agreement.
The Company made its first payment under this note on December 15, 1995, but
Brothers initiated suit on this note after this date in the Circuit Court for
the 15th Judicial District in and for Palm Beach County, Florida. The Company
and Brothers settled the matter without the necessity of an answer to the
complaint by the Company on January 25, 1996, by agreeing to a joint stipulation
for the settlement of all obligations between Brothers and the Company,
including the obligations under the Supply Termination Agreement and the note
discussed immediately above, an aggregate of $1,025,280 in principal as of
January 25, 1996. Brothers agreed to reduce this amount to $717,696 if paid by
April 1, 1996, and if not paid by April 1, 1996, the $1,025,280 would be payable
in 40 equal monthly installments of $30,246 beginning April 1, 1996 and ending
July 1, 1999. Brothers subsequently extended the April 1, 1996 due date until
June 7, 1996. Pursuant to the settlement agreement, the Company paid Brothers
$15,000 on January 25, February 17, and March 13, 1996, and $30,246 on April 1,
and May 1, 1996, which amounts were credited against the $717,696 due Brothers.
In consideration for the extension until June 7, 1996, the Company agreed to pay
interest at 10% per annum from April 1, 1996 on the balance then due, which
interest was paid with the $30,246 payment on May 1, 1996. See "Use of Proceeds"
and "Business - Litigation."
The Company has been purchasing coffee from Grounds for Coffee, an
unaffiliated entity located in Salt Lake City, since September 11, 1995,
pursuant to a contract which is currently on a month-to-month basis, allowing
for termination by either party with or without cause on 30 days' prior written
notice. The facilities of Grounds for Coffee are sufficient to allow for the
demands of the Company at present and into the foreseeable future. Invoices are
delivered monthly and are payable within 30 days. The price paid by the Company
is the base price for the green bean, plus (i) the cost of roasting and bagging,
(ii) an allowance for general and administrative expenses, and (iii) a
negotiated profit. The Company pays the cost of delivery from Salt Lake City to
its warehouses in California. The
22
<PAGE>
price per pound paid by the Company therefore fluctuates with the green bean
market and delivery costs. These costs have been trending downward for the five
months ended February 29, 1996, although green bean and delivery costs have
fluctuated widely during the past two years and there is no assurance that these
costs will continue to maintain their present levels. In addition to Grounds for
Coffee, the Company has sourced two other coffee roasters, both of which are
willing to begin delivering product immediately on the same or a more favorable
cost basis as Grounds for Coffee. Management is aware of at least one other
roaster which would also be cost competitive. The average price per pound for
coffee as of March 12, 1996, was $2.90, which is a savings of $1.45 per pound
over the $4.35 price per pound charged by Brothers. The Company purchased
299,538 pounds of coffee in 1995; thus, if the foregoing benefits had previously
been available to the Company, a cost savings of approximately $434,430 would
have resulted. See "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
and "Business - Litigation."
OTHER EXPANSION PLANS
Immediately following the close of this offering, the Company intends
to either acquire or establish a roasting operation. Management believes this
will allow the Company to establish and maintain a consistent, high-quality
coffee for distribution through its service concessions, and will further allow
the Company to increase its operating cash flows and margins and meet its
anticipated increased demand for whole bean gourmet coffee. There are many
coffee roasters which management believes would be receptive to an acquisition
proposal, although it has not entered into substantive discussions with any
entity for this purpose. Further, there is a substantial labor pool which the
Company could access to establish a roasting operation, and there is an
established market for new and used equipment market for roasting equipment.
Thus, management believes that the Company will be able to acquire or establish
a roasting operation immediately following the close of this offering, although
there can be no assurance that the Company will be successful in this endeavor.
Further, there can be no assurance that the Company could operate a roasting
facility that would be commercially viable or that would produce a consistent,
high-quality product. Present management has no experience in either owning or
managing a roasting facility. See "Risk Factors," "Expansion Within Ralph's" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company has established a warehouse and delivery system ("DSD") in
San Diego to supply coffee to the service concessions in that area. This
warehouse also houses the executive offices and has the capacity to house the
roasting facilities of the Company. The Company has purchased a delivery truck
and has employed one driver in connection with the operation of the DSD. The
Company has also leased a smaller DSD facility in the Los Angeles metropolitan
area and has purchased a delivery truck and hired one driver and two part-time
warehouse workers. The Los Angeles facility is smaller than the San Diego
facility, since the latter facility houses executive offices and has space
available to house the roasting operations of the Company. Each DSD is capable
of supplying approximately 35 to 45 locations. The Company will be required to
establish an additional DSD in the Los Angeles area during the latter part of
1996 to meet the demands of the additional locations resulting from the
expansion in the Ralph's stores and other grocery chains in Southern California.
The market for commercial warehouse space in Southern California is highly
competitive and the DSD space was leased at prices which are not substantially
in excess of the price previously being paid solely for the executive offices of
the Company. Further, there is also a competitive market for delivery trucks and
there is a substantial labor pool in this area for delivery drivers. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company recently hired a full-time marketing executive to
establish a plan to market and sell the service concession concept within
Southern California outside of Ralph's. If such efforts are successful, the
Company will develop such a plan to expand the geographical area of operations
north to the San Francisco Bay area, particularly the area bounded by San
Francisco, San Jose and Oakland, as well as to Arizona and Illinois. A portion
of the proceeds from this offering has been allocated to these purposes. See
"Risk Factors," "Business - General," "Use of Proceeds," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Management."
The Company has exerted its best efforts to estimate the costs of
expansion; however, any expansion is problematical and extremely difficult to
accurately gauge in terms of cost. If management's estimates are not accurate
and there are cost overruns, the proceeds from this offering may be inadequate
to sustain the proposed expansion outside of Ralph's. This would require the
Company to obtain additional sources of capital, for which it currently has no
commitment, and which it may not be able to acquire when needed, or, if
acquirable, not on terms favorable to the Company. Any additional equity
financing which may be required to provide for expansion may further dilute the
interests of investors in this offering. See "Risk Factors."
23
<PAGE>
The funds from this offering will permit the Company to (i) fully
provide for the establishment of three delivery systems within Southern
California, (ii) vertically integrate its operations into the roasting of some
gourmet coffee beans, (iii) expand the number of its sales facilities within
Southern California, and (iv) expand outside of Southern California. This,
management believes, will allow for significant growth relative to the past
operating results of the Company. This proposed expansion will subject the
Company to greater overhead, marketing and support costs, and to other risks
associated with entry into new markets. In order to manage this growth, the
Company must improve and expand its operational, financial and management
information and executive systems, and hire, train and manage new employees. If
the Company is not able to manage this growth effectively, its operating results
could be significantly and adversely impacted. See "Risk Factors" and "Use of
Proceeds."
BUSINESS OF COMPANY IS SEASONAL IN NATURE
The Company's business is seasonal in nature, showing substantial
losses during the second and third calendar quarters of each year, while posting
positive operating cash flows during the first and fourth quarters of each year.
The operating results of the first and fourth quarters have substantially
reduced the net losses incurred by the Company since inception, particularly
during 1995. The business is seasonal because coffee is a warm drink which is
more heavily imbibed during the late fall, winter and early spring. See "Risk
Factors" and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations."
SUMMARY OF RECENT DEVELOPMENTS
In the current fiscal year, the Company's operations have been largely
affected by the closing of eleven concessions in February of 1996. As of
April 30, 1996, four locations have been subsequently opened and another nine
are anticipated to be opened by the end of May. The effect of the closings will
be to significantly reduce the Company's revenues for the first and second
quarters, although the Company's management believes that the effect on the
Company's loss will not be proportional because the closed locations were break
even, at best.
Management expects to report a net loss from operations in the first
quarter of 1996 of approximately $220,000 compared to a net loss of
approximately $55,000 in the comparable quarter of 1995 on revenues of
approximately $615,000 in 1996 compared to revenues of approximately $750,000 in
the first quarter of 1995, a decrease in revenues in excess of $130,000. Most of
this decrease in revenues is attributable to the closing of eleven concessions
in February of 1996. In addition to the lost revenues attributable to fewer
concessions, approximately half the decline in revenues is attributable to the
repurchase of inventory from Ralph's made in connection with the closed
concessions. As of April 30, 1996, four of these closed concessions had been
opened in other locations and another nine are scheduled to be open by the end
of May. Management believes that sales from reopened concessions will begin to
favorably affect operations late in the second quarter of 1996 and thereafter.
Additional factors, which constitute part of the Company's planned
expansion, contributed to the 1996 first quarter's increased loss over that
incurred in the same quarter of 1995, including approximately $34,000 in design
and production costs incurred in introducing a new coffee bag for a new product
line, and $33,000 increased marketing, general and administrative expense.
Management does not believe that the increased loss in 1996 reflects a material
adverse change or trend in operations.
The Company has also renegotiated its agreement with Ralph's. This
agreement extends the terms under which the Company is licensed to sell through
Ralph's until December 31, 1999. The Company will pay Ralph's an additional
$100,000 for such extension and the Company plans to pay such amount from the
proceeds of this offering.
Much of the Company's financing during 1996 has come from bridge
loans. The Company issued two of these notes, whose principal amounts total
$262,000, in January of 1996. The Company issued a third note for an additional
$40,000 in May of 1996.
PROPRIETARY RIGHTS PROTECTION
The Company has limited protection for its intangible assets, such as
copyright, tradename or trademark protection, and has no plans to apply for
such. Thus, the Company is relying upon common law protection for these assets,
including the tradename "America's Coffee Cup." There is no assurance the
Company would be successful in any suit to protect its tradename. Any loss of
the exclusive right to the use of these intangible assets would result in
increased competition to the Company and negatively affect cash flows and
revenues. See "Risk Factors."
EMPLOYEES
The Company, as of March 12, 1996, had eight full-time employees,
including Mr. Marsik, and also had 70 part-time employees, all of whom work at
the service concessions selling coffee. See "Business-General."
COMPETITION
The Company maintains the only full-service gourmet bin coffee in
Ralph's; however, at least three other competitors, including Brothers, sell
pre-bagged gourmet coffee in these locations. Although the spaces provided its
competitors are generally several aisles over, they compete directly with the
Company. These entities are all better capitalized than the Company and could,
if they chose to do so, intensify this competition by charging lower prices for
their products, although they have not as yet chosen to do so. The Company has
no competition that it is aware of in its particular niche in the coffee
industry. The Company is a minor participant in the coffee market in general and
the gourmet coffee market in particular. Almost all of its competitors are
better capitalized and have greater financial resources available to them. The
Company will, therefore, continue to be at a competitive disadvantage vis-a-vis
its competitors. See "Risk Factors."
It is possible that the supermarket chains which the Company is
soliciting for expansion outside of Ralph's could install and operate
concessions by themselves or contract with the Company's sources of supply.
Management believes this is unlikely, however, because it has taken the Company
years to refine its sales techniques and business concept. Management believes
this could not be duplicated in a time frame which would make it financially
advantageous for a super market or roaster to open its own concessions since no
store or roaster, to management's knowledge, competes directly with the business
of the Company. Further, Management believes it is very unlikely that any source
of supply to the Company would contract directly with the store due to the
impact on the roaster's reputation from such a predatory practice. Thus, the
benefit of immediate implementation and outside management of the concession
concept by the Company makes it cost effective from the stand-point of the store
and, management believes, counterbalances the possibility of the store opening
its own concessions.
24
<PAGE>
FACILITIES
The executive offices of the Company occupy approximately 2,880 square
feet at 12528 Kirkham Court, Nos. 6 & 7, Poway, California 92064, which also
includes a warehouse and the capacity for roasting operations, and are being
leased for approximately $1,900 per month from an unaffiliated third-party. The
lease began on September 15, 1995, for a three year term. The telephone number
at this address is (619) 679-3290. The warehouse location in the Los Angeles
area is 1,800 square feet. The Company pays approximately $1,100 per month for
three years pursuant to a lease dated August 29, 1995. The service concessions
were, as of March 12, 1996, located in 56 separate locations within Ralph's in
Southern California, with nine replacement locations scheduled for installation
by the end of May, the spaces for which are leased subject to an agreement with
Ralph's. These concessions were all in good condition as of that date, are owned
and operated by the Company and occupy approximately 24 square feet each. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business - Distribution of Coffee."
LITIGATION
Brothers Litigation
Brothers initiated suit against the Company in December 1995, in the
Circuit Court for the 15th Judicial District in and for Palm Beach County,
Florida. The suit claimed that the Company had failed to make payments under a
promissory note for accrued payables due Brothers after the execution and
delivery of the Supply Termination Agreement. The Company was prepared to defend
the suit vigorously, as the first and only payment then due had been made. The
Company and Brothers settled the matter on January 25, 1996 without the
necessity of the Company filing an answer, by agreeing to a joint stipulation
for the settlement of all obligations between Brothers and the Company,
including the two promissory notes included under the Supply Termination
Agreement and the note for accrued payables incurred thereafter, an aggregate of
$1,025,280 in principal as of January 25, 1996. Under the terms of this
settlement, the amount which the Company was required to pay Brothers by April
1, 1996, was $717,696, resulting in a release to the Company of an additional
$307,584 of debt, which will have an equal impact on shareholders' equity. As
originally agreed, if this payment was not made by April 1, 1996, the total
amount due Brothers would increase to $1,025,280, which will be required to be
repaid, with interest at the rate of 10% per annum, in 40 equal monthly
installments of $30,246.57 beginning on April 1, 1996, and ending on July 1,
1999. This obligation is unsecured. The Company, paid $15,000 to Brothers on
January 25, 1996, February 17, and March 13, 1996 and $30,246 on April 1, and
May 1, 1996, all of which were credited to the $717,696 balance. Brothers
subsequently agreed to allow the Company until June 7, 1996, to make this lump
sum payment; provided, however, that all of the other terms of the settlement
are adhered to. If the Company does not repay this obligation by June 7, 1996,
and then does not make the monthly repayments, a judgment will be entered
against it in the amount of $1,025,280, less the good faith payments and all
other payments to the date thereof, plus interest, and the costs and expenses of
entering the judgment and collecting the same. Brothers would then be entitled
to exercise its rights as a judgment creditor and attach and sell all of the
assets of the Company, subject to the rights of existing lien holders. See "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operation-Liquidity and Capital Resources" and
"Business-Supply of Coffee." Brothers has the right to enter judgment against
the Company in the event the Company defaults under the terms of the stipulation
for settlement.
Matossian and Fidiparex S.A. Threatened Litigation
In December of 1995 counsel for Robert Matossian and Fidiparex S. A.
demanded rescission of and subsequent conversion into Common Stock of notes
which the Company entered into with certain affiliates of Mark S. Pierce on
December 30, 1994, alleging, among other claims, breach of fiduciary duty to the
Company by Messrs. Marsik and Pierce. The notes were converted into Common Stock
on August 17, 1995. Mr. Matossian was a consultant to the Company from June 1,
1993 until July 31, 1995, when the consulting agreement was terminated by the
Company. See "Certain Relationships and Related Transactions." Mr. Matossian was
also a director of the Company with Mr. Pierce and Robert W. Marsik during the
time that the notes were entered into and the conversion of the notes effected.
25
<PAGE>
MANAGEMENT
The following table sets forth all current directors and executive
officers of the Company, as well as their ages:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert W. Marsik 49 Director and President, Chief Executive and
Financial Officer and Treasurer
Mark S. Pierce 38 Director and Secretary
Michael D. Vandenberg 38 Director of Marketing
Roger F. Tompkins 52 Director
</TABLE>
ROBERT W. MARSIK, effective May 17, 1993, was elected a Director and
appointed of President of the Company. On September 1, 1995, he also assumed the
positions of Chief Executive and Financial Officer and Treasurer. From March
1990 to May 1993, Mr. Marsik served as President of PCI Instruments Company
("PCI"), an Englewood, Colorado, manufacturer of test instruments targeted at
the electrical contractor market. While at PCI, Mr. Marsik developed and
implemented a nationwide marketing plan for five commercial/industrial products.
Mr. Marsik graduated in 1970 from the University of Maryland at College Park,
Maryland, with a degree in Business Administration/Marketing. Mr. Marsik filed
for personal bankruptcy on July 1, 1993, and received a discharge. Mr. Marsik
has entered into an employment agreement with the Company. See "Risk Factors"
and "Management - Employment Agreement."
MARK S. PIERCE has been counsel to the Company since September, 1993,
and in October, 1994, was elected a Director and secretary. He has been a
director of Intercell Corporation since April, 1992, and was an executive
officer from that time until July 7, 1995, when it acquired the assets of
another business. Intercell is a publicly-held corporation with a class of
equity securities registered under Section 12(g) of the Exchange Act. Mr. Pierce
was the secretary and a director of Forestry International, Inc., a publicly-
held Colorado corporation from December 24, 1992, until April 7, 1995, at which
time he resigned to pursue other business interests. Mr. Pierce was a director,
and subsequently an executive officer, from May 22, 1992, until January 14,
1994, of Indemnity Holdings, Inc. a publicly-held corporation which is now known
as Star Casinos International, and which is now engaged in the development of
gambling casinos in Colorado and off the coast of Florida. From September 1,
1993, until April 7, 1995, Mr. Pierce was the President and a director of a
small, privately-held merchant banking firm with six employees, including
himself. In his capacity, he was involved in the supervision of five employees
and worked with independent consultants in the areas of marketing, public
relations, accounting, law and corporate finance. Prior to September 1, 1993,
Mr. Pierce was engaged in the private practice of law in Denver, Colorado, where
he specialized in mergers, acquisitions, the representation of publicly-held
companies, bankruptcy and international transactions. Mr. Pierce graduated from
the University of Wyoming in Laramie, Wyoming, in May, 1979, with a Bachelor of
Science degree in Accounting with honors. He passed his examination as a
Certified Public Accountant in May, 1979. Mr. Pierce received his Juris
Doctorate from the University of Colorado in Boulder, Colorado, during May of
1983. He is a member of the Colorado Bar Association, and is a member of the
securities and international subsections of this association.
ROGER F. TOMPKINS has served as a director of the Company since
September 1, 1995. From November, 1985, until January, 1996, Mr. Tompkins was a
director and the sole executive officer of Power Capital Corporation, a
consulting firm which, through a wholly-owned subsidiary, Concepts Associates,
Inc., during Mr. Tompkins' tenure, specialized in mergers, acquisitions,
corporate finance and public relations. Power Capital is publicly-held, and
acquired in January of this year a business in China which is developing a
Sheraton Hotel and adjoining commercial complex in the Beijing metropolitan
area. Mr. Tompkins resigned as an officer and a director of Power Capital after
this acquisition. Since August, 1980, Mr. Tompkins has been a director and an
executive officer of Concepts Associates, which, until January of 1996, was a
wholly-owned subsidiary of Power Capital. Mr. Tompkins purchased Concepts
Associates from Power Capital in January and is now conducting the previous
business of Power Capital through Concepts Associates. From its inception in
February, 1988, until May, 1992, Mr. Tompkins served as Chairman of the Board of
Directors and Chief Executive Officer of Stone Mountain Industries, Inc., a
publicly-held corporation with a class of equity securities registered under
Section 12(g) of the Exchange Act which is now known as Star Casinos
International, Inc., and is now engaged in the development of gambling casinos
in Colorado and off the coast of Florida. During 1961 and 1962, Mr. Tompkins
attended Farleigh Dickenson University but did not receive a degree.
26
<PAGE>
MICHAEL F. VANDENBERG was hired as the Director of Marketing for the
Company on October 9, 1995. From June, 1994 until October 9, 1995 he held the
position of Key Account Manager for the Boston region of Brothers Gourmet
Coffee. From March, 1994 to June 1994, he was the Sales Manager for in
California for Jo Ann Benci Service in Los Angeles. From 1978 until March, 1994,
Mr. Vandenberg worked for Nestle Beverage/Sark's Gourmet Coffee as a route
salesmen, route supervisor and Operations Manager. In November, 1992 he was
promoted to Account Manager. Mr. Vandenberg graduated from the El Camino College
in June, 1986, with an emphasis in Business Management.
No current director has any arrangement or understanding whereby they
are or will be selected as a director or as an executive officer, other than Mr.
Marsik. All directors will hold office until the next annual meeting of
shareholders and until their successors have been elected and qualified, unless
they earlier resign or are removed from office. The executive officers of the
Company are elected by the Board of Directors at its annual meeting immediately
following the shareholders' annual meeting. The Company does not have any
standing audit, nominating or compensation committee, or any committee
performing similar functions. See "Management - Executive Compensation."
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid to Mr. Marsik for the years ended December 31, 1993, 1994 and 1995. Mr.
Marsik was the sole executive officer during 1993, 1994 and until October 9,
1995, when Mr. Vandenberg was hired.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
AWARDS
------
NAME AND ANNUAL COMPENSATION SECURITIES
-------------------
PRINCIPAL POSITION FISCAL YEAR SALARY BONUS UNDERLYING OPTIONS
- ------------------ ----------- ------ ----- ------------------
<S> <C> <C> <C> <C>
Robert W. Marsik, President 1995 $85,000 -0- -0-
Chief Executive, Financial and 1994 72,000 -0- -0-
Accounting Officer, Treasurer 1993 48,700 -0- $10,625
</TABLE>
_____________
(1) In December 1993, Mr. Marsik was granted a bonus of 2,875 shares of
"restricted" Common Stock of the Company, which was valued at $10,625.
No compensation was paid to any member of the Board of Directors in
their capacities as such during 1993 or 1994. Effective January 1, 1995, the
Company established a deferred compensation plan (the "Plan") for the purpose of
attracting new directors and retaining existing directors. The form of the Plan
is commonly referred to as a "Rabbi Trust." The Plan has a term of three years
which began on January 1, 1995, and is administered by and subject to the
discretion and fiduciary obligations of the Plan's trustee, Patrick J. Tobin,
Esq. Under the terms of the Plan, each director serving the Company will receive
in arrears approximately 555 shares of common stock per month for his services.
Each share earned will be held in trust under the Plan and will not be
distributed until the later to occur of December 31, 1997, or the termination of
the participant director's employment or affiliation with the Company. Further,
any participant receiving shares from the Plan is restricted from transferring
the shares so that no more than 10% of the total number of shares vested and
distributed under the Plan for the benefit of the individual are available for
sale in any three month period. The shares distributed will bear a "restrictive"
legend to enforce the foregoing. The Plan shares are subject to the claims of
the creditors of the Company until such time as they are distributed to
participating directors. For this reason, there is no taxable deduction to the
Company for employment expense at the time of grant or vesting and,
correspondingly, no taxable income to the participating directors at these
times. Only at the time of distribution will a taxable event on any of the
shares be recognized. As of the date of this Prospectus, no shares had been
awarded under the Plan to any director, and shares which have been earned have
not yet been issued and when issued, will be held in trust subject to the claims
of the creditors of the Company until the later to occur of December 31, 1997,
or the termination of the participant director's employment or affiliation with
the Company.
EMPLOYMENT AGREEMENTS
Mr. Marsik has entered into a new employment contract with the Company
which began on September 1, 1995, and has a five year term ending September 1,
2000. Mr. Marsik has entered into an employment contract with the Company which
began on September 1, 1995, and has a five year term ending September 1, 2000.
Mr. Marsik receives a base salary of $100,000 per year and $500 per month as a
car allowance under this agreement, as well as health insurance under the
Company's policy and vacation benefits. Mr. Marsik and the management and
operations teams which he selects, including Mr. Vandenberg,
27
<PAGE>
will, beginning in 1996, also receive performance bonuses under this agreement
as follows: (i) 10% of those gross revenues exceeding $4,500,000 to and
including $5,500,000; (ii) 9% from $5,500,001 to $6,500,000; (iii) 8% from
$6,500,001 to $7,500,000; (iv) 7% from $7,500,001 to $8,500,000; (v) 6% from
$8,500,001 to $9,500,000; and (vi) 5% of those gross revenues exceeding
$9,500,000. These bonuses will be payable through the delivery of one-half in
cash and one-half in Common Stock valued at the market price at the date of
payment. This agreement also prohibits Mr. Marsik from competing with the
Company for a period of three years after termination, irrespective of the
reason for termination.
Mr. Vandenberg entered into an employment agreement with the Company
on October 2, 1995, beginning October 9, 1995. His annual salary is $67,200, and
he is entitled to a $500 per month car allowance, two weeks of vacation during
the first two years of employment and three weeks thereafter, and health
insurance coverage for him and his family under the Company's current policy.
Mr. Vandenberg may also become entitled to an annual commission of up to 35% of
his base salary, or $22,800 annually. This commission will have three segments:
(i) 37.5% of the commission will be tied to Mr. Vandenberg's establishing new
accounts for concessions and causing these accounts to set up test stores, and
to generating new accounts for whole bean coffee other than through concessions;
(ii) 37.5% will be tied to specific dollar volume sales goals; and (iii) 25%
will be tied to retaining new accounts once established. Mr. Vandenberg may also
earn bonuses of: (i) options over a five year period to acquire up to 50,000
shares of Common Stock under the ISOP discussed below based upon new business
and the retention of that business; and (ii) Common Stock equaling up to 10,000
shares per year, which will be tied to establishing new accounts and setting up
test stores for concessions and generating new accounts for whole bean coffee
outside of concessions. The Company and Mr. Vandenberg have yet to agree on and
establish the foregoing commissions and bonuses, but they will be paid under the
terms of the bonus provisions which apply to Mr. Marsik and will reduce the
amounts available to other members of the operations teams, including Mr.
Marsik. The agreement may be terminated by Mr. Vandenberg and by the Company at
any time; provided, however, that the Company must pay Mr. Vandenberg one month
severance pay, plus any accrued salary, vacation and commissions to the date of
termination in the event that it terminates the agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
The commission and bonuses which will be paid to Messrs. Marsik and
Vandenberg, as well as to other individuals who may be hired by the Company as a
part of the operations team, will decrease cash flows of the Company by one-half
of the total amount of these commissions and bonuses and will reduce operating
profits or increase operating losses by the full amount. These payments will be
paid one-half in cash and one-half in Common Stock under the ISOP discussed
below, irrespective of the cash flows or profits generated or losses averted.
The bonuses and commissions were computed by the Company based upon its past
operating results. If the foregoing sales objectives are achieved, which
requires an increase by approximately 27.16% over 1994 results, management
believes there will be sufficient cash flow and operating profit available to
absorb these increases in compensation.
STOCK OPTION PLAN
On September 1, 1995, the Board of Directors and shareholders of the
Company adopted an incentive stock option plan ("ISOP") for employees of the
Company and its subsidiaries. The ISOP is intended to advance the best interests
of the Company by providing those persons who have a substantial responsibility
for its management and growth with additional incentive by increasing their
interest in the success of the Company, thereby encouraging them to remain in
its employ. Further, the availability and offering of options under the ISOP
supports and increases the ability of the Company to attract and retain
individuals of exceptional managerial talent upon whom, in large measure, the
sustained progress, growth and profitability of the Company depends. Only
employees who have contributed to the profitability or administration of the
Company and/or its subsidiaries are eligible to participate and are only
entitled to receive that number of shares which fairly reflects the value of
their services. The ISOP is presently being administered by the Board of
Directors. The 500,000 shares available for grant under the ISOP have been
registered under the Securities Act. All options granted under the ISOP will be
evidenced by agreements which will be subject to the provisions of the ISOP, as
well as such further provisions as may subsequently be adopted. The option price
per share will be determined by the Board of Directors at the date of grant, but
will at least equal the fair market value of the Common Stock on the date of
grant. Any person owning 10% or more of the voting power of the Company who may
receive grants under the ISOP will have an exercise price equaling or exceeding
110% of the fair market value. All options must be granted within ten years of
the date of the ISOP, and no option may extend beyond the expiration of five
years from the date of grant. As of January 31, 1996, no options had been
granted under the ISOP.
28
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, on June 1, 1993, entered into a Financing Agreement of
Understanding with Fidiparex, S.A. ("Fidiparex"), which is controlled by Robert
Matossian, a former director and current shareholder of the Company. Pursuant to
this agreement, a $100,000 principal amount line of credit was extended by
Fidiparex to the Company, of which $25,000 was drawn during the years 1993 and
1994. The $25,000 was repaid prior to December 31, 1994, the date on which the
line of credit expired. Mr. Matossian, through an affiliated entity, also
received $5,000 per month for his services from June 1, 1993, through July,
1995. These fees were paid pursuant to a contract dated June 1, 1993, which was
terminated on July 31, 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
The Company, on December 30, 1994, sold to affiliates of Mr. Pierce,
then a director, $110,000 in principal amount of 11.5% promissory notes. These
notes were required to be either redeemed or converted into shares of Common
Stock by December 30, 1995, unless earlier converted at the election of the
holders at the lower of $2.00 per share or the market therefor at the date of
conversion. Market price was defined in the notes as being the average bid price
on the day of the conversion. These notes were converted on August 17, 1995,
into 589,848 "restricted" shares of Common Stock at a conversion price of $0.20
per share. The conversion price was for an amount less than the par value of the
stock and, accordingly, additional consideration had to be contributed for the
payment of these shares. The Company's Board of Directors deemed the total
consideration to be $0.90 per share, or an aggregate of $530,863. The Company
determined that $44,387 of legal fees would be allocated to this amount in
addition to the principal and interest converted to Common Stock. In addition,
Mr. Pierce had asserted that the original note purchased by him had been
purchased in connection with material misrepresentations about the status of
the Company. Mr. Pierce agreed to release all claims against the Company in
connection with this purchase and the Company's Board of Directors valued such
release as equal to $119,970. The directors valued the personal guarantees
discussed below at $19,306 and the balance, $231,230, the directors determined
was a compensation expense. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
On October 9, 1995, the Company purchased two trucks for use in its
delivery system at an aggregate purchase price of $62,884. The Company paid
$9,740 in cash at closing, and the remaining $55,000 was financed through an
unaffiliated third-party for a five year period at an annual percentage rate of
11% with monthly payments of $1,175. Because the Company was unable to obtain
credit for these purchases and was unable to provide adequate security for the
purchases, Mr. Pierce, guaranteed the obligations. The Company executed a
revolving line demand promissory note in favor of Mr. Pierce which will become
operative in the event that Mr. Pierce is called upon to satisfy his guarantee
of these obligations. This note bears interest at the rate of 18% per annum and
is secured by all assets of the Company, including the trucks.
The Company believes that the foregoing transactions with its officers
and directors were on terms no less favorable than could have been obtained from
independent third parties. All future transactions, including all loans, between
the Company and its officers, directors and principal shareholders or affiliates
of any of them, will also be on terms no less favorable than could be obtained
from independent third parties and will be approved by a majority of the
independent, disinterested directors.
29
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership as of May 15, 1996, of the Common Stock outstanding
before and after the offering, by (i) each person known by the Company to be the
beneficial owner of more than five percent of the Common Stock, (ii) each
director and executive officer of the Company, and (iii) all directors and
executive officers as a group. Except as otherwise indicated, each stockholder
identified in the table possesses sole voting and investment power with respect
to its or his shares.
<TABLE> <CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF OWNERSHIP PERCENTAGE OF OWNERSHIP
BENEFICIAL OWNER BENEFICIALLY OWNED PRIOR TO OFFERING AFTER THE OFFERING(1)
---------------- ------------------ ----------------- ------------------
<S> <C> <C> <C>
Robert W. Marsik (1) 189,804 22.45% 6.67%
Mark S. Pierce 187,679(2) 22.20 6.60
Roger F. Tompkins - - -
Michael D. Vandenberg - - -
All executive officers and directors 377,483 44.65% 13.27%
======= ====== ======
as a group (4 persons)
</TABLE>
__________
(1) Assumes immediate conversion of Series A Preferred Stock into 2,000,000
shares of Common Stock.
(2) Mr. Marsik purchased 187,679 shares from Mr. Pierce's pension fund and minor
son on September 1, 1995. The purchase price will be paid over a three year
period ending September 1, 1998. The shares were pledged to secure the
purchase price and Mr. Pierce holds the certificates as security. Mr.
Marsik was current in his payment obligation as of date of this Prospectus.
(3) Shares beneficially owned by Mr. Pierce through his pension fund, of which
he is the sole beneficiary and trustee.
The address for Robert W. Marsik and Michael D. Vandenberg is 12528
Kirkham Court, Nos. 6 & 7, Poway, California 92064; the address for Mark S.
Pierce is 4221 East Pontatoc Canyon Drive, Tucson, Arizona 85718; the address
for Roger F. Tompkins is 331 Kenilworth Circle, Stone Mountain, Georgia 30083.
The Company is not aware of any arrangement which may at a subsequent date
result in a change of control of the Company, other than as set forth above in
footnote one. No arrangement or understanding presently exists for the election
of directors or executive officers, other than the employment agreement of Mr.
Marsik. See "Employment Agreements."
30
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 10,000,000 shares
of Common Stock, $0.40 par value and 1,000,000 shares of preferred stock, $0.40
par value (the "Preferred Stock"). Upon consummation of this offering, 2,845,567
shares of Common Stock will be outstanding, without giving effect to the
Underwriter's over-allotment option or the exercise of the Underwriters'
Warrants and no shares of Preferred Stock will be outstanding.
UNITS
Each Unit consists of one share of Series A Preferred Stock and ten
Warrants. The one share of Preferred Stock and the ten Warrants included in
the Units may not be separately traded for six months after the date of this
Prospectus, unless separated at the discretion of the Representative.
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock,
$0.40 par value per share. After giving effect to this offering, the issued and
outstanding capital stock of the Company will consist of 2,845,567 shares of
Common Stock, assuming the conversion of the Series A Preferred Stock on
October 1, 1998 and no dividends on the Preferred Stock are declared.
The holders of the Common Stock are entitled to share ratably in
any dividends paid on the Common Stock when, as and if declared by the Board of
Directors out of funds legally available. Each holder of Common Stock is
entitled to one vote for each share held of record. The Common Stock is not
entitled to cumulative voting or preemptive rights and is not subject to
redemption. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in the net assets legally
available for distribution. All outstanding shares of Common Stock are fully
paid and nonassessable.
SERIES A PREFERRED STOCK
Of the 1,000,000 shares of Preferred Stock, the Company has designated
360,000 shares as Series A Preferred Stock, 200,000 of such Preferred Shares to
be issued in this offering. Each share of Series A Preferred Stock
will automatically convert into ten shares of Common Stock on
October 1, 1998. Each share of Series A Preferred Stock is entitled
to ten votes with the Series A Preferred Stock and Common Stock
voting together as though they constitute one class.
However, the approval of holders of two-thirds of the outstanding Series A
Preferred Stock is required where (i) any amendment or repeal or revision to the
Company's Certificate of Incorporation if such action would alter the
preferences, rights, privileges, or powers of, or the restrictions provided for
the benefit of, the Series A Preferred Stock; (ii) authorize, create or issue
any security having any preference or priority superior to any preference or
priority of the Series A Preferred Stock or securities convertible into a
security having such preferences; (iii) reclassify any Common Stock into
shares having any preferences or priority as to dividends or assets superior
to that of the Series A Preferred Shares; or (iv) make any provision in the
Company's Bylaws fixing special qualifications of those that may be holders
of Series A Preferred Shares or any restriction upon the right to transfer or
hypothecate such shares except any provision required by the laws of the
State of Colorado or of the United States of America.
The designation of rights, preferences, and restrictions of the Series A
Preferred Stock also requires mandatory dividends in certain circumstances.
If during the period following June 30, 1997, through August 14, 1997, the
Company's Common Stock trades below $2.50 for ten days and if the Company's
net income before tax exclusive of extraordinary and non-recurring items for the
twelve months ended June 30, 1997, has not exceeded $300,000, then the Company
is required to pay a dividend to the holders of the Series A Preferred Stock of
one-fifth share of Series A Preferred Stock and two Series A Warrants on each
share of Series A Preferred Stock. The record date of such dividend would be
September 1, 1997. Similarly the Company is obligated to pay a dividend of
one-fifth share of Series A Preferred Stock and two Series A Warrants on each
share of Series A Preferred Stock unless the Common Stock of the Company trades
above $2.50 for twenty consecutive days subsequent to August 14, 1997, but
before June 30, 1998, or the Company has a net income before tax of $450,000
exclusive of extraordinary and non-recurring items for the twelve months ended
June 30, 1998. The record date for such dividend would be September 1, 1998.
In the event the Company is liquidated, dissolved or wound up, the Company
is required to pay out of the Company's assets, $20.00 per share before any
payment shall be made to holders of the Common Stock. If the assets of the
Company are insufficient to pay such amount, then the assets will be distributed
ratably among the holders of the Series A Preferred Stock.
The designation of rights, preferences, and restrictions contain provisions
that protect the holders against dilution by adjustment of the conversion
price in certain events such stock dividends paid on Common Stock and
distribution, stock splits, recapitalizations, mergers or consolidations and
certain issuances below the fair market value of the Common Stock.
The foregoing discussions of certain terms and provisions of the Series
A Preferred Stock is qualified in its entirety by reference to the detailed
provisions of the certificate of designation of rights and preferences of the
Series A Preferred Stock, the form of which has been filed as an exhibit to the
registration statement of which this prospectus is a part.
SERIES A WARRANTS
In connection with this offering, the Company has authorized the
issuance of up to 2,000,000 Series A Warrants (including 300,000 Series A
Warrants that may be issued upon exercise of the Underwriters' over-allotment
option and 800,000 Series A Warrants which may be issued after issuance pursuant
to potential dividend declared upon the Series A Preferred Stock) and
has reserved an equivalent number of shares of Common Stock for issuance upon
exercise of such 2,000,000 Series A Warrants. Each Warrant will entitle the
holder to purchase one share of Common Stock at a price of $1.50 per share.
The Warrants will be exercisable at any time after the Warrants become separated
from the Common Stock and separately traded until the fifth anniversary of the
date of this Prospectus, unless earlier redeemed. The Series A Warrants are
redeemable by the Company at $.05 per Warrant, upon 30 days' notice, at any
time after six months from the date of this Prospectus, if the closing inside
bid price per share of the Common Stock for ten consecutive trading days' prior
to the date notice of redemption is given equals or exceeds $3.00 per share.
In the event the Company gives notice of its intention to redeem, a holder
would be forced either to exercise his or her Series A Warrant within 30 days
after the date of notice or accept the redemption price. See "Risk Factors."
The exercise price of the Series A Warrants may be reduced at any time
from time to time in the discretion of the Board of Directors when it appears to
be in the best interests of the Company to do so. Any such reduction would
impair the value to holders exercising their Warrants prior to the effective
date of the reduction. See "Risk Factors."
The Series A Warrants will be issued in registered form under a
Warrant Agreement between the Company and Securities Transfer Corporation (the
"Warrant Agent"). The shares of Common Stock underlying the Series A Warrants,
when issued upon exercise of a Series A Warrant, will be fully paid and
nonassessable, and the Company will pay any transfer tax incurred as a result
of the issuance of Common Stock to the holder upon its exercise.
The Series A Warrants contain provisions that protect the holders
against dilution by adjustment of the exercise price in certain events, such as
stock dividends and distributions, stock splits, recapitalization, mergers or
consolidations and certain issuance's below the fair market value of the Common
Stock. The Company is not required to issue fractional shares upon the exercise
of a Series A Warrant. The holder of a Series A Warrant will not possess any
rights as a stockholder of the Company until such holder exercises the Series A
Warrant.
The foregoing discussion of certain terms and provisions of the
Series A Warrants is qualified in its entirety by reference to the detailed
provisions of the Warrant Agreement, the form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
For the Company to redeem or a holder to exercise the Series A
Warrants there must be a current registration statement in effect with the
Commission and qualification under applicable state securities laws (or
applicable exemptions from state qualification requirements) with respect to the
shares or other securities underlying the Warrants. The Company has agreed to
use all reasonable efforts to cause a registration statement or a post-effective
amendment to this registration statement with respect to such securities under
the Securities Act to be filed and to
31
<PAGE>
become and remain effective during the term of the Series A Warrants and to take
such other actions under the laws of various states as may be required to cause
the redemption of the Warrants or the sale of Common Stock upon exercise of
Series A Warrants to be lawful. The Company will not call for redemption or not
be required to honor the exercise of Series A Warrants if, in the opinion of the
Board of Directors upon advice of counsel, such would be unlawful.
See "Risk Factors."
BRIDGE LOAN WARRANTS
In conjunction with the Bridge Loan Notes, the Company issued in
January of 1996 to the two holders thereof, the Bridge Loan Warrants, which
allow the holders to acquire at any time and from time to time during a period
ending five years from the effective date of this Prospectus up to 78,600 units
at a price of $6.50 per unit, each unit consisting of five shares of Common
Stock and five warrants, each Warrant to purchase one share of Common Stock at
$3.00 per share for five years. The shares of Common Stock and warrants
underlying these units have been included in this Registration Statement
and another Registration Statement of which this Prospectus is a part
or related for sale to the holders of the units acquirable
upon exercise of the Bridge Loan Warrants. The agreement which lead to the
issuance of the Bridge Loan Warrants has customary anti-dilution protections
against such matters as reverse stock splits, reclassifications and
reorganizations.
In May of 1996, the Company issued an additional $40,000 note and
$50,000 (the "May Notes") to one of the holders of the existing Bridge Loan
Notes. The note does not have a warrant attached. If this offering is not closed
by July 31, 1996, the Company will (i) repay the Bridge Loan Notes and the May
Note in full and (ii) at the option of the holders thereof, issue a second
warrant, in lieu of and on substantially similar terms as the Bridge Loan
Warrants, to purchase up to 362,614 shares of Common Stock which are included
in the Registration Statement at a price per share which will equal 65% of the
average bid price for these shares for the 20 trading days preceding the
maturity date. If the Bridge Loan Notes and the May Note are
not repaid from the proceeds of this offering,
the holders thereof at their option may either (i) call the Bridge Loan Notes
and the May Note and proceed against the collateral or (ii) surrender the Bridge
Loan Notes and the May Note to the Company in exchange for 403,000 shares of
Common Stock which have also been included in the Registration Statement of
which this Prospectus is a part. See "Risk Factors," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
This Prospectus also relates to the offer and sale of shares of Common
Stock issuable upon exercise of the Bridge Loan Warrants by the holders thereof
from time to time in the market at prevailing market prices pursuant to this
Prospectus. Such shares may be sold directly to or through underwriters, dealers
or agents in market transactions or privately-negotiated transactions at market-
based or negotiated prices.
PREFERRED STOCK
The Board of Directors, without further action by the shareholders, is
authorized to issue up to 640,000 shares of Preferred Stock in one or more
series and to fix and determine, in its sole discretion and on a blank check
basis, as to any series, any and all of the relative rights and preferences of
shares in such series, including, without limitation, preferences, limitations
or relative rights with respect to redemption rights, conversion rights, voting
rights, dividend rights and preferences on liquidation. The Company has no
present intention to issue any Preferred Stock, but may determine to do so in
the future.
It is possible that the Board of Directors could issue Preferred Stock
to thwart a possible takeover. This could be accomplished, for example, by
giving such shares the right to unilaterally veto an acquisition or by providing
a convertibility feature at below market price, which would give the holder the
right to acquire a substantial number of shares of Common Stock, and would
significantly dilute the value of the Company to existing shareholders,
including investors in this offering, and depress the market value of the Common
Stock. This would materially and adversely impact the value to the existing
holders of the Common Stock. See "Risk Factors."
DEBT SECURITIES
On December 30, 1994, the Company sold to unaffiliated investors, on
whose behalf a former director was acting, approximately $123,750 in principal
amount of debt. This debt is evidenced by promissory notes which may be redeemed
at any time upon payment of the outstanding principal and interest thereunder
and must be paid by December 30, 1996. Interest accrues at the annual rate of
9%, which is required to be paid only upon maturity or redemption. The notes are
convertible, in whole or in part at any time, at a price of $9.00 per share of
Common Stock. Pursuant to an offer made by the Company, two of the holders of
these securities converted principal and interest of $78,750 and $8,296,
respectively, for a total of $87,046, into Common Stock valued at $2.00 per
share in February of 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
32
<PAGE>
SHAREHOLDER REPORTS
The Company will furnish to its shareholders annual reports containing
audited financial statements reported on by independent public accountants for
each fiscal year and will make available quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 845,567
shares of Common Stock outstanding. In addition, the Company has registered in
a Registration Statement, 393,000 shares to be issued
pursuant to the Bridge Loan Warrants which will be eligible for sale to the
public in the open market. Of such 845,577 shares of Common Stock,
633,102 shares (the "Restricted Shares") will be "restricted shares" within the
meaning of the Securities Act and may be publicly sold only if registered under
the Securities Act or sold in accordance with an exemption from registration,
such as that provided by Rule 144 under the Securities Act. However, the
officers and directors who are holders of the 377,483 shares, (45% of the
outstanding Common Stock before the offering), have
agreed that they will not, without the prior written consent of the
Representatives, offer, sell or otherwise dispose of any shares of Common Stock
beneficially owned by them or acquired upon the exercise of stock options for a
period of two years after closing of this offering. The Company will announce
any waiver of this lock-up.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) is entitled to sell Restricted Shares if at
least two years have passed since the later of the date such shares were
acquired from the Company or any affiliate of the Company. Rule 144 provides
that within any three-month period such person may only sell up to the greater
of 1% of the then outstanding shares of Common Stock (approximately 8,456
shares following completion of this offering) or the average weekly trading
volume in the Common Stock during the four calendar weeks immediately preceding
the date on which notice of the sale is filed with the Commission. Sales
pursuant to Rule 144 are subject to certain other requirements relating to
manner of sale, notice of sale and availability of current public information.
Any person who has not been an affiliate of the Company for a period of 90 days
preceding a sale of Restricted Shares is entitled to sell such shares under Rule
144 without regard to such limitations if at least three years have passed since
the later of the date such shares were acquired from the Company or any
affiliate of the Company. Shares held by persons who are deemed to be affiliated
with the Company are subject to such sales limitations regardless of how long
they have been owned or how they were acquired.
33
<PAGE>
UNDERWRITING
Pursuant to the terms and subject to the conditions contained in the
Underwriting Agreement, the Company has agreed to sell on a firm commitment
basis to the Underwriters named below, and each of the Underwriters, for whom La
Jolla Securities Corporation and First London Securities Corporation (the
"Representatives") are acting as the Representatives, have severally agreed to
purchase the number of Units set forth opposite their names in the following
table. The Underwriters' obligations are such that if any shares are purchased
they are committed to purchase all Units.
<TABLE>
<CAPTION>
Underwriters Number of Units
- ------------ ---------------
<S> <C>
La Jolla Securities Corporation
First London Securities Corporation
-------
Total 200,000
=======
</TABLE>
The Representatives have advised the Company that the Underwriters
propose to offer the Units to the public at the public offering price per share
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession of not more than $ per Unit, of which $ may be
reallowed to other dealers. After the offering, the public offering price,
concession and reallowance to dealers may be reduced by the Representatives. No
such reduction will change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable
during the 45-day period after the date of this Prospectus, to purchase up to
42,000 additional Units to cover over-allotments, if any, at the same price per
Unit as the Company will receive for the 200,000 Units that the Underwriters
have agreed to purchase. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional Units that the number of
Units to be purchased by it shown in the above table represents as a percentage
of the 200,000 Units offered hereby. If purchased, such additional Units will
be sold by the Underwriters on the same terms as those on which the initial
200,000 Units are being sold.
The Underwriters have the right to offer the Securities only through
licensed securities dealers in the United States who are members of the National
Association of Securities Dealers, Inc. and may allow such dealers such portion
of its ten (10%) percent commission as each Underwriter may determine.
The Underwriters will not confirm sales to any discretionary accounts.
The Company has agreed to pay the Representatives a non-accountable
expense allowance of 3% of the gross amount of the Units sold ($84,000 upon the
sale of the Units offered) at the closing of the offering. The Underwriters'
expenses in excess thereof will be paid by the Representatives. To the extent
that the expenses of the underwriting are less than that amount, such excess
will be deemed to be additional compensation to the Underwriters. A referral fee
of $15,000 will be paid at closing to William Walker, an unaffiliated third
party, for his services in introducing the Company to the Representatives and
assisting in arranging for the underwriting.
The Company has agreed to enter into a two year consulting agreement
with La Jolla Securities Corporation to act as a financial advisor to the
Company at a fee of $20,000 per year ($40,000 in total), commencing 90 days
after the closing of the offering.
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<PAGE>
For a period of 24 months following the completion of this offering,
the Company will allow an observer designated by the Representatives and
acceptable to the Company to attend all meetings of the Board of Directors.
Such observer will have no voting rights, will be reimbursed for all out-of-
pocket expenses incurred in attending meetings, and will be indemnified by the
Company against all claims, liabilities, damages, costs and expenses arising out
of his participation at Board meetings.
The Underwriters are not obligated to make a market in the Securities.
There is no assurance the Underwriters will participate as market makers for the
Common Stock. Although they are not currently obligated to do so, if the
Underwriters should choose to become market makers for the Units, the Warrants
and/or the Common Stock, the Underwriters would not be under any obligation to
continue.
The Underwriting Agreement provides for indemnification between the
Company and the Underwriters against certain civil liabilities, including
liabilities under the Securities Act. In addition, the Underwriters' Warrants
provide for indemnification among the Company and the holders of the
Underwriters' Warrants and underlying shares against certain civil liabilities,
including liabilities under the Securities Act and the Exchange Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company on
the successful defense of any action, suit or proceeding) is asserted by such a
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
UNDERWRITERS' WARRANTS
Upon closing of this offering, the Company has agreed to sell to the
Underwriters for nominal consideration the Underwriters' Warrants. The
Underwriters' Warrants are exercisable at 120% of the public offering price for
a four-year period commencing one year from the effective date of this offering.
The Underwriters' Warrants may not be sold, transferred, assigned or
hypothecated for a period of two years from the date of this offering except to
the officers of the Underwriters and their successors and dealers participating
in the offering and/or their partners or officers. The Underwriters' Warrants
will contain antidilution provisions providing for appropriate adjustment of the
number of shares subject to the Warrants under certain circumstances. The
holders of the Underwriters' Warrants will have no voting, dividend or other
rights as shareholders of the Company with respect to shares underlying the
Underwriters' Warrants until the Underwriters' Warrants have been exercised.
The Underwriters' Warrants and the securities issuable thereunder have
been registered under the Securities Act in connection with this offering;
however, such securities may not be offered for sale except in compliance with
the applicable provisions of the Securities Act. The Company has agreed that,
if it shall cause a Post-Effective Amendment or a new Registration Statement or
Offering Statement under Regulation A to be filed with the Commission, the
Underwriters shall have the right during the five year period commencing on the
date of this Prospectus to include in such Post-Effective Amendment or new
Registration Statement or Offering Statement the Underwriters' Warrants and/or
the securities issuable upon their exercise at no expense to the Underwriters.
For the exercise period during which the Underwriters' Warrants are
exercisable, the holder or holders will have the opportunity to profit from a
rise in the market value of the Common Stock, with a resulting dilution in the
interest of the other stockholders of the Company. The holder or holders of the
Underwriters' Warrants can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital from an
offering of its unissued Common Stock on terms more favorable to the Company
than those provided for in the Underwriters' Warrants. Such factors may
adversely affect the terms on which the Company can obtain additional financing.
To the extent that the Underwriters realize any gain from the resale of the
Underwriters' Warrants or the securities issuable thereunder, such gain may be
deemed additional underwriting compensation under the Securities Act.
35
<PAGE>
PRICING THE OFFERING
The proposed offering and exercise prices of the Units and Warrants
and the number of shares and Warrants constituting the Units were determined in
negotiations between the Company and the Representatives of the Underwriters
based upon an assumed market price of approximately $2.00 per share of Common
Stock. The number of shares of Common Stock and Warrants constituting the Units
may change at the time the Registration Statement of which this Prospectus is a
part is ordered effective by the Commission based upon the then current market
price of the Common Stock, the Company's financial condition and results of
operations for the fiscal year ended December 31, 1995 and other pertinent
factors at the time of the effective date. See "Risk Factors."
PLAN OF DISTRIBUTION FOR BRIDGE LOAN SECURITIES
The shares of Common Stock which may be purchased pursuant to the
Bridge Loan Warrants may be sold from time to time by the holders thereof
through underwriters, dealers or agents, who may receive compensation in the
form of underwriting discounts, concessions or commissions from such holder.
Such sales may be effectuated at any time or from time to time, so long as the
Registration Statement, of which this Prospectus is a part, remains effective,
through transactions that may take place in the market or markets where the
Common Stock is traded, in privately-negotiated transactions or through sales to
one or more broker-dealers for resale, as principals, at market prices
prevailing at the time of sale, at prices relating to such prevailing market
prices or at negotiated prices. Such sales may be sold in one or more of the
following transactions: (i) a block trade in which the broker or dealer so
engaged will attempt to sell the securities as agent but may position and resell
a portion of the block as principal to facilitate the transaction; (ii)
purchases by a broker or dealer as principal and sale by such broker or dealer
for its account pursuant to this Prospectus, (iii) an exchange distribution in
accordance with the rules of such exchange; (iv) ordinary brokerage transactions
and transactions in which the broker solicits purchasers; and (v) a combination
of any such methods of sale. The Company will not receive any of the proceeds
from the sale by the holder of the Bridge Loan Warrants. The Company will pay
the expenses incident to the offering of the Common Stock offered hereby
relating to the preparation of the Registration Statement, of which this
Prospectus is a part. The Company intends to file a Post Effective Amendment to
this Registration Statement to provide a separate Prospectus to the Bridge Loan
Warrant holders.
Under agreements which may be entered into by the holders of the
Bridge Loan Warrants, underwriters, dealers and agents who participate in the
distribution of the Common Stock offered hereby may be entitled to
indemnification by such holder against certain liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments which the underwriters, dealers or agents may be required to make in
respect thereto. Underwriters, dealers and agents may be customers of, engaged
in transactions with, or perform services for the Company or the holder of the
Bridge Loan Warrants in the ordinary course of business.
LEGAL MATTERS
Certain matters with respect to the validity of the Securities offered
hereby will be passed upon for the Company by Robert A. Forrester, 1215
Executive Drive West, Suite 102, Richardson, Texas, 75081. Certain legal matters
will be passed upon for the Underwriters by Maurice J. Bates, L.L.C., 8214
Westchester, Suite 500, Dallas, Texas, 75225.
EXPERTS
The audited balance sheet of the Company as of December 31, 1995, and
the results of operations for the years ended December 31, 1994 and December 31,
1995, included in this Prospectus have been so included in reliance on the
report of Harlan & Boettger, 12626 High Bluff Drive, Suite 200, San Diego,
California, 92130, independent accountants, given on the authority of such firm
as experts in auditing and accounting.
36
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form SB-2 under the Securities Act
with respect to the Securities. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits. For
further information with respect to the Company and the Securities, reference is
made to the Registration Statement and the exhibits filed as a part thereof.
Statements made in this Prospectus as to the contents of any contract or any
other document referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference to such exhibit. The Registration Statement,
including exhibits thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission at 7 World Trade Center, 13th Floor, New York, New York 10048 and
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the
Registration Statement and the exhibits thereto may be obtained from the
Commission at such offices upon payment of prescribed rates.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Commission. Reports and other information can be inspected
and copied at the public reference facilities of the Commission at 450 Fifth
Street, N.W., Washington D.C. 20549; at its New York Regional Office, Room 1400,
7 World Trade Center, New York, New York 10048; and at its Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2411.
Copies of such material can be obtained from the Public Reference Section at
prescribed rates. The Company intends to furnish its stockholders with annual
reports containing audited financial statements and such other periodic reports
as the Company may determine to be appropriate or as may be required by law.
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants F-2
Financial Statements:
Balance Sheets as of December 31, 1994 and 1995,
3 months ended March 31, 1996 F-3
Statements of Operations for the years ended December 31, 1994 and
1995, 3 months ended March 31, 1996 F-4
Statements of Changes in Stockholders' Equity (Deficit) for the years
ended December 31, 1994 and 1995 F-5
Statements of Cash Flows for the years ended December 31, 1994 and
1995, 3 months ended March 31, 1996 F-6
Notes to Financial Statements F-7 - F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
AMERICA'S COFFEE CUP, INC.:
We have audited the accompanying balance sheet of America's Coffee Cup, Inc. (a
Colorado corporation) as of December 31, 1995, and the related statements of
operations, changes in stockholders' deficit and cash flows for the years ended
December 31, 1994 and 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of America's Coffee Cup, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
the years ended December 31, 1994 and 1995 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note J to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these
matters are also described in Note J. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Harlan & Boettger
San Diego, California
February 16, 1996
F-2
<PAGE>
AMERICA'S COFFEE CUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS As of December 31, Three Months Ended
-------------------------- ----------------------
1994 1995 March 31, 1996
------------ ------------ ----------------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 228,864 $ 32,727 $ 2,688
Accounts receivable,
no allowance deemed necessary 209,193 130,455 116,865
Inventories (Note B) 42,206 135,776 119,435
Prepaid expense and other 7,284 15,996 38,642
---------- ----------- -----------
TOTAL CURRENT ASSETS 487,547 314,954 277,630
PROPERTY AND
EQUIPMENT, net (Note C) 53,657 338,085 447,032
OTHER ASSETS
License agreement, net 306,250 218,750 296,875
Slotting fee, net - 61,581 57,798
Deferred offering costs 3,879 72,060 108,468
---------- ----------- -----------
TOTAL OTHER ASSETS 310,129 352,391 463,141
---------- ----------- -----------
TOTAL ASSETS $ 851,333 $ 1,005,430 $ 1,187,803
========= =========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 259,534 $ 259,457 $ 222,352
License fee payable - - 100,000
Bank Overdraft - - 26,475
Accrued expenses 64,085 62,239 90,113
Current portion of long-term debt (Note D) 152,550 722,717 962,217
---------- ----------- -----------
TOTAL CURRENT
LIABILITIES 476,169 1,044,413 1,401,157
LONG-TERM DEBT,
less current portion (Note D) 808,231 480,160 457,660
SHAREHOLDERS' DEFICIT
Common stock, $0.40 par value (10,000,000 shares authorized,
212,075 and 802,043 shares issued and outstanding as of
December 31, 1994 and 1995,
respectively) (Note G) 84,830 320,816 338,226
Preferred stock, $0.40 par value (1,000,000 shares authorized,
none issued and outstanding December 31, 1994 and 1995,
respectively) (Note G) - - -
Additional paid-in-capital (Note K) 71,497 366,373 436,010
-----------
Accumulated deficit (589,394) (1,206,332) (1,445,250)
---------- ----------- -----------
TOTAL SHAREHOLDERS'
DEFICIT (433,067) (519,143) (671,014)
---------- ----------- -----------
$ 851,333 $ 1,005,430 $ 1,187,803
========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
AMERICA'S COFFEE CUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
For the years ended For the three months ended
------------------------------------ ------------------------------------
December 31, December 31, March 31, March 31,
1994 1995 1995 1996
-------------------- -------------- --------------- -------------------
<S> <C> <C> <C> <C>
SALES $3,278,938 $3,095,955 $749,637 $616,581
COST OF SALES
Beginning inventory 23,076 42,206 - -
Purchases, coffee 1,364,520 1,467,735 - -
Wages 651,382 629,803 - -
Other expense 26,334 64,765 - -
Service concession rent 674,602 754,427 - -
---------- ---------- ---------- ----------
Cost of goods available for sale 2,739,914 2,958,936 - -
Less ending inventory (42,206) (135,776) - -
---------- ---------- ---------- ----------
TOTAL COST
OF SALES 2,697,708 2,823,160 312,595 245,582
---------- ---------- ---------- ----------
Gross Profit 581,230 272,795 437,042 370,999
OPERATING EXPENSES
General and administrative
expenses 492,521 968,285 467,784 582,004
Depreciation 24,727 42,288 5,468 4,943
---------- ---------- ---------- ----------
TOTAL OPERATING
EXPENSES 517,248 1,010,573 473,252 586,947
---------- ---------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS 63,982 (737,778) (36,210) (215,948)
OTHER INCOME (EXPENSES)
Interest expense (63,679) (85,052) (19,046) -
Finance expense (Note K) - (19,306) - -
Loss on disposition of equipment - (2,075) - -
Other 3,458 (20,624) (385) (8,545)
---------- ---------- ---------- ----------
TOTAL OTHER INCOME
(EXPENSES) (60,221) (127,057) (19,431) (8,545)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 3,761 (864,835) (55,641) (224,493)
Income Taxes (Note E) (800) (800) 800 -
---------- ---------- ---------- ----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 2,961 (865,635) (56,441) (224,493)
Extraordinary item, net of tax (Note L) - 248,697 - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 2,961 $ (616,938) $ (56,441) $ (224,493)
========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM $ 0.01 $ (2.11) $ (0.07) $ (0.26)
Extraordinary item - 0.61 - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) PER
COMMON SHARE $ 0.01 $ (1.50) $ (0.07) $ (0.26)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 210,825 408,691 848,300 857,005
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
AMERICA'S COFFEE CUP, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional
------------ paid-in- Accumulated
Shares Amounts capital deficit Total
------------ -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 212,075 $ 84,830 $ 71,497 $ (592,355) $(436,028)
Net income - - - 2,961 2,961
------- -------- -------- ----------- ---------
Balance, December 31, 1994 212,075 84,830 71,497 (589,394) (433,067)
Issuance of common stock for
convertible debt (Note K) 589,848 235,939 294,924 - 530,863
Issuance of common stock due to
reverse stock splits (Note K) 120 47 (48) - (1)
Net loss - - - (616,938) (616,938)
------- -------- -------- ----------- ---------
Balance, December 31, 1995 802,043 $320,816 $366,373 $(1,206,332) $(519,143)
======= ======== ======== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
AMERICA'S COFFEE CUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended Three months ended
---------------------------------- -------------------------------
December 31, December 31, March 31, March 31,
1994 1995 1995 1996
-------------------- ------------ ------------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,961 $ (616,938) $ (56,441) $ (224,495)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and
amortization 68,477 137,334 27,343 24,486
Loss on disposition of equipment - 2,075 - -
Issuance of common stock options for services 7,988 7,988 - -
Issuance of common stock for services (Note K) - 412,893 - -
Extraordinary item - extinguishment of debt (Note L) - (248,697) - -
Conversion of accounts payable to long term debt - 292,314 - -
Changes in assets and liabilities:
Accounts receivable (35,160) 78,738 44,021 13,590
Inventories (19,130) (93,570) 11,402 16,341
Prepaid expense and other 25,004 (8,715) (1,421) (22,646)
Deferred offering costs and
other assets 18,690 (68,181) (2,709) (3,165)
Accounts payable (150,657) (75) 2,694 (37,105)
Accrued expenses 25,223 (9,834) 19,162 27,874
--------- --------- --------- ---------
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES (56,604) 114,668 44,051 205,118
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property
and equipment (32,702) (76,148) (6,859) (111,558)
Purchase of slotting fee - (5,000) - -
--------- --------- --------- ---------
NET CASH USED IN
INVESTING ACTIVITIES (32,702) (81,148) - -
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party debt 4,500 - - -
Proceeds from issuance of debt - - - $262,000
Payments on related party debt (25,000) - - -
Payments on
long-term debt (25,036) (105,321) (12,052) (45,000)
Proceeds from issuance of
convertible debt 128,750 105,000 (82,500) 69,637
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING
ACTIVITIES 83,214 (321) 70,448 286,637
--------- --------- --------- ---------
NET DECREASE
IN CASH (6,092) (196,137) 107,640 (30,039)
CASH, BEGINNING
OF PERIOD 234,956 228,864 228,864 32,727
--------- --------- --------- ---------
CASH, END
OF PERIOD $ 228,864 $ 32,727 $ 336,504 $ 2,688
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
A. Summary of Significant Accounting Policies:
Organization
The Company was incorporated as FOA Industries, Inc. (FOA) under the laws of
the State of Delaware on February 10, 1988. On June 19, 1989, FOA acquired
all of the assets and liabilities of A.C.C., a California limited
partnership engaged in the retail gourmet coffee business. In conjunction
with this transaction, A.C.C. and its general partner, America's Coffee Cup,
Inc. ( a California corporation), were dissolved and the Company changed its
name to America's Coffee Cup, Inc. During November 1995, the Company changed
its state of incorporation from Delaware to Colorado.
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Cash
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less and money market funds to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
under the first-in, first-out (FIFO) method, for all coffee and general
merchandise product inventory.
Property and Equipment
Property and equipment is carried at cost and includes store equipment and
fixtures which were acquired as a result of the Supply Termination Agreement
(Note I). Maintenance, repairs and minor renewals are expensed as incurred.
When properties are retired or otherwise disposed, the related cost and
accumulated depreciation are eliminated from the respective accounts and any
gain or loss on disposition is reflected in income or expense. Depreciation
is provided on the straight-line method over the estimated useful lives
ranging from 5 to 7 years.
Other Assets
Other assets consist primarily of a license agreement, slotting fee, and
deferred offering costs.
License Agreement relates to the license renewal fee paid to grocery
-----------------
retailer for the right to use and occupy designated end cap space for the
sale of the Company's products. The license agreement is being amortized to
cost of sales on a straight-line method over the four year life of the
agreement.
F-7
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
A. Summary of Significant Accounting Policies (Continued):
Other Assets: (continued)
Slotting Fee relates to the slotting fee paid to a grocery retailer for the
------------
right to sell within each grocery store location. The slotting fee asset was
received as part of the Supply Termination Agreement (Note I) and is being
amortized to cost of sales on a straight-line method over the four year life
of the asset.
Deferred offering costs include the costs associated with the proposed
-----------------------
secondary public offerings for each respective period. The costs related to
secondary public offerings are capitalized and will be netted against the
amount received from the public offerings. All deferred offering costs have
been or will be expensed in the event the offering is not consummated.
Deferred offering costs as of December 31, 1994 were incremental out-of-
pocket expenses associated with a failed public offering effort. The
deferred offering costs as of December 31, 1994 were expensed during the
third quarter of 1995.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the
service concessions located within the stores.
Net Income (Loss) Per Common Share
Net income (loss) per common share shown on the statements of operations is
computed by dividing net income (loss) by the actual weighted average number
of shares outstanding during the period. The Company's common stock
equivalents were anti-dilutive for the year ended December 31, 1995 and were
not material for the year ended December 31, 1994, therefore, they were not
included in the computation of net income (loss) per common share. The per
share computations reflect the effect of a 10-1 reverse stock split that
occurred on November 26, 1993 and the effect of a 4-1 reverse stock split
that occurred on September 1, 1995.
As a result of shares of Common Stock issued in conjunction with debt
conversions in August 1995 and February 1996, supplementary loss per share
for 1995, as if the debt conversions would have occurred at the beginning of
the year is $(0.71) per share. This is a result of an assumed reduction in
interest expense of $19,712 and total weighted average shares outstanding of
845,447, which assumes that 589,848 and 43,524 shares converted in August
1995 and February 1996, respectively, were considered outstanding during all
of 1995.
F-8
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
A. Summary of Significant Accounting Policies (Continued):
Income Taxes
Income taxes provide 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 the basis of various assets 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 or deductible when the assets and liabilities are
recovered or settled. Deferred taxes also are recognized for operating
losses that are available to offset future taxable income.
Concentration of Credit Risk
The Company's sales are substantially all from one large grocery retailer
located in Southern California. Credit is extended on an evaluation of the
grocery retailers' financial condition and collateral is not required. There
have been no significant credit losses and no allowance for doubtful
accounts has been deemed necessary for any reported period.
B. Inventories:
Inventories as of December 31, 1994 and 1995 consist of the following:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Coffee $ 3,490 $ 97,175
General merchandise 38,716 38,601
------- --------
$42,206 $135,776
======= ========
</TABLE>
C. Property and Equipment:
Property and equipment as of December 31, 1994 and 1995 consists of the
following:
<TABLE>
<CAPTION>
3 Months
Ended
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Office equipment and furniture $ 34,760 $ 42,499 $ 42,718
Store equipment and fixtures 155,801 411,895 523,234
Automobiles and delivery trucks 16,785 79,669 79,670
-------- -------- --------
207,346 534,063 645,622
Less accumulated depreciation 153,689 195,978 195,977
-------- -------- --------
$ 53,657 $ 338,085 $ 449643
======== ======== ========
</TABLE>
F-9
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
D. Long-Term Debt:
Long-term debt as of December 31, 1994 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1994 1995
------------- ---------------
<S> <C> <C>
Notes payable to affiliates of a director and
others, unsecured, interest payable at 11.50%,
due by December 31, 1995. Notes are convertible
in whole or in part at any time on or before
maturity for "restricted" common shares at a
conversion rate of the lesser of $8.00 per share
or the current market price (see Note K for
conversion of debt) $ 50,000 $ -
Note payable to an automotive financing company,
secured by the property, interest payable at
10.25%, principal and interest due monthly over
a period of sixty (60) months - 53,583
Notes payable to a group of foreign investors,
unsecured, interest payable at 9.0%, due by
December 31, 1996. Notes are convertible in whole or in part at any time on or
before maturity for "restricted" common shares
at a conversion rate of $9.00 per (post
September 1, 1995, reverse 1:4 split) share
(subsequent to year-end the Company modified
the conversion price to $2.00 per share) 78,750 123,750
Note payable to Brothers Gourmet Coffee, Inc.
(BGC), interest payable quarterly at the higher
of 8% or the prime rate set forth by the First
Union Bank of North Carolina (7.25% at December
31, 1994) plus 2%, payable in interest only
installments, with the outstanding principal
balance due June 30, 1998 (see Notes I and M) 350,000 -
Note payable to BGC, non-interest bearing,
secured by fixtures and equipment, payable
in $25,000 monthly payments starting January
15, 1996 until paid in full (see Notes I and M) - 275,000
Note payable to BGC, interest payable at the
rate of 10%, payable in $26,795 monthly
installments starting January 15, 1996
until paid in full (see Note I) - 292,313
Note payable to BGC, unsecured, interest
payable quarterly at the higher of 8% or
the prime rate set by the First Union Bank of
North Carolina (7.25% at December 31, 1994 and
8.00% at September 30, 1995) plus 2%, payable
in semi-annual installments of 2.5% of
the then outstanding principal balance, due
April 1, 2003 (See Note I) 482,031 458,231
--------- ----------
960,781 1,202,877
Less current maturities (152,550) (722,717)
--------- ----------
$ 808,231 $ 480,160
========= ==========
</TABLE>
F-10
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
D. Long-Term Debt: (continued)
The following is a summary of principal maturities of long-term debt:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1996 $ 722,717
1997 31,507
1998 31,597
1999 405,836
2000 11,220
Thereafter - ----------
$1,202,877
==========
</TABLE>
E. Income Taxes:
At December 31, 1994 and 1995, the Company, before any limitations, had a
federal net operating loss carryforward of approximately $1,042,000 and
$1,110,000, and a state net operating loss carryforward of approximately
$505,000 and $546,000, respectively. The state and the federal net operating
loss carryforwards, if not utilized, will expire as follows:
<TABLE>
<CAPTION>
Twelve months ended
December 31,
--------------------------
State Federal
-------- ----------
<C> <S> <C>
1996 $ 91,500 $ -
1997 163,500 -
1998 125,500 -
1999 - -
2000 124,500 -
2001 41,000 -
2002 - -
2003 - 38,000
2004 - 184,000
2005 - 328,000
2006 - 252,000
2008 - 205,000
2009 - 35,000
2010 - 68,000
-------- ----------
$546,000 $1,110,000
======== ==========
</TABLE>
F-11
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
E. Income Taxes: (continued)
The realization of any future income tax benefits from the utilization of
net operating losses has been determined to be limited. Federal and state
tax laws provide that when a more than 50% change in ownership of a company
occurs within a three year period, the net operating loss is limited. As a
result of the conversion of the one-year convertible notes into common stock
(see Note K), the Company has determined that the net operating losses are
limited. The net operating loss carryfowards have been limited to
approximately $60,000 per year until expiration. Losses generated after the
conversion date will not be limited by any change that resulted from the
conversion of the one-year convertible notes.
The provision for income taxes for the years ended December 31, 1994, and
1995 consisted solely of the $800 minimum California franchise tax.
The Company's total deferred tax assets as of December 31, 1994 and 1995,
were as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Net operating loss carryforward $ 384,000 $ 430,000
Valuation allowance (384,000) (430,000)
--------- ---------
Net deferred tax assets $ - $ -
========= =========
</TABLE>
A valuation allowance has been established for the entire amount of the
deferred tax asset. The likelihood of full utilization by the Company of the
net operating losses incurred to date over the available carryover period is
highly unlikely based on the current operations of the Company. The net
change in the valuation allowance from December 31, 1994 to December 31,
1995 is due primarily to the net operating loss for the year.
F. License Fees and Other Commitments:
Effective July 1, 1994, the Company entered into a four-year license
agreement with Ralphs Grocery Company ("Ralphs"), in which both the Company
and BGC, its previous exclusive coffee supplier, each were charged a
$350,000 license renewal fee for the right to use and occupy approximately
40 square feet at each of the licensed locations for its retail service
concessions and any future locations. The Company's share of the license
renewal fee of $350,000 was paid for by BGC and was recorded as an
additional note payable due to BGC (Note D).
The Company has recorded its portion of the license fee at cost and is
amortizing the fee over the four-year license term. Amortization expense for
the year ended December 31, 1994 and 1995 was $43,750 and $87,500,
respectively, which is included in the cost of sales. The unamortized
license fee balance of $306,250 and $218,750, respectively, is included in
the accompanying balance sheet.
In addition to the renewal fee, the Company will continue to pay rent to
Ralphs in an amount equal to $1,000 for each four-week period per location
or 10% of total retail sales, whichever is greater. The Company incurred
rent expense of $674,602 and $757,412, for the years ended December 31, 1994
and 1995. The rental agreement with Ralphs is a year-to-year agreement
covered under the umbrella four year agreement.
F-12
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
G. Common Stock:
Stock Options
During 1993, the Company granted to its president and certain key employees,
options to purchase 2,250 shares of common stock of the Company. All options
issued and outstanding were exercisable at a price of $1.60 per (post
September 1, 1995, reverse split) share. As of December 31, 1994 and 1995 no
options had been exercised. The 2,250 options granted were exercisable in
increments of 750, on or after June 15, 1993, 1994 and 1995, and as of
December 31, 1995 no options remained outstanding. The Company has accrued
compensation expense in each period in which the services were performed.
Accordingly, the Company has included compensation expense of $7,988 related
to these options for 1993, 1994 and 1995.
During 1995, the Company adopted an employee incentive stock option (ISO)
plan. The Company is authorized to issue common stock options granted under
the ISO up to the amount of 500,000 shares over a 10 year period beginning
September 1, 1995.
ISO options may be granted by the Company to any full-time employee of the
Company or any subsidiary corporation. The total aggregate fair market value
of the shares with respect to ISO options shall not exceed $100,000 per
individual per year. The ISO option price is the fair market value of the
Company's common stock at the time the option is granted. For the year ended
December 31, 1995, no ISO options have been granted by the Company.
Stock Awards
The president and management team of the Company will receive as part of
their employment agreement, shares of common stock, which will be awarded in
any year, during a five year period ending September 1, 2001, in which the
Company shows a net profit, based on performance levels set by the Company.
There were no awards of options for the year ended December 31, 1995. Any
options granted will be included under the terms of the ISO.
H. Supplemental Cash Flow Information:
Cash paid for interest and income taxes for the years ended December 31,
1994 and 1995:
<TABLE>
<CAPTION>
For the years ended
---------------------------
December 31, December 31,
1994 1995
----------- ------------
<S> <C> <C>
Interest $22,003 $52,720
======= =======
Income taxes $ 800 $ 800
======= =======
</TABLE>
F-13
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
H. Supplemental Cash Flow Information: (continued)
Noncash Investing and Financing Activities
During 1994, the Company entered into a note payable agreement with BGC for
the Company's share of the license renewal fee of $350,000 which was paid to
Ralphs by BGC. The Company is currently amortizing the license renewal fee
over the length of the contract. The Company has not made any principal
payments on this note payable to BGC (see Notes D and I).
As discussed in Note I, the Company terminated its exclusive supply
agreement with BGC and in doing so received $263,625 in assets and
restructured the existing debt. As a result of this noncash transaction, the
Company recorded $248,697 as an extraordinary item.
During August 1995, debt and related interest totaling $117,970, along with
other consideration, was converted into 589,848 post split shares of common
stock (Note K). Also in 1995, the Company purchased two delivery which were
financed for a total of $53,583.
I. Termination Agreement:
On August 25, 1995 the Company entered into an agreement (the "Supply
Termination Agreement") with BGC. Under the terms of the Supply Termination
Agreement, the Company and BGC terminated the obligation of the Company to
purchase its supply of coffee exclusively from BGC and further agreed to the
restructuring and repayment of certain debt with BGC.
As satisfaction for allowing the Company to terminate the supply agreement
the Company recorded assets, assumed liabilities and recorded net
extinquishment of debt as summarized below:
<TABLE>
<CAPTION>
Assets Received:
<S> <C> <C>
Slotting fee $ 64,125
Store fixtures 153,900
---------
Store equipment 45,600
---------
$ 263,625
---------
Debt Forgiveness:
Note payable to BGC (Note D) 350,000
Accrued interest on note
payable to BGC 35,072
---------
385,072
---------
Total assets and debt forgiven 648,697
Debt Assumed:
Note payable to BGC (Note D) 1995 (400,000)
---------
Net, extinguishment of debt $ 248,697
=========
</TABLE>
F-14
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
I. Termination Agreement: (continued)
The Company has made principal payments in the amount of $140,000 on the
obligation under the terms of the Supply Termination Agreement.
Accordingly, the Company has recorded the slotting fee based on the
remaining fair market value and will amortize over the remaining life of the
slotting fee, and recorded the store equipment and fixtures at the fair
market value of the assets purchased through the Supply Termination
Agreement. There is no income tax effect as a result of the Company's
existing net operating losses.
J. Going Concern:
The Company has had recurring losses from operations and had a net
deficiency in assets of $519,143 and $433,067 at December 31, 1995 and
December 31, 1994, respectively, and had working capital of only $11,378 at
December 31, 1994 and a working capital deficiency of $729,459 at December
31, 1995. Additionally, the Company has significant debt payments due to BGC
as discussed under the settlement evidenced by joint stipulation discussed
in Note I. These conditions raise substantial doubt about the entity's
ability to continue as a going concern.
Several steps have been taken by the Company in an attempt to increase
working capital and improve profitability. During 1994 and 1995, the Company
issued convertible notes to affiliates of one director and to certain
foreign investors, each of which may be converted into common stock or will
be due and payable at the end of 1995 or 1996. This provided working capital
of $233,750.
The Company has signed a letter of intent with a licensed NASD broker/dealer
for a secondary public offering to commence during the first half of 1996
and finish by the end of the first six months. This offering is expected to
raise $3.5 million in new funds. Additionally, the Company previously
discussed adding additional service concessions in up to 15 new Ralphs
stores and also up to 15 stores now being converted from Alpha Beta stores
to Ralphs stores, as a result of the merger between the two companies. The
Company is also continuing to pursue expansion into other grocery chains
both in Southern and Northern California, as well as Arizona and Illinois.
The Company has also successfully terminated its exclusive supply agreement
with its sole supplier, BGC. The Company in turn has entered into an
agreement with a new supplier at more favorable prices which will positively
impact operating costs in future periods.
The ability of the Company to continue as a going concern is dependent upon
its ability to obtain additional working capital and obtain profitable
operations. The accompanying financial statements do not include any
adjustments that may be necessary should the Company be unable to continue
as a going concern.
F-15
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
K. Related Party Transactions:
During December 1994, the Company issued one year convertible promissory
notes aggregating $110,000 in principal amount to affiliates of Mr. Pierce,
a director of the Company. Subsequently, on June 30, 1995, $40,000 in
principal amount of these notes, along with the interest accrued thereon,
was assigned by an affiliate of Mr. Pierce to an unaffiliated third-party.
On August 17, 1995, prior to the September 1995, reverse 1:4 split of the
capital stock of the Company, all $110,000 in principal amount of these
notes was converted into common stock of the Company, along with the
interest accrued thereon. The conversion resulted in the Company issuing
2,359,392 pre-split/589,848 post-split shares of common stock at a
conversion price of $.90 per common share, an amount in excess of the market
at the time of $.05 per pre-split share and $.20 per post-split share as was
agreed upon based on the conversion agreement.
If the notes would have been converted at market price pursuant to the
conversion agreement, the recipients would have obtained the resulting
common shares at less than their par value. Accordingly, these shareholders
were called upon under Delaware law by the issuer to contribute additional
consideration. Based upon the Board of Directors' assessment of the value of
the common stock, the Company required total consideration of $0.90 per
share or $530,863. This consideration is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Exchange of note and accrued interest $117,970
Release of accrued legal fees 44,387
Guarantee of debt obligations 19,306
Release of potential contingent liability 117,970
Compensation to Mr. Pierce for services 231,230
--------
Total consideration $530,863
========
</TABLE>
The accrued guarantee of debt obligations related to Mr. Pierce's guarantee
of certain loans of the Company. The Board of Directors valued the guarantee
based upon independent valuation criteria.
The release of potential contingent liability relates to a settlement with
Mr. Pierce whereby Mr. Pierce agreed to release any recourse against Company
for any potential claims against the Company and a former director for
alleged misrepresentations made to Mr. Pierce in connection with his
acquisition of the note in December of 1994.
Subsequent to the conversion, on September 1, 1995, an affiliate of Mr.
Pierce and his minor son sold 187,679 of these post-split shares to Mr.
Marsik, then and currently an executive officer and director of the Company,
in exchange for Mr. Marsik's promising to pay $37,528.27 in the aggregate
for the shares, which obligations are secured by all of the shares purchased
and bear interest at the rate of 11 1/2% per annum.
Prior to the conversion, there were approximately 212,082 post-split shares
of Common Stock outstanding, and subsequent to the conversion, there were
approximately 802,043 shares outstanding. Mr. Marsik, as of December 31,
1995, owned, directly and beneficially, 189,801 post-split shares of common
stock and Mr. Pierce owned, indirectly through an affiliate, 187,679 post-
split shares, which represented 23.67% and 23.40% ownership, respectively,
of the outstanding common shares at the time or an aggregate of 47.07%.
F-16
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
L. Extraordinary Gain:
Under the terms of the Supply Termination Agreement (Note I), the Company
and BGC restructured the repayment of certain debt. As a result of the
receipt of certain assets, and restructuring of debt, the Company
effectively received a net extinguishment of debt from BGC of $248,697. This
amount has been recorded as an extraordinary gain. There is no income tax
effect as a result of the Company's existing net operating losses.
M. Subsequent Events:
Threatened Litigation
During January 1996, allegations were made against the Company and two
directors by a former director claiming breach of fiduciary duties by
management as a result of conversion of shares of common stock for
convertible debt, unauthorized board actions and improper publication and
disclosure which has been made in the past with respect to such actions. The
former director, through legal counsel, has offered to settle the case for
an aggregate of 260,000 shares of common stock and a payment of $162,500 in
cash. The assertions are preliminary and the outcome cannot be determined at
this time. However, the Company believes it has valid defenses and intends
to dispute these assertions vigorously. Management currently is unable to
estimate a range of loss, if any, regarding this action. Management believes
that its final outcome should not have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
Accordingly, no provision has been made in the accounts for any liability
for these assertions.
Public Offering
The Company has signed a letter of intent with an underwriter to file a
Registration Statement on Form SB-2 with the Securities and Exchange
Commission to offer up to 200,000 units to the general public. Each
unit consisting of one Series A Preferred Share, $0.40 par value per share
and ten redeemable Common Stock Purchase Warrants. The Series A Preferred
share will automatically convert into ten shares of the Company's Common
Stock, par value $0.40 per share on October 1, 1998. If the Company fails
to have $300,000 of pre-tax earnings for the twelve months ended June 30,
1997, exclusive of extraordinary and non-recurring items, or the Company's
Common Stock does not trade for at least $2.50 for ten days between June 30,
1997, and August 15, 1997, then the Company will declare a dividend on each
share of Series A Preferred Stock of one-fifth share
of Series A Preferred Stock and two
Series A Warrants. The Company will declare a similar dividend on the
Series A Preferred Stock unless the Common Stock trades above $2.50 per
share for 20 consecutive days after August 14, 1997, but before August 15,
1998, or the Company fails to have pre-tax earnings of $450,000 exclusive
of extraordinary and non-recurring items. Each Series A Warrant entitles
the registered holder thereof to purchase one share of Common Stock at an
exercise price of $1.50 per share at anytime after they become separated
from the Preferred Stock and separately traded until 2001, unless earlier
redeemed. The Warrants are subject to redemption by the Company at a
price of $0.05 per Warrant at any time after August 15, 1997, on thirty
days prior written notice provided that the closing sale price per share
for the Common Stock has equaled or exceeded $3.00 for ten consecutive
trading days.
Bridge Financing
Beginning in January 1996, the Company received $262,000 in bridge financing
from a group of lenders. This borrowing bears interest at 12% and is due on
the earlier of the close of the Company's initial public offering of July
30, 1996. In conjunction with this bridge financing, the Company issued
warrants to purchase 78,600 units, each unit consisting of four shares of
Common Stock and two warrants at a price of $6.50 per unit. When recorded in
the financial statements, the units are anticipated to be valued at $786,000
and the difference between this and the cash proceeds of $510,900 will be
recorded as a financing expense.
F-17
<PAGE>
AMERICA'S COFFEE CUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
M. Subsequent Events: (continued)
Stipulated Settlement with Former Supplier
Subsequent to year end, BGC initiated suit against the Company, claiming
that the Company was delinquent in the repayment of certain trade accounts
payable which were evidenced by a promissory note, but which were not
included in the Supply Termination Agreement (see Note I). The Company was
prepared to defend the suit vigorously, as it had complied with the
repayment provisions of the promissory note; however, the Company and BGC
came to a full and final settlement of all matters between them without the
necessity of the Company even filing an answer.
The settlement is evidenced by a joint stipulation which has been entered in
the court records in the matter and provides that the sum of $717,696 shall
be paid by the Company to BGC by April 1, 1996. If this payment is not made,
the amount due to BGC from the Company increases to $1,025,280, which is
approximately equal to total notes recorded due to BGC on the accompanying
December 31, 1995 balance sheet as follows: note payable for $292,313; note
payable for $275,000; and note payable for $458,231 (see note D). Interest
on this new unsecured note will be at ten percent (10%) per annum and
require monthly payments of $30,246.57 beginning April 1, 1996, and ending
July 1, 1999.
F-18
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
__________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 13
Dilution.............................. 14
Capitalization........................ 15
Common Stock Price Range and
Dividend Policy....................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operation........................ 17
Business.............................. 23
Management............................ 30
Certain Relationships
and Related Transactions............ 33
Principal Shareholders................ 34
Description of Securities............. 35
Shares Eligible For Future Sale....... 39
Underwriting.......................... 40
Legal Matters......................... 42
Experts............................... 42
Additional Information................ 43
Index to Financial Statements......... F-1
</TABLE>
_______________________________
UNTIL ___, 1996 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
200,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF SERIES A PREFERRED STOCK
AND
TEN COMMON STOCK
PURCHASE WARRANTS
OFFERING PRICE
$
PER UNIT
AMERICA'S COFFEE CUP, INC.
PROSPECTUS
LA JOLLA SECURITIES CORPORATION
FIRST LONDON SECURITIES CORPORATION
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the Company's Articles of Incorporation, the Company will
have authority under the Colorado Business Corporation Act to indemnify its
officers and Directors to the extent provided for in such statute.
The only statute, charter provision, bylaw, contract or other
arrangement under which any controlling person, director or officer of
registrant is insured or indemnified in any manner against any liability which
they may incur in their capacity as such are: (i) the Colorado Corporation Code,
as enacted and in effect upon adoption of registrant's Articles of Incorporation
and Bylaws and (ii) the underwriting agreement between registrant and the
various underwriters in this offering. The provisions of the Colorado
Corporation Code provide that registrant may, but is not obligated to, indemnify
against liability an individual made a party to a lawsuit because they were
previously or are currently a director or officer of registrant, if such person
acted in good faith and reasonably believed their actions were in the best
interests of registrant. Registrant may not indemnify such persons if they are
found liable to registrant in a shareholders' derivative suit or are found
liable for receiving an improper personal benefit. Registrant is required to
indemnify such persons if they are ultimately successful in the suit. Pending a
final determination, registrant may advance funds to these persons, but only if
provision is made for the return of all funds advanced in the event such persons
are subsequently found to not be entitled to indemnification. The general
effect of this statute is to make indemnification available to the officers and
directors of registrant regarding actions taken in their official capacity,
unless they are found liable to registrant for their actions, they received an
improper benefit therefrom, or they did not act in good faith while reasonably
believing their actions were in the best interests of registrant.
Indemnification under this section would include actions of the officers and
directors of registrant taken in connection with this offering. The
underwriting agreement provides that each underwriter shall indemnify any
controlling person, director or officer of registrant in the event that these
persons are found to be liable to any investor in this offering as a result of
any misstatement or omission furnished to registrant in writing by the
underwriter against whom indemnification is sought.
If available at reasonable cost, the Company intends to maintain
insurance against any liability incurred by its officers and directors in
defense of any actions to which they are made parties by reason of their
positions as officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses in connection with the public offering of Common
Stock by the Company offered pursuant to this Registration Statement are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee $ 3,935.000
Boston Stock Exchange filing fee................ 250.00
Accounting fees and expenses.................... 15,000.00
Legal fees and expenses......................... 50,000.00
Printing and engraving.......................... 30,000.00
Fees of Transfer Agent and Registrar............ 4,500.00
Blue Sky fees and expenses...................... 10,000.00
Underwriters' nonaccountable expense allowance.. 120,000.00
Miscellaneous................................... 34,815.00
-----------
Total........................................... $ 300,000.00
===========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On May 1, 1993, registrant sold 2,125 shares of its Common Stock at a
price of $5.00 per share. The aggregate sales price of $10,625 for these shares
was paid in lieu of a bonus for the execution and delivery of an employment
agreement with the principal executive and accounting officer of registrant. The
purchaser was a resident of the United States, and was accredited and
sophisticated. Registrant relied upon the exemptive provisions set forth in
Section 4(2) of the Securities Act in this offering. No underwriter was used to
offer or sell the securities.
In December, 1994, registrant sold to (i) a group of European
investors $123,750 in principal amount of its two-year, unsecured, 9% interest
bearing promissory notes which are presently convertible into shares of Common
Stock at a price per share of $2.25 on the date of issuance, $9.00 per share
after the reverse 1:4 share split in
II-1
<PAGE>
September, 1995(the "Two Year Notes"), and (ii) residents of the United States
$110,000 in principal amount of its one year, unsecured, 11.5% interest bearing
promissory notes (the "One Year Notes"). The purchasers of this debt were
accredited and sophisticated. Registrant relied upon the exemptive provisions of
Section 4(2) of the Securities Act in this offering. No underwriter was used to
offer or sell the securities.
On August 17, 1995, registrant sold 589,848 shares of its Common Stock
at a price of approximately $0.20 per share, which was paid through the
conversion of the One Year Notes, which then evidenced approximately $117,969.50
in debt. The purchasers were residents of the United States and the Bahamas, and
were either accredited and/or sophisticated investors with whom registrant had,
either directly or through its affiliates, a previous business relationship.
Registrant relied upon the exemptive provisions set forth in Section 4(2) of the
Securities Act in this offering. No underwriter was used to offer or sell the
securities.
Beginning in January, 1996, registrant offered and sold, directly and
through an unaffiliated intermediary, promissory notes (the "Bridge Loan Notes")
to unaffiliated third parties who were residents of the United States and were
either accredited and/or sophisticated investors with whom registrant had,
either directly or through its affiliates, a previous business relationship.
Registrant relied upon the exemptive provisions set forth in Section 4(2) of the
Securities Act in this offering. The principal amount of the Bridge Loan Notes
sold to the date of this filing aggregated $262,000. These loans are convertible
at the option of the respective holders into up to 350,000 shares of Common
Stock. In conjunction with the issuance of these notes, registrant issued to the
purchasers 78,600 warrants (the "Bridge Loan Warrants") which allow the holders
to acquire upon exercise up to 78,600 units at a price of $6.50 per unit, with
each unit consisting of four shares of Common Stock and four warrants, which
each allow the acquisition of an additional share of Common Stock at a price of
$3.00.
In February, 1996, registrant sold 43,254 shares of Common Stock at a
price of $2.00 per share, which was paid through the conversion of certain
promissory notes which then evidenced approximately $87,046.77 in debt. The
purchasers were residents of Switzerland and were not subject to the United
States securities laws. The certificates were marked with a restrictive legend
which prohibits transfer of the shares in the United States unless registered
under the Securities Act of 1933. No underwriter was used to offer or sell the
securities.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
Exhibit 1.1 Revised Form of Underwriting Agreement (1)
Exhibit 3.1 Certificate of Incorporation as Amended (2)
Exhibit 3.2 Bylaws of the Registrant (2)
Exhibit 3.3 Articles of Incorporation, as Amended - Colorado (2)
Exhibit 3.4 Bylaws - Colorado (2)
Exhibit 3.5 Designation of Rights and Preferences (3)
Exhibit 4.1 Form of Representatives' Warrant and Registration Rights Agreement (3)
Exhibit 4.2 Common Stock Purchase Warrant Agreement (1)
Exhibit 5.1 Opinion of Robert A. Forrester (3)
Exhibit 7.1 Preferred Stock Opinion (3)
Exhibit 10.1 Supply Termination Agreement with Brothers Gourmet Coffees, Inc. (2)
Exhibit 10.2 Form of Underwriters' Financial Consulting Agreement (1)
Exhibit 10.3 Employment Agreement between Registrant and Mr. Marsik (2)
Exhibit 10.4 Employment Agreement between Registrant and Mr. Vandenberg (2)
Exhibit 10.5 Agreement with Ralph's Grocery (2)
Exhibit 10.6 Brothers Settlement Stipulation (2)
Exhibit 10.7 Bridge Loan Loan Documents: (2)
(i) Promissory Note
(ii) Security Agreement
(iii) Financing Statement
(iv) Warrant Agreement
(v) Registration Rights Agreement
Exhibit 10.8 The Growth Fund of Southern California Loan Documents: (2)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
(i) Promissory Note
(ii) Security Agreement
(iii) Financing Agreement
(iv) Warrant Agreement
(v) Registration Rights Agreement
Exhibit 10.9 Wanable License Agreement (2)
Exhibit 10.10 Brothers Extension Letter of March 6, 1996 (2)
Exhibit 10.11 Brothers Extension Letter of April 30, 1996 (2)
Exhibit 10.12 1996 Agreement with Ralph's (2)
Exhibit 10.13 Bridge Loan Note dated May 7, 1996 (2)
Exhibit 10.14 Rider to Bridge Loan Note dated May 7, 1996 (2)
Exhibit 10.15 Consulting Agreement with Moreau (2)
Exhibit 24.1 Consent of Robert A. Forrester (Contained in Exhibit 5.1) (3)
Exhibit 24.2 Consent of Harlan & Botteger, Certified Public Accountants (1)
</TABLE>
______________
(1) Filed herewith.
(2) Previously Filed
(3) To be filed by Amendment
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
At the closing of this Offering, to provide certificates evidencing
the Units in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery to the
purchasers.
The undersigned Registrant hereby undertakes it will:
(1) 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
Registration Statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, 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.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the Offering.
In addition, the undersigned Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant 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
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective. For the purposes of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant 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
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective. For the purposes of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
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 for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Poway, State of California, on ______, 1996.
AMERICA'S COFFEE CUP, INC.
(Registrant)
By:/s/ Robert W. Marsik
---------------------
President
(Principal Executive Officer
and Principal Financial Officer)
POWER OF ATTORNEY
-----------------
Know all men by these presents, that each of the undersigned hereby
constitutes and appoints Robert W. Marsik, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments), and to file same,
with all exhibits thererto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto such attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that such
attorney-in-fact and agent or any of them, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933 this registration
statement has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert W. Marsik President and Director ______, 1996
- ------------------------------- (Principal Executive Officer
Robert W. Marsik and Principal Financial Officer)
/s/ Mark S. Pierce Director ______, 1996
- -------------------------------
Mark S. Pierce
/s/ Roger F. Tompkins Director ______, 1996
- -------------------------------
Roger F. Tompkins
</TABLE>
II-5
200,000 Units
AMERICA'S COFFEE CUP, INC.
Each Unit Consisting of
One share of Series A Preferred Stock and
Ten Redeemable Series A Warrants
_______, 1996
UNDERWRITING AGREEMENT
LA JOLLA SECURITIES CORPORATION
FIRST LONDON SECURITIES CORPORATION
As Representatives of the Several Underwriters
c/o La Jolla Securities Corporation
8214 Westchester
Suite 500
Dallas, Texas 75225
Dear Sirs:
AMERICA'S COFFEE CUP, Inc., a Colorado corporation (the
"Company"), proposes to issue and sell to you and the other underwriters
named in Schedule I hereto (collectively, the "Underwriters"), for whom
La Jolla Securities Corporation and First London Securities Corporation
are acting as the managing underwriters and Representatives (the
"Representatives"), in the respective amount set forth opposite the
Underwriter's name in Schedule I hereto an aggregate of 200,000 Units
(individually a "Unit" and collectively the "Units"), each Unit
consisting of one share of Series A Preferred Stock, $.40 par value per
share, of the Company (the "Series A Preferred Stock") and Ten
redeemable Series A Warrants (individually, a "Series A Warrant"), which
entitles the holder thereof to purchase one share of Common Stock at a
price of $1.50 per share, subject to certain conditions. Such Units,
together with (a) the shares of Series A Preferred Stock and the Series
A Warrants comprising such Units and (b) the shares of Common Stock
issuable upon exercise of such Series A Warrants, are collectively
referred to herein as the "Underwritten Securities." In addition, the
Company proposes to grant to the Underwriters the Underwriters' Option
to purchase up to an aggregate of 30,000 additional Units solely to
cover over-allotments in the sale of the Underwritten Securities (such
additional Units, together with (a) the shares of Series A Preferred
Stock and Series A Warrants comprising such additional Units and (b) the
shares of Common Stock issuable upon exercise of such Series A Warrants,
are collectively referred to herein as the "Option Securities") and the
Company proposes to sell to the Underwriters the Underwriters' Warrants
(described in Section 7 hereof) to purchase 20,000 additional Units,
which additional Units are identical to the Units described above (such
Underwriters' Warrants and additional Units, together with (a) the
shares of Series A Preferred Stock and Series A Warrants comprising such
additional Units and (b) the shares of Common Stock issuable upon
exercise of such Series A Warrants, are collectively referred to herein
as the "Underwriters' Securities"). The Underwritten Securities, the
Option Securities and the Underwriters' Securities are collectively
referred to herein as the "Securities."
The terms which follow, when used in this Agreement, shall have
the meanings indicated. "Effective Date" shall mean each date that the
Registration Statement (as defined below) and any post-effective
amendment or amendments thereto became or become effective. "Execution
Time" shall mean the date and time that this Agreement is executed and
delivered by the parties hereto. "Preliminary Prospectus" shall mean
any preliminary prospectus referred to in Section 1(a) below with
respect to the offering of the Securities, and any preliminary
prospectus included in the Registration Statement at the Effective Date
that omits Rule 430A Information (as defined below). Capitalized terms
not otherwise defined herein shall have the meanings ascribed to them in
the most recent Preliminary Prospectus which predates or coincides with
the Execution Time. "Prospectus" shall mean the final prospectus with
respect to the offering of the Securities that contains the Rule 430A
Information (as defined below). "Registration Statement" shall mean the
registration statement referred to in Section 1(a) below, including
exhibits and financial statements, in the form in which it has or shall
become effective and, in the event any post-effective amendment thereto
becomes effective prior to the Closing Date (as hereinafter defined) or
any settlement date pursuant to Section 3(b) hereof, shall also mean
such registration statement as so amended on such date. Such term shall
include Rule 430A Information (as defined below) deemed to be included
therein at the Effective Date as provided by Rule 430A. "Rule 424"and
"Rule 430A" refer to such rules under the Securities Act of 1933, as
amended (the "Act"). "Rule 430A Information" means information with
respect to the Securities and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective
pursuant to Rule 430A.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each Underwriter that:
(a) The Company meets the requirements for the use of Form
SB-2 under the Act and has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, including a
related preliminary prospectus ("Preliminary Prospectus"), on Form SB-2
(Commission File No. 33-_______) (the "Registration Statement") for the
registration under the Act of the Securities. The Company may have filed
one or more amendments thereto, including related Preliminary
Prospectuses, each of which has previously been furnished to you. The
Company will next file with the Commission either, prior to
effectiveness of such Registration Statement, a further amendment
thereto (including the form of Prospectus) or, after effectiveness of
such Registration Statement, a Prospectus in accordance with Rules 430A
and 424(b)(1) or (4). As filed, such amendment and form of Prospectus,
or such Prospectus, shall include all Rule 430A Information and, except
to the extent the Representatives shall agree in writing to a
modification, shall be in all substantive respects in the form furnished
to you prior to the Execution Time or, to the extent not completed at
the Execution Time, shall contain only such specific additional
information and other changes (beyond that contained in the latest
Preliminary Prospectus) as the Company has advised you in writing, prior
to the Execution Time, will be included or made therein.
(b) Each Preliminary Prospectus, at the time of filing
thereof, conformed in all material respects with the applicable
requirements of the Act and the rules and regulations thereunder and did
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein not misleading. If the Effective Date is
prior to or simultaneous with the Execution Time, (i) on the Effective
Date, the Registration Statement conformed in all material respects to
the requirements of the Act and the rules and regulations thereunder and
did not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein not misleading and (ii) at the Execution
Time, the Registration Statement conforms, and at the time of filing of
the Prospectus pursuant to Rule 424(b), the Registration Statement and
the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations thereunder, and
neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state a material
fact required to be stated therein or necessary in order to make the
statements therein (and, in the case of the Prospectus, in the light of
the circumstances under which they were made) not misleading. If the
Effective Date is subsequent to the Execution Time, on the Effective
Date, the Registration Statement and the Prospectus will conform in all
material respects to the requirements of the Act and the rules and
regulations thereunder, and neither of such documents will contain any
untrue statement of any material fact or will omit to state any material
fact required to be stated therein or necessary to make the statements
therein (and, in the case of the Prospectus, in the light of the
circumstances under which they were made) not misleading. The two
preceding sentences do not apply to statements in or omissions from the
Registration Statement or the Prospectus (or any supplements thereto)
based upon and in conformity with information furnished in writing to
the Company by or on behalf of any Underwriter through the
Representatives specifically for use in connection with the preparation
of the Registration Statement or the Prospectus (or any supplements
thereto).
(c) The Company has no subsidiaries, and as of the Effective
Date, will have no subsidiaries.
(d) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Colorado in which it is chartered or organized, with full corporate
power and corporate authority to own its properties and conduct its
business as described in the Prospectus, and is duly qualified to do
business as a foreign corporation and is in good standing under the laws
of each jurisdiction in which it conducts its business or owns property
and in which the failure, individually or in the aggregate, to be so
qualified would have a material adverse effect on the properties,
assets, operations, business or condition (financial or otherwise) of
the Company ("Material Adverse Effect").
(e) The Company does not own any shares of capital stock
or any other securities of any corporation or any equity interest in any
firm, partnership, association or other entity other than as described
in the Registration Statement.
(f) The Company's authorized and outstanding capital stock
and short-term and long-term indebtedness is as set forth in the
Prospectus under the caption "Capitalization" as of the dates therein
indicated and giving effect to the statements and assumptions therein
stated. The Company's equity capitalization is as set forth in the
Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; all
outstanding shares of Common Stock have been duly and validly
authorized and issued and are fully paid and nonassessable, and the
certificates therefor are in valid and sufficient form in accordance
with the laws of the State of Colorado and the Company's Bylaws; there
are, and, on the Closing Date (as defined in Section 3(a) hereof) and
any settlement date pursuant to Section 3(b) hereof, there will be, no
other classes of stock outstanding except Common Stock; all outstanding
options to purchase shares of Common Stock have been duly and validly
authorized and granted; except as described in the Prospectus, there
are, and, on the Closing Date and any settlement date pursuant to
Section 3(b) hereof, there will be, no options, warrants or rights to
acquire, or debt instruments convertible into or exchangeable for, or
other agreements or understandings to which the Company is a party,
outstanding or in existence, entitling any person to purchase or
otherwise acquire shares of capital stock of the Company; the issuance
and sale of the Securities have been duly and validly authorized and,
when issued, delivered and paid for in accordance with the terms hereof,
the Securities will be fully paid and nonassessable and free from
preemptive rights, and will conform in all respects to the description
thereof contained in the Prospectus; the Series A Warrants and
Underwriters' Warrants will, when issued, constitute valid and binding
obligations of the Company enforceable in accordance with their terms
and the Company has reserved a sufficient number of shares of Common
Stock for issuance upon exercise thereof (including the Series A
Warrants included in the Underwriters' Warrants); the Series A Warrants
and Underwriters' Warrants will, when issued, possess the rights,
privileges and characteristics as represented in the exhibits to the
Registration Statement and as described in the Prospectus; the Company
has applied for the Securities (other than the Underwriters' Warrants)
for listing on the Boston Stock Exchange. Each offer and sale of
securities of the Company referred to in Item 26 of Part II of the
Registration Statement was effected in compliance with the Act and the
rules and regulations thereunder, and with all applicable state
securities and blue sky ("Blue Sky") laws.
(g) Other than as described in the Prospectus, there is no
pending or, to the best knowledge of the Company, threatened action,
suit or proceeding before any court or governmental agency, authority or
body, domestic or foreign, or any arbitrator involving the Company of a
character required to be disclosed in the Registration Statement or the
Prospectus. There is no contract or other document of a character
required to be described in the Registration Statement or Prospectus or
to be filed as an exhibit that is not described or filed as required.
(h) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except as rights of indemnity and contribution hereunder
may be limited by public policy and except as the enforceability hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and general
principles of equity.
(i) The Company has full corporate power and authority to
enter into and perform its obligations under this Agreement and to
issue, sell and deliver the Securities in the manner provided in this
Agreement. The Company has taken all necessary corporate action to
authorize the execution and delivery of, and the performance of its
obligations under, this Agreement.
(j) Neither the execution, delivery and performance of
this Agreement by the Company, the offering, issue and sale of the
Securities, nor the consummation of any other of the transactions
contemplated herein, nor the fulfillment of the terms hereof, will
conflict with or result in a breach or violation of, or constitute a
default (or an event that with notice or lapse of time, or both, would
constitute a default) under, or result in the imposition of a lien on
any properties of the Company or an acceleration of indebtedness
pursuant to, the Certificate of Incorporation or bylaws of the Company,
or any of the terms of any indenture or other agreement or instrument to
which the Company is a party or by which the Company or any of its
properties are bound, or any federal, state or local law, rule,
regulation of any court, governmental or regulatory body, stock exchange
or arbitrator having jurisdiction over the Company or any of its assets.
The Company is not (A) in violation of its Certificate of Incorporation
or bylaws or (B) in breach of or default under any of the terms of any
indenture or other agreement or instrument to which it is a party or by
which it or its properties are bound, which breach or default described
in this clause (B) would, individually or in the aggregate, have a
Material Adverse Effect.
(k) Except as disclosed in the Prospectus, no person has
the right, contractual or otherwise, to cause the Company to issue to it
any shares of capital stock in consequence of the issue and sale of the
Securities, nor does any person have preemptive rights, or rights of
first refusal or other rights to purchase any of the Securities. Except
as referred to in the Prospectus, no person holds a right to require or
participate in a registration under the Act of Common Stock or any
other equity securities of the Company.
(l) The Company has not (i) taken and will not take,
directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to cause or
result in, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or otherwise, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale or
the Securities or (ii) effected any sales of shares or securities that
are required to be disclosed in response to Item 26 of Part II of the
Registration Statement (other than transactions disclosed in response to
Item 26 of Part II of the Registration Statement or the Prospectus).
(m) No consent, approval, authorization or order of, or
declaration or filing with, any court or governmental agency or body is
required to be obtained or filed by or on behalf of the Company in
connection with the transactions contemplated herein, except such as may
have been obtained or made and registration of the Securities under the
Act, and such as may be required under the Blue Sky laws of any
jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters.
(n) The accountants who have certified the financial
statements filed or to be filed with the Commission as part of the
Registration Statement are independent accountants as required by the
Act.
(o) No stop order preventing or suspending the use of any
Preliminary Prospectus has been issued, and no proceedings for that
purpose are pending or, to the best knowledge of the Company, threatened
or contemplated by the Commission; no stop order suspending the sale of
the Securities in any jurisdiction has been issued and no proceedings
for that purpose have been instituted or, to the best knowledge of the
Company, threatened or are contemplated; and any request of the
Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) has been complied
with.
(p) The Company has not sustained since December 31, 1994,
any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or
decree, and, since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there have not been
any material changes in the capital stock or short- or long-term debt of
the Company, or any material adverse change, or a development known to
the Company that could reasonably be expected to cause or result in a
material adverse change, in the general affairs, management, financial
position, stockholders' equity, results of operations or prospects of
the Company, other than as set forth in the Prospectus. Except as set
forth in the Prospectus, there exists no present condition or state of
facts or circumstances known to the Company (A) affecting its business
or (B) involving its concessions which the Company can now reasonably
foresee would have a Material Adverse or are material to the business of
the Company, or which would result in any material decrease in sales or
which would prevent the Company from conducting its business as
described in the Prospectus in essentially the same manner in which it
has heretofore been conducted.
(q) The financial statements and the related notes of the
Company included in the Registration Statement and the Prospectus
present fairly the financial position, results of operations, cash flow
and changes in stockholders' equity of the Company at the dates and for
the periods indicated, subject in the case of the financial statements
for interim periods, to normal and recurring year-end adjustments. The
financial statement schedules included in the Registration Statement, if
any, present fairly the information required to be stated therein. Such
financial statements and schedules, if any, were prepared in conformity
with the Commission's rules and regulations and in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved, except as stated therein. The
financial information of the Company set forth in the Prospectus under
the captions "Capitalization" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" fairly present, on the
basis stated in the Prospectus, the information included therein.
(r) The Company owns or possesses, or has the right to use
pursuant to licenses, sublicenses, agreements, permissions or otherwise,
adequate patents, copyrights, trade names, trademarks, service marks,
licenses and other intellectual property rights necessary to carry on
its business as described in the Prospectus, and, except as set forth in
the Prospectus, the Company has not received any notice of either (i)
default under any of the foregoing or (ii) infringement of or conflict
with asserted rights of others with respect to, or challenge to the
validity of, any of the foregoing which, in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could have a
Material Adverse Effect, and the Company knows of no fact or existing
circumstance which could reasonably be anticipated to serve as the basis
for any such notice or any such default, infringement or conflict.
(s) The Company has filed all applications and has
obtained all permits, approvals, licenses, franchises, certificates and
authorizations of all Federal, state, local or foreign governmental
authorities ("Permits") as are necessary to own its respective property
and to conduct its business in the manner now being conducted and as
described in the Prospectus, subject to such qualifications as may be
set forth in the Prospectus, except where the lack of ownership or
possession of such Permits would not, individually or in the aggregate,
have a Material Adverse Effect on the Company; the Company has fulfilled
and performed all of its material obligations with respect to such
Permits and no event has occurred which allows, or after notice or lapse
of time would allow, revocation or termination thereof or would result
in any other material impairment of the rights of the holder of any such
Permit, subject in each case to such qualification as may be set forth
in the Prospectus, except where such revocations, terminations or other
impairments thereof would not, individually or in the aggregate, have a
Material Adverse Effect on the Company; and, except as described in the
Prospectus, none of such Permits contains any restriction that is
materially burdensome to the Company.
(t) Subject to such exceptions as are not material (A) the
Company owns all properties and assets described in the Registration
Statement and the Prospectus as being owned by it and (B) the Company
has good title to all properties and assets owned by it, free and clear
of all liens, charges, encumbrances and restrictions, except as
otherwise disclosed in the Prospectus, and except for (i) liens for
taxes not yet due, (ii) mortgages and liens securing debt reflected on
the financial statements included in the Prospectus, (iii)
materialmen's, workmen's, vendor's and other similar liens incurred in
the ordinary course of business that are not delinquent and,
individually or in the aggregate, do not have a Material Adverse Effect
on the value of such properties or assets to the Company, or on the use
of such properties or assets by the Company, in its respective
businesses, and (iv) any other liens that, individually or in the
aggregate, are not likely to result in a Material Adverse Effect. All
leases to which the Company is a party and which are material to the
conduct of the business of the Company are valid and binding and no
material default by the Company has occurred and is continuing
thereunder; and the Company enjoys peaceful and undisturbed possession
under all such material leases to which it is a party as lessee.
(u) The books, records and accounts of the Company
accurately and fairly reflect, in reasonable detail, the transactions in
and dispositions of the assets of the Company. The system of internal
accounting controls maintained by the Company is sufficient to provide
reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(v) Except as set forth in the Prospectus, subsequent to
the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company has not incurred
any liabilities or obligations, direct or contingent, or entered into
any transactions, in each case, which are likely to result in a Material
Adverse Effect, and there has not been any payment of or declaration to
pay any dividends or any other distribution with respect to the shares
of the capital stock of the Company .
(w) The Company has obtained and delivered to the
Representatives the written agreements, in substantially the forms of
Exhibit A attached hereto, of each of the persons listed in Schedule III
attached hereto, restricting dispositions of shares of capital stock of
the Company in accordance with the provisions of Section 6 hereof and
the terms contained in the Exhibit A form applicable thereto.
(x) The Company is in compliance in all material respects
with all applicable laws, rules and regulations, including, without
limitation, employment and employment practices, immigration, terms and
conditions of employment, health and safety of workers, customs and
wages and hours, and is not engaged in any unfair labor practice. No
property of the Company has been seized by any governmental agency or
authority as a result of any violation by the Company or any independent
contractor of the Company of any provision of law. There is no pending
unfair labor practice complaint or charge filed with any governmental
agency against the Company. There is no labor strike, material dispute,
slow down or work stoppage actually pending or, to the best knowledge of
the Company, threatened against or affecting the Company; no grievance
or arbitration arising out of or under any collective bargaining
agreement is pending against the Company; no collective bargaining
agreement which is binding on the Company restricts the Company from
relocating or closing any of its operations and the Company has not
experienced any work stoppage or other labor dispute at any time.
(y) The Company has accurately, properly and timely
(giving effect to any valid extensions of time) filed all federal,
state, local and foreign tax returns (including all schedules thereto)
that are required to be filed, and has paid all taxes and assessments
shown thereon. All tax deficiencies asserted or assessed against the
Company by the Internal Revenue Service ("IRS") or any other foreign or
domestic taxing authority have been paid or finally settled with no
remaining amounts owed. Neither the IRS nor any other foreign or
domestic taxing authority has examined any tax returns of the Company.
The charges, accruals and reserves shown in the financial statements
included in the Prospectus in respect of taxes for all fiscal periods to
date are adequate, and nothing has occurred subsequent to the date of
such financial statements that makes such charges, accruals or reserves
inadequate. The Company is not aware of any proposal (whether oral or
written) by any taxing authority to adjust any tax return filed by the
Company.
(z) Except as set forth in the Prospectus, there are no
outstanding loans, advances or guaranties of indebtedness by the Company
to or for the benefit of its affiliates, or any of its officers or
directors, or any of the members of the families of any of them, which
are required to be disclosed in the Registration Statement or the
Prospectus.
(aa) The Company is not an investment company subject to
registration under the Investment Company Act of 1940, as amended.
(bb) Except as set forth in the Prospectus, the Company
has insurance of the types and in the amounts that it reasonably
believes is adequate for its business, including, but not limited to,
casualty and general liability insurance covering all real and personal
property owned or leased by the Company, as applicable, against theft,
damage, destruction, acts of vandalism and all other risks customarily
insured against.
(cc) The Company has not at any time (i) made any
contributions to any candidate for political office, or failed to
disclose fully any such contribution, in violation of law; (ii) made any
payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments required or allowed by all applicable laws;
or (iii) violated, nor is it in violation of, any provision of the
Foreign Corrupt Practices Act of 1977.
(dd) The preparation and the filing of the Registration
Statement with the Commission have been duly authorized by and on behalf
of the Company, and the Registration Statement has been duly executed
pursuant to such authorization by and on behalf of the Company.
(ee) All documents delivered or to be delivered by the
Company or any of its directors or officers to the Underwriters, the
Commission or any state securities law administrator in connection with
the issuance and sale of the Securities were, on the dates on which they
were delivered, and will be, on the dates on which they are to be
delivered, true, complete and correct in all material respects.
(ff) With such exceptions as are not likely to result in a
Material Adverse Effect, the Company is in compliance with all Federal,
state, foreign and local laws and regulations relating to pollution or
protection of human health or the environment ("Environmental Laws"),
and the Company has not received any notice or other communication
alleging a currently pending violation of any Environmental Laws. With
such exceptions as are not likely to result in a Material Adverse
Effect, other than as set forth in the Prospectus, to the Company's best
knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge or disposal of any
chemicals, pollutants, contaminants, wastes, toxic substances, petroleum
and petroleum products, that may result in the imposition of liability
on the Company or any claim against the Company or, to the Company's
best knowledge, against any person or entity whose liability for any
claim the Company has or may have assumed either contractually or by
operation of law, and the Company has not received any notice or other
communication concerning any such claim against the Company or such
person or entity.
(gg) Except as described in the Prospectus, the Company
does not maintain, nor does any other person maintain on behalf of the
Company, any retirement, pension (whether deferred or non-deferred,
defined contribution or defined benefit) or money purchase plan or
trust. There are no unfunded liabilities of the Company with respect to
any such plans or trusts that are not accrued or otherwise reserved for
on the Company's financial statements included in the Registration
Statement and the Prospectus.
(hh) Any certificates signed by an officer of the Company
and delivered to the Representatives or the Underwriters shall also be
deemed a representation and warranty of the Company to the Underwriters
as to the matters covered thereby.
2. Purchase and Sale.
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to
issue and sell to the Underwriters an aggregate of 200,000 Units, with
each Unit consisting of one share of Series A Preferred Stock and ten
Series A Warrants. Each of the Underwriters agrees, severally and not
jointly, to purchase from the Company the number of Units set forth
opposite its name in Schedule I hereto. The purchase price per Unit to
be paid by the several Underwriters to the Company shall be $_______ per
Unit. No value shall be attributable to the Series A Warrants which
comprise a part of each Unit.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby
grants an option (the "Underwriters' Option") to the several
Underwriters to purchase, severally and not jointly, up to an aggregate
of 30,000 Units at the purchase price of $______ per Unit for use solely
in covering any over-allotments made by the Representatives for the
account of the Underwriters in the sale and distribution of the
Underwritten Securities. The Underwriters' Option may be exercised in
whole or in part at any time on or before the 45th day after the
Effective Date upon written or telegraphic notice by the Representatives
to the Company setting forth the number of Units which the several
Underwriters are electing to purchase pursuant to the Underwriters'
Option and the settlement date and instructions as to the names and
denominations in which the Securities to be issued pursuant to the
Underwriters' Option are to be registered. Delivery of certificates for
such Units by the Company, and payment therefor to the Company, shall be
made as provided in Section 3 hereof. The number of Units to be so
purchased by each Underwriter pursuant to the Underwriters' Option shall
be determined by multiplying the number of Units to be sold by the
Company pursuant to the Underwriters' Option, as exercised, by a
fraction, the numerator of which is the number of Units to be purchased
by such Underwriter as set forth opposite its name in Schedule I and the
denominator of which is the total number of Units to be purchased by all
of the Underwriters as set forth on Schedule I (subject to such
adjustments to eliminate any fractional Unit purchases as the
Representatives in their discretion may make).
3. Delivery and Payment.
(a) Delivery of the certificates for the Units described
in Sections 2(a) and, if the Underwriters' Option described in Section
2(b) hereof is exercised on or before the third business day prior to
the Closing Date (as defined below), 2(b) hereof shall be made by the
Company through the facilities of the Depository Trust Company ("DTC"),
and payment therefor, shall be made at the office of the Company at
11:00 a.m. Dallas, Texas time, on _______, 1996, which date and time may
be postponed by agreement in writing among the Representatives and the
Company or as provided in Section 9 hereof (such date, time of delivery
and payment for such Securities being herein called the "Closing Date").
Delivery of the certificates for such Securities to be purchased on the
Closing Date shall be made as provided in the preceding sentence for the
respective accounts of the several Underwriters against payment by the
several Underwriters through the Representatives of the aggregate
purchase price of such Securities being sold by the Company, to or upon
the order of the Company, by certified or official bank check or checks
drawn on or by a New York Clearing House bank and payable in next day
funds. Certificates for such Securities shall be registered in such
names and in such denominations as the Representatives may request not
less than three full business days in advance of the Closing Date. The
Company agrees to have the certificates for the Securities to be
purchased on the Closing Date available at the office of the DTC, not
later than 9:00 a.m. Dallas, Texas time at least one business day prior
to the Closing Date.
(b) If the Underwriters' Option is exercised after the
third business day prior to the Closing Date, the Company will deliver
(at the expense of the Company) on the date specified by the
Representatives (which shall not be less than three business days after
exercise of the Underwriters' Option), certificates for the Securities
described in Section 2(b) hereof in such names and denominations as the
Representatives shall have requested against payment at the office of
the Company of the purchase price therefor, by certified or official
bank check or checks drawn on or by a New York Clearing House bank and
payable in next day funds. If settlement for such Securities occurs
after the Closing Date, the Company will deliver to the Representatives
on the settlement date for such Securities, and the obligation of the
Underwriters to purchase such Securities shall be conditioned upon
receipt of, supplemental opinions, certificates and letters confirming
as of such date the opinions, certificates and letters delivered on the
Closing Date pursuant to Section 6 hereof. The Company agrees to have
the certificates for the Securities to be purchased after the Closing
Date available at the office of the DTC, not later than 9:00 a.m.
Dallas, Texas time at least one business day prior to the settlement
date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Securities for sale to the public as
set forth in the Prospectus.
5. Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, and any amendment thereof, if not effective at
the Execution Time, to become effective as promptly as possible. If the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule
424(b), the Company will file the Prospectus, properly completed,
pursuant to Rule 424(b) within the time period prescribed and will
provide evidence satisfactory to the Representatives of such timely
filing. The Company will promptly advise the Representatives (i) when
the Registration Statement shall have become effective, (ii) when any
post-effective amendment thereto shall have become effective, (iii) of
any request by the Commission for any amendment or supplement of the
Registration Statement or the Prospectus or for any additional
information with respect thereto, (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or of the receipt by the Company of any notification with
respect to the institution or threatening of any proceeding for that
purpose, and (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities for
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company will use its best efforts to
prevent the issuance of any such stop order or suspension and, if
issued, to obtain as soon as possible the withdrawal thereof. The
Company will not file any amendment to the Registration Statement or
supplement to the Prospectus without the prior consent of the
Representatives. The Company will prepare and file with the Commission,
promptly upon your request, any amendment to the Registration Statement
or supplement to the Prospectus that you reasonably determine to be
necessary or advisable in connection with the distribution of the
Securities by you, and will use its best efforts to cause the same to
become effective as promptly as possible. The Company, at the Company's
expense, shall keep the Registration Statement effective and the
information contained therein (including information contained in the
Prospectus) current during the term of the Series A Warrants in
accordance with the Act and the rules and regulations thereunder.
Without limiting the effect of the preceding sentence, in the event any
Underwriter is required to deliver a Prospectus in connection with sales
of any of the Securities at any time nine months or more after the
Effective Date, upon the written request of the Representatives and at
the expense of the Company, the Company will prepare, file with the
Commission and deliver to such Underwriter as many copies as the
Representatives may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act.
(b) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act, any event occurs as a result
of which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it
otherwise shall be necessary to supplement the Prospectus to comply with
the Act or the rules or regulations thereunder, the Company will
promptly notify the Representatives and prepare and file with the
Commission, subject to Section 5(a) hereof, a supplement that will
correct such statement or omission or a supplement that will effect such
compliance.
(c) As soon as practicable (but not later than fifteen months
after the Effective Date), the Company will make generally available to
its security holders and to the Representatives an earnings statement or
statements (which need not be audited) of the Company covering a period
of at least twelve months after the Effective Date (but in no event
commencing later than 90 days after such date), which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 promulgated
thereunder.
(d) The Company will furnish to each of you and counsel for the
Underwriters, without charge, three signed copies of the Registration
Statement and any amendments thereto (including exhibits thereto) and to
each other Underwriter a conformed copy of the Registration Statement
and any amendments thereto (without exhibits thereto) and, so long as
delivery of a prospectus by an Underwriter or dealer may be required by
the Act, as many copies of the Prospectus and each Preliminary
Prospectus and any supplements thereto as the Representatives may
reasonably request. The Company will furnish or cause to be furnished to
the Representatives copies of all reports on Form SR required by Rule
463 under the Act.
(e) The Company will take all actions necessary for the
registration or qualification of the Securities for sale under the laws
of such jurisdictions within the United States and its territories as
the Representatives may designate, will maintain such qualifications in
effect so long as required for the distribution of the Securities and
will pay the fee of the National Association of Securities Dealers, Inc.
(the "NASD") in connection with its review of the offering, provided
that the Company shall not be required to qualify as a foreign
corporation or to consent to service of process under the laws of any
such jurisdiction (except service of process with respect to the
offering and sale of the Securities).
(f) The Company will apply the net proceeds from the offering
received by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(g) The Company will (i) comply with all registration, filing
and reporting requirements of the Exchange Act which may from time to
time be applicable to the Company, and (ii) file a report of sales and
use of proceeds on Form SR as required to be filed pursuant to Rule 463
under the Act from time to time.
(h) The Company will file promptly all documents required to be
filed with the Commission pursuant to Sections 13, 14 or 15(d) of the
Exchange Act subsequent to the Effective Date and during any period in
which the Prospectus is required to be delivered.
(i) During the five-year period commencing on the date hereof,
the Company will furnish to its stockholders, as soon as practicable
after the end of each respective period, annual reports (including
financial statements audited by independent certified public
accountants) and unaudited quarterly reports of earnings and will
furnish to you and, upon request, to the other Underwriters hereunder
(i) concurrent with furnishing such annual and quarterly reports to its
stockholders, copies of such reports; (ii) as soon as they are
available, copies of all reports and financial statements furnished to
or filed with the Commission, the NASD, or any other securities
exchange; (iii) every press release and every material news item or
article in respect of the Company or its affairs which was released or
prepared by the Company; and (iv) any additional information of a public
nature concerning the Company or its business that you may reasonably
request. During such five-year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and
its subsidiaries are consolidated, and shall be accompanied by similar
financial statements for any significant subsidiary that is not so
consolidated.
(j) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for the Securities
and a warrant agent for the Series A Warrants.
(k) The Company will not, for a period of one year following the
Effective Date, without the prior written consent of the
Representatives, issue, sell, contract to sell (including, without
limitation, any short sale), transfer, assign, pledge, encumber,
hypothecate or grant any option to purchase or otherwise dispose of, any
capital stock, or any options, rights or warrants to purchase any
capital stock of the Company, or any securities or indebtedness
convertible into or exchangeable for shares of capital stock of the
Company, except for (i) sales of the Securities as contemplated by this
Agreement, and (ii) sales of Common Stock upon the exercise of Series A
Warrants or outstanding options described in the Prospectus.
(l) The Company has reserved and shall continue to reserve a
sufficient number of shares of Common Stock for issuance upon exercise
of the Underwriters' Warrants and Series A Warrants (including the
Series A Warrants included in the Underwriters' Warrants).
(m) The Company will not take, directly or indirectly, any
action designed to or that might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Units,
Common Stock or Series A Warrants to facilitate the sale or resale of
such Securities or that otherwise might reasonably be expected to
violate the provisions of Rule 10b-6, Rule 10b-7 or Rule 10b-18 under
the Exchange Act.
6. Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the Units described in
Sections 2(a) and 2(b) hereof shall be subject to (i) the accuracy in
all material respects of the representations and warranties on the part
of the Company contained herein as of the Execution Time, the Closing
Date (except that each of the representations and warranties of the
Company, the breach or violation of which is qualified as to
materiality, shall be true in all respects) and (in the case of any
Units delivered after the Closing Date) any settlement date pursuant to
Section 3(b) hereof, (ii) the accuracy of the statements of the Company
made in any certificates delivered pursuant to the provisions hereof,
(iii) the performance in all material respects by the Company of their
respective obligations hereunder (except that each of the obligations of
the Company, the violation of which is qualified as to materiality,
shall be performed in all respects), and (iv) the following additional
conditions:
(a) The Registration Statement shall have become effective (or,
if a post-effective amendment is required to be filed pursuant to Rule
430A under the Act, such post-effective amendment shall become
effective) not later than 5:00 p.m. Washington, D.C. time, on the
execution date hereof or at such later date and time as you may approve
in writing and, at the Closing Date (and any settlement date pursuant to
Section 3(b) hereof), no stop order suspending the effectiveness of the
Registration Statement or any qualification in any jurisdiction shall
have been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or any Underwriter,
threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or
Prospectus or otherwise) shall have been complied with to the
Representative's reasonable satisfaction.
(b) The Company shall have furnished to the Representatives the
opinion of Robert A. Forrester, Esq. counsel for the Company, or other
counsel acceptable to the Underwriters addressed to the Underwriters and
dated the Closing Date (and any settlement date pursuant to Section 3(b)
hereof), to the effect that:
(i) The Registration Statement has become effective under
the Act; any required filing of the Prospectus or any supplements
thereto pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); to the best knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement or any qualification in any jurisdiction has been issued and
no proceedings for that purpose have been instituted or threatened; the
Registration Statement and the Prospectus (and any amendments or
supplements thereto) comply as to form in all material respects with the
applicable requirements of the Act and the rules and regulations
thereunder (other than the financial statements and related schedules,
as to which such counsel need make no statement).
(ii) The Company has no subsidiaries.
(iii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Colorado, with requisite corporate power and authority to own its
properties and conduct its business as described in the Prospectus, and
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which it conducts its
business or owns property and in which the failure, individually or in
the aggregate, to be so qualified would have a Material Adverse Effect.
The Company has all necessary and material authorizations, approvals,
orders, licenses, certificates and permits of and from all government
regulatory officials and bodies, to own its properties and conduct its
business as described in the Prospectus, except where failure to obtain
such authorizations, approvals, orders, licenses, certificates or
permits would not have a Material Adverse Effect.
(iv) The Company does not own any shares of capital stock
or any other equity securities of any corporation or any equity interest
in any firm, partnership, association or other entity, other than as
described in the Prospectus.
(v) The Company has authorized and outstanding share
capitalization as set forth in the Prospectus; the capital stock of the
Company conforms in all material respects to the description thereof
contained in the Prospectus; all outstanding shares of Common Stock
have been duly and validly authorized and issued and are fully paid and
nonassessable and the certificates therefor are in valid and sufficient
form in accordance with the laws of the State of Colorado and the
Company's Bylaws; there are no other classes of stock outstanding except
Common Stock as described in the Prospectus; all outstanding options to
purchase shares of Common Stock have been duly and validly authorized
and granted; except as described in the Prospectus, there are no
options, warrants or rights to acquire, or debt instruments convertible
into or exchangeable for, or other agreements or understandings to which
the Company is a party, outstanding or in existence, entitling any
person to purchase or otherwise acquire any shares of capital stock of
the Company; the issuance and sale of the Securities have been duly and
validly authorized and, when issued and delivered and paid for in
accordance with the terms of this Agreement, the Securities will be
fully paid and nonassessable and free from preemptive rights, and will
conform in all respects to the description thereof contained in the
Prospectus; the Series A Warrants and Underwriters' Warrants constitute
valid and binding obligations of the Company enforceable in accordance
with their terms (subject to customary bankruptcy and equitable remedy
exceptions) and the Company has reserved a sufficient number of shares
of Common Stock for issuance upon exercise thereof (including the
Series A Warrants included in the Underwriters' Warrants); the Series A
Warrants and Underwriters' Warrants possess the rights, privileges and
characteristics as represented in the forms filed as exhibits to the
Registration Statement and as described in the Prospectus; the
Securities (other than the Underwriters' Warrants) have been listed for
trading on the Boston Stock Exchange.
(vi) Other than as described in the Prospectus, there is no
pending or, to the best knowledge of such counsel, threatened action,
suit or proceeding before any court or governmental agency, authority or
body, domestic or foreign, or any arbitrator involving the Company of a
character required to be disclosed in the Registration Statement or the
Prospectus that is not adequately disclosed in the Prospectus, and, to
the best knowledge of such counsel, there is no contract or other
document of a character required to be described in the Registration
Statement or the Prospectus, or to be filed as an exhibit, which is not
described or filed as required.
(vii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
agreement and obligation of the Company enforceable against it in
accordance with its terms (subject to customary bankruptcy and equitable
remedy exceptions, and limitations under the Act as to the
enforceability of indemnification provisions).
(viii) The Company has requisite corporate power and
authority to enter into and perform its obligations under this Agreement
and to issue, sell and deliver the Securities to be sold by it in the
manner provided in this Agreement.
(ix) Neither the offering, issue and sale of the
Securities nor the consummation of any other of the transactions
contemplated herein, nor the fulfillment of the terms hereof, will
conflict with or result in a breach or violation of, or constitute a
default (or an event that with notice or lapse of time, or both, would
constitute a default) under, or result in the imposition of a lien on
any properties of the Company, or an acceleration of indebtedness
pursuant to, the Articles of Incorporation or bylaws of the Company, or
any of the terms of any indenture or other agreement or instrument to
which the Company is a party or by which any of their respective
properties are bound, or any law, rule, regulation, court decree,
judgment or other order of any court, governmental or regulatory body,
stock exchange or arbitrator having jurisdiction over the Company or any
of its assets. The Company is not (A) in violation of its Articles of
Incorporation or bylaws or (B) in breach of or default under any of the
terms of any indenture or other agreement or instrument to which it is a
party or by which it or its properties are bound, which breach or
default described in this clause (B) would, individually or in the
aggregate, have a Material Adverse Effect.
(x) Except as disclosed in the Prospectus, no person has
the right, contractual or otherwise, to cause the Company to issue to it
any shares of capital stock in consequence of the issue and sale of the
Securities to be sold by the Company hereunder nor does any person have
preemptive rights, or rights of first refusal or other rights to
purchase any of the Securities. Except as referred to in the Prospectus,
no person holds a right to require or participate in a registration
under the Act of Common Stock or any other equity securities of the
Company.
(xi) No consent, approval, authorization or order of, or
declaration or filing with, any court or governmental agency or body is
required to be obtained or filed by or on behalf of the Company in
connection with the transactions contemplated herein, except such as may
have been obtained or made and registration of the Securities under the
Act, and such as may be required under the Blue Sky laws of any
jurisdiction.
(xii) The Company is not in violation of or default
under any judgment, ruling, decree or order or any statute, rule or
regulation of any court or other United States governmental agency or
body, including any applicable laws respecting employment, immigration
and wages and hours, in each case, where such violation or default could
have a Material Adverse Effect. The Company is not involved in any
labor dispute nor, to the best knowledge of such counsel, is any labor
dispute threatened.
(xiii) The Company is not an investment company subject
to registration under the Investment Company Act of 1940, as amended.
(xiv) The preparation and the filing of the Registration
Statement with the Commission have been duly authorized by and on behalf
of the Company and the Registration Statement has been duly executed
pursuant to such authorization by and on behalf of the Company.
(xv) The Company owns or possesses, or has the right to
use pursuant to licenses, sublicenses, agreements, permissions or
otherwise, adequate patents, copyrights, trade names, trademarks,
service marks, licenses and other intellectual property rights necessary
to carry on its business as described in the Prospectus, and, except as
set forth in the Prospectus, the Company has not received any notice of
either (i) default under any of the foregoing, or (ii) infringement of
or conflict with asserted rights of others with respect to, or challenge
to the validity of, any of the foregoing which, in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could have a
Material Adverse Effect.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of
the Company, representatives of the independent public accountants of
the Company and representatives of the Underwriters at which the
contents of the Registration Statement and Prospectus were discussed
and, although such counsel is not passing upon and does not assume
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or Prospectus (except
as and to the extent stated in the first three clauses of subparagraph
(v) above), on the basis of the foregoing and on such counsel's
participation in the preparation of the Registration Statement and the
Prospectus, nothing has come to the attention of such counsel that
causes such counsel to believe that the Registration Statement, at the
Effective Date and at the Closing Date (and any settlement date pursuant
to Section 3(b) hereof), contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact required to
be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, or that
the Prospectus, at the date of such Prospectus or at the Closing Date
(or any settlement date pursuant to Section 3(b) hereof), or any
amendment or supplement to the Prospectus, as of its respective date or
as of the Closing Date (or any settlement date pursuant to Section 3(b)
hereof) contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need express no comment with respect to the
financial statements and schedules and other financial or statistical
data included in the Registration Statement or Prospectus).
References to the Prospectus in this Section 6(b) shall include
any amendments or supplements thereto.
(c) The Representatives shall have received from Maurice J.
Bates, L.L.C., counsel for the Underwriters, an opinion dated the
Closing Date (and any settlement date pursuant to Section 3(b) hereof),
with respect to the issuance and sale of the Securities, and with
respect to the Registration Statement, the Prospectus and other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon such
matters.
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by its President and Chief Executive
Officer and its Secretary, dated the Closing Date (and any settlement
date pursuant to Section 3(b) hereof), to the effect that each has
carefully examined the Registration Statement, the Prospectus (and any
supplements thereto) and this Agreement, and, after due inquiry, that:
(i) As of the Closing Date (and any settlement date
pursuant to Section 3(b) hereof), the statements made in the
Registration Statement and the Prospectus are true and correct and the
Registration Statement and the Prospectus do not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(ii) No order suspending the effectiveness of the
Registration Statement or the qualification or registration of the
Securities under the securities or Blue Sky laws of any jurisdiction is
in effect and no proceeding for such purpose is pending before or, to
the knowledge of such officers, threatened or contemplated by the
Commission or the authorities of any such jurisdiction; and any request
for additional information with respect to the Registration Statement or
the Prospectus on the part of the staff of the Commission or any such
authorities brought to the attention of such officers has been complied
with to the satisfaction of the staff of the Commission or such
authorities.
(iii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (x) there has
not been any change in the capital stock or short- or long-term debt of
the Company, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (y) there has not been any material
adverse change in the business, prospects, properties, management,
results of operations or condition (financial or otherwise) of the
Company, whether or not arising from transactions in the ordinary course
of business, in each case, other than as set forth in or contemplated by
the Registration Statement and the Prospectus, and (z) the Company has
not sustained any material interference with its business or properties
from fire, explosion, flood or other casualty, whether or not covered by
insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree, which is not set forth in
the Registration Statement and the Prospectus.
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has been
no litigation instituted against the Company or any of its respective
officers or directors, and since such dates there has been no proceeding
instituted or, to the best knowledge of such officers, threatened
against the Company or any of its officers or directors before any
federal, state or county court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign,
in which litigation or proceeding an unfavorable ruling, decision or
finding could have a Material Adverse Effect.
(v) Each of the representations and warranties of the
Company in this Agreement is true and correct in all material respects
on and as of the Execution Time and the Closing Date (and any settlement
date pursuant to Section 3(b) hereof) with the same effect as if made on
and as of the Closing Date (and any settlement date pursuant to Section
3(b) hereof).
(vi) Each of the covenants required in this Agreement to be
performed by the Company on or prior to the Closing Date (and any
settlement date pursuant to Section 3(b) hereof) has been duly, timely
and fully performed in all material respects, and each condition
required herein to be complied with by the Company on or prior to the
Closing Date (and any settlement date pursuant to Section 3(b) hereof)
has been duly, timely and fully complied with in all material respects.
(e) At the Execution Time and on the Closing Date (and any
settlement date pursuant to Section 3(b) hereof), Harlem & Boettger,
P.C., shall have furnished to the Representatives letters, dated as of
such dates, in form and substance satisfactory to the Representatives,
confirming that they are independent accountants within the meaning of
the Act and the applicable rules and regulations thereunder and stating
in effect that:
(i) In their opinion, the audited financial statements of
the Company for the fiscal year ended December 31, 1994, and the
unaudited financial statements for the fiscal year ended December 31,
1993 and for the periods ended September 30, 1995, and September 30,
1994 and the notes to the financial statements and financial statement
schedules for those periods included in the Registration Statement and
the Prospectus, comply in form in all material respects with the
applicable accounting requirements of the Act and the applicable rules
and regulations thereunder.
(ii) On the basis of a reading of the latest unaudited
financial statements made available by the Company, carrying out certain
specified procedures (but not an examination in accordance with
generally accepted auditing standards), a reading of the minutes of the
meetings of the stockholders, directors and committees of the Company,
and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company,
nothing came to their attention that caused them to believe that with
respect to the period subsequent to December 31, 1994, at a specified
date not more than five business days prior to the date of the letter,
(y) there were any changes in the short- or long-term debt or capital
stock of the Company, or decreases in net current assets, net assets or
stockholders' equity of the Company as compared with the amounts shown
on the December 31, 1994 balance sheet included in the Registration
Statement and the Prospectus, or (z) there were any decreases in
reserves, sales, net income or income from operations, of the Company,
as compared with the corresponding period in the preceding year, except
for changes or decreases which the Registration Statement discloses have
occurred or may occur and except for changes or decreases, set forth in
such letter, in which case (A) the letter shall be accompanied by an
explanation by the Company as to the significance thereof unless said
explanation is not deemed necessary by the Representatives and (B) such
changes or decreases and the explanation thereof shall be acceptable to
the Representatives, in its sole discretion.
(iii) They have performed certain other specified procedures
as a result of which they determined that all information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company ) set forth in the
Registration Statement and the Prospectus and specified by you prior to
the Execution Time, agrees with the accounting records of the Company.
(iv) On the basis of a reading of the audited financial
statements as of December 31,1995, and the procedures specified by you
prior to the Execution Time, nothing came to their attention that caused
them to believe that the above described balance sheet and statements of
operations had not been properly compiled on the bases described in the
notes thereto.
References to the Prospectus in this Section 6(e) shall
include any amendments or supplements thereto.
The Representatives shall have also received from Harlem &
Boettger, P.C. a letter to the Company stating that the Company's
system of internal accounting controls taken as a whole are sufficient
to meet the broad objectives of internal accounting control insofar as
those objectives pertain to the prevention or detection of errors or
irregularities in amounts that would be material to the financial
statements of the Company.
(f) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there shall
not have been (i) any changes or decreases from those specified in the
letters referred to in Section 6(e) hereof which have been accepted by
the Representatives pursuant thereto or (ii) any change in the
properties, assets, results of operations, business, capitalization, net
worth, prospects, general affairs or condition (financial or otherwise)
of the Company the effect of which is, in the sole judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the public offering or delivery of the
Securities as contemplated by the Registration Statement and the
Prospectus.
(g) On or prior to the Effective Date, the Securities shall have
been approved for listing on the Boston Stock Exchange.
(h) The Company shall not have sustained any uninsured
substantial loss as a result of fire, flood, accident or other calamity.
(i) The Company shall have furnished to the Representatives a
certificate of the Secretary of the Company certifying as to certain
information and other matters as the Representatives may reasonably
request.
(j) The Company shall have furnished to the Representatives such
further information, certificates and documents as the Representatives
may reasonably request.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in any respect when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all respects reasonably
satisfactory in form and substance to the Representatives and its
counsel, this Agreement and all obligations of the Underwriters
hereunder may be canceled at, or at any time prior to, the Closing Date
(or any settlement date, pursuant to Section 3(b) hereof), by the
Representatives. Notice of such cancellation shall be given to the
Company in writing or by telephone, facsimile or telegraph confirmed in
writing.
7. Fees and Expenses and Underwriters' Warrants. The Company agrees
to pay or cause to be paid the following:
(a) The fees, disbursements and expenses of its own counsel and
accountants in connection with the registration of the Securities under
the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement, any Preliminary
Prospectus, any Prospectus, and any drafts thereof, and amendments and
supplements thereto, and the mailing and delivery of copies thereof to
the Underwriters and dealers;
(b) All expenses in connection with the qualification of the
Securities for offering under state securities laws, including the fees
and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky Memorandum;
(c) All filing and other fees in connection with filing with the
NASD, and complying with applicable review requirements thereof;
(d) The cost of preparing and printing certificates for the
Securities;
(e) All expenses, taxes, fees and commissions, including,
without limitation, any and all fixed transfer duties, sellers' and
buyers' stamp taxes or duties on the purchase and sale of the Securities
and stock exchange brokerage and transaction levies with respect to the
purchase and, if applicable, the sale of the Securities (the latter to
the extent paid and not reimbursed) (i) incident to the sale and
delivery by the Company of the Securities to the Underwriters, and (ii)
incident to the sale and delivery of the Securities by the Underwriters
to the initial purchasers thereof;
(f) The costs and charges of any transfer agent and registrar
and any warrant agent;
(g) The fees and expenses in connection with the registration of
the Securities under the Securities Exchange Act and the qualification
of the Securities for listing on the Boston Stock Exchange.
(h) The cost of printing, producing and distributing this
Agreement, the Agreement among Underwriters, the Selected Dealers
Agreement, the related syndication materials and the Preliminary and
Final Blue Sky Memoranda;
(i) All travel expenses (including without limitation airfare
and hotel) of the Company's officers, directors and other
representatives in connection with the road show;
(j) A nonaccountable expense allowance of 3.0% of the gross
proceeds from the offering (including the Units described in Section
2(b) hereof) payable to the Representatives; and
(k) At the closing, the Company shall enter into a consulting
agreement ("Consulting Agreement") retaining the Representatives as
commencing as of such closing, at a fee of $20,000 per year, payable in
equal monthly installments on the first day of each month beginning 90
days after the closing.
(l) All other costs and expenses incident to the performance of
the Company's obligations hereunder.
In addition to the sums payable to the Representatives as provided
elsewhere herein and in addition to the Underwriters' Option, the
Underwriters shall be entitled to receive, as partial compensation for
their services, unit purchase warrants for the purchase of up to an
additional 20,000 Units (the "Underwriters' Warrants"). The
Underwriters' Warrants shall be issued pursuant to the Warrant and
Registration Rights Agreement (the "Underwriters' Warrant Agreement") in
the form of Exhibit B attached hereto and shall be exercisable, in whole
or in part, for a period of four years commencing one year from the date
of the Prospectus, at 120% of the public offering price of the Units set
forth on the cover page of the Prospectus. The Underwriters' Warrants,
including the Series A Warrants issuable upon exercise thereof, shall be
non-transferable for one year from the date of issuance of the
Underwriters' Warrants, except as provided in the Underwriters' Warrant
Agreement. The terms of the Units subject to the Underwriters' Warrants
shall be the same as the Units sold to the public.
Without limiting in any respect the foregoing obligations of the
Company, which obligations shall survive any termination of this
Agreement, if the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters
set forth in Section 6 hereof is not satisfied, because of any
termination pursuant to Section 10 hereof, or because of any refusal,
inability or failure on the part of the Company to perform any agreement
herein or comply in all material respects with any provision hereof
other than by reason of a default by any of the Underwriters, the
Company agrees to reimburse the Underwriters, upon demand, for all out-
of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the
proposed purchase and sale of the Securities to the extent the amounts
paid pursuant to Section 7(j) hereof are insufficient therefor.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person who controls any Underwriter within the meaning of the
Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in (i) Section 1 of this
Agreement, the Registration Statement, any Preliminary Prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or (ii)
any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in
order to qualify the Securities under the securities or Blue Sky laws
thereof or filed with the Commission or any securities association or
securities exchange, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the
Representatives specifically for use in the Registration Statement or
Prospectus; provided further, that with respect to any untrue statement
or omission, or any alleged untrue statement or omission, made in any
Preliminary Prospectus, the indemnity agreement contained in this
Section 8 shall not inure to the benefit of any Underwriter (or to the
benefit of any person controlling any such Underwriter) from whom the
person asserting any such losses, claims, damages, liabilities or
expenses purchased the Securities concerned to the extent that such
untrue statement or omission, or alleged untrue statement or omission,
has been corrected in the Prospectus and the failure to deliver the
Prospectus was not a result of the Company's failure to comply with its
obligations under Sections 5(b) and 5(d) hereof. The indemnity agreement
will be in addition to any liability which the Company may otherwise
have. The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or
not such Underwriter or any person who controls such Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act
is a party to such claim, action, suit or proceeding), unless the
settlement or compromise or consent includes an unconditional release of
such Underwriter and each such controlling person from all liability
arising out of such claim, action, suit or proceeding, satisfactory in
form and substance to the Representatives.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within
the meaning of the Act or the Exchange Act to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with
reference to written information relating to such Underwriter furnished
to the Company by or on behalf of such Underwriter through the
Representatives specifically for use in the Registration Statement or
Prospectus. The Company acknowledges that the corporate names of the
Underwriters and the information under the heading "Underwriting" in the
Prospectus and in any Preliminary Prospectus constitute the only
information furnished in writing by or on behalf of the several
Underwriters. The obligations of each Underwriter under this subsection
(b) shall be in addition to any liability which the Underwriters may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, suit or proceeding, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the indemnified party
and the payment of all expenses; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party, unless such omission results in the
forfeiture of substantive rights or defenses by the indemnifying party.
All such expenses shall be paid by the indemnifying party as incurred by
an indemnified party. Any such indemnified party shall have the right to
employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (i) the indemnifying party
has agreed to pay such fees and expenses or (ii) the indemnifying party
shall have failed promptly after notice by such indemnified party to
assume the defense of such action or proceeding and employ counsel
reasonably satisfactory to the indemnified party in any such action,
suit or proceeding or (iii) the named parties in any such action or
proceeding (including any impleaded parties) include both such
indemnified party and the indemnifying party, and such indemnified party
shall have been advised by counsel that there is a conflict of interest
on the part of counsel employed by the indemnifying party to represent
such indemnified party or there may be one or more legal defenses
available to such indemnified party which are different from or
additional to those available to the indemnifying party (in which case,
if such indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to
assume the defense of such action or proceeding on behalf of the
indemnified party or parties, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all such indemnified parties,
which firm shall be designated in writing to the indemnifying party).
Any such fees and expenses payable by the indemnifying party shall be
paid to or on behalf of the indemnified party entitled thereto as
incurred. An indemnifying party shall not be liable for any settlement
of any action or claim effected without its consent, which shall not be
unreasonably withheld.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 8(a)
or 8(b) is applicable in accordance with its terms but is for any reason
held by a court to be unavailable from the indemnifying party on grounds
of policy or otherwise, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection
with investigating or defending same) to which the Company and one or
more of the Underwriters may be subject (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other hand from the offering of
the Units or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above,
but also the relative fault of the Company on the one hand and the
Underwriters on the other in connection with the statements or omissions
that resulted in such losses, claims, damages and liabilities, as well
as any other relevant equitable considerations; provided, however, that
(x) in no case shall any Underwriter (except as may be provided in the
Agreement Among Underwriters relating to the offering of the Securities)
be responsible for any amount in excess of the underwriting discount
applicable to the Units to be purchased by such Underwriter hereunder
pursuant to this Section 8 and (y) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering of the Units (before deducting expenses) received by the
Company bear to the total underwriting discounts and commission received
by the Underwriters by reason of the sale of Units by the Company, in
each case as set forth in the table on the cover page of the Prospectus.
The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or by the
Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. For purposes of this Section 8, each person
who controls an Underwriter within the meaning of the Act shall have the
same rights to contribution as such Underwriter, and each person who
controls the Company within the meaning of the Act, each officer of the
Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as
the Company, subject in each case to clause (y) of this Section 8(d).
Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against
another party or parties under this Section 8, notify such party or
parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties from
whom contribution may be sought from any other obligation it or they may
have hereunder or otherwise.
9. Default by an Underwriter. If any one or more Underwriters shall
fail to purchase and pay for any of the Units agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase
shall constitute a default in the performance of its or their
obligations under this Agreement, the remaining Underwriters shall be
obligated severally to take up and pay for (in the respective
proportions which the number of Units set forth opposite their names in
Schedule I hereto bears to the aggregate number of Units set forth
opposite the names of all the remaining Underwriters) the Units which
the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that if the aggregate number of Units which
the defaulting Underwriter or Underwriters agreed but failed to purchase
shall exceed 10% of the aggregate number of Units set forth in Schedule
I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of such
Units, and if such nondefaulting Underwriters do not purchase all of
such Units, this Agreement will terminate without liability to any non-
defaulting Underwriter or the Company except as otherwise provided in
Section 7. In the event of a default by any Underwriter as set forth in
this Section 9, the Closing Date shall be postponed for such period, not
exceeding seven days, as the Representatives shall determine in order
that the required changes in the Registration Statement and the
Prospectus or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting
Underwriter of its liability, if any, to the Company or any
nondefaulting Underwriter for damages occasioned by its default
hereunder.
10. Termination. This Agreement shall be subject to termination in
the absolute discretion of the Representatives, by notice given to the
Company prior to delivery of and payment for the Securities, if prior to
such time (a) a suspension or material limitation in trading in
securities generally on the New York or Boston Stock Exchange, the
Nasdaq National Market, or a fall in the Dow Jones Industrial Average of
either ten percent (10%) or more, (b) a banking moratorium shall have
been declared by federal, New York or Texas state authorities, or (c)
the United States shall have engaged in hostilities which shall have
resulted in the declaration, on or after the date hereof, of a national
emergency or war, or (d) a change in national or international
political, financial or economic conditions or national or international
equity markets shall have occurred, and with respect to events specified
in clause (c) or (d) hereof, if the effect of any such event is, in the
reasonable judgment of the Representatives, so material and adverse to
the issuer as to make it impractical or inadvisable to proceed with the
public offering or delivery of the Securities due to the materially
impaired investment quality of the Securities as contemplated by the
Registration Statement and the Prospectus.
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other
statements of the Company, its officers, and the Underwriters set forth
in, referred to in, or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Company, or any of the officers,
directors or controlling persons referred to in Section 8 hereof, and
will survive delivery of and payment for the Securities. The provisions
of Sections 7 and 8 hereof shall survive the termination or cancellation
of this Agreement.
12. Notices. All communications hereunder will be in writing and
effective only on receipt, and will be mailed, delivered, telegraphed or
sent by facsimile transmission and confirmed:
to the Representatives at:
La Jolla Securities Corporation
8214 Westchester
Suite 500
Dallas, Texas 75225
Attention: Robert A. Shuey, III
Facsimile No. (214) 987-2091
to the Company at:
AMERICA'S COFFEE CUP, Inc.
12528 Kirkham Court, Nos. 6 & 7
Poway, California 92024
Facsimile No. (619) 679-2927
13. Finders Fee. A fee of $15,000 will be paid to William Walker at
the closing.
14. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers, directors and controlling persons referred to in Section 8
hereof, and no other person will have any right or obligation hereunder.
15. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect
as if the signatures thereon and hereon were on the same instrument.
16. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Texas, without reference to
conflict of laws or principles thereunder. All disputes relating to
this Underwriting Agreement shall be tried before a court of Dallas
located in Dallas County, Texas to the exclusion of all other courts
that might have jurisdiction.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding
agreement among the Company and the several Underwriters.
Very truly yours,
AMERICA'S COFFEE CUP, INC.
By:
Robert W. Marsik, President
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
________________
By:
Name:________________________________
Title:_________________________________
La Jolla Securities Corporation
By:
Name:________________________________
Title:_________________________________
For themselves and the other several Underwriters in Schedule I to the
foregoing Agreement.
SCHEDULE I
Underwriters
Underwriters Number of Units
La Jolla Securities Corporation
Total 200,000
SCHEDULE II
SCHEDULE III
EXHIBIT A
Form of Lock-Up Agreement
_______, 1996
LA JOLLA SECURITIES CORPORATION
8214 Westchester, Suite 500
Dallas, Texas 75225
Re: Agreement Not to Sell
Gentlemen:
Reference is made to the proposed public offering of 200,000 Units
by AMERICA'S COFFEE CUP, Inc. (the "Company"), to be made pursuant to a
Registration Statement (the "Registration Statement") filed with the
Securities and Exchange Commission and to be underwritten by La Jolla
Securities Corporation, Inc. ("La Jolla") and First London Securities
Corporation ("First London") as representatives (the "Representatives")
of the several underwriters (the "Underwriters") to be named in an
underwriting agreement.
In consideration of the offer and sale of such Units by the
Company and the Underwriters and of other good and valuable
consideration the receipt of which is hereby acknowledged, the
undersigned agrees that, without the express prior written consent of La
Jolla acting alone, he will not offer, sell, make any short sale of,
loan, encumber, grant any option for the purchase of, or otherwise
dispose of (the "Resale Restrictions"), any securities of the Company
beneficially owned or otherwise held by the undersigned as of the date
of this letter or hereafter acquired by the undersigned (collectively,
the "Shares") until ________, 1998 (the "Lock-up Period"). The
foregoing Resale Restrictions are expressly agreed to preclude the
holder of the Shares from engaging in any hedging or other transaction
which may lead to or result in a sale of Shares during the Lock-up
Period even if such Shares would be sold by someone other than the
undersigned. Such prohibited hedging or other transactions would
include without limitation any short sale (whether or not against the
box), any pledge or any purchase, sale or grant of any right (including
without limitation any put or call option) with respect to any of the
Shares.
The undersigned agrees and consents to the entry of stop transfer
instructions with the transfer agent for the Company's Common Stock
against any transfer of shares of Common Stock by the undersigned in
contravention of the Resale Restrictions. In addition, the undersigned
agrees to be bound by the Resale Restrictions whether or not the
undersigned participates in the public offering. The undersigned
understands that the Underwriters and the Company will rely upon the
representations set forth in this letter in proceeding with the public
offering. The undersigned understands that the agreements of the
undersigned are irrevocable and shall be binding upon the undersigned's
heirs, legal representatives, successors and assigns.
Notwithstanding the foregoing, the undersigned may transfer any or
all of the Shares either during his lifetime or on death by will or
intestacy to his immediate family or to a trust the beneficiaries of
which are exclusively the undersigned and/or a member or members of his
immediate family; provided, however, that in any such case it shall be a
condition to the transfer that the transferee execute an agreement
stating that the transferee is receiving and holding the Shares except
in accordance with this Lock-up Agreement. For purposes of this
paragraph, "immediate family" shall mean spouse, lineal descendant,
father, mother, brother or sister of the transferor.
Very truly yours,
By:
Signature
Robert W. Marsik
Accepted and Agreed to:
____________________
LA JOLLA SECURITIES CORPORATION
As Representatives of the
Several Underwriters
By:
Title:
PLEASE COMPETE AND RETURN TO:
EXHIBIT B
Underwriters' Warrant Agreement
AMERICA'S COFFEE CUP, INC.
and
SECURITIES TRANSFER CORPORATION
Warrant Agent
WARRANT AGREEMENT
Dated as of __________, 1996
TABLE OF CONTENTS
Section Page
1. Appointment of Warrant Agent. 2
2. Form of Warrant. 2
3. Countersignature and Registration. 2
4. Transfers and Exchanges. 2
5. Exercise of Warrants. 2
6. Mutilated or Missing Warrants. 3
7. Reservation and Registration of Common Stock. 3
8. Warrant Price; Adjustments. 3
9. No Fractional Interests. 6
10. Notice to Warrantholders. 6
11. Disposition of Proceeds on Exercise of Warrants. 7
12. Redemption of Warrants. 7
13. Merger or Consolidation or Change of Name of Warrant Agent. 8
14. Duties of Warrant Agent. 8
15. Change of Warrant Agent 9
16. Identity of Transfer Agent. 9
17. Notices. 9
18. Supplements and Amendments. 10
19. 0Successors. 10
20. Merger or Consolidation of the Company. 10
21. Texas Contract. 10
22. Benefits of This Agreement. 10
23. Counterparts. 10
WARRANT AGREEMENT, dated as of ________, 1996, between AMERICA'S
COFFEE CUP, Inc., a Colorado corporation (hereinafter called the
"Company"), and Securities Transfer Corporation, as warrant agent
(hereinafter called the "Warrant Agent");
WHEREAS, the Company proposes to issue 2,000,000 Redeemable Series
A Warrants (hereinafter called the "Series A Warrants"), entitling the
holders thereof to purchase one share of Common Stock, $0.40 par value
(hereinafter called the "Common Stock") for each Warrant, in connection
with the proposed issuance by the Company of 200,000 Units, each Unit
consisting of one share of Series A Preferred Stock and ten Series A
Warrants, and the Company also proposes to issue up to 300,000 Warrants
underlying the Underwriters' over-allotment option and 200,000 Warrants
underlying a warrant to purchase Units to be granted to the
Representatives of the Underwriters; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing so to act, in connection
with the registration, transfer, exchange and exercise of Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter in this Agreement set forth, and the Warrant
Agent hereby accepts such appointment.
2. Form of Warrant. The text of the Warrant and of the form of
election to purchase shares to be printed on the reverse thereof shall
be substantially as set forth in Exhibit A attached hereto. The Warrant
Price to purchase one share of Common Stock shall be as provided and
defined in 8. The Warrants shall be executed on behalf of the Company
by the manual or facsimile signature of the present or any future
Chairman of the Board or President or Vice President of the Company,
under its corporate seal, affixed or in facsimile, attested by the
manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company.
Warrants shall be dated as of the date of issuance thereof by the
Warrant Agent either upon initial issuance or upon transfer or exchange.
3. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. The
Warrants shall be countersigned by the Warrant Agent (or by any
successor to the Warrant Agent then acting as warrant agent under this
Agreement) and shall not be valid for any purpose unless so
countersigned. Warrants may be so countersigned, however, by the
Warrant Agent (or by its successor as warrant agent) and be delivered by
the Warrant Agent, notwithstanding that the persons whose manual or
facsimile signatures appear thereon as proper officers of the Company
shall have ceased to be such officers at the time of such
countersignature or delivery.
4. Transfers and Exchanges. The Warrant Agent shall transfer,
from time to time after the sale of the Units, any outstanding Warrants
upon the books to be maintained by the Warrant Agent for that purpose,
upon surrender thereof for transfer properly endorsed or accompanied by
appropriate instructions for transfer. Upon any such transfer, a new
Warrant shall be issued to the transferee and the surrendered Warrant
shall be canceled by the Warrant Agent. Warrants so canceled shall be
delivered by the Warrant Agent to the Company from time to time. The
Warrants may be exchanged at the option of the holder thereof, when
surrendered at the office of the Warrant Agent, for another Warrant, or
other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of
shares of Common Stock. The Warrant Agent is hereby irrevocably
authorized to countersign in accordance with 3 of this Agreement the
new Warrants required pursuant to the provisions of this Section, and
the Company, whenever required by the Warrant Agent, will supply the
Warrant Agent with Warrants duly executed on behalf of the Company for
such purpose.
5. Exercise of Warrants. Subject to the provisions of this
Agreement, each registered holder of Warrants shall have the right,
which may be exercised as in such Warrants expressed, to purchase from
the Company (and the Company shall issue and sell to such registered
holder of Warrants) the number of fully paid and nonassessable shares of
Common Stock specified in such Warrants, upon surrender of such Warrants
to the Company at the office of the Warrant Agent, with the form of
election to purchase on the reverse thereof duly filled in and signed,
and upon payment to the Warrant Agent for the account of the Company of
the Warrant Price for the number of shares of Common Stock in respect of
which such Warrants are then exercised. Payment of such Warrant Price
may be made in cash, or by certified or official bank check, payable in
United States dollars, to the order of the Warrant Agent. No adjustment
shall be made for any dividends on any shares of Common Stock issuable
upon exercise of a Warrant. Upon such surrender of Warrants, and
payment of the Warrant Price as aforesaid, the Company shall issue and
cause to be delivered with all reasonable dispatch to or upon the
written order of the registered holder of such Warrants and in such name
or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased
upon the exercise of such Warrants. Such certificate or certificates
shall be deemed to have been issued and any person so designated to be
named therein shall be deemed to have become a holder of record of such
shares as of the date of the surrender of such Warrants and payment of
the Warrant Price as aforesaid; provided, however, that if, at the date
of surrender of such Warrants and payment of the Warrant Price, the
transfer books for the Common Stock or other class of stock purchasable
upon the exercise of such Warrants shall be closed, the certificates for
the shares in respect of which such Warrants are then exercised shall be
issuable as of the date on which such books shall next be opened and
until such date the Company shall be under no duty to deliver any
certificate for such shares; provided further, however, that the
transfer books aforesaid, unless otherwise required by law, shall not be
closed at any one time for a period longer than 20 days. The rights of
purchase represented by the Warrants shall be exercisable, at the
election of the registered holders thereof, either as an entirety or
from time to time for part only of the shares specified therein, and in
the event that any Warrant is exercised in respect of less than all of
the shares specified therein, a new Warrant or Warrants will be issued
for the remaining number of shares specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the
provisions of this Section and of 3 of this Agreement and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent
with Warrants duly executed on behalf of the Company for such purpose.
6. Mutilated or Missing Warrants. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company will issue
and the Warrant Agent will countersign and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in
lieu of and substitution for the Warrant lost, stolen or destroyed, a
new Warrant of like tenor and representing an equivalent right or
interest; but only upon receipt of evidence satisfactory to the Company
and the Warrant Agent of such loss, theft or destruction of such Warrant
and indemnity, if requested, also satisfactory to them. Applicants for
such substitute Warrants shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or the
Warrant Agent may prescribe.
7. Reservation and Registration of Common Stock.
A. There have been reserved, and the Company shall at all times
keep reserved, out of the authorized and unissued shares of Common
Stock, a number of shares sufficient to provide for the exercise of the
rights of purchase represented by the Warrants, and the Transfer Agent
for the Common Stock and every subsequent Transfer Agent for any shares
of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid are hereby irrevocably authorized and
directed at all times to reserve such number of authorized and unissued
shares as shall be requisite for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent for the Common
Stock and with every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Warrant Agent is hereby
irrevocably authorized to requisition from time to time such Transfer
Agent for stock certificates required to honor outstanding Warrants.
The Company will supply such Transfer Agents with duly executed stock
certificates for such purpose and will itself provide or otherwise make
available any cash or scrip which may be issuable as provided in 9 of
this Agreement. All Warrants surrendered in the exercise of the rights
thereby evidenced shall be canceled by the Warrant Agent and shall
thereafter be delivered to the Company, and such canceled Warrants shall
constitute sufficient evidence of the number of shares of stock which
have been issued upon the exercise of such Warrants.
B. The Company represents that it has registered under the
Securities Act of 1933 the shares of Common Stock issuable upon exercise
of the Warrants and will use its best efforts to maintain the
effectiveness of such registration by post-effective amendment during
the entire period in which the Warrants are exercisable, and that it
will use its best efforts to qualify such Common Stock for sale under
the securities laws of such states of the United States as may be
necessary to permit the exercise of the Warrants in the states in which
the Units are initially qualified and to maintain such qualifications
during the entire period in which the Warrants are exercisable.
8. Warrant Price; Adjustments.
A. The price at which Common Stock shall be purchasable upon
exercise of Warrants at any time after the Series A Preferred Stock and
Series A Warrants become separately tradeable until ________, 2001
(hereinafter called the "Warrant Price") shall be $1.50 per share of
Common Stock or, if adjusted as provided in this Section, shall be such
price as so adjusted.
B. The Warrant Price shall be subject to adjustment from time
to time as follows:
(1) Except as hereinafter provided, in case the Company shall at
any time or from time to time after the date hereof issue any additional
shares of Common Stock for a consideration per share less than the
Warrant Price in effect immediately prior to the issuance of such
additional shares, or without consideration, then, upon each such
issuance, the Warrant Price in effect immediately prior to the issuance
of such additional shares shall forthwith be reduced to a price
(calculated to the nearest full cent) determined by dividing:
(a) An amount equal to (i) the total number of shares of Common
Stock outstanding immediately prior to such issuance multiplied by the
Warrant Price in effect immediately prior to such issuance, plus (ii)
the consideration, if any, received by the Company upon such issuance,
by
(b) The total number of shares of Common Stock outstanding
immediately after the issuance of such additional shares.
(2) The Company shall not be required to make any such
adjustment of the Warrant Price in accordance with the foregoing if the
amount of such adjustment shall be less than $.25 but in such case the
Company shall maintain a cumulative record of the Warrant Price as it
would have been in the absence of this provision (the "Constructive
Warrant Price"), and for the purpose of computing a new Warrant Price
after the next subsequent issuance of additional shares (but not for the
purpose of determining whether an adjustment thereof is required under
the terms of this paragraph) the constructive Warrant Price shall be
deemed to be the Warrant Price in effect immediately prior to such
issuance.
(3) For the purpose of this 8 the following provisions shall
also be applicable:
(a) In the case of the issuance of additional shares of Common
Stock for cash, the consideration received by the Company therefor shall
be deemed to be the net cash proceeds received by the Company for such
shares before deducting any commissions or other expenses paid or
incurred by the Company for any underwriting of, or otherwise in
connection with, the issuance of such shares.
(b) In case of the issuance (otherwise than upon conversion or
exchange of shares of Common Stock) of additional shares of Common Stock
for a consideration other than cash or a consideration a part of which
shall be other than cash, the amount of the consideration other than
cash received by the Company for such shares shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company, as of the date of the adoption of the
resolution of said Board, providing for the issuance of such shares for
consideration other than cash or for consideration a part of which shall
be other than cash, such fair value to include goodwill and other
intangibles to the extent determined in good faith by the Board.
(c) In case of the issuance by the Company after the date
hereof, of any security (other than the Warrants) that is convertible
into shares of Common Stock or of any warrants, rights or options to
purchase shares of Common Stock (except the options and warrants
referred to in subsection H of this 8), (i) the Company shall be deemed
(as provided in subparagraph (e) below) to have issued the maximum
number of shares of Common Stock deliverable upon the exercise of such
conversion privileges or warrants, rights or options, and (ii) the
consideration therefor shall be deemed to be the consideration received
by the Company for such convertible securities or for such warrants,
rights or options, as the case may be, before deducting therefrom any
expenses or commissions incurred or paid by the Company for any
underwriting of, or otherwise in connection with, the issuance of such
convertible security or warrants, rights or options, plus (A) the
minimum consideration or adjustment payment to be received by the
Company in connection with such conversion, or (B) the minimum price at
which shares of Common Stock are to be delivered upon exercise of such
warrants, rights or options or, if no minimum price is specified and
such shares are to be delivered at an option price related to the market
value of the subject shares, an option price bearing the same relation
to the market value of the subject shares at the time such warrants,
rights or options were granted; provided that as to such options such
further adjustment as shall be necessary on the basis of the actual
option price at the time of exercise shall be made at such time if the
actual option price is less than the aforesaid assumed option price. No
further adjustment of the Warrant Price shall be made as a result of the
actual issuance of the shares of Common Stock referred to in this
subparagraph (c). On the expiration of such warrants, rights or
options, or the termination of such right to convert, the Warrant Price
shall be readjusted to such Warrant Price as would have pertained had
the adjustments made upon the issuance of such warrants, rights, options
or convertible securities been made upon the basis of the delivery of
only the number of shares of Common Stock actually delivered upon the
exercise of such warrants, rights or options or upon the conversion of
such securities.
(d) For the purposes hereof, any additional shares of Common
Stock issued as a stock dividend shall be deemed to have been issued for
no consideration.
(e) The number of shares of Common Stock at any time outstanding
shall include the aggregate number of shares deliverable in respect of
the convertible securities, rights and options referred to in
subparagraph (c) of this paragraph; provided that with respect to shares
referred to in clause (i) of subparagraph (C), to the extent that such
warrants, options, rights or conversion privileges are not exercised,
such shares shall be deemed to be outstanding only until the expiration
dates of the warrants, rights, options or conversion privileges or the
prior cancellation thereof.
C. In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Warrant Price in effect immediately prior to such subdivision shall be
proportionately reduced and, in case the outstanding shares of the
Common Stock of the Company shall be combined into a smaller number of
shares, the Warrant Price in effect immediately prior to such
combination shall be proportionately increased.
D. Upon each adjustment of the Warrant Price pursuant to the
provisions of this 8, the number of shares issuable upon the exercise
of each Warrant shall be adjusted by multiplying the Warrant Price in
effect prior to the adjustment by the number of shares of Common Stock
covered by the Warrant and dividing the product so obtained by the
adjusted Warrant Price.
E. Except upon consolidation or reclassification of the shares
of Common Stock of the Company as provided for in subsection (C) hereof
and except for readjustment of the Warrant Price upon expiration of
warrants, rights or options as provided for in subparagraph (c)
paragraph 3 of subsection (B) hereof, the Warrant Price in effect at any
time may not be adjusted upward or increased in any manner whatsoever.
F. Irrespective of any adjustment or change in the Warrant
Price or the number of shares of Common Stock actually purchasable under
the several Warrants, the Warrants theretofore and thereafter issued may
continue to express the Warrant Price per share and the number of shares
purchasable thereunder as the Warrant Price per share and the number of
shares purchasable were expressed in the Warrants when initially issued.
G. If any capital reorganization or reclassification of the
capital stock of the Company (other than a distribution of stock in
accordance with 10(B)) or consolidation or merger of the Company with
another corporation or the sale of all or substantially all of its
assets to another corporation shall be effected, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale,
lawful and adequate provision shall be made whereby the holder of each
Warrant then outstanding shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified
herein and in the Warrants and in lieu of the shares of the Common Stock
of the Company immediately theretofore purchasable and receivable upon
the exercise of the rights represented by each such Warrant, such shares
of stock, securities or assets as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented by each such Warrant had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in
any such case appropriate provisions shall be made with respect to the
rights and interest of the holder of each Warrant then outstanding to
the end that the provisions thereof (including without limitation
provisions for adjustment of the Warrant Price and of the number of
shares purchasable upon the exercise of each Warrant then outstanding)
shall thereafter be applicable, as nearly as may be in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise of each Warrant.
H. No adjustment of the Warrant Price shall be made in
connection with the issuance or sale of shares of Common Stock issuable
pursuant to currently outstanding options and warrants granted to
officers, directors, employees, advisory directors, or affiliates of the
Company.
I. Whenever the Warrant Price is adjusted as herein provided,
the Company shall (a) forthwith file with the Warrant Agent a
certificate signed by the Chairman of the Board or the President or a
Vice President of the Company and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company,
showing in detail the facts requiring such adjustment and the Warrant
Price and the number of shares of Common Stock purchasable upon exercise
of the Warrants after such adjustment and (b) cause a notice stating
that such adjustment has been effected and stating the adjusted Warrant
Price and the number of shares of Common Stock purchasable upon exercise
of the Warrants to be published at least once a week for two consecutive
weeks in a newspaper of general circulation in Dallas, Texas and in New
York, New York. The Company, at its option, may cause a copy of such
notice to be sent by first class mail, postage prepaid, to each
registered holder of Warrants at his address appearing on the Warrant
register. The Warrant Agent shall have no duty with respect to any such
certificate filed with it except to keep the same on file and available
for inspection by holders of Warrants during reasonable business hours.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of a Warrant to determine whether any facts
exist which may require any adjustment of the Warrant Price, or with
respect to the nature or extent of any adjustment of the Warrant Price
when made, or with respect to the method employed in making such
adjustment.
J. The Company may retain a firm of independent certified
public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) selected by
the Board of Directors of the Company or the Executive Committee of said
Board and approved by the Warrant Agent, to make any computation
required under this 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under
this 8.
K. In case at any time conditions shall arise by reason of
action taken by the Company which, in the opinion of the Board of
Directors of the Company, are not adequately covered by the other
provisions of this Agreement and which might materially and adversely
affect the rights of the holders of the Warrants, or in case at any time
any such conditions are expected to arise by reason of any action
contemplated by the Company, the Board of Directors of the Company shall
appoint a firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial
statements of the Company), who shall give their opinion as to the
adjustment, if any (not inconsistent with the standards established in
this 8), of the Warrant Price and the number of shares of Common Stock
purchasable pursuant hereto (including, if necessary, any adjustment as
to the property which may be purchasable in lieu thereof upon exercise
of the Warrants) which is, or would be, required to preserve without
dilution the rights of the holders of the Warrants. The Board of
Directors of the Company shall make the adjustment recommended forthwith
upon the receipt of such opinion or the taking of any such action
contemplated, as the case may be; provided, however, that no adjustment
of the Warrant Price shall be made which in the opinion of the
accountant or firm of accountants giving the aforesaid opinion would
result in an increase of the Warrant Price to more than the Warrant
Price then in effect except as otherwise provided in subsection E of
this 8.
9. No Fractional Interests. The Company shall not be required
to issue fractions of shares of Common Stock on the exercise of
Warrants. If any fraction of a share of Common Stock would, except for
the provisions of this Section, be issuable on the exercise of any
Warrant (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the current value of such
fraction (a) computed, if the Common Stock shall be listed or admitted
to unlisted trading privileges on any national securities exchange, on
the basis of the last reported sale price of the Common Stock on such
exchange on the last business day prior to the date of exercise upon
which such a sale shall have been effected (or, if the Common Stock
shall be listed or admitted to unlisted trading privileges on more than
one such exchange, on the basis of such price on the exchange designated
from time to time for such purpose by the Board of Directors of the
Company) or (b) computed, if the Common Stock shall not be listed or
admitted to unlisted trading privileges, on the basis of the average of
the high and low bid prices of the Common Stock in the NASDAQ Small-Cap
Market, on the last business day prior to the date of exercise.
10. Notice to Warrantholders.
A. Nothing contained in this Agreement or in any of the
Warrants shall be construed as conferring upon the holders thereof the
right to vote or to consent or to receive notice as stockholders in
respect of the meetings of stockholders for the election of directors of
the Company or any other matters, or any rights whatsoever as
stockholders of the Company; provided, however, that in the event that a
meeting of stockholders shall be called to consider and take action on a
proposal for the voluntary dissolution of the Company, other than in
connection with a consolidation, merger or sale of all, or substantially
all, of its property, assets, business and goodwill as an entirety, then
and in that event the Company shall cause a notice thereof to be
published at least once a week for two consecutive weeks in a newspaper
of general circulation in Dallas, Texas and New York, New York, such
publication to be completed at least 20 days prior to the date fixed as
a record date or the date of closing the transfer books for the
determination of the stock holders entitled to vote at such meeting.
The Company shall also cause a copy of such notice to be sent by first
class mail, postage prepaid, at least 20 days prior to said date fixed
as a record date or said date of closing the transfer books, to each
registered holder of Warrants at his address appearing on the Warrant
register; but failure to mail or receive such notice or any defect
therein or in the mailing thereof shall not affect the validity of any
action taken in connection with such voluntary dissolution. If such
notice shall have been so given and if such a voluntary dissolution
shall be authorized at such meeting or any adjournment thereof, then for
and after the date on which such voluntary dissolution shall have been
duly authorized by the stockholders, the purchase rights represented by
the Warrants and other rights with respect thereto shall cease and
terminate.
B. If the Company shall make any distribution on, or to holders
of, its Common Stock (or other property which may be purchasable in lieu
thereof upon the exercise of Warrants) of any property (other than a
cash dividend), the Company shall cause a notice of its intention to
make such distribution to be published at least once a week for two
consecutive weeks in a newspaper of general circulation in Dallas, Texas
and New York, New York, such publication to be completed at least 20
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to
receive such distribution. The Company shall also cause a copy of such
notice to be sent by first class mail, postage prepaid, at least 20 days
prior to said date fixed as a record date or said date of closing the
transfer books, to each registered holder of Warrants at his address
appearing on the Warrant register; but failure to mail or to receive
such notice or any defect therein or in the mailing thereof shall not
affect the validity of any action taken in connection with such
distribution.
11. Disposition of Proceeds on Exercise of Warrants.
A. The Warrant Agent shall account promptly to the Company with
respect to Warrants exercised and concurrently pay to the Company all
monies received by the Warrant Agent for the purchase of shares of the
Company's stock through the exercise of such Warrants.
B. The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrants during normal business
hours at its principal office.
12. Redemption of Warrants.
A. At any time on or after __________, 1996, the Company may,
at its option, redeem some or all of the outstanding Warrants at $0.05
per Warrant, upon thirty (30) days prior written notice, if the closing
sale price of the Common Stock on any national securities exchange or
the closing sale price quotation on the NASDAQ Small-Cap Market, Boston
Stock Exchange, or other such exchange has equaled or exceeded $3.00 for
ten (10) consecutive trading days within the 30 day period immediately
preceding the date notice of redemption is given (the "Redemption
Price"). In the event of an adjustment in the Warrant Price pursuant to
8, the Redemption Price shall also be automatically adjusted.
B. The election of the Company to redeem some or all of the
Warrants shall be evidenced by a resolution of the Board of Directors of
the Company.
C. Warrants may be exercised at any time on or before the date
fixed for redemption (the "Redemption Date").
D. Notice of redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to
the Redemption Date, to each holder of Warrants, at his address
appearing in the Warrant register.
All notices of redemption shall state:
(1) The Redemption Date;
(2) That on the Redemption Date the Redemption Price will become
due and payable upon each Warrant;
(3) The place where such Warrants are to be surrendered for
redemption and payment of the Redemption Price; and
(4) The current Warrant Price of the Warrants, the place or
places where such Warrants may be surrendered for exercise, and the time
at which the right to exercise the Warrants will terminate in accordance
with this Agreement.
E. Notice of redemption of Warrants at the election of the
Company shall be given by the Company or, at the Company's request, by
the Warrant Agent in the name and at the expense of the Company.
F. Prior to any Redemption Date, the Company shall deposit with
the Warrant Agent an amount of money sufficient to pay the Redemption
Price of all the Warrants which are to be redeemed on that date. If any
Warrant is exercised pursuant to 5, any money so deposited with the
Warrant Agent for the redemption of such Warrant shall be paid to the
Company.
G. Notice of redemption having been given as aforesaid, the
Warrants so to be redeemed shall, on the Redemption Date, become
redeemable at the Redemption Price therein specified and on such date
(unless the Company shall default in the payment of the Redemption
Price), such Warrants shall cease to be exercisable and thereafter
represent only the right to receive the Redemption Price. Upon
surrender of such Warrants for redemption in accordance with said
notice, such Warrants shall be redeemed by the Company for the
Redemption Price.
13. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation into which the Warrant Agent may be merged or with which
it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant
Agent, shall be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part of any
of the parties hereto, provided that such corporation would be eligible
for appointment as a successor warrant agent under the provisions of 15
of this Agreement. In case at the time such successor to the Warrant
Agent shall succeed to the agency created by this Agreement and at such
time any of the Warrants shall have been countersigned but not
delivered, any such successor to the Warrant Agent may adopt the
countersignature of the Warranty Agent and deliver such Warrants so
countersigned; and in case at the time any of the Warrants shall not
have been countersigned, any successor to the Warrant Agent may
countersign such Warrants either in the name of the predecessor Warrant
Agent or in the name of the successor warrant agent; and in all such
cases such Warrants shall have the full force provided in the Warrant
and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed
and at such time any of the Warrants shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under
its prior name and deliver Warrants so countersigned; and in case at
that time any of the Warrants shall not have been countersigned, the
Warrant Agent may countersign such Warrants whether in its prior name or
in its changed name; and in all such cases such Warrants shall have the
full force provided in the Warrants and in this Agreement.
14. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the holders of
Warrants, by their acceptance thereof, shall be bound:
A. The statements contained herein and in the Warrants shall be
taken as statements of the Company, and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution
of the Warrants except as herein otherwise provided.
B. The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants contained in this
Agreement or in the Warrants to be complied with by the Company.
C. The Warrant Agent may execute and exercise any of the rights
or powers hereby vested in it to perform any duty hereunder either
itself or by or through its attorneys, agents or employees.
D. The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to
any holder of any Warrant in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with the opinion
or the advice of such counsel, provided the Warrant Agent shall have
exercised reasonable care in the selection and continued employment of
such counsel.
E. The Warrant Agent shall incur no liability or responsibility
to the Company or to any holder of any Warrant for any action taken in
reliance on any notice, resolution, waiver, consent, order, certificate,
or other paper, document or instrument believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties.
F. The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind
and nature incurred by the Warrant Agent in the execution of this
Agreement and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of the
Warrant Agent's negligence or bad faith.
G. The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action likely
to involve expense unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity for any cost and expense which may be incurred, but this
provision shall not affect the power of the Warrant Agent to take such
action as the Warrant Agent may consider proper, whether with or without
any such security or indemnity. All rights of action under this
Agreement or under any of the Warrants may be enforced by the Warrant
Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such
action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery of judgment shall
be for the ratable benefit of the registered holders of the Warrants, as
their respective rights or interests may appear.
H. The Warrant Agent and any stockholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become peculiarly
interested in any transaction in which the Company may be interested, or
contract with or lend money to or otherwise act as fully and freely as
though it were not Warrant Agent under this Agreement. Nothing herein
shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
I. The Warrant Agent shall act hereunder solely as agent and
not in a ministerial capacity, and its duties shall be determined solely
by the provisions hereof. The Warrant Agent shall not be liable for
anything which it may do or refrain from doing in connection with this
Agreement except for its own negligence or bad faith.
15. Change of Warrant Agent. The Warrant Agent may resign and
be discharged from its duties under this Agreement by giving to the
Company notice in writing, and to the holders of the Warrants notice by
publication, of such resignation, specifying a date when such
resignation shall take effect, which notice shall be published at least
once a week for two consecutive weeks in a newspaper of general
circulation in Dallas, Texas and New York, New York, prior to the date
so specified. The Warrant Agent may be removed by like notice to the
Warrant Agent from the Company and by like publication. If the Warrant
Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If
the Company shall fail to make such appointment within a period of 30
days after such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Warrant
Agent or by the registered holder of a Warrant (who shall, with such
notice, submit his Warrant for inspection by the Company), then the
registered holder of a Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent.
Any successor warrant agent, whether appointed by the Company or by such
a court, shall be a bank or trust company having its principal office,
and having capital and surplus as shown by its last published report to
its stockholders, of at least $1,000,000. After appointment, the
successor warrant agent shall be vested with the same powers, rights,
duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed; but the former Warrant Agent
shall deliver and transfer to the successor warrant agent any property
at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Failure
to file or publish any notice provided for in this Section, however, or
any defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the
successor warrant agent, as the case may be.
16. Identity of Transfer Agent. Forthwith upon the appointment
of any Transfer Agent for the Common Stock or of any subsequent Transfer
Agent for shares of the Common Stock or other shares of the Company's
capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants, the Company will file with the Warrant
Agent a statement setting forth the name and address of such Transfer
Agent.
17. Notices. Any notice pursuant to this Agreement to be given
or made by the Warrant Agent or the registered holder of any Warrant to
or on the Company shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed (until another address is filed
in writing by the Company with the Warrant Agent) as follows:
AMERICA'S COFFEE CUP, Inc.
12528 Kirkham Court, Nos. 6 & 7
Poway, California 92024
Attention: President
Any notice pursuant to this Agreement to be given or made by the Company
or the registered holder of any Warrant to or on the Warrant Agent shall
be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the
Warrant Agent with the Company) as follows:
Securities Transfer Corporation
16990 Dallas Parkway
Suite100
Dallas, Texas 75248
18. Supplements and Amendments. The Company and the Warrant
Agent may from time to supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make
any other provisions in regard to matters or questions arising hereunder
which the Company and the Warrant Agent may deem necessary or desirable
and which shall not be inconsistent with the provisions of the Warrants
and which shall not adversely affect the interests of the holders of
Warrants.
19. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent
shall bind and inure to the benefit of their respective successors and
assigns hereunder.
20. Merger or Consolidation of the Company. The Company shall
not effect any consolidation or merger with, or sale of substantially
all its property to, any other corporation unless the corporation
resulting from such merger (if not the Company) or consolidation or the
corporation purchasing such property shall expressly assume, by
supplemental agreement satisfactory in form to the Warrant Agent and
executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and condition of
this Agreement to be performed and observed by the Company.
21. Texas Contract. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the
State of Texas and for all purposes shall be construed in accordance
with the laws of said State.
22. Benefits of This Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered holders of the Warrants
any legal or equitable right, remedy or claim under this Agreement; but
this Agreement shall be for the sole and exclusive benefit of the
Company, the Warrant Agent and the registered holders of the Warrants.
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes by
deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
AMERICA'S COFFEE CUP, INC.
By:
Robert W. Marsik, President
SECURITIES TRANSFER CORPORATION
By:
EXHIBIT A
[FORM OF WARRANT]
No. _____ For the Purchase
of ___ Shares
of Common Stock
______, 1996
AMERICA'S COFFEE CUP, INC.
Redeemable Series A Warrants
Void After _______, 2001
THIS CERTIFIES that _________________________________ is entitled
to purchase from AMERICA'S COFFEE CUP, INC., a Colorado corporation
(hereinafter called the "Company"), upon the surrender of this Warrant
to the Company at the principal office of the Warrant Agent hereinafter
mentioned (or of its successor as Warrant Agent), provided, and only if,
this Warrant shall be surrendered at any time on and after __________,
1996 and before the close of business on __________, 2001, the number of
fully paid and nonassessable shares of Common Stock, $0.40 par value
("Common Stock"), set forth above, evidenced by a certificate therefor,
upon payment of the Warrant Price for the number of shares in respect of
which this Warrant is exercised; provided, however, that under certain
conditions set forth in the Warrant Agreement hereinafter mentioned, the
number of shares of Common Stock which may become purchasable pursuant
to this Warrant may be adjusted, or property other than shares of Common
Stock may become purchasable pursuant to this Warrant. The Warrant
Price at which the Common Stock shall be purchasable upon the exercise
of Warrants shall be $1.50 per share, payable upon the exercise of this
Warrant, either in cash or by certified or official bank check, in
United States dollars, to the order of the Warrant Agent. No adjustment
shall be made for any dividends on any shares of stock issuable upon
exercise of this Warrant and no fractional shares shall be issued. The
right of purchase represented by this Warrant is exercisable, at the
election of the registered holder hereof, either as an entirety or from
time to time in part only of the shares specified herein and, in the
event that this Warrant is exercised in respect of fewer than all of
such shares, a new Warrant for the remaining number of such shares will
be issued on such surrender.
The Warrant is issued under, and the rights represented hereby are
subject to the terms and provisions contained in a Warrant Agreement
dated as of __________, 1996, between the Company and Securities
Transfer Corporation, as Warrant Agent, to all the terms and provisions
of which the registered holder of this Warrant, by acceptance hereof,
assents. Reference is hereby made to said Warrant Agreement for a more
complete statement of the rights and limitations of rights of the
registered holder hereof, the rights and duties of the Warrant Agent and
the rights and obligations of the Company thereunder. Copies of said
Warrant Agreement are on file at the office of said Warrant Agent. The
Company shall not be required upon the exercise of this Warrant to issue
fractions of shares, but shall make adjustment therefor in cash as
provided in said Warrant Agreement.
This Warrant may be redeemed by the Company, at its option, at any
time on or after __________, 1996, on thirty days' prior written
notice, at $0.05 per Warrant, if the closing sale price of the Common
Stock on any national securities exchange or the closing inside bid
quotation of the Common Stock on the NASDAQ Small-Cap Market has equaled
or exceeded $3.00 for ten consecutive trading days. The redemption
price is subject to adjustment based on adjustments to the Warrant
Price. This Warrant nay not be exercised after the close of business on
the day preceding the redemption date.
The Warrant is transferable at the office of the Warrant Agent (or
its successor as warrant agent) by the registered holder hereof in
person or by attorney duly authorized in writing, but only in the manner
and subject to the limitations provided in the Warrant Agreement, and
upon surrender of this Warrant. Upon any such transfer, a new Warrant,
or new Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of
shares of Common Stock will be issued to the transferee in exchange for
this Warrant.
This Warrant and similar Warrants when surrendered at the office
of the Warrant Agent (or its successor as warrant agent) by the
registered holder in person or by attorney duly authorized in writing
may be exchanged, in the manner and subject to the limitations provided
in the Warrant Agreement, for another Warrant, or other Warrants of
different denominations, of like tenor and representing in the aggregate
the right to purchase a like number of shares of Common Stock.
This Warrant may be exercised only if a current prospectus
relating to the Common Stock is then in effect and only if the shares of
Common Stock are qualified for sale under the securities law of the
state or states in which the Warrantholder resides.
If this Warrant shall be surrendered for exercise within any
period during which the transfer books for the Common Stock or other
class of stock purchasable upon the exercise of this Warrant are closed
for any purpose, the Company shall not be required to make delivery of
certificates for shares purchasable upon such exercise until the date of
the reopening of said transfer books.
This Warrant shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, AMERICA'S COFFEE CUP, Inc. has caused to be printed
herein the facsimile signature of its President as of the date written
above.
AMERICA'S COFFEE CUP, INC.
By:
Robert W. Marsik, President
SECURITIES TRANSFER CORPORATION
As Warrant Agent
By:
Authorized Signature
[ FORM OF ]
ELECTION TO PURCHASE
AMERICA'S COFFEE CUP, Inc.
c/o Securities Transfer Corporation
16690 Dallas Parkway
Suite 100
Dallas, Texas 75248
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase
thereunder, shares of the stock provided for
therein, and requests that certificates for such shares shall be issued
in the name of
( Please Print )
and be delivered to
at
and, if said number of shares shall not be all of the shares purchasable
thereunder, that a new Warrant for the balance remaining of the shares
purchasable under the within Warrant be registered in the name of, and
delivered to, the undersigned at the address stated below.
Dated: , 19
Name of Warrantholder:
( Please Print )
Address:
Signature:
Note: The above signature must correspond with the
name as written upon the face of this Warrant in every particular,
without alteration or enlargement or any change whatever.
[ FORM OF ]
ASSIGNMENT
For value received
hereby sell, assign and transfer unto
the within Warrant, together with all right, title and interest therein,
and do hereby irrevocably constitute and appoint
attorney, to transfer said Warrant on the books of the within-named
Corporation, with full power of substitution in the premises.
Date: , 19
Signature:
Note: The above signature must correspond with the
name as written upon the face of this Warrant in every particular,
without alteration or enlargement or any change whatever.
c:\files\mjb\9555\0002\warragr[07/10/95]
200,000 Units
AMERICA'S COFFEE CUP, INC.
Each Unit Consisting of
One share of Series A Preferred Stock and
Ten redeemable Series A Warrants
_______, 1996
SELECTED DEALER AGREEMENT
Dear Sirs:
LA JOLLA SECURITIES CORPORATION ("La Jolla") and FIRST LONDON SECURITIES
CORPORATION ("First London") and the several underwriters (collectively,
the "Underwriters"), on whose behalf La Jolla and First London are
acting as managing underwriters and Representatives (the
"Representatives"), have severally agreed to purchase from AMERICA'S
COFFEE CUP, INC., a Colorado corporation (the "Company"), (a) an
aggregate of 200,000 Units, each Unit consisting of one share of Series
A Preferred Stock, $.40 par value, of the Company ("Series A Preferred
Stock"), and ten redeemable Series A warrants (individually, a "Series A
Warrant"), each of which entitles the holder thereof to purchase one
share of Common Stock at a price of $1.50 (such Units, together with
(A) the shares of Series A Preferred Stock and Series A Warrants
comprising the Units and (B) the shares of Common Stock issuable upon
exercise of such Series A Warrants, are collectively referred to herein
as the "Underwritten Securities"), plus (b) up to 30,000 additional
Units pursuant to an option for the purpose of covering over-allotments
(such additional Units, together with (A) the shares of Series A
Preferred Stock and Series A Warrants comprising such additional Units
and (B) the shares of Common Stock issuable upon exercise of such Series
A Warrants, are collectively referred to herein as the "Option
Securities"; the Underwritten Securities and the Option Securities are
collectively referred to herein as the "Securities"; and the Units
included in the Securities are collectively referred to herein as the
"Registered Units"), all as set forth in the Preliminary Prospectus
dated ______, 1996, as amended and supplemented from time to time, and
subject to the terms of the Underwriting Agreement referred to therein.
The Registered Units and the terms upon which they are to be offered for
sale by the several Underwriters are more particularly described in the
Preliminary Prospectus, additional copies of which will be supplied in
reasonable quantities upon request to the Underwriters.
1. Offering to Dealers. The Registered Units are to be offered to the
public by the Underwriters at the price per share set forth on the cover
page of the Preliminary Prospectus (the "Public Offering Price"). The
several Underwriters, acting through the Representatives, and subject to
the terms and conditions hereof, are severally offering a portion of the
Registered Units to certain dealers (the "Dealers") as principals, at
the Public Offering Price of $_______ per Unit, less a selling
concession of $_______ per Unit (the "Selling Concession"). Dealers must
be actually engaged in the investment banking or securities business and
be either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") who agrees that in making sales of
the Registered Units it will comply with the Rules of Fair Practice,
including Sections 8, 24 and 36 of Article m, and the Interpretation of
the Board of Governors of the NASD with respect to Free-Riding and
Withholding, or (ii) dealers with their principal place of business
located outside the United States, its territories and possessions and
not registered as brokers or dealers under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), who have agreed not to make
any sales within the United States, its territories or its possessions
or to persons who are nationals thereof or residents therein, and who
agree that in making sales of the Registered Units outside the United
States, they will comply with the requirements of the Rules of Fair
Practice of the NASD, including Sections 8, 24 and 36 of Article m of
such Rules, and Section 25 of such Article as that Section applies to
non-member foreign dealers, and the Interpretation of the Board of
Governors of the NASD with respect to Free-Riding and Withholding.
Under this Agreements the Representatives shall have full authority to
take such action as they may deem advisable in respect to all matters
pertaining to the public offering of the Registered Units.
If you desire to purchase any of the Registered Units, your confirmation
should reach the Representatives promptly by mail or facsimile
transmission at the office of LA JOLLA SECURITIES CORPORATON, 8214
Westchester, Suite 500, Dallas, TX, 75225, attention: Robert A. Shuey,
facsimile number (214)987-2091. The Representatives reserve the right to
reject subscriptions in whole or in part, to make allotments and to
close the subscription books at any time without notice. The Registered
Units allotted to you and the method and terms of the offering of the
Registered Units will be confirmed to you.
2. Offering by Dealers. Any Registered Units purchased by you under
the terms of this Agreement may be immediately offered to the public in
conformity with the terms of the offering set forth herein and in the
Preliminary Prospectus, subject to the securities or blue sky laws of
the various states or other jurisdictions.
Neither you nor any other person is, or has been, authorized by the
Company or the Representatives to give any information or make any
representation in connection with the sale of the Registered Units other
than those contained in the Preliminary Prospectus.
It is assumed that the Registered Units will be effectively placed for
investment. If during the term of this Agreement, the Representatives
shall purchase or contract to purchase any Registered Units purchased by
you hereunder, the Representatives may, at their election, either (a)
require you to repurchase such Registered Units at a price equal to the
total costs of such purchase by the Representatives, including brokerage
commissions, if any, and transfer taxes on the redelivery, or (b) charge
you with and collect from you an amount equal to the Selling Concession
originally allowed you with respect to the Registered Units so purchased
by you.
3. Payment and Delivery. Payment for the Registered Units that you
have agreed to purchase hereunder shall be made by you through the
Depository Trust Company ("DTC"), payable in same-day funds to the order
of La Jolla, at such time and on such date as La Jolla may designate,
against delivery of such Registered Units to you through he facilities
of the DTC. The above payment shall be made by you at $________ per
Unit.
4. Blue Sky Matters. Upon request, you will be informed as to the
states and other jurisdictions in which the Underwriters have been
advised that the Registered Units are qualified for sale under the
respective securities or blue sky laws of such states or jurisdictions.
However, neither the Representatives nor any of the other Underwriters
shall have any obligation or responsibility with respect to the right of
any Dealer to sell the Registered Units in any jurisdiction and you
shall indemnify and hold harmless the Representatives and the other
Underwriters and any person controlling the Representatives and the
other Underwriters from and against any and all losses, claims, damages,
expenses or liabilities to which any of them may become subject as a
result of your failure to comply with the laws of any jurisdiction in
connection with the offer and the sale of Registered Units. In
compliance with the General Business law of the State of New York, it
may be necessary for you to file a Further State Notice respecting the
Registered Units, in the form required by said Law, prior to offering
any of the Registered Units in such state.
5. Termination. This Agreement shall terminate when the
Representatives shall have determined that the public offering of the
Registered Units has been completed and upon facsimile notice to you of
such termination, or, if not theretofore terminated, it shall terminate
45 days after the initial public offering of the Registered Units;
provided, however, that the Representatives shall have the right to
extend this Agreement for a period or periods not to exceed an
additional 45 days in the aggregate upon facsimile notice to you. The
Representatives may terminate this Agreement at any time without prior
notice to you. Notwithstanding termination of this Agreement, you shall
remain liable for your portion of any transfer tax or other liability
that may be asserted or assessed against the Representatives, any of the
other Underwriters or any of the Dealers based upon the claim that the
Dealers or any of them constitute a partnership, an association, an
unincorporated business or other separate entity.
6. Obligations and Positions of Dealers. Notwithstanding any
provision herein, your confirmation hereof will constitute a binding
obligation on your part to purchase, upon the terms and conditions
hereof, the aggregate amount of the Registered Units reserved for you
and accepted by you and to perform and observe all the terms and
conditions hereof. You are not authorized to act as agent of the
Representatives or the other Underwriters in offering the Registered
Units to the public or otherwise. Nothing contained herein shall
constitute the Dealers an association or other separate entity, or
partners with the Representatives or the other Underwriters, but you
will be responsible for your share of any liability or expense based on
any claim to the contrary. Neither the Representatives nor the other
Underwriters shall be under any liability to you for or in respect of
the value, validity or form of the Registered Units, or the delivery of
the Registered Units, or the performance by anyone of any agreement on
its part, or the qualification of the Registered Units for sale under
the laws of any jurisdiction, or for or in respect of any other matter
relating to this Agreement, except for lack of good faith and matters
expressly assumed by the Representatives and the other Underwriters in
this Agreement, and no obligation on the part of the Representatives or
the other Underwriters shall be implied therefrom. The foregoing
provisions shall not be deemed a waiver of any liability imposed under
the Securities Act of 1933, as amended (the "Act"), or the Exchange Act.
You agree that at any time or times prior to the termination of the
Agreement you will, upon the request of the Representatives, report to
the Representatives the number of Registered Units purchased by you
under this Agreement that then remain unsold by you and will, upon the
request of the Representatives at such time or times, sell to the
Underwriters for their account, such number of unsold Registered Units
as the Representatives may designate, at the Public Offering Price, less
the Selling Concession or such part thereof as the Representatives may
determine.
The Representatives shall have full authority to take such actions as
they may deem advisable in respect of all matters pertaining to the
offering of the Registered Units or arising hereunder. No obligation not
expressly assumed by the Representatives in this Agreement shall be
implied hereby or inferred herefrom.
7. Compliance with Securities Laws. On becoming a Dealer, and in
offering and selling the Registered Units, you agree to comply with all
of the applicable requirements of the Act and the Exchange Act. You
confirm that you are familiar with Rule 15c2-8 under the Exchange Act
relating to the distribution of preliminary and final prospectuses for
securities of an issuer and confirm that you have complied and will
comply therewith with respect to the offering of the Registered Units.
8. Stabilization and Over-Allotment. Each Underwriter has authorized
the Representatives, in the discretion of the Representatives, to make
purchases and sales of Registered Units, for long or short account, on
such terms and at such prices as the Representatives deem advisable, to
cover any short position so incurred and to over-allot in arranging
sales.
Each Underwriter has agreed that, during the term of the Agreement Among
Underwriters, or such shorter period as the Representatives may
determine, it will not buy or sell any Securities of the Company except
as a broker pursuant to unsolicited orders and as otherwise provided in
said Agreement.
Your attention is directed to Rule 10b-6 of the General Rules and
Regulations under the 1934 Act, which contains certain prohibitions
against trading by a person interested in a distribution until such
person has completed its participation in such distribution.
9. Notices. Any notice from you to the Representatives should be
mailed or sent by facsimile transmission to both of the Representatives
at the addresses and facsimile numbers set forth in Section 1 hereof.
Any notice from the Representatives to you shall be mailed or sent by
facsimile transmission to you at the address and facsimile number set
forth on the confirmation executed by you in the form attached hereto as
Exhibit A. Mailed notices shall be sent by registered mail, return
receipt requested. Notices shall be effective upon receipt.
10. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas without giving effect
to the choice of law or conflicts of law or principles thereof.
If you desire to purchase any Registered Units, please confirm your
agreement by signing and returning to the Representatives by mail or
facsimile transmission your confirmation in the form attached hereto as
Exhibit A even though you may have previously advised the
Representatives thereof.
Very truly yours,
______________________________ LA JOLLA SECURITIES CORPORATION
By: By:
Robert A. Shuey, III
For themselves and the other several Underwriters
in Schedule I to the Underwriting Agreement
EXHIBIT A
Confirmation
200,000 Units
AMERICA'S COFFEE CUP, INC.
Each Unit Consisting of
One share of Series A Preferred Stock and
Ten Redeemable Series A Warrants
LA JOLLA SECURITIES CORPORATION
FIRST LONDON SECURITIES CORPORATION
As Representatives of the Several Underwriters
c/o La Jolla Securities Corporation
8214 Westchester,
Suite 500
Dallas, Texas 75225
Facsimile Number (214) 987-2091
Dear Sirs:
The undersigned hereby confirms its agreement to purchase
Units of AMERICA'S COFFEE CUP, INC., a Colorado corporation (the
"Registered Units"), each Registered Unit consisting of one share of
Series A Preferred Stock, $.40 par value, and ten redeemable Series A
Warrants, each of which entitles the holder thereof to purchase one
share of Common Stock at a price of $1.50. The purchase price shall be
$20.00 per Registered Unit, less a selling concession of $_____ per
Registered Unit, subject to the terms and conditions of the foregoing
Selected Dealer Agreement, and the undersigned agrees to take up and pay
for such Registered Units on the terms and conditions set forth in such
Agreement. The undersigned hereby acknowledges receipt of the
Preliminary Prospectus relating to the Securities (as defined in the
Selected Dealer Agreement) and confirms that in agreeing to purchase the
Registered Units it has relied on said Preliminary Prospectus and on no
other statement whatsoever, written or oral. The undersigned represents
that it has complied and will comply with the requirements of Rule 15c2-
8 under the Securities Exchange Act of 1934, as amended, with respect to
the offering of the Registered Units.
The undersigned confirms that it is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") and
represents that in making sales of the Registered Units it will comply
with the Rules of Fair Practice (including Sections 8, 24 and 36 of
Article m) and the Interpretation of the Board of Governors of the NASD
with respect to Free-Riding and Withholding; alternatively, the
undersigned represents that it is a foreign
dealer that is not eligible for membership in the NASD and agrees not to
offer or sell the Registered Units in the United States, its territories
or its possessions or to persons it has reason to believe are nationals
thereof or residents therein, and further agrees that in making sales of
the Registered Units outside the United States, it will comply with the
requirements of the Rules of Fair Practice (including Sections 8, 24 and
36 of Article m, and Section 25 of such Article as that Section applies
to non-member foreign dealers) and the Interpretation of the Board of
Governors of the NASD with respect to Free-Riding and Withholding.
By:
Name:
Title:
Address:
Facsimile
Number:
Dated , 1996
200,000 Units
AMERICA'S COFFEE CUP, INC.
Each Unit Consisting of
One share of Series A Preferred Stock and
Ten Redeemable Series A Warrants
_______, 1996
AGREEMENT AMONG UNDERWRITERS
LA JOLLA SECURITIES CORPORATION
FIRST LONDON SECURITIES CORPORATION
As Representatives of the Several Underwriters
c/o La Jolla Securities Corporation
8214 Westchester
Suite 500
Dallas, Texas 75225
Dear Sirs:
1. Underwriting Agreement. We understand that AMERICA'S COFFEE CUP,
INC., a Colorado corporation (the "Company"), proposes to enter into an
underwriting agreement (the "Underwriting Agreement"), with you as
managing underwriters ("Managing Underwriters") and other prospective
underwriters, including ourselves, acting severally and not jointly,
providing for (a) the purchase by the Underwriters (as defined in
Section . hereof) of 200,000 Units, each Unit consisting of one share of
Series A Preferred Stock, $.40 par value, of the Company ("Series A
Preferred Stock"), and ten redeemable Series A warrants (individually, a
"Series A Warrant"), each of which entitles the holder thereof to
purchase one share of Common Stock at a price of $1.50 (such Units,
together with (A) the shares of Series A Preferred Stock and Series A
Warrants comprising such Units and (B) the shares of Common Stock
issuable upon exercise of such Series A Warrants, are collectively
referred to herein as the "Underwritten Securities") and (b) the grant
by the Company to the Underwriters, as provided in Section 2(b) of the
Underwriting Agreement, of an option to purchase from the Company up to
an aggregate of 30,000 additional Units (such additional Units, together
with (A) the shares of Series A Preferred Stock and Series A Warrants
comprising such additional Units and (B) the shares of Common Stock
issuable upon exercise of such Series A Warrants, are collectively
referred to herein as the "Option Securities") solely for the purpose of
covering over-allotments in the sale of the Underwritten Securities; in
each case, upon the conditions stated in the Underwriting Agreement, in
which we agree, in accordance with the terms thereof and subject to
adjustment pursuant to Section 9 thereof, to purchase the number of
Units included within the Underwritten Securities set forth opposite our
names in Schedule I thereof and our pro rata portion of the number of
Units included within the Option Securities, determined in accordance
with Section 2(b) of the Underwriting Agreement, with respect to which
the over-allotment option is exercised. The Underwritten Securities and
the Option Securities are hereinafter referred to as the "Securities"
and the Units included therein are hereinafter referred to as the
"Registered Units".
2. Registration Statement and Prospectus. The Securities are more
particularly described in the registration statement relating thereto
filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Act"). Amendments to such registration
statement have been or may be filed, in which, with our consent hereby
confirmed, we have been or will be named as one of the Underwriters of
the Securities. Copies of the registration statement and the related
preliminary prospectus have heretofore been delivered to us, and we
confirm that they are correct insofar as they relate to us. You are
authorized to approve on our behalf any amendments or any supplements to
the registration statement, any preliminary prospectus and the
prospectus which you consider necessary or appropriate. The registration
statement and related prospectus, as amended and supplemented from time
to time, are hereinafter respectively referred to as the "Registration
Statement" and "Prospectus". We agree, if you so request, to furnish a
copy of any revised preliminary prospectus to each person to whom we
have delivered a copy of any previous prelim-inary prospectus. We
further represent that we have delivered all preliminary prospectuses
and agree that we will deliver all final prospectuses required for
compliance with the provisions of Rule l5c2-8 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
3. Authority of Managing Underwriters. We authorize you, as Managing
Underwriters, (a) to execute and deliver on our behalf the Underwriting
Agreement in the form annexed hereto as Exhibit A, with such changes
therein as in your discretion may be necessary or advisable, including
changes in those who are to be Underwriters and in the respective number
of Registered Units to be purchased by them (but not any change in the
number of Registered Units to be purchased by us except with our consent
or as provided in the Underwriting Agreement), (b) to take such action
as in your discretion may be necessary or advisable to carry out the
Underwriting Agreement, this Agreement and the transactions for the
accounts of the several Underwriters contemplated thereby and hereby,
including, in your discretion, whether to purchase any or all of the
Registered Units included within the Option Securities for the accounts
of the several Underwriters, and (c) to take such action as in your
discretion may be necessary or advisable to carry out the purchase,
carrying, sale and distribution of the Registered Units. The parties on
whose behalf you execute the Underwriting Agreement, including yourself
as Managing Underwriters, are herein called the "Underwriters."
4. Public Offering. We authorize you to supply the Company with the
information to be included in the Registration Statement and Prospectus
with respect to the terms of the offering, to determine the time of the
initial public offering after the Registration Statement becomes
effective, to vary the public offering price of the Registered Units and
the concessions and discounts to dealers after the initial public
offering, and to determine all matters relating to the advertisement of
the Securities and communication with dealers or others.
We authorize you, with respect to any Registered Units which we so agree
to purchase, to reserve for sale and to sell for our account such number
of our Registered Units as you shall determine, to securities dealers
("Dealers"), including any of the Underwriters. We authorize you to
determine the form and manner of any communications or agreements with
Dealers. If there shall be any such agreements with Dealers, you are
authorized to act as managers thereunder, and we agree, in such event,
to be governed by the terms and condi-tions of such agreements to the
extent we act as a Dealer. The form of Selected Dealer Agreement
attached hereto as Exhibit B is satisfactory to us. If there shall not
be any written agreements with Dealers, we agree to be governed by the
terms and conditions of such Selected Dealer Agreement to the extent we
act as a Dealer.
After the Registration Statement becomes effective, you will advise us
of the number of our Registered Units not so reserved but retained by us
for direct sale. Any of our Registered Units reserved but not sold may,
from time to time, on our request and in your discretion, be released to
us, and Registered Units so released will not thereafter be deemed to be
reserved, except that any time prior to termination of the provisions of
the last paragraph of this Section 4, we will on request advise you of
the number of our retained unsold Registered Units and you may in your
discretion add all or any number of such retained unsold Registered
Units to those reserved by you for sale. Sales of reserved Registered
Units to Dealers will be made at $______ per Unit for the accounts of
the several Underwriters as nearly as practicable in proportion to their
respective underwriting obligations.
You may in your discretion sell to another Underwriter any of the
Registered Units so reserved for our account if you determine that such
sales are advisable for Blue Sky purposes. The transfer tax on any such
sales shall be charged to the accounts of the several Underwriters in
proportion to their respective underwriting obligations.
You, and any of the Underwriters with your consent, may make purchases
and sales of Registered Units from or to any other Underwriter at the
public offering price less a concession equivalent to all or any part of
the gross underwriting spread. You are authorized to purchase Registered
Units for our account from Dealers at the public offering price less a
concession not exceeding the concession to Dealers. We will offer to the
public, in conformity with the terms of the offering set forth in the
Prospectus, our Registered Units not reserved by you.
5. Payment and Delivery. Payment for Registered Units retained by us for
direct sale shall be made by us through the Depository Trust Company
("DTC"), payable in same-day funds to the order of LA JOLLA SECURITES
CORPORATION, at such time or times as you may designate, against
delivery of such Registered Units to us through the facilities of the
DTC. The above payment will be made by us at $______ per Unit; however
you will promptly reimburse us the amount of $_____ per Unit.
If our funds are not received by you when required, you are authorized,
in your individual capacities or as Managing Underwriters, but shall not
be obligated, to make payment pursuant to the Underwriting Agreement for
our account in accordance with the provisions of Section 6 hereof. Any
such payment by you shall not relieve us from any of our obligations
hereunder or under the Underwriting Agreement.
We authorize you to hold and deliver to Dealers, against payment, our
Registered Units reserved by you for offering to them. Upon receiving
payment for Registered Units so sold for our account, you will remit to
us as promptly as practicable the amount of $______ per Unit.
As soon as practicable after termination of the provisions referred to
in the first paragraph of Section 10 hereof, you shall deliver to us,
against payment therefor unless such payment has already been made, any
of our Registered Units reserved by you for sale but not sold, except
that if the aggregate of all such reserved and unsold Registered Units
of all Underwriters does not exceed 10% of the total number of
Registered Units, you are authorized in your discretion to sell such
Registered Units for the accounts of the several Underwriters at such
price or prices as you may determine.
6. Authority to Borrow. In connection with the purchase or carrying
for our account of any Registered Units purchased for our account under
this Agreement or the Underwriting Agreement, we authorize you, in your
discretion and individual capacity, to advance your own funds for our
account, charging current interest rates as Managing Underwriters to
arrange and make loans on our behalf and for our account, and to execute
and deliver any notes or security as may be necessary or advisable in
your discretion. Any lending bank is hereby authorized to rely upon your
instructions in all matters relating to any such loan. We shall be paid
or credited with the proceeds of any such advance or loan made for our
account and shall be debited with any repayment.
You may deliver to us from time to time, for carrying purposes only, any
of our reserved Registered Units held by you for our account which have
not been sold. We will redeliver to you on demand any Registered Units
so delivered to us for carrying purposes.
7. Stabilization. We ratify and confirm your stabilization
transactions, if any, for the accounts of the several Underwriters prior
to the date hereof, and we authorize you, in your discretion, to buy and
sell Registered Units in the open market or otherwise, on a when-issued
basis or otherwise, for either long or short account, at such prices and
on such terms as you may determine, and to over-allot in arranging for
sales. We authorize you in your discretion to cover any short position
incurred for the accounts of the several Underwriters pursuant to this
Section 7 by exercising the over-allotment option referred to in Section
2(b) of the Underwriting Agreement and by buying Registered Units, and,
in lieu of delivering to the several Underwriters any of the Registered
Units held for their respective accounts pursuant to Section 4 hereof,
to sell such Registered Units for the accounts of each of the
Underwriters, in each case at such prices and on such terms as you may
determine. All such purchases, sales and over-allotments will be for the
accounts of the several Underwriters as nearly as practicable in
proportion to their respective underwriting obligations, and at no time
will our net commitment under the foregoing provisions of this
paragraph, either for long or short account, exceed 15 % of our original
underwriting obligations. We will take up at cost on demand any of the
Registered Units so purchased for our account and deliver on demand any
of the Registered Units sold or over-allotted for our account. In the
event of default by one or more Underwriters with respect to their
obligations under this paragraph, each nondefaulting Underwriter shall
assume its proportionate share of the obligations of such defaulting
Underwriter without relieving such defaulting Underwriter of its
liability hereunder. The existence of this provision is no assurance
that the price of any of the aforesaid Registered Units will be
stabilized or that stabilizing, if commenced, will not be discontinued
at any time.
We authorize you on our behalf to maintain the records required by Rule
17a-2 of the General Rules and Regulations under the Exchange Act and to
file any reports required in connection with any transaction made by you
pursuant to this Section 7, and we agree to furnish you with any
information needed for such reports. You agree that if stabilization is
undertaken you will notify the several Underwriters promptly upon the
initiation and termination of such stabilization. We agree, if
stabilization is undertaken, promptly, and in any event, within two
business days following such stabilization, to transmit to you, the
price, date and time at which such stabilizing purchase was effected. In
addition, we agree to promptly notify you of the date and time when
stabilizing was terminated.
We agree to advise you, from time to time upon your request, of the
number of Registered Units retained by or released to us and remaining
unsold, and will, upon your request, release to you for the accounts of
one or more of the several Underwriters such number of Registered Units
as you may designate at such price, not less than the net price to
Dealers nor more than the public offering price, as you may determine.
If, pursuant to the provisions of this Section 7, you purchase or
contract to purchase any Registered Units that were retained by or
released to us for direct sale, we authorize you in your discretion
either to require us to repurchase such Registered Units at a price
equal to the total cost of such purchase, including commissions and
transfer tax on redelivery, to sell for our account such Registered
Units and debit or credit our account for the profit or loss resulting
from such sale, or to charge our account with an amount equal to the
concession to Dealers with respect thereto.
Upon the termination of this Agreement, you are authorized in your
discretion, in lieu of delivering to the several Underwriters any
Registered Units then held for their respective accounts pursuant to
this Section 7, to sell such Registered Units for the accounts of each
of the Underwriters at such price or prices as you may determine.
8. Open Market Transactions. We and you agree not to bid for,
purchase, attempt to induce others to purchase, or sell, directly or
indirectly, any of the Securities, including the Registered Units, for
our own account or for the accounts of customers except as brokers
pursuant to unsolicited orders and as otherwise provided in this
Agreement or the Underwriting Agreement.
9. Allocation of Expenses. We authorize you to charge our account
with all transfer taxes on sales made by you for our account (except as
otherwise provided herein) and our proportionate share (based upon our
underwriting obligation) of all other expenses incurred by you in
finding and developing this public offering, and arising under the terms
of this Agreement or the Underwriting Agreement, or in connection with
the purchase, carrying, sale or distribution of the Registered Units.
Your determination of the amount and allocation of such expenses shall
be final and conclusive. In the event of the default of any Underwriter
in carrying out its obligations hereunder, the expenses arising from
such default may be proportionately charged by you against the other
Underwriters not so defaulting without, however, relieving such
defaulting Underwriter from its liability therefor.
10. Termination and Settlement. The provisions of the last paragraph
of Section 4 hereof, the first sentence and fourth paragraph of Section
7 hereof, and Section 8 hereof will terminate at the close of business
45 days after the date of the initial public offering unless extended by
you by notice to us for a further period not exceeding an additional 45
days. Such provisions may be terminated at such earlier time as you
determine in your discretion, by notice to us stating that such
provisions are terminated.
As promptly as practicable after termination of the provisions referred
to in the first paragraph of this Section 10, our account will be
settled and paid, provided that you reserve from distribution to the
several Underwriters such amounts as you may deem advisable to cover
possible additional expenses. You may at any time make partial
distribution of credit balances or call on the several Underwriters to
pay their respective debit balances. Any of our funds in your hands may
be held with your general funds without accountability for interest and
may be commingled with your general funds. Notwithstanding termination
of this Agreement or any settlement, we agree to pay (a) our
proportionate share (based on our underwriting obligation) of all
expenses and liabilities which may be incurred by or for the account of
the Underwriters and (b) any transfer taxes paid after such settlement
on account of any sale or transfer for our account.
If the Underwriting Agreement shall be terminated or canceled, or if it
shall be executed but shall not become effective, our obligations
hereunder shall immediately cease and terminate except for the
obligation to pay our proportionate share of all expenses and except for
obligations, if any, incurred for our account under Section 7 hereof and
our obligations under the second paragraph of this Section 10 and under
Section 14 hereof.
11. Default by Underwriters. Default by one or more Underwriters in
respect of their obligations under the Underwriting Agreement will not
release us from any of our obligations or in any way affect the
liability of any defaulting Underwriter to the other Underwriters for
damages resulting from such default. In case of such default with
respect to the purchase of 10 % or less of the Registered Units included
within the Underwritten Securities, we will purchase additional
Registered Units as set forth in Section 9 of the Underwriting
Agreement. If such default exceeds 10% of the Registered Units included
within the Underwritten Securities, you are authorized, but shall not be
obligated, to arrange for the purchase by other persons, who may include
yourself or any nondefaulting Underwriter, of that defaulted portion in
excess of 10%. If such arrangements are made, we will purchase
Registered Units not exceeding our original commitments under Section 9
of the Underwriting Agreement, and the additional number of Registered
Units to be purchased by the nondefaulting Underwriters and by such
other persons, if any, shall be added to our original commitments and
shall together be taken as the basis for determining the proportionate
several obligations and benefits hereunder and under the Underwriting
Agreement, but this shall in no way affect the liability of any
defaulting Underwriter for damages resulting from such default. If there
is any default as to the purchase of any portion of the Registered
Units, you are authorized, but shall not be obligated, to purchase or to
arrange for the purchase by the nondefaulting Underwriters of the
defaulted portion.
12. Position of the Managing Underwriters. Except as in this Agreement
otherwise specifically provided, you shall have full authority to take
such action as you deem necessary or advisable in respect of all matters
pertaining to the Underwriting Agreement and this Agreement in
connection with the purchase, carrying, sale and distribution of the
Registered Units, but you shall be under no liability to us, except for
your own lack of good faith, for obligations expressly assumed by you in
this Agreement and for any liabilities imposed upon you by the Act. No
obligations on your part shall be implied or inferred herefrom.
Authority with respect to matters to be determined by you, or by you and
the Company pursuant to the Underwriting Agreement, shall survive the
termination of this Agreement.
Nothing herein contained shall be construed as making us partners with
you or with other Underwriters or shall be construed as making the
several Underwriters an association or other separate entity, and the
rights and liabilities of ourselves and each of the other Underwriters
(including you) are several and not joint.
13. Underwriters' Warrants. We agree that the Underwriters' Warrants
(as defined in the Underwriting Agreement) shall be allocated as
follows: (i) 50% to you as Managing Underwriters and (ii) 50% to us in
the ratio that the number of Registered Units purchased by each of us
bears to the number of Registered Units purchased by all of us.
14. Indemnification.
(a) Each Underwriter agrees to indemnify and hold harmless each other
Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act
to the extent and under the terms set forth in the Underwriting
Agreement upon which each Underwriter agrees to indemnify the Company,
and the Company's respective directors, officers and controlling
persons. Such indemnity shall survive the termination of this Agreement
and any investigation made by or on behalf of any Underwriter or any
person so controlling an Underwriter.
(b) We agree that you shall be under no liability in respect of any
matters connected herewith or actions taken by you pursuant to this
Agreement, except for obligations expressly assumed by you in this
Agreement. If at any time any claim or claims shall be asserted against
you, as Managing Underwriters, or otherwise involving the Underwriters
generally, relating to any preliminary prospectus, the Prospectus, the
Registration Statement, the public offering of the Securities, any state
or other securities or Blue Sky law qualification matters, or any of the
transactions contemplated by this Agreement, we authorize you to make
such investigation, to retain such counsel and to take such other
actions as you may deem necessary or desirable under the circumstances,
including settlement of any such claim or claims if such course of
action shall be recommended by counsel retained by you. We agree to pay
you, upon request, our proportionate share (based on our underwriting
obligation) of all expenses incurred by you (including, but not limited
to, the disbursements and fees of counsel retained by you) in
investigating and defending against such claim or claims, and our
proportionate share (based on our underwriting obligation) of any
liability incurred by you in respect of such claim or claims, whether
such liability shall be the result of a judgment against you or the
result of any such settlement. In determining amounts payable pursuant
to this Section 14(b), any loss, claim, damage, liability or expense (i)
incurred by any person controlling any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, and (ii) for
which such Underwriter actually receives indemnification pursuant to
Section 14(a) above or contribution or indemnification pursuant to the
Underwriting Agreement, shall reduce the amount payable pursuant to this
Section 14(b) by the amount so incurred and received. If any Underwriter
or Underwriters default in their obligations to make any payments under
this Section 14(b), then, without relieving such defaulting Underwriter
of its liability hereunder, each nondefaulting Underwriter shall be
obligated to pay its proportionate share of all defaulted payments.
15. Blue Sky Matters. You will not have any responsibility with
respect to the right of any Underwriter or other person to sell any of
the Registered Units in any jurisdiction, notwithstanding any
information that we may furnish in that connection. We understand that
you will file a New York Further State Notice, if required, and we
authorize you to take such other action as may be necessary or advisable
to qualify the Securities for offering and sale in any jurisdiction.
16. Notices. Any notice from you to us will be deemed to have been
duly given if mailed or sent by facsimile transmission to us at our
address and facsimile number set forth below. Any notice to you shall be
deemed to have been given if mailed or sent by facsimile transmission to
LA JOLLA SECURITIES CORPORATION, 8214 Westchester, Suite 500, Dallas,
Texas, 75225, attention: Robert A. Shuey, III, facsimile number
(214)987-2091. Mailed notices shall be sent by registered mail, return
receipt requested. Notices shall be effective upon receipt.
17. Miscellaneous.
(a) We authorize you to file with any governmental agency any reports
required to be filed by you in connection with the transactions
contemplated by this Agreement or the Underwriting Agreement, and we
will furnish any information in our possession needed for such reports.
(b) In connection with the transactions contemplated by this Agreement
or the Underwriting Agreement, we will not advertise over our name until
after the first public advertisement made by you and then only at our
own expense and risk. We authorize you to exercise complete discretion
with regard to the first public advertisement.
(c) We hereby confirm (i) that we have examined the Registration
Statement and the Prospectus and are familiar with the proposed further
amendment thereto or final Prospectus, (ii) that the information therein
is correct and is not misleading insofar as it relates to us and (iii)
that we are willing to accept the responsibilities under the Act of an
Underwriter named in such Registration Statement. You are authorized, in
your discretion, on our behalf, to approve of or to object to any
further amendments or supplements to the Registration Statement or the
Prospectus.
(d) We confirm that we are actually engaged in the investment banking or
securities business and are either (i) a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") and our
commitment to purchase Registered Units pursuant to the Underwriting
Agreement will not result in a violation of the financial responsibility
requirements of Rule l5c3-1 under the Exchange Act, or of any similar
provisions of any applicable rules of any securities exchange to which
we are subject or of any restriction imposed upon us by any such
exchange or any governmental authority or (ii) a foreign dealer not
eligible for membership in the NASD who hereby agrees to make no sales
within the United States, its territories or its possessions (except
that we may participate in sales to Dealers and others under Section 4
hereof) or to persons who are citizens thereof or residents therein. In
making sales of Registered Units, if we are such a member, we agree to
comply with all applicable rules of the NASD, including, without
limitation, the Interpretation of the Board of Governors of the NASD
with Respect to Free-Riding and Withholding and Sections 8, 24 and 36 of
Article III of the NASD's Rules of Fair Practice, or, if we are such a
foreign dealer, we agree to comply with such Interpretation and Sections
8, 24 and 36 of such Article as though we were such a member and Section
25 of such Article as that Section applies to a non-member foreign
dealer.
(e) We confirm that the ratio of our aggregate indebtedness to our net
capital is such that we may, in accordance with and pursuant to Rule
l5c3-1 under the Exchange Act, obligate ourselves to purchase, and
purchase, the number of Registered Units that we agree to purchase under
the Underwriting Agreement.
(f) This Agreement will be governed by, and construed in accordance
with, the laws of the State of Texas without reference to Texas
conflict of laws rules.
(g) This Agreement may be signed in any number of counterparts which
taken together shall constitute one and the same instrument.
Very truly yours,
NAME:
By:
Address:
Facsimile.:
NAME:
By:
Address:
Facsimile No.:
NAME:
By:
Address:
Facsimile No.:
NAME:
By:
Address:
Facsimile No.:
Confirmed as of the date first written:
_____________________ LA JOLLA SECURITIES CORPORATION
By: By:
, President Robert A. Shuey, III
FINANCIAL CONSULTING AGREEMENT
AGREEMENT made as of this ___ day of , 1996, by and
between AMERICA'S COFFEE CUP, Inc., a Colorado corporation (the
"Company"), and La Jolla Securities Corporation, a California
corporation ("La Jolla").
W I T N E S S E T H:
WHEREAS, the Company has filed a Registration Statement on Form
SB-2, File No. 33-_____ with the Securities and Exchange Commission
("SEC") in connection with a proposed public offering of 200,000 Units,
each Unit consisting of one share of Series A Preferred Stock and ten
redeemable Series A Warrants to purchase one share of Common Stock (the
"Public Offering") to be underwritten by La Jolla; and
WHEREAS, as part of the underwriting agreement, the Company has
agreed to retain La Jolla as a financial consultant.
NOW THEREFORE, in consideration of the promises and mutual
covenants herein set forth it is agreed as follows:
A. The Company hereby retains La Jolla as a financial
consultant and La Jolla shall provide to the Company, when requested by
the Company from time to time during normal business hours, consultation
concerning, but not limited to, shareholder relations, including
preparation of the Company's annual report to shareholders and other
releases, assisting in long-term financial planning, corporate
reorganization and expansion, possible acquisition opportunities,
capital structure, borrowings and other financial assistance.
Notwithstanding the foregoing, La Jolla shall be under no obligation to
devote a specific amount of time to the performance of its duties
hereunder.
B. This agreement shall become effective on the date hereof and
shall continue for a period of two (2) years thereafter.
C. The Company has agreed to enter into a two year consulting
agreement with La Jolla Securities Corporation to act as a financial
advisor to the Company at a fee of $20,000 per year ($40,000 in total),
commencing 90 days after the closing of the offering.
D. La Jolla covenants that all information concerning the
Company, including proprietary information, of which it obtains
knowledge as a result of the services rendered pursuant to this
Agreement shall be kept confidential and shall not be used by La Jolla
except for the direct benefit of the Company or disclosed by La Jolla to
any third party without the prior written approval of the Company.
E. In the event that La Jolla, during the term hereof,
originates a financing or a merger, acquisition, joint venture or other
transaction to which the Company is a party, the Company agrees to pay
La Jolla a finder's fee in consideration for originating such
transaction. The amount and terms and conditions of such fee shall be
mutually agreed to by La Jolla and the Company in advance of the
origination of each transactions.
F. La Jolla and the Company hereby acknowledge that La Jolla is
an independent contractor. La Jolla shall not hold itself out as, nor
shall it take any action from which others might infer that it is a
partner of, agent of, or a joint venturer of the Company. In addition,
La Jolla shall take no action which binds, or purports to bind, the
Company.
G. This Agreement contains the entire agreement between the
parties. It may not be changed except by agreement in writing signed by
the party against whom enforcement of any waiver, change, discharge, or
modification is sought. Waiver of or failure to exercise any rights
provided by this Agreement in any respect shall not be deemed a waiver
of any further or future rights.
1
H. This Agreement shall be construed according to the laws of
the State of Texas and subject to the jurisdiction of the courts of said
state.
I. This Agreement shall be binding upon the parties, their
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed or caused
these present to be executed as of the day and year first above written.
AMERICA'S COFFEE CUP, INC.
By:
Robert W. Marsik
President
LA JOLLA SECURITIES CORPORATION
By:
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Exhibit 3.5
WHEREAS, Article FOURTH of the Certificate of Incorporation of this
corporation provides for a class of authorized shares known as "Preferred
Stock", comprising 1,000,000 shares, par value $0.40, issuable from time to
time in one or more series; and
WHEREAS, pursuant to Article FOURTH of the Certificate of Incorporation
of this Corporation the Board of Directors of this Corporation is authorized
to fix the voting rights, designations, powers, preferences and the relative,
participating, optional or other rights, if any, and the qualifications,
limitations or restrictions thereof, of any wholly unissued series of
Preferred Stock; and to fix the number of shares constituting such series, and
to increase or decrease the number of shares of any such series (but not below
the number of shares thereof then outstanding); and
WHEREAS, it is the desire of the Board of Directors of this Corporation,
pursuant to its authority as aforesaid, to issue a series of such Preferred
Stock and to fix the rights, preferences, restrictions, and other matters
relating thereto; and
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
provide for the issue of a series of Preferred Stock of the Corporation and
does hereby fix and determine the rights, preferences, restrictions and other
matters relating to said series of Preferred Stock, as follows:
(A) Title of Series.
The series of Preferred Stock shall be designated and known as Series A
Preferred Shares, (hereinafter Series A Preferred Shares ).
(B) Number of Shares in Series.
The number of shares constituting the Series A Preferred Shares in said
series shall be 360,000 shares.
(C) Dividend.
The holders of the outstanding Series A Preferred Shares shall be
entitled to receive one-fifth of one share of the Corporation s Series A
Preferred Shares and two Series A Warrants and no more, annually on the first
day of September, commencing in 1997, in each year when and as declared by the
Board of Directors of the Corporation, provided however, such dividend whose
record date would otherwise be September 1, 1997, shall not be declared or
paid if either (i) the Corporation's pretax earnings for the twelve months
ended June 30, 1997, meet or exceed $300,000, excluding extraordinary and
nonrecurring items in accordance with generally accepted accounting
principles, as certified by the Company's independent certified public
accountant; or (ii) the lowest bid price of the Corporation's Common Stock as
quoted by Nasdaq is not less than $2.50 between June 30, 1997, and August 15,
1997, for a total of ten days, and provided further, such dividend whose
record date would otherwise be September 1, 1998 shall not be declared or paid
if (i) the Corporation s pre-tax earnings for the twelve months ended June 30,
1998 meet or exceed $450,000, excluding extraordinary or non-recurring items,
in accordance with generally accepted accounting principles or (ii) the
lowest bid price of the Corporation's Common Stock, as quoted by Nasdaq
greater than or equal to $2.50 for twenty consecutive days between August 14,
1997, and August 15, 1998. Such dividends shall be cumulative so that if such
dividends in respect of any previous dividend shall not have been paid on or
declared and set apart for all Series A Preferred Shares at the time
outstanding, the deficiency shall be fully paid on or declared and set apart
for such shares before any dividend or other distribution shall be paid on or
declared or set apart for the Common Stock.
(D) Liquidation Preference.
(1) In the event of any liquidation, dissolution or winding up,
whether voluntary or involuntary of the Corporation, the holders of Series A
Preferred Shares shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, $20.00
per share, and, in addition to such amount, a further amount equal to the
dividends unpaid and accumulated thereon, as provided in paragraph (C) of this
resolution, to the date that payment is made available to the holders of
Series A Preferred Shares, whether earned or declared or not, before any
payment shall be made of any assets distributed to the holders of Common
Stock. The assets of the Corporation remaining after such distribution shall
be distributed to the holders of the Common Stock.
(2) If upon such liquidation, dissolution or winding up, whether
voluntary or involuntary, the assets thus distributed among the holders of
Series A Preferred Shares shall be insufficient to permit the payment to such
shareholders of the full preferential amounts set forth in the respective
certificates of preference of each series of Preferred Stock, then the entire
assets of the Corporation to be distributed shall be distributed ratably among
the holders of the Preferred Stock in accordance with the number of shares
held.
(3) A consolidation or merger of the Corporation with or into
any other corporation or corporations, or a sale of all or substantially all
of the assets of the Corporation, shall not be deemed to be a liquidation,
dissolution or winding up, within the meaning of this paragraph.
(E) Redemption.
The Series A Preferred Shares is not redeemable.
(F) Conversion.
(1) The Series A Preferred Shares shall convert into ten shares
of Common Stock on October 1, 1998. On that date, any right to acquire Series
A Preferred Shares shall convert into a right to acquire ten shares of Common
Stock for the same price.
(2) The number of common shares into which each Series A
Preferred Share may be converted shall be subject to adjustment from time to
time in certain cases as follows:
(a) In case the Corporation shall be capitalized through
the subdivision or combination of its outstanding common shares into a greater
or smaller number of shares then in each such case the number of common shares
into which Series A Preferred Shares may be converted shall be increased or
reduced in the same proportion.
(b) In case the corporation shall take a record of the
holders of its common shares for the purpose of entitling them to receive a
dividend or other distribution payable in common shares or securities
convertible into or exchangeable for common shares, then in each such case the
maximum number of common shares issuable in payment of such dividend or
distribution or upon conversion of or in exchange for the securities
convertible into or exchangeable for common shares, shall be deemed to have
been issued and to be outstanding as of such record date, and in each such
case the number of common shares into which Series A Preferred Shares may be
converted, shall be increased in proportion to the increase, through such
dividend or distribution, in the number of outstanding common shares.
(c) In case the Corporation shall take a record of the
holders of its common shares for the purpose of entitling them to subscribe
for additional common shares upon payment of an amount per common share less
than the market value (as hereinafter defined) per share of common shares at
the time such record is taken. Upon the taking of a record by the Corporation
of the holders of its common shares for the purpose of entitling them to
subscribe for shares of stock or other securities convertible into,
exchangeable for, or carrying rights of purchase of, common shares, a record
shall be deemed to have been taken for the purpose of entitling the holders
of its common shares to subscribe for the total number of common shares
deliverable upon the exercise of such rights of conversion, exchange or
purchase, upon payment of an aggregate price equal to the sum of (x) the total
consideration payable to the Corporation for such stock or other securities so
convertible or exchangeable, and (y) in the case of such stock or other
securities carrying such rights, but not so convertible or exchangeable, the
amount, if any, by which the consideration payable to the Corporation for such
stock or other securities shall exceed the distributive amounts (excluding
dividends) payable on voluntary liquidation of the Corporation with respect to
such stock or the principal amount of such securities, as the case may be, or
the redemption price thereof, whichever is higher, and (z) any additional
amount thereafter payable to the Corporation upon the exercise of such rights
of conversion, exchange or purchase.
(d) The market value per share of common shares at the
time such market value is taken shall be deemed to be the average of the daily
closing prices for 30 consecutive business days selected by the Corporation
out of the 40 days immediately preceding the date such market value is taken.
The closing price shall be the last sale price of the day, or in case no sale
is made on that day, the average of the closing bid and asked prices for that
day on the New York Stock Exchange if the common shares are at the time listed
thereon; or if they are not so listed, on any other national securities
exchange selected by the Corporation upon which they are at the time listed;
provided, however, that if the common shares are not at the time listed on any
national securities exchange, their market value for the purposes hereof shall
be the fair market value as determined by the Board of Directors of the
Corporation.
(e) In case of any capital reorganization or any
reclassification of the capital stock of the Corporation or in case of the
consolidation or merger of the Corporation with or into another corporation or
the sale or conveyance of all or substantially all of the assets of the
Corporation to another corporation, each Series A Preferred Share shall
thereafter be convertible into the same kind and amounts of securities
(including shares of stock) or other assets, or both, which were issuable or
distributable to the holders of outstanding common shares of the Corporation
upon such reorganization, reclassification, consolidation, merger, sale or
conveyance, in respect of that number of common shares into which such Series
A Preferred Share might have been converted immediately prior to such
reorganization, reclassification, consolidation, merger, sale or conveyance;
and in any such case, appropriate adjustments (as determined by the Board of
Directors) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of the
Series A Preferred Shares, to the end that the provisions set forth herein
(including provisions with respect to changes in, and other adjustments of,
the conversion rate) shall thereafter be applicable, as nearly as reasonably
may be, in relation to any securities or other assets thereafter deliverable
upon the conversion of the Series A Preferred Shares.
(3) Whenever the amount of common shares or other securities
deliverable upon the conversion of Series A Preferred Shares shall be adjusted
pursuant to the provisions hereof, the Corporation shall forthwith file, at
its principal office and with any transfer agent, or agents, and registrar, or
registrars, for Series A Preferred Shares and for common shares, a statement,
signed by the Chairman of the Board, the President or one of the Vice
Presidents of the Corporation, and by the Treasurer or one of the Assistant
Treasurers of the Corporation, stating the adjusted amount of its common
shares or other securities deliverable per Series A Preferred Share calculated
to the nearest one one-hundredth and setting forth in reasonable detail the
method of calculation and the facts requiring such adjustment and upon which
such calculation is based. Each adjustment shall remain in effect until a
subsequent adjustment hereunder is required.
(4) The Corporation shall at all times reserve and keep available out
of its authorized but unissued common shares the full number of common shares
deliverable upon the conversion of all the them outstanding Series A Preferred
Shares and shall take all such action and obtain all such permits or orders as
may be necessary to enable the Corporation lawfully to issue such common
shares upon the conversion of any Series A Preferred Shares.
(5) No fractions of common shares shall be issued upon conversion, but
in lieu thereof non-dividend bearing, non-voting scrip (exchangeable for full
shares) shall be issued in such form, bearer or registered, in such
denominations, expiring after such reasonable time and containing such
provisions for the sale of the full common shares for which such scrip is
exchangeable for the account of the holders of such scrip and such other terms
and provisions, as the Board of Directors of the Corporation may from time to
time determine prior to the issue thereof. The Corporation may, however, at
its option, in lieu of issuing such scrip, make equitable provision for the
stockholders entitled to such scrip as the Board of Directors may determine,
including payment in cash, or sale of stock to the extent of such scrip and
distribution of the net proceeds or otherwise.
(F) Voting Rights.
The Common stock and Series A Preferred Shares shall vote together as
one class on all matters except as set forth in Paragraph H herein except that
each record holder of Series A Preferred Shares shall have ten votes on each
matter submitted to a vote for each Series A Preferred Share standing in his
name on the books of the corporation.
(G) Protective Provisions.
So long as any Preferred Stock is outstanding, the Corporation shall
not, without the approval (by vote or written consent, as provided by law) of
the holders of two-thirds of the outstanding Series A Preferred Shares:
(1) amend or repeal any revision of, or add any provision to,
the Corporation's Certificate of Incorporation if such action would alter or
change the preferences, rights, privileges, or powers of, or the restrictions
provided for the benefit of, any Series A Preferred Shares so as to affect
such shares;
(2) authorize, create or issue shares of any class of stock
having any preference or priority superior to any preference or priority of
the Series A Preferred Shares, or authorize, create, or issue shares of stock
of any class or any bonds, debentures, notes or other obligations convertible
into or exchangeable for, or having optional rights to purchase, any shares of
stock of the Corporation having any such preference;
(3) reclassify any common shares into shares having any
preference or priority as to dividends or assets superior to that of the
Series A Preferred Shares; or
(4) make any provision in the Corporation's Bylaws fixing
special qualifications of persons who may be holders of Series A Preferred
Shares or any restrictions upon the right to transfer or hypothecate such
shares, except any provisions required by the laws of the State of Colorado or
of the United States of America.
(H) Other Rights.
The holders of Series A Preferred Shares issued and outstanding shall
have and possess the right to notice of all shareholders meetings. In
addition to the voting rights set forth in paragraphs (F) and (G) above, each
Series A Preferred Share shall be entitled to ten votes for all purposes
including the election of directors. Subject to all of the rights of the
Preferred Stock, dividends may be paid on the common shares, as and when
declared by the Board of Directors, out of any funds of the Corporation
legally available for the payment of such dividends.
RESOLVED FURTHER, That the President or any Vice President and the
Secretary or any Assistant Secretary of this Corporation be and they hereby
are authorized and directed to prepare and file a Certificate of Designation
of the Series A Preferred Stock of this Corporation in accordance with the
foregoing resolution and the provisions of Colorado law.
EXHIBIT B
Underwriters' Warrant Agreement
AMERICA'S COFFEE CUP, INC.
and
SECURITIES TRANSFER CORPORATION
Warrant Agent
WARRANT AGREEMENT
Dated as of __________, 1996
TABLE OF CONTENTS
Section Page
1. Appointment of Warrant Agent. 2
2. Form of Warrant. 2
3. Countersignature and Registration. 2
4. Transfers and Exchanges. 2
5. Exercise of Warrants. 2
6. Mutilated or Missing Warrants. 3
7. Reservation and Registration of Common Stock. 3
8. Warrant Price; Adjustments. 3
9. No Fractional Interests. 6
10. Notice to Warrantholders. 6
11. Disposition of Proceeds on Exercise of Warrants. 7
12. Redemption of Warrants. 7
13. Merger or Consolidation or Change of Name of Warrant Agent. 8
14. Duties of Warrant Agent. 8
15. Change of Warrant Agent 9
16. Identity of Transfer Agent. 9
17. Notices. 9
18. Supplements and Amendments. 10
19. 0Successors. 10
20. Merger or Consolidation of the Company. 10
21. Texas Contract. 10
22. Benefits of This Agreement. 10
23. Counterparts. 10
WARRANT AGREEMENT, dated as of ________, 1996, between AMERICA'S
COFFEE CUP, Inc., a Colorado corporation (hereinafter called the
"Company"), and Securities Transfer Corporation, as warrant agent
(hereinafter called the "Warrant Agent");
WHEREAS, the Company proposes to issue 2,000,000 Redeemable Series
A Warrants (hereinafter called the "Series A Warrants"), entitling the
holders thereof to purchase one share of Common Stock, $0.40 par value
(hereinafter called the "Common Stock") for each Warrant, in connection
with the proposed issuance by the Company of 200,000 Units, each Unit
consisting of one share of Series A Preferred Stock and ten Series A
Warrants, and the Company also proposes to issue up to 300,000 Warrants
underlying the Underwriters' over-allotment option and 200,000 Warrants
underlying a warrant to purchase Units to be granted to the
Representatives of the Underwriters; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing so to act, in connection
with the registration, transfer, exchange and exercise of Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter in this Agreement set forth, and the Warrant
Agent hereby accepts such appointment.
2. Form of Warrant. The text of the Warrant and of the form of
election to purchase shares to be printed on the reverse thereof shall
be substantially as set forth in Exhibit A attached hereto. The Warrant
Price to purchase one share of Common Stock shall be as provided and
defined in 8. The Warrants shall be executed on behalf of the Company
by the manual or facsimile signature of the present or any future
Chairman of the Board or President or Vice President of the Company,
under its corporate seal, affixed or in facsimile, attested by the
manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company.
Warrants shall be dated as of the date of issuance thereof by the
Warrant Agent either upon initial issuance or upon transfer or exchange.
3. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. The
Warrants shall be countersigned by the Warrant Agent (or by any
successor to the Warrant Agent then acting as warrant agent under this
Agreement) and shall not be valid for any purpose unless so
countersigned. Warrants may be so countersigned, however, by the
Warrant Agent (or by its successor as warrant agent) and be delivered by
the Warrant Agent, notwithstanding that the persons whose manual or
facsimile signatures appear thereon as proper officers of the Company
shall have ceased to be such officers at the time of such
countersignature or delivery.
4. Transfers and Exchanges. The Warrant Agent shall transfer,
from time to time after the sale of the Units, any outstanding Warrants
upon the books to be maintained by the Warrant Agent for that purpose,
upon surrender thereof for transfer properly endorsed or accompanied by
appropriate instructions for transfer. Upon any such transfer, a new
Warrant shall be issued to the transferee and the surrendered Warrant
shall be canceled by the Warrant Agent. Warrants so canceled shall be
delivered by the Warrant Agent to the Company from time to time. The
Warrants may be exchanged at the option of the holder thereof, when
surrendered at the office of the Warrant Agent, for another Warrant, or
other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of
shares of Common Stock. The Warrant Agent is hereby irrevocably
authorized to countersign in accordance with 3 of this Agreement the
new Warrants required pursuant to the provisions of this Section, and
the Company, whenever required by the Warrant Agent, will supply the
Warrant Agent with Warrants duly executed on behalf of the Company for
such purpose.
5. Exercise of Warrants. Subject to the provisions of this
Agreement, each registered holder of Warrants shall have the right,
which may be exercised as in such Warrants expressed, to purchase from
the Company (and the Company shall issue and sell to such registered
holder of Warrants) the number of fully paid and nonassessable shares of
Common Stock specified in such Warrants, upon surrender of such Warrants
to the Company at the office of the Warrant Agent, with the form of
election to purchase on the reverse thereof duly filled in and signed,
and upon payment to the Warrant Agent for the account of the Company of
the Warrant Price for the number of shares of Common Stock in respect of
which such Warrants are then exercised. Payment of such Warrant Price
may be made in cash, or by certified or official bank check, payable in
United States dollars, to the order of the Warrant Agent. No adjustment
shall be made for any dividends on any shares of Common Stock issuable
upon exercise of a Warrant. Upon such surrender of Warrants, and
payment of the Warrant Price as aforesaid, the Company shall issue and
cause to be delivered with all reasonable dispatch to or upon the
written order of the registered holder of such Warrants and in such name
or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased
upon the exercise of such Warrants. Such certificate or certificates
shall be deemed to have been issued and any person so designated to be
named therein shall be deemed to have become a holder of record of such
shares as of the date of the surrender of such Warrants and payment of
the Warrant Price as aforesaid; provided, however, that if, at the date
of surrender of such Warrants and payment of the Warrant Price, the
transfer books for the Common Stock or other class of stock purchasable
upon the exercise of such Warrants shall be closed, the certificates for
the shares in respect of which such Warrants are then exercised shall be
issuable as of the date on which such books shall next be opened and
until such date the Company shall be under no duty to deliver any
certificate for such shares; provided further, however, that the
transfer books aforesaid, unless otherwise required by law, shall not be
closed at any one time for a period longer than 20 days. The rights of
purchase represented by the Warrants shall be exercisable, at the
election of the registered holders thereof, either as an entirety or
from time to time for part only of the shares specified therein, and in
the event that any Warrant is exercised in respect of less than all of
the shares specified therein, a new Warrant or Warrants will be issued
for the remaining number of shares specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the
provisions of this Section and of 3 of this Agreement and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent
with Warrants duly executed on behalf of the Company for such purpose.
6. Mutilated or Missing Warrants. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company will issue
and the Warrant Agent will countersign and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in
lieu of and substitution for the Warrant lost, stolen or destroyed, a
new Warrant of like tenor and representing an equivalent right or
interest; but only upon receipt of evidence satisfactory to the Company
and the Warrant Agent of such loss, theft or destruction of such Warrant
and indemnity, if requested, also satisfactory to them. Applicants for
such substitute Warrants shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or the
Warrant Agent may prescribe.
7. Reservation and Registration of Common Stock.
A. There have been reserved, and the Company shall at all times
keep reserved, out of the authorized and unissued shares of Common
Stock, a number of shares sufficient to provide for the exercise of the
rights of purchase represented by the Warrants, and the Transfer Agent
for the Common Stock and every subsequent Transfer Agent for any shares
of the Company's capital stock issuable upon the exercise of any of the
rights of purchase aforesaid are hereby irrevocably authorized and
directed at all times to reserve such number of authorized and unissued
shares as shall be requisite for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent for the Common
Stock and with every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of
purchase represented by the Warrants. The Warrant Agent is hereby
irrevocably authorized to requisition from time to time such Transfer
Agent for stock certificates required to honor outstanding Warrants.
The Company will supply such Transfer Agents with duly executed stock
certificates for such purpose and will itself provide or otherwise make
available any cash or scrip which may be issuable as provided in 9 of
this Agreement. All Warrants surrendered in the exercise of the rights
thereby evidenced shall be canceled by the Warrant Agent and shall
thereafter be delivered to the Company, and such canceled Warrants shall
constitute sufficient evidence of the number of shares of stock which
have been issued upon the exercise of such Warrants.
B. The Company represents that it has registered under the
Securities Act of 1933 the shares of Common Stock issuable upon exercise
of the Warrants and will use its best efforts to maintain the
effectiveness of such registration by post-effective amendment during
the entire period in which the Warrants are exercisable, and that it
will use its best efforts to qualify such Common Stock for sale under
the securities laws of such states of the United States as may be
necessary to permit the exercise of the Warrants in the states in which
the Units are initially qualified and to maintain such qualifications
during the entire period in which the Warrants are exercisable.
8. Warrant Price; Adjustments.
A. The price at which Common Stock shall be purchasable upon
exercise of Warrants at any time after the Series A Preferred Stock and
Series A Warrants become separately tradeable until ________, 2001
(hereinafter called the "Warrant Price") shall be $1.50 per share of
Common Stock or, if adjusted as provided in this Section, shall be such
price as so adjusted.
B. The Warrant Price shall be subject to adjustment from time
to time as follows:
(1) Except as hereinafter provided, in case the Company shall at
any time or from time to time after the date hereof issue any additional
shares of Common Stock for a consideration per share less than the
Warrant Price in effect immediately prior to the issuance of such
additional shares, or without consideration, then, upon each such
issuance, the Warrant Price in effect immediately prior to the issuance
of such additional shares shall forthwith be reduced to a price
(calculated to the nearest full cent) determined by dividing:
(a) An amount equal to (i) the total number of shares of Common
Stock outstanding immediately prior to such issuance multiplied by the
Warrant Price in effect immediately prior to such issuance, plus (ii)
the consideration, if any, received by the Company upon such issuance,
by
(b) The total number of shares of Common Stock outstanding
immediately after the issuance of such additional shares.
(2) The Company shall not be required to make any such
adjustment of the Warrant Price in accordance with the foregoing if the
amount of such adjustment shall be less than $.25 but in such case the
Company shall maintain a cumulative record of the Warrant Price as it
would have been in the absence of this provision (the "Constructive
Warrant Price"), and for the purpose of computing a new Warrant Price
after the next subsequent issuance of additional shares (but not for the
purpose of determining whether an adjustment thereof is required under
the terms of this paragraph) the constructive Warrant Price shall be
deemed to be the Warrant Price in effect immediately prior to such
issuance.
(3) For the purpose of this 8 the following provisions shall
also be applicable:
(a) In the case of the issuance of additional shares of Common
Stock for cash, the consideration received by the Company therefor shall
be deemed to be the net cash proceeds received by the Company for such
shares before deducting any commissions or other expenses paid or
incurred by the Company for any underwriting of, or otherwise in
connection with, the issuance of such shares.
(b) In case of the issuance (otherwise than upon conversion or
exchange of shares of Common Stock) of additional shares of Common Stock
for a consideration other than cash or a consideration a part of which
shall be other than cash, the amount of the consideration other than
cash received by the Company for such shares shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company, as of the date of the adoption of the
resolution of said Board, providing for the issuance of such shares for
consideration other than cash or for consideration a part of which shall
be other than cash, such fair value to include goodwill and other
intangibles to the extent determined in good faith by the Board.
(c) In case of the issuance by the Company after the date
hereof, of any security (other than the Warrants) that is convertible
into shares of Common Stock or of any warrants, rights or options to
purchase shares of Common Stock (except the options and warrants
referred to in subsection H of this 8), (i) the Company shall be deemed
(as provided in subparagraph (e) below) to have issued the maximum
number of shares of Common Stock deliverable upon the exercise of such
conversion privileges or warrants, rights or options, and (ii) the
consideration therefor shall be deemed to be the consideration received
by the Company for such convertible securities or for such warrants,
rights or options, as the case may be, before deducting therefrom any
expenses or commissions incurred or paid by the Company for any
underwriting of, or otherwise in connection with, the issuance of such
convertible security or warrants, rights or options, plus (A) the
minimum consideration or adjustment payment to be received by the
Company in connection with such conversion, or (B) the minimum price at
which shares of Common Stock are to be delivered upon exercise of such
warrants, rights or options or, if no minimum price is specified and
such shares are to be delivered at an option price related to the market
value of the subject shares, an option price bearing the same relation
to the market value of the subject shares at the time such warrants,
rights or options were granted; provided that as to such options such
further adjustment as shall be necessary on the basis of the actual
option price at the time of exercise shall be made at such time if the
actual option price is less than the aforesaid assumed option price. No
further adjustment of the Warrant Price shall be made as a result of the
actual issuance of the shares of Common Stock referred to in this
subparagraph (c). On the expiration of such warrants, rights or
options, or the termination of such right to convert, the Warrant Price
shall be readjusted to such Warrant Price as would have pertained had
the adjustments made upon the issuance of such warrants, rights, options
or convertible securities been made upon the basis of the delivery of
only the number of shares of Common Stock actually delivered upon the
exercise of such warrants, rights or options or upon the conversion of
such securities.
(d) For the purposes hereof, any additional shares of Common
Stock issued as a stock dividend shall be deemed to have been issued for
no consideration.
(e) The number of shares of Common Stock at any time outstanding
shall include the aggregate number of shares deliverable in respect of
the convertible securities, rights and options referred to in
subparagraph (c) of this paragraph; provided that with respect to shares
referred to in clause (i) of subparagraph (C), to the extent that such
warrants, options, rights or conversion privileges are not exercised,
such shares shall be deemed to be outstanding only until the expiration
dates of the warrants, rights, options or conversion privileges or the
prior cancellation thereof.
C. In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Warrant Price in effect immediately prior to such subdivision shall be
proportionately reduced and, in case the outstanding shares of the
Common Stock of the Company shall be combined into a smaller number of
shares, the Warrant Price in effect immediately prior to such
combination shall be proportionately increased.
D. Upon each adjustment of the Warrant Price pursuant to the
provisions of this 8, the number of shares issuable upon the exercise
of each Warrant shall be adjusted by multiplying the Warrant Price in
effect prior to the adjustment by the number of shares of Common Stock
covered by the Warrant and dividing the product so obtained by the
adjusted Warrant Price.
E. Except upon consolidation or reclassification of the shares
of Common Stock of the Company as provided for in subsection (C) hereof
and except for readjustment of the Warrant Price upon expiration of
warrants, rights or options as provided for in subparagraph (c)
paragraph 3 of subsection (B) hereof, the Warrant Price in effect at any
time may not be adjusted upward or increased in any manner whatsoever.
F. Irrespective of any adjustment or change in the Warrant
Price or the number of shares of Common Stock actually purchasable under
the several Warrants, the Warrants theretofore and thereafter issued may
continue to express the Warrant Price per share and the number of shares
purchasable thereunder as the Warrant Price per share and the number of
shares purchasable were expressed in the Warrants when initially issued.
G. If any capital reorganization or reclassification of the
capital stock of the Company (other than a distribution of stock in
accordance with 10(B)) or consolidation or merger of the Company with
another corporation or the sale of all or substantially all of its
assets to another corporation shall be effected, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale,
lawful and adequate provision shall be made whereby the holder of each
Warrant then outstanding shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified
herein and in the Warrants and in lieu of the shares of the Common Stock
of the Company immediately theretofore purchasable and receivable upon
the exercise of the rights represented by each such Warrant, such shares
of stock, securities or assets as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented by each such Warrant had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in
any such case appropriate provisions shall be made with respect to the
rights and interest of the holder of each Warrant then outstanding to
the end that the provisions thereof (including without limitation
provisions for adjustment of the Warrant Price and of the number of
shares purchasable upon the exercise of each Warrant then outstanding)
shall thereafter be applicable, as nearly as may be in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise of each Warrant.
H. No adjustment of the Warrant Price shall be made in
connection with the issuance or sale of shares of Common Stock issuable
pursuant to currently outstanding options and warrants granted to
officers, directors, employees, advisory directors, or affiliates of the
Company.
I. Whenever the Warrant Price is adjusted as herein provided,
the Company shall (a) forthwith file with the Warrant Agent a
certificate signed by the Chairman of the Board or the President or a
Vice President of the Company and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company,
showing in detail the facts requiring such adjustment and the Warrant
Price and the number of shares of Common Stock purchasable upon exercise
of the Warrants after such adjustment and (b) cause a notice stating
that such adjustment has been effected and stating the adjusted Warrant
Price and the number of shares of Common Stock purchasable upon exercise
of the Warrants to be published at least once a week for two consecutive
weeks in a newspaper of general circulation in Dallas, Texas and in New
York, New York. The Company, at its option, may cause a copy of such
notice to be sent by first class mail, postage prepaid, to each
registered holder of Warrants at his address appearing on the Warrant
register. The Warrant Agent shall have no duty with respect to any such
certificate filed with it except to keep the same on file and available
for inspection by holders of Warrants during reasonable business hours.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of a Warrant to determine whether any facts
exist which may require any adjustment of the Warrant Price, or with
respect to the nature or extent of any adjustment of the Warrant Price
when made, or with respect to the method employed in making such
adjustment.
J. The Company may retain a firm of independent certified
public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) selected by
the Board of Directors of the Company or the Executive Committee of said
Board and approved by the Warrant Agent, to make any computation
required under this 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under
this 8.
K. In case at any time conditions shall arise by reason of
action taken by the Company which, in the opinion of the Board of
Directors of the Company, are not adequately covered by the other
provisions of this Agreement and which might materially and adversely
affect the rights of the holders of the Warrants, or in case at any time
any such conditions are expected to arise by reason of any action
contemplated by the Company, the Board of Directors of the Company shall
appoint a firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial
statements of the Company), who shall give their opinion as to the
adjustment, if any (not inconsistent with the standards established in
this 8), of the Warrant Price and the number of shares of Common Stock
purchasable pursuant hereto (including, if necessary, any adjustment as
to the property which may be purchasable in lieu thereof upon exercise
of the Warrants) which is, or would be, required to preserve without
dilution the rights of the holders of the Warrants. The Board of
Directors of the Company shall make the adjustment recommended forthwith
upon the receipt of such opinion or the taking of any such action
contemplated, as the case may be; provided, however, that no adjustment
of the Warrant Price shall be made which in the opinion of the
accountant or firm of accountants giving the aforesaid opinion would
result in an increase of the Warrant Price to more than the Warrant
Price then in effect except as otherwise provided in subsection E of
this 8.
9. No Fractional Interests. The Company shall not be required
to issue fractions of shares of Common Stock on the exercise of
Warrants. If any fraction of a share of Common Stock would, except for
the provisions of this Section, be issuable on the exercise of any
Warrant (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the current value of such
fraction (a) computed, if the Common Stock shall be listed or admitted
to unlisted trading privileges on any national securities exchange, on
the basis of the last reported sale price of the Common Stock on such
exchange on the last business day prior to the date of exercise upon
which such a sale shall have been effected (or, if the Common Stock
shall be listed or admitted to unlisted trading privileges on more than
one such exchange, on the basis of such price on the exchange designated
from time to time for such purpose by the Board of Directors of the
Company) or (b) computed, if the Common Stock shall not be listed or
admitted to unlisted trading privileges, on the basis of the average of
the high and low bid prices of the Common Stock in the NASDAQ Small-Cap
Market, on the last business day prior to the date of exercise.
10. Notice to Warrantholders.
A. Nothing contained in this Agreement or in any of the
Warrants shall be construed as conferring upon the holders thereof the
right to vote or to consent or to receive notice as stockholders in
respect of the meetings of stockholders for the election of directors of
the Company or any other matters, or any rights whatsoever as
stockholders of the Company; provided, however, that in the event that a
meeting of stockholders shall be called to consider and take action on a
proposal for the voluntary dissolution of the Company, other than in
connection with a consolidation, merger or sale of all, or substantially
all, of its property, assets, business and goodwill as an entirety, then
and in that event the Company shall cause a notice thereof to be
published at least once a week for two consecutive weeks in a newspaper
of general circulation in Dallas, Texas and New York, New York, such
publication to be completed at least 20 days prior to the date fixed as
a record date or the date of closing the transfer books for the
determination of the stock holders entitled to vote at such meeting.
The Company shall also cause a copy of such notice to be sent by first
class mail, postage prepaid, at least 20 days prior to said date fixed
as a record date or said date of closing the transfer books, to each
registered holder of Warrants at his address appearing on the Warrant
register; but failure to mail or receive such notice or any defect
therein or in the mailing thereof shall not affect the validity of any
action taken in connection with such voluntary dissolution. If such
notice shall have been so given and if such a voluntary dissolution
shall be authorized at such meeting or any adjournment thereof, then for
and after the date on which such voluntary dissolution shall have been
duly authorized by the stockholders, the purchase rights represented by
the Warrants and other rights with respect thereto shall cease and
terminate.
B. If the Company shall make any distribution on, or to holders
of, its Common Stock (or other property which may be purchasable in lieu
thereof upon the exercise of Warrants) of any property (other than a
cash dividend), the Company shall cause a notice of its intention to
make such distribution to be published at least once a week for two
consecutive weeks in a newspaper of general circulation in Dallas, Texas
and New York, New York, such publication to be completed at least 20
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to
receive such distribution. The Company shall also cause a copy of such
notice to be sent by first class mail, postage prepaid, at least 20 days
prior to said date fixed as a record date or said date of closing the
transfer books, to each registered holder of Warrants at his address
appearing on the Warrant register; but failure to mail or to receive
such notice or any defect therein or in the mailing thereof shall not
affect the validity of any action taken in connection with such
distribution.
11. Disposition of Proceeds on Exercise of Warrants.
A. The Warrant Agent shall account promptly to the Company with
respect to Warrants exercised and concurrently pay to the Company all
monies received by the Warrant Agent for the purchase of shares of the
Company's stock through the exercise of such Warrants.
B. The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrants during normal business
hours at its principal office.
12. Redemption of Warrants.
A. At any time on or after __________, 1996, the Company may,
at its option, redeem some or all of the outstanding Warrants at $0.05
per Warrant, upon thirty (30) days prior written notice, if the closing
sale price of the Common Stock on any national securities exchange or
the closing sale price quotation on the NASDAQ Small-Cap Market, Boston
Stock Exchange, or other such exchange has equaled or exceeded $3.00 for
ten (10) consecutive trading days within the 30 day period immediately
preceding the date notice of redemption is given (the "Redemption
Price"). In the event of an adjustment in the Warrant Price pursuant to
8, the Redemption Price shall also be automatically adjusted.
B. The election of the Company to redeem some or all of the
Warrants shall be evidenced by a resolution of the Board of Directors of
the Company.
C. Warrants may be exercised at any time on or before the date
fixed for redemption (the "Redemption Date").
D. Notice of redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to
the Redemption Date, to each holder of Warrants, at his address
appearing in the Warrant register.
All notices of redemption shall state:
(1) The Redemption Date;
(2) That on the Redemption Date the Redemption Price will become
due and payable upon each Warrant;
(3) The place where such Warrants are to be surrendered for
redemption and payment of the Redemption Price; and
(4) The current Warrant Price of the Warrants, the place or
places where such Warrants may be surrendered for exercise, and the time
at which the right to exercise the Warrants will terminate in accordance
with this Agreement.
E. Notice of redemption of Warrants at the election of the
Company shall be given by the Company or, at the Company's request, by
the Warrant Agent in the name and at the expense of the Company.
F. Prior to any Redemption Date, the Company shall deposit with
the Warrant Agent an amount of money sufficient to pay the Redemption
Price of all the Warrants which are to be redeemed on that date. If any
Warrant is exercised pursuant to 5, any money so deposited with the
Warrant Agent for the redemption of such Warrant shall be paid to the
Company.
G. Notice of redemption having been given as aforesaid, the
Warrants so to be redeemed shall, on the Redemption Date, become
redeemable at the Redemption Price therein specified and on such date
(unless the Company shall default in the payment of the Redemption
Price), such Warrants shall cease to be exercisable and thereafter
represent only the right to receive the Redemption Price. Upon
surrender of such Warrants for redemption in accordance with said
notice, such Warrants shall be redeemed by the Company for the
Redemption Price.
13. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation into which the Warrant Agent may be merged or with which
it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant
Agent, shall be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part of any
of the parties hereto, provided that such corporation would be eligible
for appointment as a successor warrant agent under the provisions of 15
of this Agreement. In case at the time such successor to the Warrant
Agent shall succeed to the agency created by this Agreement and at such
time any of the Warrants shall have been countersigned but not
delivered, any such successor to the Warrant Agent may adopt the
countersignature of the Warranty Agent and deliver such Warrants so
countersigned; and in case at the time any of the Warrants shall not
have been countersigned, any successor to the Warrant Agent may
countersign such Warrants either in the name of the predecessor Warrant
Agent or in the name of the successor warrant agent; and in all such
cases such Warrants shall have the full force provided in the Warrant
and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed
and at such time any of the Warrants shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under
its prior name and deliver Warrants so countersigned; and in case at
that time any of the Warrants shall not have been countersigned, the
Warrant Agent may countersign such Warrants whether in its prior name or
in its changed name; and in all such cases such Warrants shall have the
full force provided in the Warrants and in this Agreement.
14. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the holders of
Warrants, by their acceptance thereof, shall be bound:
A. The statements contained herein and in the Warrants shall be
taken as statements of the Company, and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution
of the Warrants except as herein otherwise provided.
B. The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants contained in this
Agreement or in the Warrants to be complied with by the Company.
C. The Warrant Agent may execute and exercise any of the rights
or powers hereby vested in it to perform any duty hereunder either
itself or by or through its attorneys, agents or employees.
D. The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to
any holder of any Warrant in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with the opinion
or the advice of such counsel, provided the Warrant Agent shall have
exercised reasonable care in the selection and continued employment of
such counsel.
E. The Warrant Agent shall incur no liability or responsibility
to the Company or to any holder of any Warrant for any action taken in
reliance on any notice, resolution, waiver, consent, order, certificate,
or other paper, document or instrument believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties.
F. The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind
and nature incurred by the Warrant Agent in the execution of this
Agreement and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of the
Warrant Agent's negligence or bad faith.
G. The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action likely
to involve expense unless the Company or one or more registered holders
of Warrants shall furnish the Warrant Agent with reasonable security and
indemnity for any cost and expense which may be incurred, but this
provision shall not affect the power of the Warrant Agent to take such
action as the Warrant Agent may consider proper, whether with or without
any such security or indemnity. All rights of action under this
Agreement or under any of the Warrants may be enforced by the Warrant
Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such
action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery of judgment shall
be for the ratable benefit of the registered holders of the Warrants, as
their respective rights or interests may appear.
H. The Warrant Agent and any stockholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become peculiarly
interested in any transaction in which the Company may be interested, or
contract with or lend money to or otherwise act as fully and freely as
though it were not Warrant Agent under this Agreement. Nothing herein
shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
I. The Warrant Agent shall act hereunder solely as agent and
not in a ministerial capacity, and its duties shall be determined solely
by the provisions hereof. The Warrant Agent shall not be liable for
anything which it may do or refrain from doing in connection with this
Agreement except for its own negligence or bad faith.
15. Change of Warrant Agent. The Warrant Agent may resign and
be discharged from its duties under this Agreement by giving to the
Company notice in writing, and to the holders of the Warrants notice by
publication, of such resignation, specifying a date when such
resignation shall take effect, which notice shall be published at least
once a week for two consecutive weeks in a newspaper of general
circulation in Dallas, Texas and New York, New York, prior to the date
so specified. The Warrant Agent may be removed by like notice to the
Warrant Agent from the Company and by like publication. If the Warrant
Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If
the Company shall fail to make such appointment within a period of 30
days after such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Warrant
Agent or by the registered holder of a Warrant (who shall, with such
notice, submit his Warrant for inspection by the Company), then the
registered holder of a Warrant may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent.
Any successor warrant agent, whether appointed by the Company or by such
a court, shall be a bank or trust company having its principal office,
and having capital and surplus as shown by its last published report to
its stockholders, of at least $1,000,000. After appointment, the
successor warrant agent shall be vested with the same powers, rights,
duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed; but the former Warrant Agent
shall deliver and transfer to the successor warrant agent any property
at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Failure
to file or publish any notice provided for in this Section, however, or
any defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the
successor warrant agent, as the case may be.
16. Identity of Transfer Agent. Forthwith upon the appointment
of any Transfer Agent for the Common Stock or of any subsequent Transfer
Agent for shares of the Common Stock or other shares of the Company's
capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants, the Company will file with the Warrant
Agent a statement setting forth the name and address of such Transfer
Agent.
17. Notices. Any notice pursuant to this Agreement to be given
or made by the Warrant Agent or the registered holder of any Warrant to
or on the Company shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed (until another address is filed
in writing by the Company with the Warrant Agent) as follows:
AMERICA'S COFFEE CUP, Inc.
12528 Kirkham Court, Nos. 6 & 7
Poway, California 92024
Attention: President
Any notice pursuant to this Agreement to be given or made by the Company
or the registered holder of any Warrant to or on the Warrant Agent shall
be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the
Warrant Agent with the Company) as follows:
Securities Transfer Corporation
16990 Dallas Parkway
Suite100
Dallas, Texas 75248
18. Supplements and Amendments. The Company and the Warrant
Agent may from time to supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make
any other provisions in regard to matters or questions arising hereunder
which the Company and the Warrant Agent may deem necessary or desirable
and which shall not be inconsistent with the provisions of the Warrants
and which shall not adversely affect the interests of the holders of
Warrants.
19. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent
shall bind and inure to the benefit of their respective successors and
assigns hereunder.
20. Merger or Consolidation of the Company. The Company shall
not effect any consolidation or merger with, or sale of substantially
all its property to, any other corporation unless the corporation
resulting from such merger (if not the Company) or consolidation or the
corporation purchasing such property shall expressly assume, by
supplemental agreement satisfactory in form to the Warrant Agent and
executed and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and condition of
this Agreement to be performed and observed by the Company.
21. Texas Contract. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the
State of Texas and for all purposes shall be construed in accordance
with the laws of said State.
22. Benefits of This Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the
Company, the Warrant Agent and the registered holders of the Warrants
any legal or equitable right, remedy or claim under this Agreement; but
this Agreement shall be for the sole and exclusive benefit of the
Company, the Warrant Agent and the registered holders of the Warrants.
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes by
deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
AMERICA'S COFFEE CUP, INC.
By:
Robert W. Marsik, President
SECURITIES TRANSFER CORPORATION
By:
EXHIBIT A
[FORM OF WARRANT]
No. _____ For the Purchase
of ___ Shares
of Common Stock
______, 1996
AMERICA'S COFFEE CUP, INC.
Redeemable Series A Warrants
Void After _______, 2001
THIS CERTIFIES that _________________________________ is entitled
to purchase from AMERICA'S COFFEE CUP, INC., a Colorado corporation
(hereinafter called the "Company"), upon the surrender of this Warrant
to the Company at the principal office of the Warrant Agent hereinafter
mentioned (or of its successor as Warrant Agent), provided, and only if,
this Warrant shall be surrendered at any time on and after __________,
1996 and before the close of business on __________, 2001, the number of
fully paid and nonassessable shares of Common Stock, $0.40 par value
("Common Stock"), set forth above, evidenced by a certificate therefor,
upon payment of the Warrant Price for the number of shares in respect of
which this Warrant is exercised; provided, however, that under certain
conditions set forth in the Warrant Agreement hereinafter mentioned, the
number of shares of Common Stock which may become purchasable pursuant
to this Warrant may be adjusted, or property other than shares of Common
Stock may become purchasable pursuant to this Warrant. The Warrant
Price at which the Common Stock shall be purchasable upon the exercise
of Warrants shall be $1.50 per share, payable upon the exercise of this
Warrant, either in cash or by certified or official bank check, in
United States dollars, to the order of the Warrant Agent. No adjustment
shall be made for any dividends on any shares of stock issuable upon
exercise of this Warrant and no fractional shares shall be issued. The
right of purchase represented by this Warrant is exercisable, at the
election of the registered holder hereof, either as an entirety or from
time to time in part only of the shares specified herein and, in the
event that this Warrant is exercised in respect of fewer than all of
such shares, a new Warrant for the remaining number of such shares will
be issued on such surrender.
The Warrant is issued under, and the rights represented hereby are
subject to the terms and provisions contained in a Warrant Agreement
dated as of __________, 1996, between the Company and Securities
Transfer Corporation, as Warrant Agent, to all the terms and provisions
of which the registered holder of this Warrant, by acceptance hereof,
assents. Reference is hereby made to said Warrant Agreement for a more
complete statement of the rights and limitations of rights of the
registered holder hereof, the rights and duties of the Warrant Agent and
the rights and obligations of the Company thereunder. Copies of said
Warrant Agreement are on file at the office of said Warrant Agent. The
Company shall not be required upon the exercise of this Warrant to issue
fractions of shares, but shall make adjustment therefor in cash as
provided in said Warrant Agreement.
This Warrant may be redeemed by the Company, at its option, at any
time on or after __________, 1996, on thirty days' prior written
notice, at $0.05 per Warrant, if the closing sale price of the Common
Stock on any national securities exchange or the closing inside bid
quotation of the Common Stock on the NASDAQ Small-Cap Market has equaled
or exceeded $3.00 for ten consecutive trading days. The redemption
price is subject to adjustment based on adjustments to the Warrant
Price. This Warrant nay not be exercised after the close of business on
the day preceding the redemption date.
The Warrant is transferable at the office of the Warrant Agent (or
its successor as warrant agent) by the registered holder hereof in
person or by attorney duly authorized in writing, but only in the manner
and subject to the limitations provided in the Warrant Agreement, and
upon surrender of this Warrant. Upon any such transfer, a new Warrant,
or new Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of
shares of Common Stock will be issued to the transferee in exchange for
this Warrant.
This Warrant and similar Warrants when surrendered at the office
of the Warrant Agent (or its successor as warrant agent) by the
registered holder in person or by attorney duly authorized in writing
may be exchanged, in the manner and subject to the limitations provided
in the Warrant Agreement, for another Warrant, or other Warrants of
different denominations, of like tenor and representing in the aggregate
the right to purchase a like number of shares of Common Stock.
This Warrant may be exercised only if a current prospectus
relating to the Common Stock is then in effect and only if the shares of
Common Stock are qualified for sale under the securities law of the
state or states in which the Warrantholder resides.
If this Warrant shall be surrendered for exercise within any
period during which the transfer books for the Common Stock or other
class of stock purchasable upon the exercise of this Warrant are closed
for any purpose, the Company shall not be required to make delivery of
certificates for shares purchasable upon such exercise until the date of
the reopening of said transfer books.
This Warrant shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, AMERICA'S COFFEE CUP, Inc. has caused to be printed
herein the facsimile signature of its President as of the date written
above.
AMERICA'S COFFEE CUP, INC.
By:
Robert W. Marsik, President
SECURITIES TRANSFER CORPORATION
As Warrant Agent
By:
Authorized Signature
[ FORM OF ]
ELECTION TO PURCHASE
AMERICA'S COFFEE CUP, Inc.
c/o Securities Transfer Corporation
16690 Dallas Parkway
Suite 100
Dallas, Texas 75248
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase
thereunder, shares of the stock provided for
therein, and requests that certificates for such shares shall be issued
in the name of
( Please Print )
and be delivered to
at
and, if said number of shares shall not be all of the shares purchasable
thereunder, that a new Warrant for the balance remaining of the shares
purchasable under the within Warrant be registered in the name of, and
delivered to, the undersigned at the address stated below.
Dated: , 19
Name of Warrantholder:
( Please Print )
Address:
Signature:
Note: The above signature must correspond with the
name as written upon the face of this Warrant in every particular,
without alteration or enlargement or any change whatever.
[ FORM OF ]
ASSIGNMENT
For value received
hereby sell, assign and transfer unto
the within Warrant, together with all right, title and interest therein,
and do hereby irrevocably constitute and appoint
attorney, to transfer said Warrant on the books of the within-named
Corporation, with full power of substitution in the premises.
Date: , 19
Signature:
Note: The above signature must correspond with the
name as written upon the face of this Warrant in every particular,
without alteration or enlargement or any change whatever.
FINANCIAL CONSULTING AGREEMENT
AGREEMENT made as of this ___ day of , 1996, by and
between AMERICA'S COFFEE CUP, Inc., a Colorado corporation (the
"Company"), and La Jolla Securities Corporation, a California
corporation ("La Jolla").
W I T N E S S E T H:
WHEREAS, the Company has filed a Registration Statement on Form
SB-2, File No. 33-_____ with the Securities and Exchange Commission
("SEC") in connection with a proposed public offering of 200,000 Units,
each Unit consisting of one share of Series A Preferred Stock and ten
redeemable Series A Warrants to purchase one share of Common Stock (the
"Public Offering") to be underwritten by La Jolla; and
WHEREAS, as part of the underwriting agreement, the Company has
agreed to retain La Jolla as a financial consultant.
NOW THEREFORE, in consideration of the promises and mutual
covenants herein set forth it is agreed as follows:
A. The Company hereby retains La Jolla as a financial
consultant and La Jolla shall provide to the Company, when requested by
the Company from time to time during normal business hours, consultation
concerning, but not limited to, shareholder relations, including
preparation of the Company's annual report to shareholders and other
releases, assisting in long-term financial planning, corporate
reorganization and expansion, possible acquisition opportunities,
capital structure, borrowings and other financial assistance.
Notwithstanding the foregoing, La Jolla shall be under no obligation to
devote a specific amount of time to the performance of its duties
hereunder.
B. This agreement shall become effective on the date hereof and
shall continue for a period of two (2) years thereafter.
C. The Company has agreed to enter into a two year consulting
agreement with La Jolla Securities Corporation to act as a financial
advisor to the Company at a fee of $20,000 per year ($40,000 in total),
commencing 90 days after the closing of the offering.
D. La Jolla covenants that all information concerning the
Company, including proprietary information, of which it obtains
knowledge as a result of the services rendered pursuant to this
Agreement shall be kept confidential and shall not be used by La Jolla
except for the direct benefit of the Company or disclosed by La Jolla to
any third party without the prior written approval of the Company.
E. In the event that La Jolla, during the term hereof,
originates a financing or a merger, acquisition, joint venture or other
transaction to which the Company is a party, the Company agrees to pay
La Jolla a finder's fee in consideration for originating such
transaction. The amount and terms and conditions of such fee shall be
mutually agreed to by La Jolla and the Company in advance of the
origination of each transactions.
F. La Jolla and the Company hereby acknowledge that La Jolla is
an independent contractor. La Jolla shall not hold itself out as, nor
shall it take any action from which others might infer that it is a
partner of, agent of, or a joint venturer of the Company. In addition,
La Jolla shall take no action which binds, or purports to bind, the
Company.
G. This Agreement contains the entire agreement between the
parties. It may not be changed except by agreement in writing signed by
the party against whom enforcement of any waiver, change, discharge, or
modification is sought. Waiver of or failure to exercise any rights
provided by this Agreement in any respect shall not be deemed a waiver
of any further or future rights.
1
H. This Agreement shall be construed according to the laws of
the State of Texas and subject to the jurisdiction of the courts of said
state.
I. This Agreement shall be binding upon the parties, their
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed or caused
these present to be executed as of the day and year first above written.
AMERICA'S COFFEE CUP, INC.
By:
Robert W. Marsik
President
LA JOLLA SECURITIES CORPORATION
By:
EXHIBIT 24.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated February 16, 1996,
relating to the financial statements of America's Coffee Cup, Inc., which is
contained in this Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ Harlan & Boettger
San Diego, California
May 30, 1996
