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As filed with the Securities and Exchange Commission on February 11, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
WESTERN COUNTRY CLUBS, INC.
(Name of small business issuer in its charter)
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Colorado 5813 84-1131343
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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Western Country Clubs, Inc.
5218 Classen Boulevard
Oklahoma City, OK 73118
(405) 848-0996
(Address and telephone number of principal
executive offices and principal place of business)
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James E. Blacketer
Western Country Clubs, Inc.
5218 Classen Boulevard
Oklahoma City, OK 73118
(405) 848-0996
(Name, address and telephone number of agent for service)
Copies of all communications to:
A. Thomas Tenenbaum, Esq. Robert E. Altenbach, Esq.
D. Elizabeth Wills, Esq. Johnson & Montgomery
Brenman Bromberg & Tenenbaum, P.C. One Buckhead Plaza
Mellon Financial Center 3060 Peachtree Rd., N.W., Suite 400
1775 Sherman Street, Suite 1001 Atlanta, Georgia 30305
Denver, Colorado 80203 (404) 262-1000
(303) 894-0234 (404) 262-1222 FAX
(303) 839-1633 FAX
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: AS SOON AS PRACTICABLE AFTER
THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
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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CALCULATION OF REGISTRATION FEE
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Proposed
Title of each Proposed maximum
class of Amount maximum aggregate Amount of
securities to to be offering offering registration
be registered registered price (1) price (1) fee
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Series A Preferred Stock (2) 460,000 $ 12.00 $ 5,520,000 $ 1,673
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Common Stock Underlying Convertible 2,300,000 $ 0 $ 0 0
Preferred Stock
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Series A Warrants to Purchase Common 1,150,000 $ .125 $ 143,750 44
Stock (2)
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Common Stock Underlying Class A
Warrants 1,150,000 $ 6.00 $ 6,900,000 2,091
to Purchase Common Stock (3)
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Common Stock (4) 350,000 $ 4.00 $ 1,400,000 424
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Representative's Purchase Option 1 $ 100 $ 100 Nil
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Series A Preferred Common Stock 40,000 $ 0 $ 0 0
included in Representative's Purchase
Option
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Representative's Warrants to Purchase
Common Stock included in 100,000 $ 0 $ 0 0
Representative's Purchase Option
- ------------------------------------------------------------------------------------------------
Common Stock Underlying
Representative's Warrants to Purchase 100,000 $ .15 15,000 5
Common Stock (3)
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Total: $13,978,850 $ 4,237
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(a) and (g).
(2) Includes 60,000 Shares of Preferred Stock and 150,000 Warrants that
may be issued upon exercise of the Underwriters' over-allotment
option.
(3) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution
provisions of the Warrants.
(4) Shares registered on behalf of Selling Securityholders.
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CROSS REFERENCE SHEET
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FORM SB-2
ITEM NO. SECTIONS IN PROSPECTUS
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1 Front of Registration Statement and Outside
Front Cover of Prospectus . . . . . . . . . . Cover Page
2 Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . Inside Front Cover Pages (i)(ii);
Table of Contents
3 Summary Information and Risk Factors . . . . Prospectus Summary; Risk Factors
4 Use of Proceeds . . . . . . . . . . . . . . . Prospectus Summary; Use of Proceeds
5 Determination of Offering Price . . . . . . . Cover Page; Underwriting
6 Dilution . . . . . . . . . . . . . . . . . . Not Applicable
7 Selling Security Holders . . . . . . . . . . Not Applicable
8 Plan of Distribution . . . . . . . . . . . . Prospectus Summary; Underwriting
9 Legal Proceedings . . . . . . . . . . . . . . Not Applicable
10 Directors, Executive Officers, Promoters and
Control Persons . . . . . . . . . . . . . . . Management - Directors and Executive Officers
11 Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . Principal Shareholders
12 Description of Securities . . . . . . . . . . Description of Securities; Dividend Policy
13 Interest of Named Experts and Counsel . . . . Experts
14 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Statement as to Indemnification
15 Organization within Last Five Years . . . . . The Company; Certain Relationships and Related
Transactions
16 Description of Business . . . . . . . . . . . Prospectus Summary; Risk Factors; The Company
17 Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . Management's Discussion and Analysis or Plan
of Operation
18 Description of Property . . . . . . . . . . . The Company
19 Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . . Certain Relationships and Related Transactions
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20 Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . Risk Factors
21 Executive Compensation . . . . . . . . . . . Management - Executive Compensation
22 Financial Statements . . . . . . . . . . . . Index to Financial Statements
23 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure . . . Experts
24 Indemnification of Directors and Officers . . Executive Compensation - Limitations on
Directors and Officers Liability
25 Other Expenses of Issuance and Distribution . Other Expenses of Issuance and Distribution
26 Recent Sales of Unregistered Securities . . . Recent Sales of Unregistered Securities
27 Exhibits . . . . . . . . . . . . . . . . . . Exhibits
28 Undertakings . . . . . . . . . . . . . . . . Undertakings
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SUBJECT TO COMPLETION
FEBRUARY 11, 1997
PROSPECTUS
WESTERN COUNTRY CLUBS, INC.
400,000 SHARES OF SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE
PREFERRED STOCK AND
1,000,000 CLASS A COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to the offering (the "Offering") by Western
Country Clubs, Inc. (the "Company") of 400,000 shares of Series A Cumulative
Convertible Redeemable Preferred Stock ("Series A Preferred Stock") and
1,000,000 Redeemable Series A Common Stock Purchase Warrants (the "Warrants").
The Series A Preferred Stock and Warrants may be purchased separately and will
be transferable separately upon issuance.
The initial public offering price of the Series A Preferred Stock and
the Warrants and the initial exercise price and other terms of the Warrants
have been arbitrarily determined by negotiation between the Company and Argent
Securities, Inc. (the "Representative"), as representative of the participating
underwriters (the "Underwriters"). It is anticipated that the offering price
of the Series A Preferred Stock will be $12.00 per share and the offering price
of the Warrants will be $.125.
Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock at an exercise price of $________(115% of the bid price
of the Company's Common Stocks quoted on NASDAQ on the effective date) per
share, subject to adjustment in certain events, at any time prior to _________,
199_. The Warrants are subject to redemption by the Company at $.125 per
Warrant, at any time commencing ______, 1998 (twelve months from the date of
this Prospectus) and prior to their expiration, on 30 days' prior written
notice to the holders of Warrants, provided that the daily trading price per
share (as defined on page __) of the Company's Common Stock has been as least
$________(150% of the bid price for the Company's Common Stock on the effective
date) for a period of at least five consecutive trading days ending within 10
days prior to the date upon which the notice of redemption is given. The
Warrants will be exercisable until the close of the business day preceding the
date fixed for redemption, if any. See Description of Securities - Series A
Preferred Stock and - Class A Warrants.
Prior to this offering, there has been no public market for the Series
A Preferred Stock or Warrants. The Company's Common Stock is traded on the
NASDAQ SmallCap Market under the symbol "WCCI." On February 3, 1997, the
closing high bid price for the Common Stock on NASDAQ was $1.50.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. SEE RISK
FACTORS.
After completion of this Offering, the Company will amend this
Prospectus to permit certain of its security holders to publicly offer and sell
Common Stock. See Shares Eligible for Future Sale.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
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Price to Underwriting Proceeds to the
Public Discount (1) Company (2)
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Per Share . . . . . . . . . . . . . . . . . . . $ 12.00 $ 1.20 $ 10.80
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Per Warrant . . . . . . . . . . . . . . . . . . . $ .125 $ .0125 $ .1125
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TOTAL . . . . . . . . . . . . . . . . . . $ 4,925,000 $ 492,500 $ 4,432,500
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Footnotes on following page.
ARGENT SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS ______________________, 1997.
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(1) The Company has also agreed to pay the Representative a
non-accountable expense allowance equal to 3% of the total Price to
Public for the Series A Preferred Stock and Warrants and to issue to
the Representative and its designees for a nominal consideration
warrants to purchase one share of the Company's Common Stock for each
ten shares of Common Stock into which the Series A Preferred Stock are
convertible. The warrants will be exercisable at a price equal to
120% of the Price to Public. The warrants to be issued to the
Representative and the shares of Common Stock underlying such warrants
have been registered under the Securities Act of 1933, as amended
("Securities Act"), by means of the Registration Statement of which
this Prospectus is a part. Subject to certain limitations, upon
exercise of each Warrant, which occurs after one year from the date of
this Prospectus, the Company has also agreed to pay the Representative
a commission equal to 10% of the exercise price of the Warrants. The
Representative has a two year right of first refusal with respect to
future public or private offerings for cash by the Company or any of
its subsidiaries. In addition, the Company has agreed to indemnify
the Underwriters against certain liabilities, including liabilities
under the Securities Act. See Underwriting.
(2) Before deducting expenses of the Offering payable by the Company
estimated at $230,000, which excludes the non- accountable expense
allowance described in Note (1) above, and assumes no exercise of the
Underwriters' over- allotment option. See Use of Proceeds.
(3) The Company has granted to the Underwriters a 45-day option to
purchase up to 60,000 additional shares of Series A Preferred Stock
and 150,000 additional Warrants from the Company at the Price to
Public, less Underwriting Discount, solely to cover over-allotments,
if any. If the Underwriters exercise such option in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$5,663,750, $566,375, and $5,097,375, respectively. See Underwriting.
It is expected that the delivery of the Common Stock and Warrants will
be made at the offices of the Representative on or about __________________ __,
1997.
The following language appears in red on the left side of the cover 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 A STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THE SECURITIES OFFERED IN THIS OFFERING BY THE UNDERWRITERS ARE SUBJECT TO
PRIOR SALE. THE UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW, CANCEL OR MODIFY
SUCH OFFER (WHICH MAY BE DONE ONLY BY FILING AN AMENDMENT TO THE REGISTRATION
STATEMENT) AND TO REJECT ORDERS IN WHOLE OR IN PART FOR THE PURCHASE OF ANY OF
THE COMPANY'S SECURITIES AND TO CANCEL ANY SALE EVEN AFTER THE PURCHASE PRICE
HAS BEEN PAID IF SUCH SALE, IN THE OPINION OF THE UNDERWRITERS, WOULD VIOLATE
FEDERAL OR STATE SECURITIES LAWS OR A RULE OR POLICY OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD").
IN CONNECTION WITH THIS OFFERING, THE REPRESENTATIVE MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SHARES OF
COMMON STOCK AND THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
UNTIL ______________, 1997, 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 OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
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Summary . . . . . . . . . . . . . . . . . 3 Principal Shareholders . . . . . . . . . . . . 47
The Offering . . . . . . . . . . . . . . 3 Certain Relationships and Related
Risk Factors . . . . . . . . . . . . . . 6 Transaction . . . . . . . . . . . . . . . . . . 49
Use of Proceeds . . . . . . . . . . . . . 14 Description of Securities . . . . . . . . . . . 51
Selected Financial Information . . . . . 16 Underwriting . . . . . . . . . . . . . . . . . 55
Management's Discussion and Legal Matters . . . . . . . . . . . . . . . . . 57
Analysis or Plan of Operations . . . . . 17 Experts . . . . . . . . . . . . . . . . . . . . 57
Unaudited Pro Forma Financial Shares Eligible for Future Sale . . . . . . . . 58
Information. . . . . . . . . . . . . . . . 22 Additional Information . . . . . . . . . . . . 59
The Company . . . . . . . . . . . . . . . 29 Financial Statements
Management . . . . . . . . . . . . . . . 40
Executive Compensation . . . . . . . . . 44
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iii
<PAGE> 8
SUMMARY
The following summary is qualified in its entirety by the more
detailed information and consolidated financial statements appearing elsewhere
in this Prospectus. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in Risk Factors.
THE COMPANY
The Company currently operates four "country-western" theme nightclubs
located in Indianapolis, Indiana; St. Louis, Missouri; Wichita, Kansas; and
Tucson, Arizona (collectively, the "Clubs"). The Clubs located in
Indianapolis, Indiana (the "Indy Club"), St. Louis, Missouri (the "St. Louis
Club") and in Wichita, Kansas (the "Wichita Club") operate under the name
InCahoots. The Tucson, Arizona club (the "Tucson Club") incorporates both
country-western entertainment under the name Stampede and a beach club area
under the name Acapulco Joe's. Each Club combines live entertainment, dancing,
bar and food in a country-western atmosphere.
The Company's principal corporate offices are presently located at
5218 Classen Boulevard, Oklahoma City, OK 73118 and its telephone number is
(405) 848-0996.
THE OFFERING
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Securities Offered . . . . . . . . . . . 400,000 shares of Series A Preferred Stock and 1,000,000 Warrants. Each
share of Series A Preferred Stock is convertible into Common Stock at the
rate of three to five shares, carries a cumulative 10% dividend rate and is
redeemable by the Company under certain circumstances. Each Warrant entitles
the holder thereof to purchase one share of Common Stock. The Common Stock
and the Warrants are separately tradeable and transferable. See Description
of Securities and Underwriting.
Offering Prices . . . . . . . . . . . . . $12.00 per share of Series A Preferred Stock and $.125 per Warrant.
Common Stock Outstanding(1) . . . . . . . 3,634,721 shares
Series A Preferred Stock to
be Outstanding after the Offering . . . . 400,000 shares (460,000 shares if the over-allotment
option is exercised)
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3
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Warrants to be Outstanding
after the Offering . . . . . . . . . . 1,000,000 Warrants (1,150,000 if the over-allotment option is exercised)
Exercise Price of Warrants . . . . . . . $___(115% of the bid price of the Company's Common Stock on the effective
date of this Registration Statement) per share, subject to adjustment in
certain circumstances. See Description of Securities - Warrants.
Expiration Date of Warrants . . . . . . . _______, 2000 (three years after the date of this Prospectus.)
Redemption of Warrants . . . . . . . . Redeemable by the Company at any time after 12 months from the date of this
Prospectus at a price of $.__ and prior to their expiration, upon not less
than 30 days' prior written notice to the holders of Warrants, provided that
the closing bid price per share of the Common Stock on the NASDAQ SmallCap
Market has been at least $____ (150% of the closing bid price of the
Company's Common Stock on the effective date of this Registration Statement)
for a period of five consecutive trading days ending on the tenth day prior
to the date on which the Company gives notice of redemption. See
Description of Securities - Warrants.
Estimated net proceeds
to the Company(2) . . . . . . . . . . . . $4,054,750
Use of Proceeds . . . . . . . . . . . . . The Company intends to use the net proceeds of this Offering to retire
existing debt, remodel its existing clubs, develop and acquire additional
clubs and to increase working capital. See Use of Proceeds and The Company.
Risk Factors . . . . . . . . . . . . . . An investment in the securities offered by this Prospectus involves a high
degree of risk. See Risk Factors and Dilution.
NASDAQ Symbols(3) . . . . . . . . . . . . Common Stock: WCCI
Series A Preferred Stock: WCCIP (Proposed)
Warrants: WCCIW (Proposed)
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4
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(1) Does not include: (i) up to 2,000,000 shares of Common Stock
(2,300,000 shares if the over-allotment option is exercised) into
which the shares of Series A Preferred Stock may be converted; (ii) up
to 1,000,000 shares of Common Stock issuable upon exercise of the
Warrants to be sold by the Company in this Offering (1,150,000 shares
if the over-allotment option is exercised); and (iii) up to 300,000
shares of Common Stock issuable upon the exercise of the
Representative's Purchase Option and the shares of Common Stock
issuable upon exercise of the Warrants included in the
Representative's Purchase Option.
(2) After deduction of the Underwriting Discount and expense allowance and
additional offering expenses estimated at $230,000. Does not include
any proceeds from the sale of the shares of Series A Preferred Stock
or Warrants included in the over-allotment option.
(3) The continuation of quotations on NASDAQ is subject to certain
conditions. The failure to meet these conditions may prevent the
Company's securities from continuing to be quoted on NASDAQ. Failure
to maintain continued quotations on NASDAQ may have an adverse effect
on the market for the Company's securities. See Risk Factors.
OTHER SECURITIES BEING REGISTERED
As a result of agreements of the Company, the Registration Statement
of which this Prospectus is a part has registered for resale by certain persons
an additional 350,000 shares of Common Stock. Each such person has agreed that
they will not publicly offer, sell or otherwise dispose of, any of such shares
of the Company's Common Stock for a period of six months after the date of this
Prospectus. After the completion of this Offering, the Company will amend its
Registration Statement and this Prospectus to permit such persons to publicly
offer and sell such Common Stock. See Shares Eligible for Future Sale -
Registered Securities.
5
<PAGE> 11
RISK FACTORS
The securities offered hereby are speculative in nature and involve a
high degree of risk. The shares of Series A Preferred Stock and Warrants
should be purchased only by persons who can afford to lose their entire
investment. Therefore, prior to making any purchase, each prospective investor
should consider very carefully the following risk factors, as well as all of
the other information set forth elsewhere in this Prospectus, including the
information contained in the financial statements.
RISK OF DECLINING REVENUES AND PROFITS
The Company's operations began in April 1993 when the Indy Club
opened. The St. Louis Club opened in May 1994 and the Company purchased the
Tucson Club in November 1994. The Company acquired the Wichita Club in 1996.
Historically, the Clubs have shown significant declines in revenues and
profitability. There can be no assurance that new management will be able to
reverse this trend. The Company's operating and overhead expenses can be
expected to increase significantly as more Clubs are acquired and operated.
The Company's ability to achieve profits will depend on the revenues from the
Clubs. There can be no assurance that the Company will be able to acquire or
construct additional nightclubs, or that such additional clubs will increase
the profitability of the Company. See The Company.
LACK OF SIGNIFICANT OPERATING HISTORY
The Company is subject to many of the risks common to enterprises with
a limited operating history, including potential under-capitalization,
limitations with respect to personnel, financial and other resources and
limited customers and revenues. The likelihood of success of the Company must
be considered in light of the problems, expenses, difficulties, complications
and delays frequently encountered in connection with the development and
expansion of new businesses. See The Company.
PROPOSED EXPANSION; NEED FOR ADDITIONAL FINANCING
The Company intends to grow through the acquisition or construction of
additional clubs. The Company anticipates that its existing capital resources,
including the net proceeds from the Offering, will be adequate to satisfy its
cash requirements for the next 12 months. Thereafter, the Company will be
required to seek additional financing or curtail its expansion activities. The
Company has no current commitments or arrangements for additional financing and
there can be no assurance that additional financing will be available on
acceptable terms, if at all. The Company currently is considering locations in
Louisville, Kentucky; Houston, Texas; Dallas, Texas; Oklahoma City, Oklahoma;
Tulsa, Oklahoma; and Tampa Bay, Florida. The Company, however, does not have
any commitments for any additional nightclubs, and there can be no assurance
that new management will be successful in securing appropriate locations,
facilities and
6
<PAGE> 12
financing for any additional clubs. Accordingly, new management will have wide
discretion in the application of proceeds from this Offering. See Management's
Discussion and Analysis or Plan of Operations and The Company.
NO ASSURANCE THAT ADDITIONAL CLUBS WILL BE SUCCESSFUL
Although the Company intends to open, operate and manage additional
nightclubs, the future success of the Company will be dependent on, among other
things, market acceptance for the "country-western" nightclubs concept, the
availability of suitable nightclub sites, negotiation of acceptable lease
terms, timely development, construction or renovation of nightclubs, the hiring
of skilled management and other personnel, the general ability to successfully
manage growth (including monitoring nightclubs, controlling costs, and
maintaining effective quality controls) and the availability of adequate
financing. See The Company.
CHANGE IN MANAGEMENT
The Company is substantially dependent upon the personal efforts and
abilities of its senior management. Current management is new to the Company's
operations, having replaced prior management following a change of control in
late 1996. New management's ability to improve existing operations, to acquire
new nightclubs and to achieve and maintain the Company's competitive position
depends, in large part, on its ability to implement its policies. Although the
Company's management has substantial experience in the nightclub industry, the
Company's operations may be affected by management's lack of familiarity with
historical operations, and the effect of new management's policies may not be
immediately apparent. The loss of any of the Company's senior management
personnel could adversely affect the Company. See Management.
GOVERNMENT REGULATION
The nightclub business is subject to extensive federal, state and
local governmental regulations, including regulations relating to alcoholic
beverages control, public health and safety, zoning and fire codes. The
failure to obtain or retain food, liquor or other licenses would adversely
affect the operations of the nightclubs. Licenses to sell alcoholic beverages
must be renewed annually and may be suspended or revoked at any time for cause,
including violation by the Company or its employees of any law or regulation
pertaining to alcoholic beverage control, such as those regulating the minimum
age of patrons or employees, advertising, wholesale purchasing, and inventory
control, handling and storage. The Company and the nightclubs may be subject
in certain states to "dram-shop" statutes, which generally provide that a
person injured by an intoxicated person has the right to recover damages from
an establishment which wrongfully served alcoholic beverages to the intoxicated
person. See The Company - Government Regulation.
COMPETITION
The nightclub industry is highly competitive with respect to price,
service, theme, entertainment and location. There are numerous well
established competitors in the areas in which
7
<PAGE> 13
the Clubs operate or intend to operate, possessing substantially greater
financial, marketing, personnel and other resources than the Company. There
can be no assurance that these well-established competitors will not locate
additional nightclubs in close proximity to any of the Company's present Clubs
or to proposed locations of future clubs. In addition, the nightclub business
is often affected by changes in consumer tastes, spending habits, national,
regional or local economic conditions, population and traffic patterns. These
changes could adversely affect the Clubs, and therefore the Company.
Furthermore, factors such as inflation, labor and benefits costs and the
availability of experienced managers and hourly employees affect the service
business in general and the Clubs in particular. See The Company -
Competition.
DIVIDENDS
While payment of dividends on the Company's Common Stock is in the
discretion of the Board of Directors, there can be no assurance that dividends
can or will ever be paid. Payments of dividends are contingent upon, among
other things, future earnings, if any, and the financial condition of the
Company, capital requirements, general business conditions, and other factors
which cannot now be predicted. The Company has never paid dividends and
expects that future earnings, if any, will be used to finance growth. See
Description of Securities - Dividend Policy.
COMPETING TRADEMARK USAGE; UNCERTAINTY OF TRADEMARK PROTECTION.
The Company's trademarks, InCahoots and Stampede, are used by other
competitors in other markets, including Southern California, Texas and
Oklahoma. These competing uses may require the Company to negotiate license
agreements with the competitors before using the InCahoots trademark in these
markets and, in the absence of license agreements, will preclude the Company
from using the trademarks in the markets. The Company may find it necessary to
use other names for its nightclubs to enter these markets. Management does not
believe that such limitations would have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance, however, that these limitations will not cause the Company to
pay license fees or avoid otherwise desirable markets and the limitations may
complicate the Company's marketing efforts and result in claims of trademark
infringement. The Company relies and will continue to rely on a combination of
trade secret, copyright and trademark laws, non-disclosure and other
arrangements to protect its proprietary rights. Despite the Company's efforts
to protect its rights, unauthorized parties may attempt to use the Company's
trademarks or to copy or obtain and use information that the Company regards as
proprietary. There can be no assurance that the steps taken by the Company to
protect its trademarks or proprietary information will prevent the
misappropriation and the unauthorized use of the Company's trademarks or
proprietary information and such protections may not preclude competitors from
developing confusingly similar marks. See Business - Trademarks.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operations may fluctuate significantly as a result of
the variations in patronage at the Clubs. Patronage is affected by, among
other things, holiday seasons, weather
8
<PAGE> 14
and fluctuations in population (e.g. in a college town, the students often
leave for the summer). See Management's Discussion and Analysis or Plan of
Operations.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
The Company's Articles of Incorporation provide that its directors
shall not be liable for monetary damages to the Company's shareholders except
as required by law. In addition, the Company's Bylaws provide indemnification
to the Company's officers and directors to the fullest extent permitted by the
Colorado Business Corporation Act. To the extent that shareholders are unable
to prevail in actions for monetary damages against the Company's directors,
their rights in this regard are limited in comparison to those where a
corporation has elected not to include such a provision in its Articles of
Incorporation. In addition, to the extent that the Company's officers and
directors may seek indemnification from the Company, it may suffer a financial
loss as a result of its obligation to pay such amounts (which may prove to be
significant) to its officers or directors.
AUTHORIZED STOCK AVAILABLE FOR ISSUANCE BY THE COMPANY
After the sale of the shares of Series A Preferred Stock and Warrants
being offered hereby, the Company will have 3,634,721 shares of Common Stock
outstanding, out of a total of 25,000,000 shares of Common Stock authorized for
issuance, and 400,000 (460,000 if the over-allotment is exercised) shares of
Series A Preferred Stock outstanding, out of a total of 10,000,000 shares of
Preferred Stock authorized for future issuance under the Company's Articles of
Incorporation. Each share of Series A Preferred Stock is convertible at the
option of the holder into from three to five shares of Common Stock (a total of
from 1,200,000 to 2,000,000 shares). The remaining shares of Common Stock and
Preferred Stock not issued or reserved for specific purposes may be issued
without any action or approval of the Company's shareholders. If issued below
the then book value for the Company's Common Stock, the issuance of additional
equity securities would be dilutive to the then shareholders. Although there
are no present plans, agreements or undertakings involving the issuance of such
shares except as disclosed in this Prospectus, any such issuances could be used
as a method of discouraging, delaying or preventing a change in control of the
Company or could dilute the public ownership of the Company. There can be no
assurance that the Company will not undertake to issue such shares if it deems
it appropriate to do so. See Dilution and Description of Securities.
CONTROL BY PRESENT SHAREHOLDERS
After giving effect to the sale of 400,000 shares of Series A
Preferred Stock to be issued in this Offering, the present shareholders will
control 100% of the outstanding shares of Common Stock of the Company, without
giving effect to the exercise of the Series A Preferred Stock, the Warrants,
other outstanding options and warrants or the Underwriters' over-allotment
option. The Company's officers, directors and their affiliates will own
approximately 32% of the outstanding Common Stock of the Company and will be
able to substantially influence all matters requiring approval by the
shareholders of the Company, including the election of directors. The Company
9
<PAGE> 15
does not provide for cumulative voting in the election of directors; hence,
purchasers of the securities offered hereby should not expect to be able to
elect any directors to the Company's Board of Directors.
SERIES A PREFERRED STOCK HAS NO VOTING RIGHTS
The voting power of the Company is held by the holders of Common
Stock. The holders of the Series A Preferred Stock being sold in this Offering
may be invited to meetings of the Company's shareholders but will not be
entitled to vote on matters for which a vote of shareholders is taken.
Accordingly, actions may be taken by the shareholders without the consent of
the holders of the Series A Preferred Stock even if those actions will affect
the holders of the Series A Preferred Stock.
DETERMINATION OF OFFERING AND EXERCISE PRICES
The offering prices of the shares of Series A Preferred Stock and
Warrants and the exercise price of the Warrants were determined by negotiation
between the Company and the Representative. In determining the prices, the
Company and the Representative considered (among other things) estimates of the
business potential of the Company, the management of the Company, the Company's
plans for the expansion of its business base, the general condition of the
securities markets and the amount of retained equity to the present
shareholders. Prospective investors should not consider the offering prices of
the shares of Series A Preferred Stock or the Warrants or the exercise price of
the Warrants as necessarily indicative of the actual value of the shares of
Series A Preferred Stock or Warrants. The offering prices of the shares of
Series A Preferred Stock and Warrants and the exercise price of the Warrants do
not bear any direct relationship to the Company's assets, book value, net worth
or business potential, or to any other traditionally recognized criteria of
value.
RESTRICTIONS ON EXERCISE OF WARRANTS; POSSIBLE REDEMPTION OF WARRANTS
Investors purchasing shares of Series A Preferred Stock and Warrants
in this Offering will not be able to exercise the Warrants unless at the time
of exercise a post-effective amendment to this Registration Statement is
current or a new registration statement registering the Common Stock issuable
upon exercise of the Warrants is effective and such shares have been registered
and/or qualified or deemed to be exempt under the securities laws of the state
of residence of the holder of the Warrants. The Company does not intend to
advise holders of the Warrants of their inability to exercise the Warrants
other than in response to a specific written inquiry to the Company. The value
of the Warrants may be greatly reduced if a current registration statement
covering the shares of Common Stock underlying the Warrants is not effective or
if such Common Stock is not registered or exempt from registration in the
states in which the holders of the Warrants reside. The Warrants are subject
to redemption by the Company on 30 days prior written notice at $____ per share
provided that the closing bid price for the Company's Common Stock has been at
least $____(150% of the closing bid price of the Company's Common Stock on the
date of effectiveness of this Registration Statement) for at least five
consecutive trading days ending within ten days prior to the
10
<PAGE> 16
date of the notice of redemption. If the Warrants are redeemed, Warrantholders
will lose their right to exercise the Warrants except during such 30 day
redemption period. See Description of Securities - Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 3,634,721 shares of the Company's Common Stock presently issued
and outstanding, approximately 2,234,600 shares are "restricted securities" as
that term is defined under Rule 144 promulgated under the Securities Act of
1933, as amended. Of this amount, 350,000 shares have been registered for sale
under the Registration Statement of which this Prospectus is a part, and will
be eligible for sale commencing six months after the date of this Prospectus.
Sales of substantial amounts of shares by shareholders after such six month
period pursuant to this Prospectus or sales made pursuant to Rule 144 or
otherwise could adversely affect the market price of the Company's securities
and make it more difficult for the Company to sell equity securities in the
future at a time and price which it deems appropriate. The Company is unable
to predict the effect that sales made after such six month period or Rule 144
or otherwise may have on the then prevailing market price of the Common Stock.
Nonetheless, the possibility exists that the sale of these shares may have a
depressive effect on the prices of the Company's Common Stock, Series A
Preferred Stock and Warrants. See Description of Securities.
NO PRIOR PUBLIC MARKET FOR SERIES A PREFERRED STOCK AND WARRANTS; POSSIBLE
VOLATILITY OF PRICE OF SHARES OF COMMON STOCK
The prices of securities of publicly traded corporations tend to
fluctuate widely. It can be expected, therefore, that if and when trading
commences in the Company's Series A Preferred Stock and Warrants, there may be
wide fluctuations in price. There has been no prior public market for the
Series A Preferred Stock or Warrants and despite the present listing of the
Company's Common Stock on NASDAQ, there is no assurance that a market will
develop in the Series A Preferred Stock and/or Warrants or be sustained. The
lack of a current market for the Series A Preferred Stock and Warrants,
fluctuations in trading interest and changes in the Company's operating
results, financial condition and prospects could have a significant impact on
the market prices for the Series A Preferred Stock and the Warrants. See
Underwriting.
NASDAQ MAINTENANCE REQUIREMENTS AND EFFECTS OF POSSIBLE DELISTING
Although the Company's Series A Preferred Stock and Warrants have been
approved for initial listing on the NASDAQ Small-Cap Market upon notice of
issuance of such securities, the Company must continue to meet certain
maintenance requirements in order for such securities to continue to be listed
on NASDAQ. Further, the Company must meet such maintenance requirements for the
Company to be able to list the Company's Common Stock and Warrants on NASDAQ at
such time as they are separately tradeable and transferable. NASDAQ recently
announced that it intended to propose new entry and maintenance requirements
for companies traded on the NASDAQ Small-Cap Market, including increased
financial standards and requiring the companies to have at least two
11
<PAGE> 17
independent directors and an audit committee, a majority of which are
independent directors. There can be no assurance that the Company will be able
to meet such new proposals if such new proposals are adopted. If the Company's
securities are delisted from NASDAQ, this could restrict investors' interest in
the Company's securities and could materially and adversely affect the trading
market and prices for such securities. In addition, if the Company's
securities are delisted from NASDAQ, and if the Company's net tangible assets
do not exceed $2 million, and if the Company's Common Stock and/or Series A
Preferred Stock is trading for less than $5.00 per share, then the Company's
Common Stock, Series A Preferred Stock and Warrants would each be considered a
"penny stock" under federal securities law. Additional regulatory requirements
apply to trading by broker-dealers of penny stocks which could result in the
loss of effective trading markets, if any, for the Company's Common Stock,
Series A Preferred Stock and Warrants.
REPRESENTATIVE'S PURCHASE OPTION
Upon successful completion of this Offering, the Company will sell to
the Representative and its designees, for a nominal cost, an option to purchase
up to 40,000 shares of Series A Preferred Stock and Warrants to purchase
100,000 shares of Common Stock. The Representative's Purchase Option will be
exercisable for a four year period, commencing 12 months from the date of this
Prospectus and ending 48 months thereafter, at an exercise price equal to 120%
of the public offering price of the shares of Common Stock. The Representative
will be given the opportunity to profit from a rise in the market price of the
Company's Common Stock with a resulting dilution of the interest of
stockholders. Furthermore, the Company will give certain registration rights
with regard to the Common Stock issuable upon exercise of the warrants and such
registration could result in substantial expense to the Company. See
Underwriting.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and the Company intends that
such forward-looking statements be subject to the safe harbors for such
statements under such sections. The Company's forward-looking statements
include the plans and objectives of management for future operations, including
plans and objectives relating to the Company's future economic performance.
The forward-looking statements and associated risks set forth in this
Prospectus include or relate to: (i) the ability of the Company to locate
additional locations for its nightclubs and obtain liquor licenses related
thereto, (ii) the ability of the Company to generate interest in, attract and
retain customers for its clubs, (iii) the ability of the Company to generate
sufficient revenue to operate and expand on its base of nightclubs, (iv) the
ability of the Company to recruit and retain quality management and (v) the
ability of the Company to acquire additional profitable operating clubs.
The forward-looking statements herein are based on current
expectations that involve a number of risks and uncertainties. Such
forward-looking statements are based on assumptions that the Company's Clubs
will continue to produce sufficient revenues, that there will be no material
adverse competitive change in condition in the Company's business, that
patronage at the Company's
12
<PAGE> 18
Clubs will significantly increase, that the Company's forecasts accurately
anticipate market demand, and that there will be no material adverse change in
the Company's operations, business or governmental regulation affecting the
Company or its business. The foregoing assumptions are based on judgments with
respect to, among other things, future economic, competitive and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Accordingly, although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and therefore there can be no assurance that the
results contemplated in forward-looking statements will be realized. In
addition, as disclosed elsewhere in the Risk Factors section of this
Prospectus, there are a number of other risks inherent in the Company's
business and operations which could cause the Company's operating results to
vary markedly and adversely from prior results or the results contemplated by
the forward-looking statements. Growth in absolute and relative amounts of
cost of goods sold and general and administrative expenses or the occurrence
of extraordinary events could cause actual results to vary materially from the
results contemplated by the forward-looking statements. Management decisions,
including budgeting, are subjective in many respects and periodic revisions
must be made to reflect actual conditions and business developments, the impact
of which may cause the Company to alter its marketing, capital investment and
other expenditures, which may also materially adversely affect the Company's
results of operations. In light of significant uncertainties inherent in the
forward-looking information included in this Prospectus, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the Company's objectives or plans will be achieved See
Management's Discussion and Analysis of Financial Condition or Plan of
Operations, Use of Proceeds and The Company.
13
<PAGE> 19
USE OF PROCEEDS
Assuming an offering price of $12.00 per share of Series A Preferred
Stock and 1,000,000 Warrants at $.125 per Warrant, the net proceeds to the
Company after deduction of the underwriting discount (10%) and estimated
expenses of the offering, including the Representative's nonaccountable expense
allowance, will be approximately $4,054,750. The net proceeds are anticipated
to be used as follows:
<TABLE>
<S> <C>
Repayment of debt(1) $ 520,000
Remodeling and expansion of
existing clubs 250,000
Development and/or acquisition
of additional clubs 2,854,750
Working capital 430,000
----------
$4,054,750
==========
</TABLE>
- --------------
(1) Represents (i) note payable to a bank in the amount of $275,742, due
February 19, 1997, bearing interest at 6.36% per annum; (ii) a note
payable to a former Director, in the amount of $100,000, due on
demand, bearing interest at a rate of 12% per annum; (iii) note
payable by the Wichita Club to a mortgage company in the amount of
$73,501, bearing interest at a rate of 18% per annum, due November,
1997; (iv) notes payable to the shareholders of the Wichita Club in
the aggregate amount of $10,000, bearing interest at 18% per annum,
due July, 1997, including accrued interest; and (v) notes payable to
limited partners of the Wichita Club, in the aggregate amount of
$42,000, bearing interest at 10% per annum, originally due in March,
1995, and subsequently extended, including accrued interest.
The allocation of the net proceeds from this Offering set forth above
represents the Company's best estimate based on its present plans and certain
assumptions regarding general economic and industry conditions and the
Company's anticipated future revenues and expenditures. If any of these
factors change, the Company may find it necessary or advisable to reallocate
some of the proceeds from working capital to other of the above-described
categories. The Company anticipates, based on its current proposed plans and
assumptions relating to its operations, that the proceeds of this Offering,
together with projected cash flow from operations, will be sufficient to
satisfy its contemplated cash requirements for the next 12 months, although the
Company may incur operating losses and significant capital expenses during that
period. The Company's cash requirements beyond the 12 month period will
depend on many factors, including (but not limited to) the Company's cash flow
from operations, the length of time it may take for the Company to select
additional locations for nightclubs and build and open such new clubs, the
market acceptance of its Clubs, and the response of competitors who may open
similar theme nightclubs in locations in which the Company's Clubs are located.
To the extent that the funds generated by this Offering are insufficient to
fund the Company's activities in the short or long term, the Company may need
to raise additional debt or equity through public or private financings. The
Company has no commitment for any such financing, and there can be no assurance
that any additional financing will be available to the Company, when needed,
and on reasonable terms. See Risk Factors.
14
<PAGE> 20
If the over-allotment option is exercised (of which there can be no
assurance), the Company will receive additional net proceeds of approximately
$642,713. Any proceeds received from the exercise of the over-allotment option
will be added to working capital.
The amounts set forth above merely indicate the proposed use of
proceeds, and the actual expenditures may vary substantially from the
estimates. None of the items set forth in the foregoing table should be
considered as a firm commitment by the Company.
To the extent that the net proceeds are not used immediately, the
Company will invest such net proceeds in short-term government securities.
15
<PAGE> 21
SELECTED FINANCIAL INFORMATION
The following selected financial data should be read in conjunction
with the consolidated financial statements and notes thereto included elsewhere
in this Prospectus. The consolidated statement of operations data for the
years ended December 31, 1995 and 1994, are derived from and should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto audited by Causey, Demgen & Moore Inc. independent auditors.
The selected financial data as of and for the nine months ended
September 30, 1995 and 1996, are derived from the unaudited financial
statements of the Company, which, in the opinion of the Company reflect all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the results for the nine months ended September 30, 1995 and
1996, which are not necessarily indicative of the results for a full year.
Statement of Operational Data:
<TABLE>
<CAPTION>
Nine Months
Years Ended December 31, Ended September 30,
--------------------------- -------------------
(Unaudited)
---------
1995 1994 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 8,508,058 $ 6,305,935 $ 5,511,470 $ 6,398,138
Operating expenses $ 8,166,747 $ 6,065,344 $ 5,588,965 $ 5,898,899
Net income (loss) before
extraordinary items $ (211,233) $ 50,573 $ (67,542) $ 244,651
Net income (loss) per common share
before extraordinary items $ (.07) $ .02 $ (.02) $ .08
Weighted average common
shares outstanding: 3,161,000 3,182,000 3,136,000 3,184,000
<CAPTION>
Balance Sheet Data: Dec. 31, 1995 September 30, 1996 September 30, 1996
------------------- ------------------ ------------------
(Unaudited) (As Adjusted(1))
<S> <C> <C> <C>
Working capital (deficit) $ (640,215) $ (89,739) $ 3,666,783
Total assets $ 6,009,143 $ 5,628,923 $ 9,735,536
Long-term liabilities $ 705,074 $ 499,492 $ 514,299
Stockholders' equity $ 3,568,628 $ 3,971,673 $ 8,113,454
</TABLE>
- -------------------
(1) Adjusted to give effect to (i) the sale by the Company of the 400,000
shares of Series A Preferred Stock at an assumed offering price of
$12.00 per share and of the 1,000,000 Warrants and application of
$4,054,750 of the net proceeds and (ii) the acquisition of 100% of the
Common Stock of EWI in exchange for 400,000 shares of the Company's
Common Stock and the assumption of notes payable of $150,000.
16
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations is intended to assist in understanding the financial
condition and results of operations of the Company. The information contained
in this section should be read in conjunction with the financial statements and
accompanying notes thereto and the other sections contained in the Prospectus.
OVERVIEW
The Company began operations in 1993 with the Indy Club. It opened
the St. Louis Club in April 1994, acquired the Tuscon Club in November 1994,
and acquired the Wichita Club in December 1996. The Company's financial
results are significantly affected by the number of Clubs operating during a
given period, by the relatively small number of Clubs and the proportionately
greater effect of a single Club upon Company-wide performance, and by the
volatility of Club- level financial performance in the early stages of a Club's
operations. For these reasons, period-to-period comparisons of the Company's
financial results may not be a reliable indicator of future performance.
A change in control (and resulting changes in senior management) in
late 1996 will also significantly affect the Company's financial results as a
result of substantial differences in management strategies. See The Company -
Plan of Operations.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1996, the Company generated
$603,308 in cash flows from operations compared to $875,654 from operations for
the nine months ended September 30, 1995. The decrease in cash flows for the
nine months ended September 30, 1996, is primarily due to the decrease in
revenues experienced by the Company during the period. Total revenues for the
quarter ended September 30, 1996 were $1,615,456, down $77,161 from the total
revenue of $1,692,617 reported for the quarter ended September 30, 1995. The
impact of the decrease in revenue results in a net loss of ($37,186) for the
quarter ended September 30, 1996, as compared to net income of $1,483 reported
for the quarter ended September 30, 1995.
As of September 30, 1996, the Company had cash of $186,509, which was
generated from operating activities and financial activities and prior period
partner contributions. Cash for the nine months ended September 30, 1996,
decreased $37,330 from cash of $223,839 reported at December 31, 1995. Net cash
provided from operations of $603,308 was primarily generated from depreciation
and amortization expense of $465,496, and Common Stock issued for services of
$165,000 for the nine months ended September 30, 1996. Other cash flow
operating items made up the remainder. Proceeds from the sale of Common Stock
of $238,000 resulted from the Company's sale of 95,200 shares of common stock
during the nine months ended September 30, 1996. Further the Company borrowed
$100,000 from the Company's former president during the nine months ended
September 30, 1996. The $100,000 was repaid prior to September 30,
17
<PAGE> 23
1996. Repayment of notes payable of $1,099,522 included: $393,000 repaid to
International Entertainment Consultants, Inc. a Company owned by a relative of
the Company's former president; $100,000 to Lowrie Management, a company owned
by the Company's president; $152,868 to Colonial Bank on monies borrowed for
the Company; $31,432 to Dulaney Bank holder of the first mortgage on the Indy
Club; $22,222 to Expo Bowl holder on the second mortgage for the Indy Club and
$300,000 to extinguish the covenant not to compete related to the purchase of
the Tucson Club. See Consolidated Statement of Cash Flows.
The Company has and is aggressively looking toward expanding its
operations in the future. Potential club locations are being considered in
both the Midwestern and Southwestern sections of the country. This growth
strategy will dictate how funds will be spent through the next quarter and the
year beyond. Additional nightclubs may be financed through the formation of
limited partnerships, internal funding, bank financing or private and/or public
equity or debt offerings, or a combination of the foregoing. The Company may
also purchase existing clubs through transactions involving the issuance of the
Company's stock and/or cash. During the quarter ended June 30, 1995, the
Company acquired a 50% interest in a partnership, Cowboys Concert Hall/Atlanta,
Ltd. (the "Atlanta Partnership"). On June 30, 1995, the Company made a
substantial loan to the Atlanta Partnership so that the Atlanta Partnership
could acquire a country western nightclub in Atlanta, Georgia (the "Atlanta
Club"). However, the Company has now written off its investment in the Atlanta
Partnership. During the quarter ended December 31, 1994, the Company purchased
the Tucson Club, an existing country western club. The Tucson Club was
purchased with the proceeds from the public offering of May 9, 1994, for
$1,000,000 in cash and a $700,000 non-compete agreement.
Pre-opening expenses for the Tucson Club were incurred during the
renovation of the facility from July 18 through September 27, 1995, and are
reported as an asset. This asset is being written off against income during
the first year of operations and was fully amortized in the quarter ended
September 30, 1996. Pre-opening expenses for the Indy and St. Louis Clubs were
incurred prior to the start of club operations and were reported as an asset.
This asset was written off against income during the first year of operations,
and was fully amortized in the quarter ended June 30, 1995.
Property and equipment is primarily made up of assets required to open
and operate the Tucson, Indy and St. Louis Clubs, and include additions and
improvements made during the Tucson Club renovation in the quarter ended
September 30, 1995. Leasehold improvements total $2,605,709; equipment,
furniture and fixtures $980,633; land and buildings $860,900 and parking lot
improvements of $119,989. The improvements were financed with long-term
borrowings, partnership capital and proceeds from the Company's public
offering.
Property and equipment, detailed by club is as follows:
18
<PAGE> 24
<TABLE>
<CAPTION>
Facility Leasehold Equipment, Furniture Land, Buildings and
-------- --------- -------------------- -------------------
Improvements and Fixtures Parking Lot
------------ ------------ -----------
<S> <C> <C> <C>
Home Office $ 3,500 $ 10,325
Indianapolis $ 605,435 $ 318,863 $ 980,889
Tucson $ 677,754 $ 365,657
St. Louis $ 1,319,020 $ 285,788
------------ ---------- ----------
$ 2,605,709 $ 980,633 $ 980,889
============ ========== ==========
</TABLE>
The Company has recorded a deferred tax asset of $290,000 at September
30, 1996, representing temporary differences of approximately $748,000 between
book income and taxable income. The reversal of existing temporary differences
would allow approximately $42,000 of deferred taxes to be recovered as a
carryback against prior years taxes paid. Realization of the remaining
$248,000 deferred tax asset is dependant upon the Company generating sufficient
taxable income to offset the additional future tax deductions. Average annual
taxable income necessary for the next 15 years to realize the deferred tax
asset amounts to approximately $83,000. Although realization of the deferred
tax asset is not assured, management believes it is more likely than not that
all of the deferred tax asset will be realized because the pro forma net income
before provision for income taxes would have been $308,266 for the year ended
December 31, 1995, if the Company had not owned a 50% interest in the Atlanta
Club for nine months during 1995.
MATERIAL CHANGES IN THE RESULTS OF OPERATIONS
The Company's revenue stream started in April 1993 with the opening of
the Indy Club, its first country western club. Total revenues from operations
from the Indy Club amounted to $460,972 for the three months ended September
30, 1996. This represents a 13.5% decrease in revenue from operations of
$532,888 for the three months ended September 30, 1995. The Company's second
country western club, the St. Louis Club, opened May 18, 1994, and its third
country western club, the Tucson Club, was purchased and commenced Company
operations on November 1, 1994. Total revenues from operations for the St.
Louis and Tucson Clubs amounted to $798,435 and $355,245, respectively, for the
three months ended September 30, 1996. This represents a 11.5% decrease in
revenue from operations of $902,344 for the St. Louis Club and a 63.7% increase
in revenue from operations of $216,967 for the Tucson Club for the three months
ended September 30, 1995. During the three months ended September 30, 1995,
the Tucson Club was closed for renovations from July 18 to September 27, or 66
days of the quarter.
Total revenues from operations from the Indy Club amounted to
$1,471,276 for the nine months ended September 30, 1996. This represents a
18.9% decrease in revenue from operations of $1,813,109 for the nine months
ended September 30, 1995. Total revenues from operations for the St. Louis and
Tucson Clubs amounted to $2,630,015 and $1,399,396, respectively, for the nine
19
<PAGE> 25
months ended September 30, 1996. This represents an 9.7% decrease in revenue
from operations of $2,912,995 for the St. Louis Club and a 9.3% decrease in
revenue from operations of $1,543,378 for the Tucson Club from the nine months
ended September 30, 1995.
The 1996 average monthly revenue generated by the Indy Club was
$163,475; average monthly revenue generated from operations for 1995 was
$187,460; the average monthly revenue from operations in 1994 was $275,104 and
the average monthly revenue for the eight and one-half months of operations in
1993 was $356,627. Average monthly revenues were higher in 1993 because the
Company initiated an extensive nine week advertising and promotion program for
the Indy Club, which was highly successful prior to the start of club
operations. Average monthly revenues were higher in 1994 verses those for 1995
and 1996 because club management has been unable to increase overall general
attendance at a time when country western popularity was declining in
Indianapolis. The Company's St. Louis Club generated revenues form operations
of $3,843,062 for 1995 and $2,400,548 for seven and one-half months of
operation ended December 31, 1994. Average monthly revenues for the nine
months ended September 30, 1996, were $292,224 and for 1995 and 1994 $320,255
and $320,073 respectively. The Company's Tucson Club generated revenues from
operations of $2,257,848 for 1995 and $538,947 for the two months of operations
in November and December 1994. Average monthly revenue for the nine months
ended September 30, 1996, were $155,488 and for 1995, $188,154 and for the two
months of operations in 1994 $269,473.
The quarter's consolidated revenue of $1,615,456 represents beverage
and food sales, admission fees and other income. Of the consolidated revenue
for the quarter, 28.5% represents revenue from the Indy Club. The St. Louis
and Tucson Clubs generated revenues of 49.4% and 22% respectively, for the
three months ended September 30, 1996. Total revenue for the three months
ended September 30, 1996, decreased $77,161 or 4.6% from total revenue reported
for the quarter ended September 30, 1995.
The nine month period consolidated revenue of $5,511,470 represents
beverage and food sales, admission fees, and other income. Of the consolidated
revenue for the nine month period, 26.7% represents revenue from the Indy Club.
The St. Louis and Tucson Clubs generated revenues of 47.7% and 25.4%,
respectively, for the nine months ended September 30, 1996. Total revenue for
the nine months ended September 30, 1996, decreased $886,668 or 13.9% from
total revenue reported for the nine months ended September 30, 1995.
The Company's consolidated net loss before provision for taxes and
minority interest and extraordinary item of $(154,297) for the three months
ended September 30, 1996, represents a decrease from the net income before
provision for taxes, minority interest and extraordinary item of $71,282 for
the three months ended September 30, 1995. The Company believes that the net
loss of $(37,186) for the three months ended September 30, 1996 as compared to
the net income of $45 for the nine months ended September 30, 1996 is due
primarily non-recurring compensation expense of $112,500 in the quarter ended
September 30, 1996, resulting from stock and stock option transactions
involving Troy H. Lowrie, the then President and Chief Executive Officer of
20
<PAGE> 26
the Company, and two consultants, as well as the seasonality of the Company's
business as the summer months traditionally are slower months for the nightclub
business.
The Company's consolidated net income before provision for income
taxes, minority interest and extraordinary item of $(77,495) for the nine
months ended September 30, 1996, represents a decrease of 115.5% from the net
income before provision for taxes, minority interest and extraordinary item of
$499,239 for the nine months ended September 30, 1995.
For the twelve months ended December 31, 1995, the Company's
consolidated income before taxes, minority interest and equity in partnership
increased to $341,311 as compared to $240,591 for the twelve months ended in
December 31, 1994, and a loss of $(236,374) for the period ended December 31,
1993. The increase in income in 1995 was primarily due to the Company's St.
Louis and Tucson Clubs operating for the full twelve months of that year.
The decrease in cost of products and services and general and
administrative expenses for the three months and nine months ended September
30, 1996, represent reductions in the cost of operations effected by management
as a result of the decreases in revenues for the period. While the Company
experienced an increase in general and administrative and depreciated expenses
for the twelve months ended December 31, 1995, those expenses represent
facility and promotion costs for the St. Louis Club and similar costs for the
Tucson Club for the full twelve months of 1995. For the twelve months ended
December 31, 1994, general and administrative and depreciation costs incurred
by the Company were much lower. The Company incurred facility and promotion
costs for the St. Louis Club for only seven and one-half months of the period
and similar costs for the Tucson Club for two months of the period.
The decrease in depreciation and amortization expenses for the three
and nine months ended September 30, 1996, represents a reduction in
amortization of pre-opening expenses for the St Louis and Indy Clubs which were
written off against income during the first year of operations and fully
amortized in the quarter ended June 30, 1995.
Other partners' and shareholders' interests in net income of
consolidated subsidiaries represents income attributable to limited partners
interests in WCC I, Ltd., and are treated as a reduction to income for the
Company's consolidated statement. Decreases in the amount for the quarter
ended September 30, 1996, are related to the decrease in revenues experienced
by the Company. The Company originally had a 49% interest in the profits of
WCC I, Ltd. and had accounted for its interest in this partnership on a
consolidated basis. On October 7, 1994, the Company consummated an offer to
acquire an additional 31% interest in the profits of WCC I, Ltd. As a result
of the acquisition, the Company presently has an 80% interest in WCC I, Ltd.
Other partners and shareholders interests in net income of consolidated
subsidiaries represents the income attributable to those remaining limited
partners, whose holdings represent 20% of WCC I, Ltd.
21
<PAGE> 27
UNAUDITED PRO FORMA INFORMATION
Entertainment Wichita, Inc. ("EWI") is the general partner of In
Cahoots, Limited Partnership ("In Cahoots"). Through September 30, 1996, EWI
owned a 1% interest in the profits and losses of In Cahoots. On October 1,
1996, limited partners of In Cahoots owning an aggregate 79% limited
partnership interest, exchanged these partnership interests for an aggregate of
36,800 shares of common stock of EWI and the assumption of $150,000 of debt
related to a previous acquisition of limited partnership interests by another
party.
Western Country Clubs, Inc. (the "Company"), EWI and WCCI Acquisition
Corporation ("Merger Sub") have entered into an Agreement and Plan of Merger
whereby EWI would become a 100% owned subsidiary of the Company by merger with
Merger Sub. On December 16, 1996, the Company issued 400,000 shares of its
common stock and assumed $150,000 of notes owed to former limited partners of
In Cahoots in exchange for all of the outstanding common shares of EWI.
The following unaudited pro forma consolidated balance sheet as of
September 30, 1996, gives effect to the above transactions as though they were
consummated on September 30, 1996. The financial statements shown as EWI on
the attached pro forma balance sheet are the pro forma consolidated financial
statements of EWI and In Cahoots. The statements of operations assume the
above transactions had occurred at the beginning of the periods presented.
The exchange of partnership interests of In Cahoots for shares of
common stock of EWI and the assumption of certain notes payable has been
treated as a reverse acquisition of EWI by the Partnership using purchase
accounting and the acquisition of minority interests resulting in the
recognition of goodwill in the amount of $62,945.
The Agreement and Plan of Merger has also been treated as a
transaction between entities under common control and therefore the
consolidated assets and liabilities of EWI are carried over at historical cost.
22
<PAGE> 28
WESTERN COUNTRY CLUBS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
EWI PRO FORMA
WESTERN PRO FORMA ADJUSTMENTS PRO FORMA
---------- --------- ------------ - --------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash $ 186,509 $ 46,036 $ $ 232,545
Accounts receivable 104,771 45,828 150,599
Notes receivable - Cowboys 100,000 - 100,000
Inventories 84,599 29,773 114,372
Prepaid expenses 99,777 6,633 106,410
Pre-opening expenses 13,068 - 13,068
Deferred income taxes 154,000 - 154,000
Refundable income taxes 109,975 - 109,975
---------- ---------- -------------- -----------
Total current assets 852,699 128,270 980,969
Property and equipment:
Land and improvements 224,989 - 224,989
Building and improvements 755,900 73,297 829,197
Leasehold improvements 2,605,709 176,536 2,782,245
Furniture, fixtures and
equipment 980,633 263,699 1,244,332
---------- ---------- -------------- -----------
4,567,231 513,532 5,080,763
Less accumulated depreci-
ation and amortization (1,037,694) (132,884) (1,170,578)
---------- ---------- -------------- -----------
3,529,537 380,648 3,910,185
Other assets:
Deferred income taxes 136,000 - 136,000
Goodwill, net of amortization 507,184 62,945 570,129
Covenant not to compete, net of
amortization 480,476 - 480,476
Deposits and other 123,027 - 123,027
---------- ---------- -------------- -----------
Total other assets 1,246,687 62,945 1,309,632
---------- ---------- -------------- -----------
$5,628,923 $ 571,863 $ $ 6,200,786
========== ========== ============== ===========
</TABLE>
23
<PAGE> 29
WESTERN COUNTRY CLUBS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
EWI PRO FORMA
WESTERN PRO FORMA ADJUSTMENTS PRO FORMA
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 116,420 $ 48,639 $ $ 165,059
Notes payable 300,035 200,000 500,035
Income taxes payable 94,400 239 94,639
Accrued expenses 353,500 82,328 435,828
Current portion of long-
term debt 78,083 95,292 173,375
---------- ---------- ---------- ----------
942,438 426,498 1,368,936
Long-term debt 499,492 14,807 514,299
Equity interest of other partners
in consolidated subsidiaries 215,320 43,527 258,847
Stockholders' equity:
Preferred stock, $.10 par value;
10,000,000 shares authorized,
none issued and outstanding
Common stock, $.01 par value; 25,000,000
shares authorized, 3,119,921 (Western),
400,000 (EWI) and 3,519,921
(Pro Forma) shares issued and outstanding 31,199 85,379 (81,379) 35,199
Additional paid-in capital 4,183,986 - 83,031 4,267,017
Retained earnings (deficit) (243,512) 1,652 (1,652) (243,512)
---------- ---------- ---------- ----------
3,971,673 87,031 - 4,058,704
---------- ---------- ---------- ----------
$5,628,923 $ 571,863 $ - $6,200,786
========== ========== =========== ==========
</TABLE>
24
<PAGE> 30
WESTERN COUNTRY CLUBS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
WESTERN EWI PRO FORMA
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Beverage and food sales $5,878,502 $1,616,741 $ $ 7,495,243
Admission fees 1,986,847 735,881 2,722,728
Other revenue 642,709 67,133 709,842
---------- ---------- -----------
Total revenues 8,508,058 2,419,755 10,927,813
Costs and expenses:
Cost of products and services 2,349,097 811,945 3,161,042
Depreciation and amortization 642,812 65,212 708,024
Interest 137,059 46,002 183,061
General and administrative
expense 4,909,189 1,104,554 6,013,743
Consulting fees - related parties 11,400 127,005 138,405
Rent - related parties - 157,011 157,011
Merger expenses 117,190 - 117,190
---------- -- ---------- ----------- -----------
Total costs and expenses 8,166,747 2,311,729 10,478,476
---------- ---------- ----------- -----------
Income before taxes, minority
interest and equity in loss of
partnership 341,311 108,026 449,337
Provision (benefit) for income
taxes:
Current 183,660 31,400 215,060
Deferred (50,000) 9,300 (40,700)
---------- ---------- ----------- -----------
Total provision for income
taxes 133,660 40,700 174,360
---------- ---------- ----------- -----------
Income before minority interest and
equity in loss of partnership 207,651 67,326 274,977
Other partners' and shareholders'
interests in net income of consoli-
dated subsidiaries, net of income tax
benefit (20,587) (13,460) (34,047)
Equity in loss of partnership, net of
income tax benefit (123,676) - (123,676)
Write off of investment in partnership,
net of income tax benefit (274,621) - (274,621)
---------- -- ---------- ----------- -----------
Net income (loss) $ (211,233) $ 53,866 $ $ (157,367)
========== ========== =========== ===========
Net income (loss) per common
share $ (.07) $ .13 $ (.04)
========== ========== ===========
Weighted average common
shares outstanding 3,161,000 400,000 3,561,000
========== ========== ===========
</TABLE>
25
<PAGE> 31
WESTERN COUNTRY CLUBS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
WESTERN EWI PRO FORMA
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Beverage and food sales $3,544,385 $ 957,951 $ $4,502,336
Admission fees and other revenue 1,967,085 492,570 2,459,655
---------- ---------- ------------- ----------
Total revenues 5,511,470 1,450,521 6,961,991
Costs and expenses:
Cost of products and services 1,623,473 445,184 2,068,657
Depreciation and amortization 465,496 38,363 503,859
Interest 109,425 25,681 135,106
Management fees - related party - 73,685 73,685
Rent - related party - 112,500 112,500
General and administrative
expense 3,390,571 690,256 4,080,827
---------- ---------- ------------- ----------
Total costs and
expenses 5,588,965 1,385,669 6,974,634
---------- ---------- ------------- ----------
Income (loss) before taxes, minority
interest and extraordinary item (77,495) 64,852 (12,643)
Provision (benefit) for income
taxes (26,481) 24,190 (2,291)
---------- ---------- ------------- ----------
Income (loss) before minority interest (51,014) 40,662 (10,352)
Other partners' interest in net
income of consolidated subsidiaries,
net of income tax provision 16,528 8,132 24,660
---------- ---------- ------------- ----------
Income (loss) before extraordinary
item (67,542) 32,530 (35,012)
Extraordinary item:
Gain on extinguishment of debt,
net of income tax provision 67,587 - 67,587
---------- ---------- ------------- ----------
Net income $ 45 $ 32,530 $ $ 32,575
========== ========== ============= ==========
Net income (loss) per share before
extraordinary item $ (.02) $ .08 $ (.01)
Extraordinary gain .02 - .02
---------- ---------- ------------- ----------
Net income per common share $ * $ .08 $ .01
========== ========== ============= ==========
Weighted average common
shares outstanding 3,136,000 400,000 3,536,000
========== ========== ============= ==========
</TABLE>
* less than .01 per share
26
<PAGE> 32
WESTERN COUNTRY CLUBS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
SEPTEMBER 30, 1996
The pro forma adjustments assume 400,000 shares of common stock of Western were
issued in exchange for the currently outstanding shares of common stock of EWI
at the beginning of the periods presented.
The following is a summary of the adjustments required based upon the above
assumptions.
<TABLE>
<CAPTION>
September
30, 1996
Amount
---------
<S> <C> <C>
1. To record issuance of 400,000
shares of Western's common stock
for the common stock of EWI
Common stock $(81,379)
Additional paid-in capital 83,031
Retained earnings (1,652)
</TABLE>
27
<PAGE> 33
THE COMPANY
The Company currently operates four "country-western" theme nightclubs
located in Indianapolis, Indiana (the "Indy Club"); St. Louis, Missouri (the
"St. Louis Club"); Wichita, Kansas (the "Wichita Club"); and Tucson, Arizona
(the "Tucson Club"). The Indy Club, the St. Louis Club and the Wichita Club
operate under the name InCahoots. The Tucson Club operates under the name
Stampede and includes a bar with a "beach club" format, called Acapulco Joe's.
Each Club combines live entertainment, dancing, bar and food in a
country-western atmosphere.
The Company intends to expand its network of clubs, either through
acquisition of existing clubs or by building clubs. Potential future locations
include Houston, Texas; Louisville, Kentucky; Dallas, Texas; Oklahoma City,
Oklahoma; Tulsa, Oklahoma; and Tampa Bay, Florida. Decisions as to potential
club locations are highly influenced by site availability and price, zoning,
competition and demographic factors.
Gross revenues by club for each of the past three fiscal years are as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
The Indy Club(1) $3,031,329 $3,301,252 $2,249,516
The St. Louis Club(2) $ -0- $2,400,548 $3,843,062
The Tucson Club(3) $3,517,604 $3,125,288 $2,257,848
The Wichita Club(4) $ -0- $2,811,776 $2,419,755
</TABLE>
- ---------------
(1) Opened in April, 1993. During 1993, the Company accounted for the
Indy Club by the equity method and therefore recognized its share of
the Indy Club net income of $272,381 as revenues on the Company's
financials.
(2) Opened as a non-alcoholic establishment on April 22, 1994, and began
marketing alcoholic beverages on May 19, 1994 upon receipt of a liquor
license.
(3) Purchased by the Company on November 1, 1994.
(4) The Wichita Club was opened in February, 1994, and the Company
acquired an 80% general partner interest in the Wichita Club on
December 16, 1996.
THE INDY CLUB
The Indy Club, the first of the Company's clubs, operates under the
name InCahoots. The Indy Club consists of approximately 34,300 square feet of
entertainment facilities, including several bars, a state-of-the-art sound and
light system (which supports live and taped music), a Taco Bell food service
facility and two in-club stores which sell western wear and souvenirs.
National name entertainment, such as Blackhawk, Lori Morgan, Tracy Lawrence,
Tracy Byrd,
28
<PAGE> 34
Little Texas and Bryan White, are featured at the Indy Club on a regular basis,
usually scheduled during the middle of the week to attract audiences on what
would otherwise be the club's less popular days. In addition, regional name
entertainers are scheduled Tuesday through Saturday evenings. A modest cover
charge is required to enter the Indy Club, and a customer's average
expenditure, exclusive of food and souvenirs, is approximately $12.00.
The Homestead Store ("Homestead") leases approximately 500 square feet
of the Indy Club for $300 per month pursuant to an oral arrangement with the
Company. Homestead sells wardrobe items on a commission basis. The Logo
Boutique, which is owned by the Indy Club, also sells proprietary wardrobe
items.
Effective February 28 1997, the Company will assume the food
concession previously operated by Taco Bell Corp. ("Taco Bell"). Under an
Operating Agreement, dated March 17, 1993, Taco Bell sells Taco Bell food
products and drinks in the Indy Club. The initial term of the Operating
Agreement expired on April 17, 1994. Taco Bell has verbally exercised its
option to renew the Operating Agreement for an additional four year term.
During the first year of the agreement, Taco Bell paid three percent (3%) of
monthly gross sales up to $8,333 per month, or six percent (6%) of monthly
gross sales above $8,333 per month from operations. Under the renewal term,
Taco Bell is required to pay six percent (6%) of gross sales. Gross sales is
defined as all sales made by Taco Bell, less sales tax and customer returns,
meals to employees and promotional items sold at cost. Taco Bell is
responsible for obtaining all appropriate and necessary licenses and permits
for the operation and sale of Taco Bell products in the Indy Club.
The Company owns 80% of Western Country Club, I, Ltd., ("WCC I,
Ltd."), a Colorado limited partnership, which has held the Indy Club's liquor
license since April, 1994. Prior to April, 1994, Indy Club's liquor license was
held by Texas of Indy, Inc. ("Texas of Indy"), an Indiana corporation formed in
October, 1992 for the purpose of holding the Indy Club's liquor license. On
July 1, 1994, WCC I, Ltd exercised an option to purchase all of Texas of Indy's
assets in consideration of the consolidation of all loans from WCC I, Ltd. to
Texas of Indy as of June 30, 1994. A Consulting Agreement between Texas of
Indy and WCC I, Ltd., which required the payment of a consulting fee of
$100,000 per month from Texas of Indy to WCC I, Ltd., was modified to $50,000
per month for three months and then cancelled concurrently with the purchase of
Texas of Indy's assets by WCC I, Ltd.
The Indy Club was financed by WCC I, Ltd., which loaned Texas of Indy
$568,200 in January, 1993, which amount represented the funds contributed to
WCC I, Ltd. by its limited partners. An additional $300,000 was contributed by
WCC I, Ltd. in March, 1993, which WCC I, Ltd. borrowed from the Dulaney
National Bank, Marshall, Illinois. See Certain Relationships and Related
Transactions.
The Company is the general partner of and owns an 80% interest in WCC
I, Ltd., for which the Company initially contributed a nominal amount of cash,
its know-how and expertise in conceiving, constructing and operating
nightclubs, and its oversight of the construction and
29
<PAGE> 35
renovation of the Indy Club. In February 1994, the Company exercised an option
to acquire an additional 19% interest in WCC I, Ltd. from one of the limited
partners of WCC I, Ltd. for $200,000 plus 25,000 shares of the Company's
unregistered Common Stock. The Company acquired an additional 31% interest in
WCC I, Ltd., effective September 30, 1994, for $57,600 and 73,600 shares of
unregistered Common Stock pursuant to an offer directed to limited partners of
WCC I, Ltd. to exchange their limited partnership interests in WCC I, Ltd. for
cash or stock, at the limited partner's option.
THE ST. LOUIS CLUB
The St. Louis Club is located on the I-70 corridor between St. Louis,
Missouri and Kansas City, Kansas. The design of the St. Louis Club is similar
to that of the Indy Club and operates under the name In Cahoots. The Club
consists of approximately 50,000 square feet, and is the largest of the
Company's Clubs. Sundance Silver & Hide, which sells wardrobe items, including
hats and boots, occupies approximately 800 square feet of the Club, for which
it pays $1,200 per month pursuant to an oral agreement with the Company. The
Homestead Store, which sells Western Indian artifacts, clothing and jewelry,
occupies approximately 600 square feet of the Club, for which it pays $300 plus
10% of sales per month pursuant to an oral agreement with the Company. The
Austin Eatery, a walk-up restaurant selling hamburgers and prime rib, occupies
approximately 2,000 square feet of the club pursuant to an oral arrangement.
The Company retains 5% of all food and beverage sales and pays the Austin
Eatery 95% of sales.
The St. Louis Club opened for retail business as a non-alcoholic club
on April 22, 1994. It, began marketing alcoholic beverages on May 19, 1994
upon receipt of a liquor license from the Supervisor of Liquor Control of the
State of Missouri. The customer's average expenditure, exclusive of food and
souvenirs, is approximately $12.00.
Construction, renovation and furnishing of the St. Louis Club was
funded by Western Country Club III, Ltd. ("WCC III, Ltd."), a Colorado
limited partnership formed in 1994 for the purpose of providing funding for the
St. Louis Club, of which the Company served as general partner. WCC III, Ltd.
initially contributed a total of $850,000 to the Club's construction, but, due
to cost overruns, had to contribute an additional $400,000, which it borrowed
from the Company. Subsequently, WCC III, Ltd. had to borrow an additional
$465,865 from the Company for construction and operations.
Under the Limited Partnership Agreement, limited partners were to
receive 70% of cash distributions from the St. Louis Club until limited
partners had received a total of $850,000 in cash distributions, and 50%
thereafter. Because of loan repayments, however, no distributions had been
made to any partners as of September 30, 1994. Effective September 30, 1994,
the Company purchased all of the assets of WCC III, Ltd. in exchange for
158,664 shares of its unregistered Common Stock.
30
<PAGE> 36
THE TUCSON CLUB
The Tucson club consists of approximately 42,688 square feet located
on approximately 3.69 acres, which includes parking. The Tucson Club has a
capacity of 2,300 persons. Short-order food is provided on premises by the
Club. There are five small shops in the Club, which sell hats, boots, old time
photos, T-shirts and souvenirs. Each shop pays a minimal monthly rental
pursuant to an oral arrangement with the Club.
New management has recently completed remodeling the Tucson Club and
implementing new accounting systems. The Tucson Club now consists of two
separate entertainment areas. One is a country-western area which has been
named Stampede. The other has a "beach club" theme, and has been named
Acapulco Joe's. Acapulco Joe's is an eclectic, resort style beach bar that
appeals to clientele for after-work relaxation, and to young, casual patrons
for later night and weekend fun. The beach bar ambiance is achieved through an
eclectic mix of recycled products, from used wood planking and rustic bar faces
to used bucket seats and washtub tables, and beach-related (i.e. sharks and
murals) wall decor. The staff is casually dressed and the menu is humorously
presented Tex-Mex, featuring fajitas, nachos and burgers. The "happy hour"
music is a unique blend of country, reggae, and album oriented rock from the
1960s and 1970s. Late night, the dance floor features a tongue-in-cheek light
show (consisting of fiesta lights and a mirror ball), and customers dance on
the dance floor, on the surfboard dance rails and tops of the bars to a blend
of Top 40, recycled dance music and country-western favorites.
The Tucson Club operated under the name Wild Wild West until mid-July,
1995, when the Club was closed for remodeling in accordance with the A Little
Bit of Texas format. The Tucson Club operated under the name of A Little Bit
of Texas until September, 1996. Management believes that these concepts will
attract more customers and be more profitable than the prior formats.
The Company purchased the Wild Wild West nightclub from Wild Wild
West, Inc. and Buckaroos, Inc. on November 1, 1994 for $1,000,000 in cash and
$700,000 payable to certain individuals in consideration of covenants not to
compete through October 31, 1997. Subsequently, in 1995, the term of the
covenants not to compete was extended from three to fifteen years. The
$700,000, which was secured by the Wild Wild West's liquor license, furniture,
fixtures and equipment, was payable as follows: $250,000 on or before November
1, 1995; $250,000 on or before November 1, 1996 and $200,000 on or before
November 1, 1997. The Company used funds reserved from its May 1994 public
offering to fund the initial payment of $1,000,000. The November 1995 payment
was made and on September 26, 1996, the Company settled the remaining balance
of $450,000 for one payment of $300,000. The funds used to pay the $300,000
were borrowed from a bank in Denver, Colorado. The Wild Wild West had been in
operation for over four years at the time of its purchase by the Company.
THE WICHITA CLUB
On December 16, 1996, the Company acquired Entertainment Wichita, Inc.
("EWI"), the general partner and 80% owner of InCahoots, Limited Partnership, a
Kansas limited partnership, in exchange for 400,000 shares of the Company's
Common Stock and assumption of $150,000 in debt
31
<PAGE> 37
through a merger transaction. EWI was owned 45.5% by Shane Investments, L.C.
("Shane Investments"), a corporation which is solely owned and controlled by
Joe Robert Love, Jr., the adult son of Joe R. Love, a Director of the Company.
Shane Investments received 250,500 shares of the Company's Common Stock upon
completion of the transaction in December 1996.
The Company's Board of Directors engaged American Business Capital
Corporation ("ABCC") to act as its financial advisor in connection with the
merger. The Company's Board of Directors instructed ABCC, in its role as
financial advisor, to evaluate the fairness, from a financial point of view, to
the holders of the Company's Common Stock of the issuance of the 400,000 shares
in connection with the merger. ABCC advised the Company's Board, in its
written opinion dated December 9, 1996, that the issuance of the 400,000 shares
in connection with the merger is fair, from a financial point of view, to the
holders of the Company's Common Stock. In rendering its opinion, ABCC, among
other factors, considered the historical financial statements of both the
Company and EWI, projections of future income from operations of both entities
and the increase in the market capitalization which might be expected as a
result of the merger.
The Wichita Club is designed to appeal to rodeo cowboys as well as the
casual country-western music lover. It is a blend of high tech,
state-of-the-art, and "good old country boy" entertainment. The high tech
presentation includes giant 20 foot video screens, double CD players, a roll up
lighted American flag, neon touch lighting and the capability to include a live
band's sound throughout the house speaker system. A comfortable ambiance is
achieved through rustic wooden floors, old west photographs, antique back bars,
and huge hand painted mural of past and present Country and Western
entertainers. The showcase of the Club is the circular, race track style dance
floor, complete with a bar in the center allowing for more dancing room.
The Wichita Club opened in February 1994, and has been voted the top
country-western club in Wichita since opening. The Club consists of
approximately 30,000 square feet, has a maximum occupancy of 1600 persons and
has parking for 900 cars.
PLAN OF OPERATIONS
The Company's senior management changed in late 1996 introducing
substantial changes in the Company's plan of operations and management
strategies. The Company's prior strategies focused heavily on cost reduction
as the preferred means of improving profitability. Such strategies resulted in
lean Club-level management and loss of experienced personnel, low levels of
physical facility maintenance and reinvestment, and reduced levels of
advertising, promotion and entertainment expense. Current management has
replaced much of the Club-level management, added experienced Club- level
management, instituted management training procedures, implemented a cost
management system which includes daily unit-level accounting and reporting,
improved the sound, light and video systems, increased radio buys within the
local markets, and implemented new advertising and in-store promotions. These
changes reflect current management's belief that long-term strategies involving
greater investment in personnel and physical facilities, although perhaps more
costly in the short-term, will produce a superior financial performance.
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<PAGE> 38
ENTERTAINMENT
The Company seeks to book nationally known entertainers as well as
regionally-known entertainers and/or bands which do not yet have national
recognition. The Company believes it will have a better chance to book
nationally known entertainers after two or three more clubs are opened and
operating, as entertainers can then be offered three or four appearances,
instead of just one or two appearances. The Company believes its ability to
offer several scheduled performances to an entertainer will result in a lower
price for all performances than if booked on a one-performance-at- a-time
basis.
EXPANSION STRATEGY
The Company intends to grow primarily through owning and operating
additional nightclubs. Additional nightclubs may be financed through the
formation of limited partnerships, internal funding, bank financing or private
and/or public equity offerings, or a combination of the foregoing. The Company
may also purchase existing clubs through transactions involving the issuance of
the Company's stock and/or cash. Future locations under consideration by the
Company include Houston, Texas; Louisville, Kentucky; Dallas, Texas; Oklahoma
City, Oklahoma; Tulsa, Oklahoma; and Tampa Bay, Florida.
INVESTMENT OF LIMITED PARTNERSHIP
The Company is also a limited partner of Cowboys Concert Hall/Atlanta,
Ltd, a Texas limited partnership (the"Atlanta Partnership") formed June 29,
1995 to own and operate a country-western nightclub in Atlanta under the name
of Cowboys (the "Atlanta Club"). The general partner of the Atlanta
Partnership is Cowboys Concert Hall/Atlanta I, Inc. ("CCHAI"), a wholly owned
subsidiary of Cowboys Concert Hall - Arlington, Inc., a Texas corporation
("Cowboys"). The Company and Cowboys each contributed $500 to the capital of
the Atlanta Partnership, and the Company is entitled to receive 50% of net
income or loss and cash distributions. The Company also loaned the Atlanta
Partnership $638,822. The loan is evidenced by a three year promissory note,
payable June 29, 1998, which bears interest at the rate of 10% per annum,
payable quarterly. Due to continuing losses, the Company wrote off its
interest in the Atlanta Partnership effective December 31, 1995.
On September 16, 1996, the Atlanta Partnership filed a Voluntary
Petition in Bankruptcy under Chapter 11 in the United States Bankruptcy Court,
Northern District of Georgia, Atlanta Division (96-74391). The Petition lists
assets of $300,000 and liabilities of $2,146,064, including $638,822 owed to
the Company. The Company was not consulted in connection with the decision to
file the Petition, and has been informed by counsel for the Atlanta Partnership
that it was filed to forestall foreclosure on the Atlanta Club by the Internal
Revenue Service.
The Atlanta Club consists of 49,000 square feet with three different
levels for seating, general entertainment, dining and dancing. The Club's
maximum occupancy is 4,000 people.
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<PAGE> 39
GOVERNMENT REGULATION
The Company's business is subject to extensive federal, state and
local government regulations, including regulations relating to alcoholic
beverage control, public health and safety, zoning and fire codes. In
addition, each nightclub restaurant must have food service licenses from local
health authorities. The failure to obtain or retain food, liquor or other
licenses would adversely affect the operations of the Company's nightclubs.
Alcoholic beverage control regulations require each of the nightclubs
to apply to a state authority, and, in certain locations, county or municipal
authorities for a license or permit to sell alcoholic beverages on the premises
and to provide service for extended hours and on Sundays. Alcoholic beverage
control regulations relate to numerous aspects of the daily operation,
advertising, wholesale purchasing, inventory control and handling, storage and
dispensing of alcoholic beverages. Any difficulties, delays or failures in
obtaining such licenses, permits or approvals could delay or prevent the
opening of a nightclub in a particular area.
Licenses to sell alcoholic beverages must be renewed annually and may
be suspended or revoked at any time for cause, including violation by the
Company or its employees of any law or regulation pertaining to alcoholic
beverage control, such as those regulating the minimum age of patrons or
employees, advertising, wholesale purchasing, and inventory control, handling
and storage. Although each nightclub is operated in accordance with procedures
designed to assure compliance with all applicable codes and regulations, liquor
licenses are renewed by agencies of local governments, which are subject to
political pressures and community attitudes toward establishments which sell
liquor. There can be no assurance that even if a liquor license is obtained
that it will continue to be renewed. Failure of a nightclub to obtain or
retain a liquor license would adversely affect its operations.
The Company may be subject in certain states to "dram-shop" statutes,
which generally provide a person injured by an intoxicated person the right to
recover damages from the establishment which wrongfully served alcoholic
beverages to the intoxicated person. A judgment against the Company under a
dram-shop statute in excess of its insurance coverage and any reserve provided
by the Company could have a material adverse effect on the Company. Arizona,
Indiana and Missouri do not presently have dram-shop statutes. There can be no
assurance that states in which the Company has clubs or proposes to locate
clubs will not in the future adopt such legislation.
The development and construction of additional nightclubs will be
subject to compliance with applicable zoning, land use and environmental
regulations. Management believes that federal and state environmental
regulations have not had a material effect on the Company's operations, but
more stringent and varied requirements of local governmental bodies with
respect to zoning, land use and environmental factors could delay construction
of new nightclubs and add to their cost.
The Company is also subject to the Fair Labor Standards Act, the
Immigration Reform and Control Act of 1986 and various state laws governing
such matters as minimum wages, overtime,
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<PAGE> 40
tip credits and other working conditions. A significant number of the
Company's hourly personnel are paid at rates relating to the federal minimum
wage and, accordingly, increases in the minimum wage or decrease in the
allowable tip credit will increase the Company's labor cost. The Company may
also incur labor cost increases as a result of certain mandatory medical and
parental leave benefits legislation enacted by the United States Congress.
The Americans With Disabilities Act prohibits discrimination in
employment and public accommodations, such as restaurants and nightclubs, on
the basis of disability. Under the Act, the Company is required to provide
service to, or make usable accommodations for the employment and service of,
disabled persons.
COMPETITION
The nightclub business is highly competitive. Most of the companies
which own and/or operate nightclubs are substantially larger than the Company,
and have greater resources, operating histories and experience. They include
many national, regional and local chains with more locations and larger
advertising budgets. Nightclub and theme entertainment businesses are also
affected by changing customer tastes, local and national economic conditions
affecting spending habits, population shifts and traffic patterns. Quality of
service, attractiveness of facilities, operating and popularity of
entertainment and price are also important factors.
The popularity of the concept of "country and western" nightclubs has
spawned a number of companies and nightclubs seeking to capitalize on that
phenomenon. The "beach club" concept has also been highly successful in
certain parts of the country. There can be no assurance that the market for
nightclubs with the same or similar themes will not be saturated in any
particular area.
TRADEMARKS
The Company uses the trademarks of InCahoots, Stampede and Alcapulco
Joe's in the operation of its business. These marks are used by others in the
operation of business throughout the country, including other nightclub
operators. Because of these uses, the Company believes that it cannot, nor can
its competitors, register these marks with the United States Patent and
Trademark office to obtain exclusive, nationwide rights to the marks. The
Company believes, however, that it has enforceable common law rights to its
marks for use in the immediate trade areas in which the Clubs operate, and it
has encountered no claims of trademark infringement. As the Company implements
its expansion strategy, it may encounter claims of trademark infringement
requiring the Company to negotiate license agreements with the prior user or to
use other non-infringing trademarks for nightclubs in the affected areas. See
Risk Factors - Competing Trademark Usage; Uncertainty of Trademark Protection.
The Company also believes that, in the food service industry, its
service marks and "look" ("trade dress"), as well as its advertising and
promotional design and artwork, can be adequately protected by common law, and
that is has enforceable rights to this proprietary information.
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<PAGE> 41
EMPLOYEES AND CONSULTANTS
The Company presently has five full time employees in the corporate
office, including James E. Blacketer, President and a Director of the Company,
Ted W. Strickland, Chief Financial Officer and Treasurer, Dominic W. Grimmett,
Vice President of Operations and two part time employees exclusive of club
employees. The Company has approximately 250 employees in the Clubs. See
Management.
PROPERTIES
The Company's principal offices are located at 5218 Classen, Oklahoma
City, Oklahoma 73118. The Company's offices occupy approximately 2,000 square
feet in an office complex, for which it pays $1,500 on a month-to-month basis.
In March, 1997, the Company plans to move to a slightly larger office space.
The Indy Club occupies a 34,306 square foot building which is adjacent
to approximately 3.4 acres of land which is used for parking by the Indy Club's
customers. On January 31, 1994, WCC I, Ltd. exercised an option to purchase
the building for $750,000. WCC I, Ltd. borrowed $600,000 at prime plus 3% from
the Dulaney National Bank, which is due February 1, 2004, and the seller
financed the remaining $150,000 at 10% interest. Monthly payments of $3,187
and $7,546 are payable to the seller and to the Dulaney National Bank,
respectively. Troy H. Lowrie has personally guaranteed repayment of the note
to the seller. The note to the Dulaney National Bank is secured by the
building and the furniture, equipment and fixtures therein, and by rental
payments from the tenants of the Indy Club. WCC I, Ltd. also owns the 3.4 acres
of parking adjacent to the building. It purchased the adjacent land for
$105,000 on February 24, 1993.
On August 26, 1993, the Company entered into a lease for nightclub
space in St. Louis, Missouri. The lease, which expires in August 2003, is for
a 10 acre parcel of land, a 106,744 square foot building located thereon, and
existing parking facilities. The rental for the first five years is $22,238
per month, and $26,686 per month for the second five years. The Company has
the right to extend the lease for two five year periods at increased rental
rates. The lease has been guaranteed by International Entertainment
Consultants, Inc., a privately held company for which Mr. Lowrie served as an
officer and director, and was a shareholder, until November, 1993, when Mr.
Lowrie resigned and sold his shares to his sister.
On November 1, 1994, in connection with its acquisition of the Wild
Wild West Club in Tucson, Arizona, the Company accepted an assignment of the
lease covering the nightclub's building and entered into a lease with the
sellers for the parking lot. The building lease terminates in February, 2001,
and presently requires monthly rental payments of $20,000, which escalates up
to approximately $24,200 over the term of the lease. The Company has two
five-year options to extend the lease at escalating rates. The lease on the
parking lot is for a four year term, ending October 31, 1998, and requires
monthly rental payments of $2,000, which escalates to $3,000 per month
commencing with the third year of the lease.
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<PAGE> 42
The Wichita Club is leased from Boots, Inc., which is a 20% limited
partner in the InCahoots Limited Partnership, a Kansas limited partnership, but
otherwise unaffiliated with the Company. The lease is for a ten year term,
terminating in the year 2003, with an option to extend the term for two periods
of five years each, and requires monthly payments of $12,500 or 6% of "gross
sales," whichever is greater. "Gross sales" is defined as that amount which is
shown on the sales tax return furnished to the Kansas Department of Revenue.
WCC I, Ltd. carries general liability insurance in the amount of
$1,000,000 for the Indy Club, and building and property insurance coverage in
the amount of $1,200,000 and $300,000, respectively. The Company has obtained
general liability insurance for the St. Louis Club in the amount of $1,000,000,
and $310,000 in property liability coverage. The Company has general liability
insurance for the Tucson Club in the amount of $1,000,000 and property
insurance coverage in the amount of $700,000.
The Wichita Club carries $1,000,000 general liability insurance and
building and property insurance coverage in the amount of $1,200,000.
The Company maintains $1,000,000 in liquor liability insurance
coverage on each Club.
MARKET FOR COMMON STOCK
The Company's Common Stock was approved for listing on the Nasdaq
SmallCap Market(SM), effective May 18, 1994 under the symbol "WCCI." Prior to
listing on Nasdaq, the Company's Common Stock had briefly traded in the pink
sheets.
The range of high and low bid quotations for the Company's Common
Stock since its listing on Nasdaq were obtained from the National Quotation
Bureau and are provided below. The volume of trading in the Company's Common
Stock has been limited and the bid and ask prices as reported may not be
indicative of the value of the Common Stock or the existence of an active
trading market. These over-the-counter market quotations reflect inter-dealer
prices without retail markup, markdown or commissions and may not necessarily
represent actual transactions.
37
<PAGE> 43
<TABLE>
<CAPTION>
1994 Fiscal Year High Bid Low Bid
- ---------------- -------- -------
<S> <C> <C>
Second Quarter (from May 18, 1994) . . . . . . . . . . . $ 6.75 $ 6.00
Third Quarter . . . . . . . . . . . . . . . . . . . . . $ 6.125 $ 5.875
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . $ 6.00 $ 5.875
1995 Fiscal Year
- ----------------
First Quarter . . . . . . . . . . . . . . . . . . . . . $ 6.00 $ 5.50
Second Quarter . . . . . . . . . . . . . . . . . . . . . $ 6.8125 $ 5.875
Third Quarter . . . . . . . . . . . . . . . . . . . . . $ 6.125 $ 5.50
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . $ 6.125 $ 5.125
1996 Fiscal Year
- ----------------
First Quarter . . . . . . . . . . . . . . . . . . . . . $ 5.875 $ 3.75
Second Quarter . . . . . . . . . . . . . . . . . . . . . $ 5.25 $ 3.50
Third Quarter . . . . . . . . . . . . . . . . . . . . . . $ 4.625 $ 3.25
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . $ 3.75 $ 2.00
1997 Fiscal Year
- ----------------
First Quarter (through February 3, 1997) . . . . . . . . $ 2.25 $ 1.50
</TABLE>
On February 3, 1997, the last reported bid and asked prices for the
Common Stock were $1.50 and $2.00, respectively.
The number of record holders of the Common Stock on February 3, 1997
was 84.
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<PAGE> 44
MANAGEMENT
The following table sets forth the names and positions of the
director, executive officers and key employees of the Company:
<TABLE>
<CAPTION>
Officer
Name Age Position or Director Since
- ---- ---- -------- -----------------
<S> <C> <C> <C>
James E. Blacketer 54 President and a Director 1996
Dominic W. Grimmett 41 Vice President of Operations 1996
and Secretary
Ted W. Strickland 44 Chief Financial Officer, Treasurer and 1996
Director
Joe R. Love 58 Director 1996
</TABLE>
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have been
elected and qualified. Officers of the Company are elected by the Board of
Directors and hold office until their successors are elected and qualified.
The Company has no audit, nominating or compensation committee.
JAMES E. BLACKETER is a 1964 graduate of Oklahoma City University with
a Bachelor of Arts degree in marketing. Mr. Blacketer has over 30 years of
experience in the restaurant and night club business. During the last five
years Mr. Blacketer has served as a consultant to several different entities
in the night club business. During 1991 and 1992 he served as a consultant to
several different partnerships which opened two Yucatan Liquor Stands (in
Oklahoma City and Tulsa), and to Go Western, Ltd., an Oklahoma limited
partnership which opened the country and western night club InCahoots in
Oklahoma City. Since 1993, Mr. Blacketer has served as a consultant to Red
River Grill, Inc., d/b/a Red River Management ("Red River Grill"), an owner and
operator of country and western night clubs. As a consultant for Red River
Grill, he opened two InCahoots night clubs in Wichita, Kansas and Tulsa,
Oklahoma (previously a Yucatan Liquor Stand) in early 1994. Red River Grill is
owned and operated by the adult sons of Mr. Blacketer.
DOMINIC W. GRIMMETT began his 20 year career in the restaurant and
night club business. In 1978, he was employed by Gilbert/Robinson, Inc.
(Houlihan's Old Place, Biba's), receiving his initial restaurant management
training in Kansas City, Missouri. Mr. Grimmett joined the management teams at
the Firehouse Restaurant (Assistant Manager, Kansas City, Missouri), then at
Tyler Rose (General Manager, Houston, Texas) before being hired by Southwest
Business Management of Houston in 1981. As General Manager of Operations
through 1986, Grimmett had supervisory control of three night clubs (Animal
House, Suckers, Ragtops) and two restaurants (Greenstreet, Chiquita's) where he
developed menus, concepts, decor and construction plans. During 1987 and 1988,
Mr. Grimmett became Director of Operations for the nationally recognized
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<PAGE> 45
Champion Sport, Inc., of Washington, D.C. With a staff of 60 managers and 600
employees, he opened ten Champion Sports Bars in one year. In 1989, Mr.
Grimmett became Director of Operations for Garner Food Services, where he
opened three Applebee's Restaurants for a new franchise in Houston. In 1990,
Mr. Grimmett became a Vice President of the Mac Corporation of Kansas City,
Missouri where he assisted in reorganizing a Chapter 11 pizza chain, Pyramid
Pizza. From 1990 to 1993, Mr. Grimmett was employed by Go Western, Ltd., an
Oklahoma limited partnership which owned and operated night clubs, including
InCahoots in Oklahoma City, and which provided consulting services to other
night clubs including two Yucatan Liquor Stands, located in Tulsa and Oklahoma
City. Since 1993, Mr. Grimmett has served as Director of Operations for Red
River Grill where he implemented the marketing strategies and promotions for
certain of the InCahoots night clubs, including the hiring and training of its
management and staff.
TED W. STRICKLAND received a Bachelor of Science degree in Accounting
from Oklahoma State University in 1974 and is a Certified Public Accountant .
Mr. Strickland was employed by KPMG Peat Marwick for seven years, serving as a
Senior Tax Specialist/Staff Accountant in the Oklahoma City, Oklahoma office
from 1974 to 1978; a supervisor in the Professional Development Department and
as the National Recruiter Training Coordinator in the New York City office from
1978 to 1979; and a Senior Tax Manager in the Dallas, Texas office from 1979 to
1981. Mr. Strickland was a co-owner, Chairman and Chief Executive Officer of
Strickland Clothiers, Inc., a retail clothing business located in Oklahoma
City, Oklahoma from 1981 to 1995. From August 1995 to May 1996 Mr. Strickland
was Chief Financial Officer, Secretary and Treasurer of Unico, Inc., a
publicly-owned marketing services company located in Oklahoma City, Oklahoma.
JOE R. LOVE graduated from the University of Oklahoma in 1960 with a
degree in Finance. Since 1990 he has served as Chairman of C.H. Financial
Corporation, Oklahoma City, Oklahoma, a financial services company. Mr. Love
has served as a director of First Cash, Inc., Arlington, Texas, a public
company which owns a national chain of pawn shops, since 1991. Mr. Love also
has served since 1989 as a director of Tatonka Energy Corporation, formerly
Sooner Energy Corporation, Dallas, Texas, a public company engaged in oil and
gas exploration and production.
There are no family relationships among any of the Company's officers
and directors.
No officer, director, significant employee, promoter or control person
of the Company has been involved in any event of the type described in Item
401(d) of Regulation S-B during the past five years.
CHANGE IN CONTROL
Troy H. Lowrie, the former President, and a director and a principal
shareholder of the Company, entered into a Stock Purchase Agreement dated as of
September 20, 1996 (the "Agreement") with Red River Concepts, Inc. a Delaware
corporation ("Red River") and its designees, and the Company under which Mr.
Lowrie agreed to sell to Red River 1,300,000 shares of Common Stock (the
"Lowrie Shares") of the Company which he owned, upon the terms
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<PAGE> 46
and conditions set forth in the Agreement. Shane Investments, L.C., a
corporation owned and controlled by Joe Robert Love, Jr., the adult son of Joe
R. Love, is the sole shareholder of Red River.
Pursuant to the first closing under the Agreement which occurred on
October 10, 1996 (the "First Closing"), Mr. Lowrie sold: (i) two hundred
thousand (200,000) Lowrie Shares (the "Initial Shares") for $1.00 per share or
$200,000 in cash to certain designees of Red River; and (ii) eight hundred
thousand (800,000) Lowrie Shares (the "Second Shares") for $1.00 per share or
$800,000 paid with a one-year promissory note in the principal amount of
$800,000 (the "Note") to Red River. The Note bears interest at the prime rate
of First Interstate Bank of Denver, N.A., to be paid at the earlier of June 1,
1997, or the effective date of this offering, and at maturity, is secured by
the Second Shares, is guaranteed by Red River and is personally guaranteed by
James E. Blacketer and Joe R. Love. The Agreement provides that if any of the
Second Shares are sold by Red River prior to the due date of the Note, Red
River will apply all of the proceeds thereof to the payment of the Note, such
proceeds to be applied first to any unpaid interest and the balance to
principal to the extent required to retire the Note, and Mr. Lowrie will
release the shares to the extent they have been fully paid for. The failure of
Red River to purchase the Third Shares (as defined below) at the second closing
(the "Second Closing") constitutes a default under the Note.
At the Second Closing under the Agreement, Mr. Lowrie will sell to Red
River three hundred thousand (300,000) Shares (the "Third Shares") at $1.00 per
share or $300,000 payable in cash. The Second Closing is scheduled to occur on
or before April 15, 1997.
In connection with the First Closing, Mr. Lowrie and Red River entered
into a Voting Trust Agreement with respect to the Second and Third Shares under
which Red River granted to Mr. Lowrie the right to vote the Second and Third
Shares on all matters submitted to the shareholders of the Company, but only
upon the occurrence of an event of default under the Note and during the
pendency thereof.
Under the Agreement, Mr. Lowrie and the Company agreed to cause James
E. Blacketer and Joe R. Love to be appointed as Directors of the Company, as
well as a person to be selected by Red River at a future date, which person
shall be subject to the approval of the existing Board of Directors. Mr.
Blacketer and Mr. Love became Directors of the Company on November 5, 1996, and
the former board members, other than Mr. Lowrie, resigned.
Effective with the First Closing, James E. Blacketer was appointed
President, Dominic W. Grimmett was appointed Vice President of Operations and
Ted W. Strickland was appointed Chief Financial Officer and Treasurer. Under
the Agreement, Mr. Lowrie has agreed to remain as a Director of the Company for
up to one year in order to assist with the transition of the Company to new
management.
Under the Agreement, Red River agreed to use its best efforts to
arrange a suitable secondary offering for the Company.
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<PAGE> 47
Prior to the purchase of the shares from Mr. Lowrie, none of Red
River, its designees, nor any of their affiliates, owned any voting securities
of the Company. As a result of the foregoing purchases of shares from Troy H.
Lowrie, Red River owns 800,000 shares or 22% of the Company's outstanding
shares, Roger D. and Davina S. Lockhart, two of the designees of Red River, own
150,000 shares or 4% of the Company's outstanding shares, and the two other
designees own collectively 50,000 shares or 1% of the Company's outstanding
shares. As a result of their ownership of Red River, Joe R. Love and James E.
Blacketer are each deemed to beneficially own 800,000 of the shares owned by
Red River or 22% of the shares outstanding.
Under agreement dated February 4, 1997, Mr. Lowrie resigned as a
director of the Company and agreed to divest himself of all beneficial
ownership in the Company by May 15, 1997. In exchange, the Company agreed to
hold Mr. Lowrie harmless from loss on certain promissory notes and guarantees
made in favor of the Company and to indemnify him against certain claims until
February 4, 1999.
The Company knows of no other arrangements, the operation of which
may, at a subsequent date, result in a change of control of the Company.
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<PAGE> 48
EXECUTIVE COMPENSATION
Effective December 1, 1993, pursuant to an oral agreement with the
Company, Troy H. Lowrie became a salaried employee of the Company, earning
$3,000 plus 5% of each Club 's monthly net income in excess of $50,000.
Effective January 1, 1995, Mr. Lowrie's salary arrangements were modified to
eliminate his override on the Clubs' net income.
Effective October 10, 1996, James E. Blacketer became Chief Executive
Officer at $100,000 per year, Ted W. Strickland became a salaried officer at
$70,000 per year and Dominic W. Grimmett became a salaried officer at $75,000
per year. There are no written employment agreements with Messrs. Blacketer,
Strickland or Grimmett; all compensation arrangements are oral.
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation paid
to the Company's CEO and the other executive officers of the Company who
received in excess of $100,000 of salary and bonus from the Company during the
year ended December 31, 1996:
<TABLE>
<CAPTION>
Annual Compensation ($$) Long Term Compensation
------------------------ ------------------------
Awards
------
Restricted
Name and Stock Options Other
Position Year Salary Bonus Awards & SARs Compensation
- ------------------ ---- ------ ----- ------- -------- ------------
($$) ($$) ($$) (##) ($$)
<S> <C> <C> <C> <C> <C> <C>
James E. Blacketer, 1996 $ 12,000 -0- -0- -0- -0-
President
Troy H, Lowrie, 1996 $ 3,000 -0- -0- 10,000 $ 35,000(1)
former President 1995 $ 36,000 -0- -0- -0- -0-
1994 $ 50,416 -0- -0- -0- -0-
</TABLE>
- --------------
(1) Represents proceeds from the sale of 10,000 shares of the Company's
stock issued as compensation during 1996.
OPTION GRANTS
There were no options to purchase shares of Common Stock issued to
Executive Officers of the Company during the fiscal year ended December 31,
1995 and 1996.
In December 1993, the Company granted a five year stock option to
purchase 250,000 shares of the Company's Common Stock at $1.00 per share to a
former employee of the Company in connection with her employment by the
Company. The exercise price of the option was subsequently modified to $2.50.
The option expires December 16, 1998. In July, 1996, 20,000 of such options
were exercised and the balance were transferred to a consultant to the Company.
The shares issuable upon exercise of the options are not registered and are
restricted. The consultant also acquired from a third party options to
purchase 10,000 shares of the Company's Common Stock, the shares issuable upon
exercise of which are also not registered and restricted. In view of the
substantial value of the services performed by the consultant and to provide
incentive to him to
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<PAGE> 49
continue providing such services, in July 1996 the Company issued the
consultant 145,000 options to acquire registered and unrestricted shares of
Common Stock at $3.50 per share for three (3) years; and 45,000 registered and
unrestricted shares of Common Stock in exchange for the 240,000 options to
purchase unregistered and restricted stock at $2.50 per share.
In February 1994, in connection with borrowing $250,000 from two
individuals, the Company granted two five year options to purchase a total of
17,000 shares of the Company's Common Stock at $2.50 per share. These options
expire February 15, 1999.
In July 1994, the Company granted Ladenburg Thalmann & Co., Inc.
("Ladenburg") a warrant to purchase 60,000 shares at $6.00 per share,
exercisable through June 1999, in consideration of Ladenburg's agreement to
render financial consulting services to the Company through June 30, 1995. In
lieu of exercising the warrant at $6.00 per share, the Warrant provides that
Ladenburg may surrender the warrant and pay $.01 per share acquired. The
number of shares which may be acquired under the alternative provision is equal
to the product of (x) the excess of the market price of the Company's Common
Stock on the date of surrender over the per share warrant price ($6.00) and (y)
the number of shares subject to issuance on exercise of the warrant divided by
the market price of the Company's Common Stock on that date.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
The Company's Articles of Incorporation limit the liability of
directors to shareholders for monetary damages for breach of a fiduciary duty
except in the case of liability: (i) for any breach of their duty of loyalty to
the Company or its shareholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (iii)
for unlawful distributions as provided in Section 7-108-403 of the Colorado
Business Corporation Act; or (iv) for any transaction from which the director
derived an improper personal benefit.
The Company's Articles of Incorporation and Bylaws provide for the
indemnification of directors and officers of the Company to the maximum extent
permitted by law, including Section 7-109-102 of the Colorado Business
Corporation Act, against all liability and expense (including attorneys' fees)
incurred by reason of the fact that the officer or director served in such
capacity for the Company, or in a certain capacity for another entity at the
request of the Company. Section 7-109-102 of the Colorado Business
Corporation Act provides generally for indemnification of directors against
liability incurred as a result of actions, suits or proceedings if they acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interests of the Company. The Company has entered into employment
agreements with certain of its employees which provide for indemnification in
addition to the indemnification provided for above. These agreements, among
other things, indemnify and hold harmless the employees against all claims,
actions, costs, expenses, damages and liabilities arising out of or in
connection with activities of the Company or its employees or other agents
within the scope of the employment agreements or as a result of being an
officer or director of the Company. Excluded is indemnification for matters
resulting from gross negligence or willful misconduct of
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<PAGE> 50
the employee. The Company believes that these provisions and agreements are
necessary to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing 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 Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification is
being or may be sought, and the Company is not aware of any other pending or
threatened litigation that may result in claims for indemnification by any
director, officer, employee or other agent.
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<PAGE> 51
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date hereof, the ownership
of the Company's Common Stock by (i) each director and executive officer of the
Company, (ii) all executive officers and directors of the Company as a group,
and (iii) all persons known by the Company to beneficially own more than 5% of
the Company's Common Stock.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of Class
Shareholder Beneficial Ownership (1) Before Offering After Offering
- ------------------------ --------------------- ---------------- --------------
<S> <C> <C> <C>
James E. Blacketer 875,000(2) 24.1% 24%
1236 Westchester
Oklahoma City, OK 73114
Joe R. Love 800,000(3) 22% 22%
1601 N. W. Expressway, Suite 1910
Oklahoma City, OK 73118
Joe Robert Love, Jr. 800,000(4) 22% 22%
2200 N. Lamar, #250
Dallas, TX 75202
Dominic W. Grimmett 25,000 1% 1%
5804 Country Club Drive
Edmond, OK 73003
Ted W. Strickland -0- -0-% -0-%
1209 Larchmont Lane
Oklahoma City, OK 73116
Red River Concepts, Inc. 800,000(5) 22% 22%
1601 N.W. Expressway, Suite 1910
Oklahoma City, OK 73118
Shane Investments, L.C. 1,050,500(6) 28.9% 28%
2200 N Lamar, #250
Dallas, TX 75202
Troy H. Lowrie 466,800(7) 12.8% 12.8%
7058 Ammons Street
Arvada, Colorado 80004
All Directors and Officers 900,000 24.8% 24.8%
as a Group (4 persons)
</TABLE>
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<PAGE> 52
- ------------------
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule
13d-3(d), shares not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable within 60 days
are deemed outstanding for the purpose of calculating the number and
percentage owned by such person, but are not deemed outstanding for
the purpose of calculating the percentage owned by each other person
listed.
(2) Reflects 75,000 shares owned indirectly and beneficial ownership of
800,000 shares owned directly by Red River Concepts, Inc., a company
of which Mr. Blacketer serves as an officer and a director.
(3) Reflects indirect beneficial ownership of shares owned directly by Red
River Concepts, Inc., a company of which Mr. Love serves as an officer
and a director.
(4) Reflects indirect beneficial ownership of shares owned directly by Red
River Concepts, Inc., a company owned 100% by Shane Investments, L.C.
Mr. Love is the manager and 100% owner of Shane Investments, L.C., is
an officer and director of Red River Concepts, Inc. and is the adult
son of Joe R. Love, a director of the Company.
(5) The shares owned by Red River are subject to a Voting Trust Agreement
with Troy H. Lowrie under which Mr. Lowrie has the right to vote such
shares on all matters submitted to the shareholders of the Company,
but only upon the occurrence of an event of default under the
promissory note issued by Red River to Lowrie in the principal amount
of $800,000, and during the pendency of such default. Does not
include an additional 300,000 shares which Red River or its designees
will purchase from Mr. Lowrie pursuant to the Second Closing under the
Stock Purchase Agreement. See "Lowrie Sale Transaction."
(6) Reflects indirect beneficial ownership of 800,000 shares owned
directly by Red River Concepts, Inc., a company owned 100% by Shane
Investments, L.C., and 250,500 shares owned directly.
(7) Mr. Lowrie has agreed to divest himself of all beneficial ownership of
the Company. See Management - Change in Control.
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<PAGE> 53
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was founded in 1989, but had no operations until 1993,
when the Indy Club opened. The following transactions involved Troy H. Lowrie,
the promoter of the Company.
(i) Troy H. Lowrie purchased an eight percent (8%) limited
partnership interest in WCC I, Ltd., for $96,000 and a three percent
(3%) limited partnership interest in WCC III, Ltd. for $51,000 in
1993. In September, 1994, the Company made an offer to all limited
partners of WCC I, Ltd. and WCC III, Ltd., to purchase limited
partners' interests in WCC I, Ltd. for stock or cash at the limited
partner's option and all of the assets of WCC III, Ltd. for stock.
Effective September 30, 1994, Mr. Lowrie received $57,600 and Mr.
Peterson received 3,200 shares, respectively, for their limited
partnership interests in WCC I, Ltd. pursuant to such offer. Mr.
Peterson received 6,476 shares pursuant to the Company's offer to
purchase the assets of WCC III, Ltd. for stock; Mr. Lowrie had sold
his limited partnership interest in WCC III, Ltd. and consequently did
not receive any shares in the WCC III, Ltd. exchange.
(ii) The Company, WCC I, Ltd. and WCC III, Ltd. paid IEC $95,362,
$86,043 and $41,032 for payroll and support services, including
insurance and office expenses, for the years ended December 31, 1994,
1995 and 1996, respectively. Until his resignation as an officer and
director of IEC, and the sale of his IEC shares to his sister, all of
which occurred in November, 1993, Troy H. Lowrie received a monthly
salary from IEC of $5,000 plus monthly dividends of $2,400.
(iii) Prior to September 30, 1993, the Company borrowed $15,000
from IEC to pay the legal fees and costs associated with the liquor
license application for the St. Louis Club. This amount had been
repaid as of December 31, 1993.
(iv) In 1995, the Company borrowed $200,000 from its then
president, Troy H. Lowrie, and $100,000 from another company
affiliated with Mr. Lowrie, at 12% per annum. Of the $300,000, the
$100,000 due the affiliated entity and $100,000 of the $200,000 due
Mr. Lowrie has been repaid. The Company also borrowed $493,000 from
IEC, of which $100,000 was repaid during 1995, and the remaining
$393,000 was repaid during the first six months of 1996. During 1996,
the Company borrowed an additional $100,000 from a company affiliated
with Troy H. Lowrie, which was repaid during the first six months of
1996.
On December 16, 1996, the Company acquired Entertainment Wichita, Inc.
("EWI"), a Kansas corporation, for 400,000 shares of the Company's Common Stock
and the assumption of $150,000 in debt. EWI is the general partner and 80%
owner of InCahoots Limited Partnership, a Kansas limited partnership, which
owns and operates InCahoots, a country- western theme nightclub located in
Wichita, Kansas. In connection with the transaction, a company owned by James
E. Blacketer, a Director of the Company, received 75,000 shares, Donald W.
Grimmett, an
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<PAGE> 54
Officer of the Company, received 25,000 shares and two adult sons of Mr.
Blacketer received an aggregate of 32,000 shares. Shane Investments, L.C.
received 250,500 shares of the Company's Common Stock. Shane Investments, L.C.
is also the indirect beneficial owner of 28.9% of the Company's outstanding
Common Stock, which shares are owned directly by Red River Concepts, Inc. The
sole manager and member of Shane Investments, L.C. is Joe Robert Love, Jr., the
adult son of Joe R. Love, a director of the Company. The merger was approved
by the Troy H. Lowrie, the only disinterested member of the Board of Directors,
with Messrs. Blacketer and Love abstaining from voting. See Security Ownership
of Certain Beneficial Owners and Management.
The Board of Directors of the Company has adopted a resolution that
all future transactions between the Company and its officers, directors, or
principal shareholders, or any affiliate of any of such person, must be
approved or ratified by a majority of the disinterested directors of the
Company, and the terms of such transaction must be no less favorable to the
Company than could have been realized by the Company in an arms-length
transaction with an unaffiliated person.
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<PAGE> 55
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 25,000,000 shares of Common
Stock, $.01 par value. There are 3,634,721 shares presently outstanding. All
shares of Common Stock have equal voting rights and, when validly issued and
outstanding, have one vote per share in all matters to be voted upon by
shareholders. There are approximately 84 holders of record of the Company's
Common Stock. The shares of Common Stock have no preemptive, subscription,
conversion or redemption rights and may be issued only as fully paid and
non-assessable shares. Cumulative voting in the election of directors is not
allowed, which means that the holders of a majority of the outstanding shares
represented at any meeting at which a quorum is present will be able to elect
all of the directors if they choose to do so and, in such event, the holders of
the remaining shares will not be able to elect any directors. On liquidation
of the Company, each common shareholder is entitled to receive a pro rata share
of the Company's assets available for distribution to common shareholders.
PREFERRED STOCK
The Company is authorized to issue up to a total of 10,000,000 shares
of Preferred Stock, $.10 par value, in one or more series, with such rights,
preferences, qualifications, limitations and restrictions as shall be set forth
in the Certificate of Designation authorizing the issuance of such stock. The
Company's Board of Directors has designated 500,000 shares of Preferred Stock
as Series A Preferred Stock. The remaining shares of Preferred Stock may be
issued in one or more series from time to time with such designations, rights,
preferences and limitations as the Company's board of directors may determine
without approval of its shareholders. The rights, preferences and limitations
of separate series of serial Preferred Stock may differ with respect to such
matters as may be determined by the Company's Board of Directors, including
without limitation, the rate of dividends, method or nature or prepayment of
dividends, terms of redemption, amounts payable on liquidation, sinking fund
provisions, conversion rights and voting rights. The ability of the Board to
issue Preferred Stock could also be used by it as a means for resisting a
change of control of the Company and can therefore be considered an
"anti-takeover" device. Other than as set forth below, the Company currently
has no plans to issue any shares of Preferred Stock.
SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
DIVIDENDS. Holders of Series A Preferred Stock are entitled to
receive dividends at a rate of $1.20 per share per year, payable in arrears
semi-annually to holders of record on the first banking day of each January and
July after issuance. Dividends are payable in cash or in shares of Common
Stock (based on the average bid/ask during the ten trading days immediately
preceding the record date). Such dividends are cumulative. With respect to
the payment of dividends, the Series A Preferred ranks senior to the Common
Stock. The Company has an obligation to redeem the Series A Preferred under
certain terms and conditions. There are currently no shares of Series A
Preferred Stock outstanding.
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<PAGE> 56
LIQUIDATION PREFERENCE. The Series A Preferred Stock has a
preference upon liquidation equal to $12 per share plus all accrued and unpaid
dividends. After payment of the preference amount, the Series A Preferred
Stock will participate no further in distribution of proceeds.
CONVERSION. After _____, 1998, (twelve months from issuance), each
share of Series A Preferred Stock may be voluntarily converted by the record
holder thereof into ____ shares of Common Stock (no less than 75% of the
closing bid price of the Common Stock at the effective date of this
offering)(the "Conversion Rate"), subject to adjustment, on the terms described
below. The Series A Preferred Stock will automatically convert at the
Conversion Rate (i) if the average closing bid/ask price for the Common Stock
exceeds $_____ (200% of the closing bid price at the effective date of this
Offering) for five consecutive trading days or (ii) upon _________________ (the
third anniversary date of issuance). A holder of Series A Preferred Stock may
convert his shares to Common Stock by surrendering to American Securities
Transfer & Trust, Inc., Denver, Colorado (the "Exchange Agent") each
certificate covering shares to be converted together with a statement of the
name or names in which the shares of Common Stock shall be registered upon
issuance. Such a notice of election to convert shall have the effect of
creating a contract between the shareholder and the Company whereby the
shareholder shall be deemed to have agreed to surrender the shares of Series A
Preferred Stock and to release the Company from all further obligation thereon,
and whereby the Company shall be deemed to have agreed to issue the appropriate
number of shares of Common Stock upon the surrender of the shares of Preferred
Stock. The conversion right will terminate at the close of business of the
redemption date as to any shares of Preferred Stock being redeemed on that
date.
The Conversion Rate is subject to adjustment upon the occurrence of
the following events: the issuance of shares of Common Stock or other
securities of the Company as a dividend or distribution on shares of Common
Stock of the Company to the holders of all of its outstanding shares of Common
Stock; subdivisions, combinations, or certain reclassifications of shares of
Common Stock of the Company; or the distribution to the holders of shares of
Common Stock of the Company generally of evidences of indebtedness or assets
(excluding cash dividends and distributions made out of current or retained
earnings) or rights, options, or warrants to subscribe for securities of the
Company other than those mentioned above. No adjustment in the conversion
rates will be required to be made with respect to the Series A Preferred Stock
until cumulative adjustments amount to one percent or more; however, any such
adjustment not required to be made will be carried forward and taken into
account in any subsequent adjustment. In lieu of fractional shares of Common
Stock, the number of shares to be issued will be rounded up or down to the
nearest whole share as the case may be.
REDEMPTION. At any time after _________, 1998 (twelve months from
issuance), the Company may redeem the Series A Preferred Stock at $13.20 plus
payment of all accrued and unpaid dividends. To redeem the Series A Preferred
Stock, the Company must give record holders notice of at least 30 days and no
more than 60 days prior to the redemption date.
In the event of any consolidation with or merger of the Company into
another corporation, or sale of all or substantially all of the properties and
assets of the Company to any other corporation, or in case of any
reorganization of the Company, each share of Series A Preferred
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<PAGE> 57
Stock would thereupon become convertible only into the number of shares of
stock of other securities, assets or cash to which a holder of the number of
shares of Common Stock of the Company issuable (at the time of such
consolidation, merger, sale or reorganization) upon conversion of such share of
Series A Preferred Stock would have been entitled upon such consolidation,
merger, sale or reorganization.
VOTING AND PREEMPTIVE RIGHTS. The holders of the Series A Preferred
Stock shall have no voting rights except to the extent provided by the Colorado
Business Corporation Act, and the Series A Preferred Stock shall not be
entitled to preemptive rights. Accordingly, actions may be taken by the
shareholders without the consent of the Series A Preferred Stockholders even if
those actions will affect the holders of the Series A Preferred Stock.
WARRANTS
Each Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $_______ (115% of the closing bid price
of the Company's Common Stock on the effective date of this Registration
Statement), subject to adjustment for anit-dilutive events, at any time prior
to ______, 2000 (three years from date of issuance) unless earlier redeemed by
the Company as described below.
The Warrants are subject to redemption by the Company at $.125 per
Warrant, at any time commencing ______ (12 months from the date of this
Prospectus), on 30 days' prior written notice to the holders of Warrants,
provided that the daily trading price per share of Common Stock has been as
least $________(150% of the closing bid price for the Company's Common Stock on
the effective date of this Registration Statement) for a period of at least
five consecutive trading days ending within 10 days prior to the date upon
which the notice of redemption is given. For purposes of determining the daily
trading price of the Company's Common Stock, if the Common Stock is listed on a
national securities exchange, is admitted to unlisted trading privileges on
national securities exchange, or is listed for trading on a trading system of
the NASD such as the NASDAQ Small Cap Market or the NASDAQ/NMS, then the last
reported sale price of the Common Stock on such exchange or system each day
shall be used or if the Common Stock is not so listed on such exchange or
system or admitted to unlisted trading privileges then the average of the last
reported high bid prices reported by the National Quotation Bureau, Inc. each
day shall be used to determine such daily trading price. The Warrants will be
exercisable until the close of the business day preceding the date fixed for
redemption, if any.
The Warrants will be issued in registered form pursuant to the terms
of a Warrant Agreement dated as of _______, 1997, (the "Warrant Agreement")
between the Company and American Securities Transfer & Trust Inc., as Warrant
Agent. Reference is made to said Warrant Agreement (which has been filed as an
Exhibit to the Registration Statement of which this Prospectus is a part) for a
complete description of the terms and conditions thereof. The description
herein is qualified in its entirety by reference to the Warrant Agreement.
The exercise prices and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustment in
certain circumstances, including in the event of a stock dividend, stock split,
recapitalization, reorganization, merger or consolidation of the
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<PAGE> 58
Company.
The Warrants may be exercised upon surrender of the Warrant
certificate on or prior to the expiration date at the offices of the Warrant
Agent, with the exercise form on the reverse side of the Warrant certificate
completed and executed as indicated, accompanied by full payment of the
exercise price (by cashier's or certified check payable to the Company) to the
Warrant Agent for the number of warrants being exercised. The Warrant holders
do not have the rights or privileges of holders of Common Stock.
At any time when the Warrants are exercisable and as a condition to
redemption of the Warrants, the Company is required to have a current
registration statement on file with the Securities and Exchange Commission and
to effect appropriate qualifications under the laws and regulations of the
states in which the holders of Warrants reside in order to comply with
applicable laws in connection with the exercise of the Warrants and the resale
of the Common Stock issued upon such exercise. So long as the Warrants are
outstanding, the Company will undertake to file all post-effective amendments
to the registration statement required to be filed under the Securities Act,
and to take appropriate action under federal and state securities laws to
permit the issuance and resale of Common Stock issuable upon exercise of the
Warrants. The Company will use its best efforts to register or qualify the
shares issuable upon conversion of the Warrants in all of the jurisdictions in
which the securities offered hereby are registered or qualified. However, the
Company may determine not to register or qualify the shares underlying the
Warrants in certain other jurisdictions where the time and expense involved
would not justify such registration and qualification. There can be no
assurance that the Company will be in a position to effect such action under
the federal and applicable state securities laws, and the failure of the
Company to effect such action may cause the exercise of the Warrants and the
resale or other disposition of the Common Stock issued upon such exercise to
become unlawful. The Company may amend the terms of the Warrants, but only by
extending the termination date or lowering the exercise price. The Company has
no present intention of amending such terms.
DIVIDEND POLICY
Dividends are payable on Common Stock when, as, and if declared by the
Board of Directors out of funds legally available to pay dividends, subject to
any preferences which may be given to holders of preferred stock. The Company
has paid no cash dividends to date and it does not anticipate payment of cash
dividends in the foreseeable future.
STOCK TRANSFER AGENT/WARRANT AGENT/EXCHANGE AGENT
The Company has designated American Securities Transfer & Trust, Inc.
as its transfer agent for the Common Stock, its Warrant Agent and its Exchange
Agent for the Series A Preferred Stock.
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<PAGE> 59
UNDERWRITING
The Underwriters named below, acting through the Representative, have
jointly and severally agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company and the Company has agreed
to sell to the Underwriters, the respective number of shares of Series A
Preferred Stock and Warrants set forth opposite their names below at the
initial public offering price less the underwriting discount set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES NUMBER OF WARRANTS
<S> <C> <C>
Argent Securities, Inc.
----------- -------------
TOTAL 400,000 1,000,000
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the securities offered hereby
are subject to the approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters are obligated to purchase 400,000
shares of Series A Preferred Stock and 1,000,000 Warrants, if any are
purchased.
The Underwriters propose to offer part of the shares of Series A
Preferred Stock and Warrants offered hereby directly to the public at the
offering price and part of such shares of Series A Preferred Stock and Warrants
to certain dealers at a price that represents a concession within the
discretion of the Representative. The Underwriters do not intend to confirm
sales to accounts over which they exercise discretionary authority. The
Underwriters may allow, and such dealers may re-allow, a concession within the
discretion of the Representative. After the initial offering, the offering
price and the selling terms may be changed by the Underwriters.
The Series A Preferred Stock and Warrants offered by the Underwriters
are subject to prior sale. The Underwriters reserve the right to withdraw,
cancel or modify such offer (which may be done only by filing an amendment to
the Registration Statement) and to reject orders in whole or in part for the
purchase of any of the Series A Preferred Stock and Warrants and to cancel any
sale even after the purchase price has been paid if such sale, in the opinion
of the Underwriters, would violate federal or state securities laws or a rule
or policy of the NASD.
The Company and the Underwriters have agreed to indemnify each other
and related persons against certain liabilities, including liabilities under
the Securities Act, and, if such indemnifications are unavailable or are
insufficient, the Company and the Underwriters have agreed to damage
contribution arrangements between them based upon the relative benefits
received from the Offering and the relative fault resulting in such damages.
Such relative benefits and relative fault would be determined in legal actions
among the parties. Under such contribution arrangements, the maximum amount
payable by any Underwriter would be the public offering price of the Series A
Preferred Stock and Warrants underwritten and distributed by such Underwriter.
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<PAGE> 60
Except for the outstanding securities described herein and except upon
the exercise of the options and warrants described herein, the Company has
agreed not to sell any additional securities for six months after the date of
this Prospectus without the Representative's prior written consent. The
officers and directors of the Company, holders of more than 5% of the Company's
outstanding Series A Preferred Stock prior to the Offering, and their
affiliates have entered into agreements which provide that such persons, who
own an aggregate of _________ shares of Common Stock, may not sell any of such
shares without the consent of the Representative during a 13 month period
commencing on the date of this Prospectus. The agreements also provide that
any sales of Common Stock by such persons pursuant to Rule 144 will be executed
through the Representative. See Shares Eligible for Future Sale.
The Company has granted to the Underwriters an option exercisable for
45 days from the date of this Prospectus to purchase up to 60,000 additional
shares of Series A Preferred Stock and 150,000 Warrants from the Company at the
respective Prices to Public less the Underwriting Discounts solely to cover
over-allotments, if any. In addition, the Company has agreed to pay to the
Representative at the closing of the Offering, a non-accountable expense
allowance of 3% of the aggregate initial public offering price of the Series A
Preferred Stock and Warrants to cover expenses incurred by the Representative
in connection with the Offering, reduced by $25,000 previously advanced by the
Company.
The Company has agreed to issue for $100, an option to the
Representative to purchase 40,000 shares of Series A Preferred Stock and
100,000 Warrants. These warrants are exercisable any time during the five year
period after the date of this Prospectus at $14.40 per share (120% of the
initial public offering price). The Representative's Purchase Option is not
transferable for one year from the date of this Prospectus except (i) to an
Underwriter or a partner or officer of an Underwriter or (ii) by will or
operation of law. Any profit realized on the sale of the Series A Convertible
Preferred, the Warrants or the underlying shares of Common Stock may be deemed
additional underwriting compensation. Commencing one year from the date
hereof, holders of the Series A Convertible Preferred Stock, the Warrants and
the shares underlying the Warrants will have demand and piggyback registration
rights for periods of five years and seven years, respectively, with respect to
the shares underlying the Warrants. The Series A Convertible Preferred Stock,
the Warrants and the shares of Common Stock underlying these warrants have been
registered under the Securities Act by means of the Registration Statement of
which this Prospectus is a part.
If any Warrants issued to the Representative are exercised during the
first year after the date of this Prospectus, then any Common Stock acquired as
a result of any such exercise may not be transferred or assigned until after
the expiration of such one year period.
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<PAGE> 61
For a period of two years from the date hereof, the Representative has
a preferential right to purchase for its account or to sell for the account of
the Company any securities with respect to which the Company may seek to sell
publicly for cash.
The Prices to Public of the Series A Preferred Stock and Warrants have
been determined by negotiations between the Company and the Representative,
with consideration being given to the current status of the Company's business,
its financial condition, its present and prospective operations, the general
status of the securities market, and the market conditions for new offerings of
securities. The price bears no relationship to the assets, net worth, book
value, sales price of securities issued to shareholders of the Company, or any
other criteria of value.
The Company has agreed to increase the number of Directors to five
after the Offering, and to give the Representative the right to nominate the
additional two members, who will be nominated for election as Directors by the
Company for a period of five years following the completion of the Offering, or
until exercise of the Warrants and the Representative's warrants. Further, the
Company has agreed that if additional increases are made to the Board of
Directors, for each additional two Directors, at least one Director will be an
outside Director.
If the Representative, at its election, at any time one year after the
date of this Prospectus, solicits the exercise of the Warrants, the Company
will be obligated, subject to certain conditions, to pay the Representative a
solicitation fee equal to 10% of the aggregate proceeds received by the Company
as a result of the solicitation. No warrant solicitation fees will be paid
within one year after the date of this Prospectus. The Representative may
reallow a portion of the fee to soliciting broker-dealers. Because the
Representative is a member of the NASD, any such solicitation by the
Representative must comply with the requirements of Section 2710(c)(6)(B)(xi)
of the NASD Corporate Financing Rules.
LEGAL MATTERS
Legal matters in connection with the shares of Series A Preferred
Stock and Warrants being offered hereby have been passed on for the Company by
the law firm of Brenman Bromberg & Tenenbaum, P.C., Denver, Colorado. The law
firm of Johnson & Montgomery, Atlanta, Georgia has acted as legal counsel to
the Representative in connection with certain legal matters relating to the
Offering.
EXPERTS
The consolidated financial statements of the Company as of December
31, 1995 and 1994 and for the years then ended included in this Prospectus and
Registration Statement have been audited by Causey Demgen & Moore Inc.,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
56
<PAGE> 62
The financial statements of In Cahoots, Limited Partnership as of
December 31, 1995 and 1994 and for the years then ended included in this
Prospectus and Registration Statement have been audited by Causey Demgen &
Moore Inc., independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Entertainment Wichita, Inc. as of December
31, 1995 and 1994 and for the years then ended included in this Prospectus and
Registration Statement have been audited by Causey Demgen & Moore Inc.,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Crystal Chandelier, Inc. as of December
31, 1994 and 1993 and for the years then ended included in this Prospectus and
Registration Statement have been audited by Gross, Collins & Cress, P.C.,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
3,634,721 shares of Common Stock. The shares of Series A Preferred Stock
offered hereby (other than those which may be acquired by affiliates of the
Company) will be freely tradeable, without restrictions, under the Securities
Act of 1933, as amended (the "Act"). Holders of ________ shares have
entered into a lock up agreement with the Representative. See Underwriting.
In general, under Rule 144, as currently in effect, any person (or
persons whose shares are aggregated), including persons deemed to be
affiliates, whose restricted securities have been fully paid for and held for
at least two years from the later of the date of payment therefor to the
Company or acquisition thereof from an affiliate, may sell such securities in
brokers' transactions or directly to market makers, provided that the number of
shares sold in any three month period may not exceed the greater of 1% of the
then outstanding Common Stock or the average weekly trading volume of the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain notice requirements and the availability
of current public information about the Company. After three years have
elapsed from the later of the issuance of restricted securities by the Company
or their acquisition from an affiliate, such securities may be sold without
limitation by persons who are not affiliates under Rule 144.
Sales of substantial amounts of Common Stock by shareholders of the
Company under Rule 144 or otherwise, or even the potential for such sales, are
likely to have a depressive effect on the market price of the Common Stock and
Warrants and could impair the Company's ability to raise capital through the
sale of its equity securities.
REGISTERED SECURITIES
The Company has registered under the Registration Statement of which
this Prospectus is a part, 350,000 shares of Common Stock. Of the 350,000
shares to be sold, Red River Concepts, Inc. plans to sell 300,000 shares.
After the completion of this offering, the Company will amend
57
<PAGE> 63
its Registration Statement and this Prospectus to permit such persons to
publicly offer and sell all such shares of Common Stock. After the sale of
such shares of Common Stock, none of such persons is expected to own more than
1% of the outstanding Common Stock of the Company.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement under the Securities
Act of 1933, as amended with respect to the securities offered hereby with the
United States Securities and Exchange Commission ("SEC"), 450 Fifth Street,
N.W., Washington, D.C. 20549. This Prospectus, which is a part of the
Registration Statement, does not contain all of the information contained in
the Registration Statement and the exhibits and schedules thereto, certain
items of which are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to the Company and the securities
offered hereby, reference is made to the Registration Statement, including all
exhibits and schedules therein, which may be examined at the SEC's Washington,
D.C. office, 450 Fifth Street, N.W., Washington, D.C. 20549 without charge, or
copies of which may be obtained from the SEC upon request and payment of the
prescribed fee. Statements made in this Prospectus as to the contents of any
contract, agreement or document are not necessarily complete, and in each
instance reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement, and each such
statement is qualified in its entirety by such reference. The Company is a
reporting company under the Securities Exchange Act of 1934, as amended, and in
accordance therewith files reports and other information with the SEC. All of
such reports and other information may be inspected and copied at the public
reference facilities maintained by the SEC at the address set forth above in
Washington, D.C. and at regional offices of the SEC located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. In addition, the Company provides its
shareholders with annual reports, including audited financial statements,
unaudited semi-annual reports and such other reports as the Company may
determine. The SEC maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC at http://www.sec.gov.
58
<PAGE> 64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF WESTERN
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets at December 31, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for Each of the Two Years
in the Period Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for Each of the
Two Years in the Period Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for Each of the Two Years
in the period Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Unaudited Consolidated Balance Sheets at September 30, 1996 . . . . . . . . . . . . . . . . . . . F-21
Unaudited Consolidated Statement of Operations for the Three
Months and Nine Months Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . F-23
Unaudited Consolidated Statement of Stockholders' Equity
for the Nine Months Ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . F-25
Unaudited Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Notes to Unaudited Consolidated Financial Statements
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
</TABLE>
INDEX TO FINANCIAL STATEMENTS OF IN CAHOOTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . F-30
Balance Sheets at December 31, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-31
Statements of Income for Each of the Two Years
in the Period Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33
Statements of Partners' Capital for Each of the
Two Years in the Period Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-34
Statements of Cash Flows for Each of the Two Years
in the Period Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36
Unaudited Balance Sheets at September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . F-41
Unaudited Statement of Income for the Nine Months
Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-43
Unaudited Statement of Partners' Capital for the
Nine Months Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . F-44
Unaudited Statements of Cash Flows for Nine
Months Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-45
Notes to Unaudited Financial Statements
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-46
</TABLE>
INDEX TO FINANCIAL STATEMENTS
OF
ENTERTAINMENT WICHITA, INC.
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . F-51
Balance Sheets at December 31, 1994 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-52
Statements of Income for Each of the Two Years
in the Period Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-53
Statements of Stockholders' Equity for Each of the
Two Years in the Period Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-54
Statements of Cash Flows for Each of the Two Years
in the period Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-55
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-56
Unaudited Balance Sheets at September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . F-58
Unaudited Statement of Income for the Nine Months
Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-59
Unaudited Statement of Stockholders' Equity for the
Nine Months Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . F-60
Unaudited Statements of Cash Flows for Nine
Months Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-61
Notes to Unaudited Financial Statements
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-62
</TABLE>
INDEX TO FINANCIAL STATEMENTS
OF
CRYSTAL CHANDELIER, INC.
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . F-64
Balance Sheets at December 31, 1993 and 1994
(audited) and June 28, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-65
Statements of Operations for Each of the Two Years
in the Period Ended December 31, 1994 (audited) and
the Six Months Ended June 30, 1994 and June 28, 1995
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-66
Statements of Stockholders' Equity for Each of the
Two Years in the Period Ended December 31, 1994
(audited) and the Six Months Ended June 28, 1995
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-67
Statements of Cash Flows for Each of the Two Years
in the period Ended December 31, 1994 (audited) and
the Six Months Ended June 30, 1994 and June 28, 1995
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-68
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-69
</TABLE>
<PAGE> 65
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders
Western Country Clubs, Inc.
We have audited the accompanying consolidated balance sheet of Western Country
Clubs, Inc. and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial position of Western Country
Clubs, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
Denver, Colorado CAUSEY DEMGEN & MOORE INC.
February 26, 1996, except
for Note 11 as to which
the date is March 27, 1996
F-1
<PAGE> 66
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 AND 1995
ASSETS
<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Current assets:
Cash (Note 3) $ 520,940 $ 223,839
Accounts receivable 47,313 35,533
Note receivable - Cowboys - 100,000
Inventories 79,581 96,867
Prepaid expenses 63,214 96,741
Pre-opening expenses 57,173 52,272
Deferred income taxes (Note 6) 147,000 112,000
Refundable income taxes - 160,120
---------- ----------
Total current assets 915,221 877,372
Property and equipment, at cost
(Note 3):
Land and improvements 224,989 224,989
Building and improvements 755,900 755,900
Leasehold improvements 2,112,380 2,605,056
Equipment 443,884 524,783
Furniture and fixtures 387,500 427,009
---------- ----------
3,924,653 4,537,737
Less accumulated depreciation and
amortization (327,212) (722,999)
---------- ----------
Net property and equipment 3,597,441 3,814,738
Other assets:
Deferred income taxes (Note 6) - 85,000
Goodwill, net of amortization of
$48,956 (1994) and $189,215 (1995)
(Note 2) 724,508 584,249
Covenant not to compete, net of
amortization $32,044 (1994) and
$68,768 (1995) (Note 2) 544,743 508,019
Deposits and other 160,042 139,765
---------- ----------
Total other assets 1,429,293 1,317,033
---------- ----------
$5,941,955 $6,009,143
========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE> 67
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 76,337 $ 180,355
Notes payable (Note 3) 127,340 283,872
Notes payable - related parties
(Note 4) - 493,000
Income taxes payable 116,471 -
Accrued expenses 215,182 259,499
Current portion of long-term debt
(Note 3) 68,765 79,080
Current portion of liability under
non-compete agreement (Note 2) 227,082 221,781
---------- ----------
Total current liabilities 831,177 1,517,587
Long-term debt (Note 3) 626,658 552,152
Liability under non-compete agreement
(Note 2) 356,550 152,922
Equity interest of other partners in
consolidated subsidiary (Note 2) 230,209 217,854
Common stock subject to rescission,
116,667 shares (Note 5) 350,000 -
Commitments and contingencies (Notes 2,
9, 10 and 11)
Stockholders' equity (Note 5):
Preferred stock, $.10 par value;
10,000,000 shares authorized, none
issued and outstanding - -
Common stock, $.01 par value; 25,000,000
shares authorized, 3,477,264 (1994)
and 2,944,721 (1995) shares issued
and outstanding 34,773 29,447
Additional paid-in capital 3,544,912 3,782,738
Retained earnings (deficit) (32,324) (243,557)
---------- ----------
Total stockholders' equity 3,547,361 3,568,628
---------- ----------
$5,941,955 $6,009,143
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 68
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Revenues:
Beverage and food sales $4,476,451 $5,878,502
Admission fees 1,416,112 1,986,847
Other revenues 413,372 642,709
---------- ----------
Total revenues 6,305,935 8,508,058
Costs and expenses:
Cost of products and services 1,924,859 2,349,097
Depreciation and amortization 427,344 642,812
Interest 97,142 137,059
General and administrative expense 3,316,038 4,909,189
Loss on write-off of improvements (Note 8) 296,761 -
Consulting fees - related parties 3,200 11,400
Merger expenses - 117,190
---------- ----------
Total costs and expenses 6,065,344 8,166,747
---------- ----------
Income before taxes, minority interest,
and equity in loss of partnership 240,591 341,311
Provision (benefit) for income taxes (Note 6):
Current 193,454 183,660
Deferred (114,000) (50,000)
---------- ----------
Total provision (benefit) for
income taxes 79,454 133,660
---------- ----------
Income before minority interest and
equity in loss of partnership 161,137 207,651
Other partners' and shareholders'
interests in net income of
consolidated subsidiaries, net
of income tax benefit of $124,416
(1994) and $12,458 (1995) (Note 2) (110,564) (20,587)
Equity in loss of partnership, net
of income tax benefit of $74,841
(Note 2) - (123,676)
Write off of investment in partnership,
net of income tax benefit of $166,183
(Note 11) - (274,621)
---------- ----------
Net income (loss) $ 50,573 $ (211,233)
========== ==========
Net income (loss) per common share $ .02 $ (.07)
========== ==========
Weighted average common
shares outstanding 3,182,000 3,161,000
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 69
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
Common stock Additional Retained
----------------- paid-in earnings
Shares Amount capital (deficit)
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 2,650,000 $26,500 $ 218,738 $ (82,897)
Common stock issued in conjunction
with purchase of limited partner-
ship interest in Western 1, Ltd.
(Note 2) 25,000 250 74,750 -
Common stock issued in conjunction
with public offering (Note 5) 460,000 4,600 1,925,461 -
Common stock subject to rescission
subsequently sold in the public
offering (Note 5) 110,000 1,100 108,900 -
Common stock issued in conjunction
with acquisition of 31% interest
in Western 1, Ltd. (Note 2) 73,600 736 385,664 -
Common stock issued in conjunction
with acquisition of the assets of
Western III, Ltd. (Note 2) 158,663 1,587 831,399 -
Net income for the year ended
December 31, 1994 - - - 50,573
--------- ------- ---------- ---------
Balance, December 31, 1994 3,477,263 34,773 3,544,912 (32,324)
Expiration of the rescission
period for common stock sold
in February 1994 (Note 5) 116,667 1,167 348,833 -
Common stock repurchased from the
Company's president (Note 5) (700,000) (7,000) (1,918,000) -
Deemed contribution of capital by
the Company's president repre-
senting the excess of the fair
market of the stock repurchased
over the amount actually paid
($.40 per share) (Note 5) - - 1,645,000 -
Exercise of stock options at
$2.50 per share (Note 5) 27,000 269 67,231 -
</TABLE>
(Continued on following page)
See accompanying notes.
F-5
<PAGE> 70
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
(Continued from preceding page)
<TABLE>
<CAPTION>
Common stock Additional Retained
----------------------------- paid-in earnings
Shares Amount capital (deficit)
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Common stock issued in exchange
for promotional services 15,000 150 44,850 -
Common stock issued in exchange
for legal services 8,791 88 49,912 -
Net loss for the year ended
December 31, 1995 - - - (211,233)
--------- ------- ---------- ---------
Balance, December 31, 1995 2,944,721 $29,447 $3,782,738 $(243,557)
========= ======= ========== =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 71
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 50,573 $(211,233)
Adjustments to reconcile net income
(loss) to net cash provided by oper-
ating activities:
Depreciation and amortization 427,344 654,910
Minority interest in earnings of
subsidiaries 234,980 33,045
Equity in loss of Limited Partnership - 639,322
Loss in disposal of property and
equipment - 10,762
Common stock issued for services - 95,000
Deferred tax provision (127,000) (50,000)
Change in assets and liabilities:
Increase (decrease) in accounts
receivable (40,981) 11,780
Increase in pre-opening expenses (128,127) (69,686)
Increase in inventories (79,581) (17,286)
Increase in prepaid expenses (63,214) (33,527)
Increase in refundable income taxes - (160,120)
Increase in accounts payable 55,952 104,018
Increase (decrease) in income taxes
payable 96,471 (116,471)
Increase in accrued expenses 136,116 44,317
Other 6,645 -
---------- ---------
Total adjustments 518,605 1,146,064
---------- ---------
Net cash provided by operating activities 569,178 934,831
Cash flows from investing activities:
Investment and advances to Limited
Partnership - (639,322)
Loans to Cowboys - (100,000)
Acquisition of property and equipment (2,511,241) (626,399)
Decrease (increase) in deposits (46,883) 15,277
Increase in organization costs (160) -
Increase in liquor license (25,000) -
Increase in loan fees (9,762) -
Purchase of minority interest (257,600) -
Purchase of goodwill (433,016) -
---------- ---------
Net cash used in investing activities (3,283,662) (1,350,444)
</TABLE>
(Continued on following page)
See accompanying notes.
F-7
<PAGE> 72
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
(Continued from preceding page)
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Repurchase of common stock - (280,000)
Proceeds from sale of common stock 1,989,070 -
Proceeds from sale of common stock
subject to rescission 350,000 -
Proceeds from exercise of stock options - 67,500
Proceeds from partner contributions 441,250 -
Partnership distributions to minority
interests (317,330) (45,400)
Borrowings under notes payable 1,240,000 300,070
Repayments of notes payable (817,000) (416,658)
Borrowings under notes payable - related
parties - 793,000
Repayments of notes payable - related parties - (300,000)
--------- --------
Net cash provided by financing
activities 2,885,990 118,512
--------- --------
Increase (decrease) in cash 171,506 (297,101)
Cash at beginning of period 349,434 520,940
--------- --------
Cash at end of period $ 520,940 $223,839
========= ========
Supplemental cash flow information:
1994 1995
-------- --------
Cash paid for interest $97,142 $123,524
Cash paid for income taxes 24,533 92,120
</TABLE>
Supplemental disclosure of non-cash transactions:
During 1994, the Company purchased a building and the seller carried back a
note for $150,000 of the purchase price. In addition, the Company issued
common stock valued at $1,294,386 in three separate transactions to acquire
minority interests in limited partnerships.
During 1995, the Company issued 23,791 shares of its common stock in
exchange for legal and promotional services amounting to $95,000 in the
aggregate.
See accompanying notes.
F-8
<PAGE> 73
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. Summary of significant accounting policies
Organization:
Western Country Clubs, Inc. (the Company) was incorporated in Colorado on
December 19, 1989 and commenced operations in 1993. The Company's
operations have consisted primarily of owning and operating
"Country-Western" theme nightclubs in Indianapolis, Indiana; St. Louis,
Missouri; Tucson, Arizona; and a 50% Limited Partnership interest in a
nightclub in Atlanta, Georgia.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Consolidation:
The consolidated financial statements include the accounts of the Company,
two limited partnerships (Western Country Club III, Ltd. through December
31, 1995 and Western Country Club 1, Ltd. which was liquidated in 1994 -
see Note 2) over which the Company has financial control and a wholly
owned subsidiary WCWW Acquisition Corporation. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Investments:
Investments in partnerships, which the Company do not financially control,
are accounted for on the equity method until financial control is
established.
Cash and cash equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories:
Inventories consist of liquor, wine, beer and boutique items. Inventories
are stated at the lower of cost (first-in, first-out method) or market.
F-9
<PAGE> 74
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. Summary of significant accounting policies (continued)
Depreciation and amortization:
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the assets' estimated useful lives as
follows:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Land improvements 15
Building and improvements 10-30
Leasehold improvements 7-15
Equipment 7
Furniture and fixtures 7
</TABLE>
Organization costs and liquor license costs are amortized over five years
and goodwill is amortized over five to fifteen years, the periods
estimated by management to be benefitted.
Certain costs incurred before a nightclub is opened are capitalized as
pre-opening expenses and amortized over a 12 month period commencing the
first full month the nightclub begins operation.
The covenant not to compete is amortized over fifteen years, the period
covered by the amended agreement.
Measurement of goodwill impairment:
At each balance sheet date, the Company shall review the amount of
recorded goodwill, covenant not to compete and related nightclub assets
(separately by club) for impairment. Whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable out of undiscounted future operating cash flows and the sum of
the expected cash flows from these assets is less than the carrying amount
of these assets, the Company will recognize an impairment loss in such
period by the amount by which the carrying amount of the assets exceeds
the fair value of the assets.
Repairs and maintenance:
Normal costs incurred to repair and maintain fixed assets are charged to
operations as incurred. Repairs and betterments which extend the life of
an asset are capitalized and subsequently depreciated on a straight-line
basis over the remaining useful life of the asset. When assets are sold or
retired, the cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in operations.
Income taxes:
Income taxes are provided based on earnings reported in the financial
statements. The Company follows Statement of Financial
F-10
<PAGE> 75
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. Summary of significant accounting policies (continued)
Accounting Standards No. 109 whereby deferred income taxes are provided on
temporary differences between reported earnings and taxable income.
Net income per common share:
Net income per common share is computed based on the weighted average
number of shares outstanding during the periods. Common stock equivalents
included in the computation represent shares issuable upon assumed
exercise of stock options which would have a dilutive effect. Shares
issuable under stock warrants have been excluded, since they would be
antidilutive.
Concentration of credit risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and temporary cash
investments. The Company places its cash investments in highly rated
financial institutions. At times, the Company may have bank deposits in
excess of FDIC limits.
Reclassifications:
Certain reclassifications have been made to the 1994 financial statements
to conform to the 1995 financial statement presentation.
2. Acquisitions
Western Country Club 1, Ltd.:
The Company is the General Partner of Western Country Club 1, Ltd.
(Western 1, Ltd.), a limited partnership formed on January 19, 1993 for
the purpose of owning and operating a "country-western" theme nightclub in
Indianapolis, Indiana. The operations of the nightclub began on April 14,
1993. The Company initially had a 30% profit interest in the partnership.
Until capital invested was repaid, as defined in the limited partnership
agreement, the Company received 16.6% of distributions.
On February 16, 1994, the Company exercised its option to acquire an
additional 19% limited partnership interest in Western 1, Ltd., in
exchange for cash of $200,000 and 25,000 shares of the Company's $.01 par
value common stock. The shares were valued by the Company at $3.00 per
share, resulting in a gross purchase price of $275,000. As a result of the
additional interest acquired, the Company gained indirect financial
control over Western 1, Ltd. and accounts for the partnership as a
consolidated subsidiary subsequent to February 16, 1994.
F-11
<PAGE> 76
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
2. Acquisitions (continued)
On October 7, 1994, the Company closed an exchange offer directed to
limited partners of Western 1, Ltd. Pursuant to the offer, the Company
acquired an additional 31% interest in Western 1, Ltd. in exchange for
73,600 shares of the Company's common stock and $57,600 in cash. The
exchange offer was accounted for as the acquisition of minority interests,
and recorded based upon a $5.25 per share fair value for the Company's
common stock. The goodwill from the purchase, of $126,249, is amortized
over a five year period.
Western Country Club III, Ltd.:
In December 1993, the Company initiated the preparation of a private
placement memorandum for the sale of a maximum of fifty units of
pre-formation limited partnership interests, at $17,000 per unit. The
proceeds received in 1993 and 1994 of $850,000, including $17,000 from the
Company, were used to fund the renovation and furnishing of the St. Louis
Club. The Company was the General Partner of Western Country Club III,
Ltd. (Western III, Ltd.) and was responsible for managing the operations
of the St. Louis Club. The limited partnership agreement provided that the
limited partners and the General Partner would each receive 50% of the
profits and losses of the St. Louis Club and would receive 70% and 30%,
respectively, of cash distributions from the St. Louis Club until the
limited partners had received $850,000 and 50% each, thereafter. The
President of the Company had a 3% limited partnership interest. As a
result of the ownership, the limited partnership was considered a
subsidiary of the Company.
On October 7, 1994, the Company closed an exchange offer directed to
limited partners of Western III, Ltd. Pursuant to the offer, the Company
acquired all of the assets of Western III, Ltd. in exchange for 158,664
shares of the Company's common stock. The exchange offer is accounted for
as the acquisition of minority interests, and recorded based upon a $5.25
per share fair value for the Company's common stock. The goodwill from the
purchase, of approximately $74,199, is amortized over a five year period.
Tucson Club asset acquisition:
On November 1, 1994, the Company purchased the assets of a Tucson, Arizona
nightclub for a cash payment of $1,000,000 and the agreement to pay a
non-compete agreement with a net present value of $576,787. Goodwill
recorded in conjunction with the purchase of approximately $433,000, is
amortized over a five year period.
The covenant not to compete is payable $250,000 on November 1, 1995,
$250,000 on November 1, 1996 and $200,000 on November 1, 1997. The
agreement is secured by the liquor license, furniture and fixtures and
equipment received in the purchase.
F-12
<PAGE> 77
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
2. Acquisitions (continued)
In January 1995, the Company formed WCWW Acquisition Corporation to hold
the interim liquor license for the club.
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisitions had occurred at the beginning
of the period presented and do not purport to be indicative of what would
have occurred had the acquisitions been made as of that date or of results
which may occur in the future.
<TABLE>
<CAPTION>
1994
----------
<S> <C>
Net sales $8,892,276
Net loss $ (105,863)
Net loss per common share $ (.03)
</TABLE>
Atlanta club investment:
On June 29, 1995, the Company, as the limited partner, contributed $500 to
the capital of Cowboys Concert Hall/Atlanta, Ltd. (CCHA, Ltd.) in exchange
for a 50% interest in the Partnership. The Company also agreed to loan the
Partnership up to $750,000 and has loaned the Partnership $638,822
pursuant to a three year unsecured promissory note, due June 29, 1998
bearing interest at 10% per annum. The Company is accounting for its
interest in the Partnership using the equity method (see Note 11).
On the same date, the Partnership closed on the acquisition of certain
assets and liabilities of a country-western nightclub in Atlanta, Georgia.
The purchase price was $1,650,000 payable $425,000 at closing plus a
$1,225,000 promissory note due December 29, 1999 bearing interest at 8%
per annum.
Condensed financial information of the CCHA, Ltd. as of December 31, 1995
and for the six months ended December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Current assets $ 103,081
Non-current assets 1,785,138
Current liabilities 1,645,431
Long-term debt 638,822
Partners' equity (deficit) (396,034)
Net loss (397,034)
</TABLE>
F-13
<PAGE> 78
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
3. Notes payable
Long-term debt consists of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Note payable - bank, due in monthly
installments of $8,437, including
interest at 3% above prime through
February, 2004, secured by first
mortgage on real estate $567,640 $529,712
Note payable - seller, due in monthly
installments of $3,187, including
interest at 10% through January 1999,
secured by second mortgage on real
estate and the personal guarantee of
the Company's president 127,783 101,520
-------- --------
695,423 631,232
Less current maturities (68,765) (79,080)
-------- --------
Amount due after one year $626,658 $552,152
======== ========
</TABLE>
Maturities of long-term debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 79,080
1997 82,742
1998 90,766
1999 63,017
2000 65,361
Later years 250,266
--------
$631,232
========
</TABLE>
Short-term notes payable consists of the following at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Note payable due in monthly installments
of $16,667 plus interest at 1.5% above
prime through February 1995, secured
by personal guarantee of the Company's
president $ 34,450 -
Note payable due in monthly installments
of $4,000 through January 15, 1995,
remaining principal due on February 15,
1995, including interest at 1/2% over
prime, unsecured 46,445 -
</TABLE>
F-14
<PAGE> 79
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
3. Notes payable (continued)
<TABLE>
<S> <C> <C>
Note payable due in monthly installments
of $4,000 through January 15, 1995,
remaining principal due on February 15,
1995, including interest at 8%,
unsecured 46,445 -
Notes payable - bank due in monthly install-
ments of $26,647 through November 28, 1996
including interest at 6.36%, collateralized
by an interest in certain cash accounts of
the Company and of the Company's president - 283,872
-------- --------
$127,340 $283,872
======== ========
</TABLE>
4. Related party transactions
During the year ended December 31, 1994, the Company utilized a service
organization whose president is a shareholder of the Company. The service
organization is responsible for the management of the daily operations of
the Company. The total amounts paid to the organization during 1994 and
1995 was $161,885 and $177,647 respectively. Of these amounts, $66,523 and
$91,604 represented reimbursement of Company expenses incurred.
During the year ended December 31, 1994, the Company paid a total of
$236,998, to a related company, whose president is on the Board of
Directors of the Company. The expenses paid resulted from fees charged for
producing live entertainment at the clubs.
During the year ended December 31, 1994, the Company elected to the Board
of Directors an officer of the bank which financed the purchase of a
building (see Note 3).
The Company used the services of waitstaff and cashiers that were employed
by an entity partly owned by a relative of the Company's president. The
amount billed the Company is the actual payroll cost. The purpose of the
agreement is to minimize constraints of rotating staff among related
entities. The expense for the year ended December 31, 1994 amounted to
$22,935. During 1994, this arrangement was terminated.
On October 7, 1994, the Company paid $57,600 in cash to the Company's
president in exchange for his 8% interest in Western 1, Ltd.
In August 1995, International Entertainment Consultants, Inc. (IEC) loaned
the Company $300,000 at 12% annual interest payable monthly, to complete
the renovation of the Tucson club into the "A Little Bit of Texas" format.
IEC is owned by a relative of the Company's president. The loan was due
December 28, 1995, and was extended until January 28, 1996 after the
payment of $100,000 in principal by the Company. During October 1995, the
Company borrowed an
F-15
<PAGE> 80
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
4. Related party transactions (continued)
additional $193,000 from IEC to make the required payment under the
covenant not to compete. The note bears interest at 12% annually, was due
December 28, 1995, and was extended until January 28, 1996. During January
1996, $262,000 in principal has been repaid and the remaining balance has
been extended until April 28, 1996.
During 1995, the Company's president and a company owned by the Company's
president loaned the Company $300,000 of which $200,000 has been repaid.
The notes bear interest at 12% annually with the remaining balance due
November 30, 1996.
5. Stockholders' equity
Stock options:
On December 16, 1993 the Company granted an option to purchase 250,000
shares of the Company's $.01 par value common stock at $2.50 per share, to
an employee of the Company. This option is treated as a compensatory stock
option under APB Opinion No. 25, and accordingly, $125,000, the difference
between exercise price of the options and the fair value of the stock at
date of grant, was reflected as compensation expense for the period ended
December 31, 1993. The option expires on December 1, 1998. During 1995,
20,000 options were exercised resulting in proceeds to the Company of
$50,000.
Private placements of common stock:
In December 1993, the Company consummated the private placement of 110,000
shares of its $.01 par value stock at $1.00 per share for total proceeds
of $110,000. The Company believes that the shares were offered at fair
market value and since they were not sold to employees, compensation was
not recorded in conjunction with the sale of stock.
On February 7, 1994, the Company commenced the sale of 200,000 shares of
its $.01 par value common stock at $3.00 per share pursuant to a private
placement memorandum. The sale was on a best efforts basis with no minimum
number of shares required to be sold prior to closing of the offering. The
offering was amended on February 16, 1994 to allow $250,000 in borrowings
from investors at 10% annual interest, payable from proceeds of the
proposed public offering, and the sale of 116,667 shares of the Company's
common stock at $3.00 per share. On March 1, 1994, the Company completed
the offering raising a total of $600,000. In connection with the $250,000
notes payable, the Company granted two five-year options to purchase a
total of 17,000 shares of the Company's common stock at $2.50 per share.
Upon the closing of the public offering on May 9, 1994, the $250,000 notes
payable, including interest of $5,685, were paid from offering proceeds.
During 1995, options to purchase 7,000 shares of common stock at $2.50 per
share were exercised resulting in net proceeds of $17,500 to the Company.
F-16
<PAGE> 81
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
5. Stockholders' equity (continued)
Common stock subject to rescission:
The Company offered to the purchasers of common stock in the December 1993
and February 1994 private placements, the opportunity to rescind their
investment in the Company, upon the Company's filing of its registration
statement with the Securities and Exchange Commission. In the event the
December and February private offerings were integrated into the public
offering, the sales under the private offerings might be considered
violations under Section 5 of the Securities Act of 1933. In connection
with the public offering, 110,000 shares sold in December 1993 for
$110,000 were subsequently registered and sold in the public offering.
Therefore, these 110,000 shares are no longer subject to rescission. As a
result, the Company had a potential liability to purchasers of $350,000
(116,667 shares), which liability expired February 28, 1995.
Public offering of stock:
On May 9, 1994, the Company completed a public offering of 460,000 shares
of its common stock at $5.25 per share, resulting in net proceeds of
$1,930,061 after deducting offering expenses of $484,939.
The underwriter received a discount of 10% and a non-accountable expense
allowance of 3% of the gross proceeds of the offering, and warrants to
purchase 40,000 shares of common stock. The warrants are exercisable at
$6.30 per share commencing April 25, 1995 until April 25, 1999. The
Company has granted the holders of the warrants certain customary
registration rights. As of December 31, 1995 none of these warrants have
been exercised.
Warrants granted:
Effective July 1, 1994, the Company granted warrants to purchase 60,000
shares of the Company's common stock exercisable at $6.00 per share until
June 30, 1999, in exchange for consulting services to be performed over a
one year period. In addition, stock appreciation rights were granted
whereby the consultant could purchase shares of common stock for $.01 per
share representing the increase in value of the 60,000 shares divided by
the then market price of the stock. Compensation will be recorded as the
price of the Company's stock exceeds the warrant exercise price.
Repurchase of common stock:
In March 1995, the Company repurchased 700,000 shares of its $.01 par
value common stock from the Company's president for $280,000 ($.40 per
share). At the time of the repurchase, the Company had valued the stock at
$2.75 per share. The transaction has been reflected in the statement of
stockholders' equity as the repurchase of the shares at $2.75 per share,
allocated between
F-17
<PAGE> 82
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
5. Stockholders' equity (continued)
common stock and additional paid-in capital, and a capital contribution of
the difference between the $2.75 per share fair value and the $.40 per
share price paid credited to additional paid-in capital. As Colorado law
does not provide for treasury stock, the repurchased shares of stock are
treated as authorized but unissued shares.
6. Income taxes
The difference between the Company's effective income tax rate and the
United States statutory rate is reconciled below for the years ended
December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
United States statutory rate 34.0 % 34.0 %
State income taxes, net of Federal
income tax benefit 3.3 4.8
Change in tax rate used on compensation
element of stock options (4.8) --
Reduction of valuation allowance (6.2) --
Other 6.7 .4
-------- --------
33.0 % 39.2 %
======== ========
</TABLE>
At December 31, 1994 and 1995, the Company has deferred tax assets as
follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Compensation element of stock options $ 46,625 $ 4,700
Differences due to acquisition of assets 37,324 9,200
Differences between book and tax
depreciation and amortization 48,649 147,500
Leases with scheduled rent increases 14,402 35,600
-------- --------
Net deferred tax assets $147,000 $197,000
======== ========
</TABLE>
7. Change in accounting estimate
Effective October 1, 1995, the Company revised its estimate of the useful
lives of the leasehold improvements and goodwill relating to the Tucson
club from 5 years to 15 years. This date coincided with the completion of
the renovation of the club. Effective January 1, 1995, the covenant not to
compete agreement was amended to cover a 15 year period, accordingly, the
amortization period was extended to 15 years. The effect of the change was
to increase net income by $107,000 ($.03 per common share) for the year
ended December 31, 1995.
F-18
<PAGE> 83
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
8. Seattle club project withdrawal
During 1994 the Company made the decision to withdraw its campaign to open
a club in the Kent, Washington area due to a number of factors. The most
significant of these factors was the State of Washington's reversal on
tentatively granting the location's liquor license. Expenses of $224,141,
relating to improvements made to the property, and $66,500 paid to
terminate a lease agreement, have been expensed on the accompanying
statement of income. An additional amount of $6,120 has been expensed
during the year as a result of expenses incurred in researching a club
location in Pittsburgh, Pennsylvania.
9. Real estate lease commitments
In August, 1993, the Company entered into a building lease for club
operations in St. Louis, Missouri. The lease term is ten years with two
five-year renewal options. Minimum rent per month is $22,238 for years one
through five and $26,686 per month for years six through ten. The lease
requires a $25,000 security deposit, and is guaranteed by an affiliated
company.
On November 1, 1994, the Company assumed a building lease for club
operations in Tucson, Arizona. The remaining primary lease term is 6.33
years with two five-year renewal options. Also on November 1, 1994 the
Company entered into a property lease for parking around the club in
Tucson, Arizona. The lease term is four years with an option to purchase.
Minimum rent per month is $2,000 per month for years one and two and
escalates to $3,000 per month for remaining term.
Rent expense for the years ended December 31, 1994 and 1995 amounted to
$313,673 and $558,319, respectively.
The minimum annual commitments under the real estate leases for the years
ended December 31 are as follows:
<TABLE>
<S> <C>
1996 $ 550,860
1997 568,600
1998 588,363
1999 602,156
2000 610,613
2001-2003 853,953
-----------
$ 3,774,545
===========
</TABLE>
10. Letter of intent with Cowboys Entertainment, Inc.
In May, 1995, the Company announced it had entered into a letter agreement
with Cowboys Entertainment, Inc. pursuant to which the two companies
agreed to continue discussions concerning a possible
F-19
<PAGE> 84
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
10. Letter of intent with Cowboys Entertainment, Inc. (continued)
acquisition by the Company of certain businesses and/or assets of Cowboys
Entertainment, Inc. In October, 1995, the Company announced that it had
entered into an Agreement and Plan of Merger (the "Merger") with Western
Newco, Inc. ("Sub"), a wholly owned subsidiary of the Company, and Cowboys
Concert Hall - Arlington, Inc. ("Cowboys") pursuant to which Sub would
merge with Cowboys, with Cowboys as the surviving entity. Simultaneously,
the Company was to also offer to limited partners of Cowboys Concert Hall
- Arlington, Ltd. ("CCHA, Ltd."), a Texas limited partnership, the
opportunity to exchange their limited partnership interests and notes, in
the approximate amount of $514,022 for an aggregate of 250,000 shares of
the Company's common stock and new notes in the aggregate amount of
$840,000. The transaction was subject to the approval of the shareholders
of Cowboys and the limited partners of CCHA, Ltd.
The Company filed a registration statement covering the transactions on
November 13, 1995, which included audited financial statements of the
Company, but did not include audited financial statements of Cowboys or
CCHA, Ltd., as required by applicable Securities and Exchange Commission
rules and regulations. Efforts by Cowboys to retrieve or reconstruct the
information necessary to perform the required audits proved unsuccessful.
As a result, the requirement that the shareholders of Cowboys approve the
Agreement and Merger by December 31, 1995 was not fulfilled, and the
parties have not agreed to extend the date for performance.
11. Subsequent event
The Company is currently negotiating to dispose of its interest in CCHA,
Ltd. The Company anticipates that it will be relieved of any further
obligations to fund the operations of the Atlanta club, in exchange for
its limited partnership interest in CCHA, Ltd. and forgiveness of the
loans made to the limited partnership. Therefore as of December 31, 1995,
the Company wrote off its remaining investment in CCHA, Ltd. resulting in
a loss of $274,621, net of income taxes.
F-20
<PAGE> 85
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 186,509
Accounts receivable 104,771
Notes receivable - Cowboys 100,000
Inventories 84,599
Prepaid expenses 99,777
Pre-opening expenses 13,068
Deferred income taxes (Note 2) 154,000
Refundable income taxes 109,975
-----------
Total current assets 852,699
Property and equipment, at cost:
Land and improvements 224,989
Building and improvements 755,900
Leasehold improvements 2,605,709
Equipment 546,976
Furniture and fixtures 433,657
-----------
4,567,231
Less accumulated depreciation and amortization (1,037,694)
Net property and equipment 3,529,537
Other assets:
Deferred income taxes (Note 2) 136,000
Goodwill, net of amortization 507,184
Covenant not to compete, net of amortization 480,476
Deposits and other 123,027
-----------
Total other assets 1,246,687
$ 5,628,923
===========
</TABLE>
See accompanying notes.
F-21
<PAGE> 86
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current Liabilities:
Accounts payable $ 116,420
Notes payable 300,035
Income taxes payable 94,400
Accrued expenses 353,500
Current portion of long-term debt 78,083
-----------
Total current liabilities 942,438
Long-term debt 499,492
Equity interest of other partners in
consolidated subsidiary 215,320
Contingencies (Note 6)
Stockholders' equity:
Preferred stock, $.10 par value;
10,000,000 shares authorized, none
issued and outstanding --
Common stock, $.01 par value; 25,000,000
shares authorized, 3,119,921 shares issued
and outstanding 31,199
Additional paid-in capital 4,183,986
Retained earnings (deficit) (243,512)
-----------
Total stockholders' equity 3,971,673
$ 5,628,923
===========
</TABLE>
See accompanying notes.
F-22
<PAGE> 87
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Beverage and food sales $ 3,544,385 $ 4,426,273
Admission fees and other revenues 1,967,085 1,971,865
----------- -----------
Total revenues 5,511,470 6,398,138
Costs and expenses:
Cost of products and services 1,623,473 1,742,151
Depreciation and amortization 465,496 499,454
Interest 109,425 91,411
General and administrative expenses 3,390,571 3,553,953
Loss on write-off of improvements -- 11,930
----------- -----------
Total costs and expenses 5,588,965 5,898,899
----------- -----------
Income (loss) before taxes, minority
interest, equity in loss of partnership
and extraordinary item (77,495) 499,239
Provision (benefit) for income taxes (Note 2) (26,481) 186,584
----------- -----------
Income (loss) before minority interest, equity
in loss of partnership and extraordinary item (51,014) 312,655
Other partners' interests in net income of
consolidated subsidiary, net of income
tax provision of $9,338 (1996) and
$17,295 (1995) 16,528 28,980
Equity in loss of partnership, net of income
tax benefit of $23,289 -- 39,024
----------- -----------
Income (loss) before extraordinary item (67,542) 244,651
Extraordinary item:
Gain on extinguishment of debt, net of income
tax provision of $37,919 (Note 5) 67,587 --
----------- -----------
Net income $ 45 $ 244,651
=========== ===========
Income (loss) per share before extraordinary item $ (.02) $ .08
Extraordinary gain .02 --
----------- -----------
Net income per common share $ * $ .08
=========== ===========
Weighted average common shares outstanding 3,136,000 3,184,000
=========== ===========
</TABLE>
* Less than $.01 per share
See accompanying notes.
F-23
<PAGE> 88
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Beverage and food sales $ 998,600 $ 1,124,682
Admission fees and other revenues 616,856 567,935
----------- -----------
Total revenues 1,615,456 1,692,617
Costs and expenses:
Cost of products and services 448,419 422,705
Depreciation and amortization 152,832 94,101
Interest 32,624 31,483
General and administrative expenses 1,135,878 1,061,116
Loss on write-off of improvements -- 11,930
----------- -----------
Total costs and expenses 1,769,753 1,621,335
----------- -----------
Income (loss) before taxes, minority
interest, equity in loss of partnership
and extraordinary item (154,297) 71,282
Provision (benefit) for income taxes (Note 2) (56,432) 26,877
----------- -----------
Income (loss) before minority interest, equity
in loss of partnership and extraordinary item (97,865) 44,405
Other partners' interests in net income of
consolidated subsidiary, net of income
tax provision of $3,187 (1996) and
$2,588 (1995) 6,908 3,898
Equity in loss of partnership, net of income
tax benefit of $23,289 -- 39,024
----------- -----------
Income (loss) before extraordinary item (104,773) 1,483
Extraordinary item:
Gain on extinguishment of debt, net of income
tax provision of $37,919 (Note 5) 67,587 --
----------- -----------
Net income (loss) $ (37,186) $ 1,483
=========== ===========
Income (loss) per share before extraordinary item $ (.03) $ *
Extraordinary gain .02 --
----------- -----------
Net income (loss) per common share $ (.01) $ *
=========== ===========
Weighted average common shares outstanding 3,131,000 3,069,000
=========== ===========
</TABLE>
* Less than $.01 per share
See accompanying notes.
F-24
<PAGE> 89
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Additional Retained
Common stock paid-in earnings
shares amount capital (deficit)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 2,944,721 $ 29,447 $3,782,738 $ (243,557)
Common stock issued for cash
in private placement
(Note 4) 95,200 952 237,048 --
Common stock issued pursuant
to stock compensation plan
for services rendered
(Note 4) 80,000 800 164,200 --
Net income for the nine
months ended September 30,1996 -- -- -- 45
---------- ---------- ---------- ----------
Balance, September 30, 1996 3,119,921 $ 31,199 $4,183,986 $ (243,512)
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-25
<PAGE> 90
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 45 $ 244,651
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 465,496 499,454
Minority interest in earnings of
subsidiaries 25,866 46,275
Equity in loss of limited partnership -- 62,313
Gain on extinguishment of debt (105,506) --
Deferred tax provision (93,000) (106,000)
Increase in present value of liability
under non-compete agreement 30,800 30,804
Common stock issued for services 165,000 45,000
Change in assets and liabilities:
Increase in accounts receivable (69,238) (161,789)
(Increase) decrease in inventories 12,268 (34,865)
Increase in prepaid expenses (3,036) --
Increase in pre-opening expenses -- (69,696)
Decrease in refundable income taxes 50,145 --
Increase (decrease) in accounts payable (63,933) 381,465
Increase in income taxes payable 94,400 8,290
Increase (decrease) in accrued expenses 94,001 (70,248)
----------- -----------
Total adjustments 603,263 631,003
----------- -----------
Net cash provided by operating activities 603,308 875,654
Cash flows from investing activities:
Investment in limited partnership -- (639,322)
Acquisition of property and equipment (29,494) (471,620)
Decrease in deposits and other assets 9,750 27,713
----------- -----------
Net cash used in investing activities (19,744) (1,083,229)
Cash flows from financing activities:
Repurchase of common stock -- (280,000)
Proceeds from sale of common stock 238,000 --
Proceeds from exercise of stock options -- 67,500
Partnership distributions to minority interest (28,400) (43,400)
Proceeds from notes payable 169,032 300,000
Repayments of notes payable (1,099,526) (175,126)
Borrowings from related parties 100,000 --
----------- -----------
Net cash used in financing activities (620,894) (131,026)
----------- -----------
Decrease in cash (37,330) (338,601)
Cash at beginning of period 223,839 520,940
----------- -----------
Cash at end of period $ 186,509 $ 182,339
=========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE> 91
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. Basis of presentation
The accompanying financial statements have been prepared by the Company,
without audit. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of the financial
position as of September 30, 1996, and the results of operations and cash
flows for the three months and nine months ended September 30, 1996 and
1995.
Certain reclassifications have been made to the September 30, 1995
financial statements to conform to the September 30, 1996 presentation.
2. Income taxes
The provision for income taxes for the nine months ended September 30,
1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current taxes $ 95,100 $ 252,000
Deferred taxes (93,000) (106,000)
--------- ---------
(2,100) 146,000
Taxes allocated to other partners'
interests in net income 9,338 17,295
Taxes allocated to equity in loss of
partnership -- 23,289
Taxes allocated to gain extinguish-
ment of debt (37,919) --
--------- ---------
Provision (benefit) for income taxes $ (26,481) $ 186,584
========= =========
</TABLE>
At September 30, 1996, the Company has recorded a deferred income tax
asset of $290,000 arising from the compensation element of stock options
granted, book depreciation and amortization in excess of tax depreciation
and amortization and book/tax basis differences arising from the
acquisitions of minority interests of consolidated partnerships.
3. Related party transactions
During the nine months ended September 30, 1996, the Company borrowed
$100,000 from a company owned by the Company's president, which amount was
repaid, together with $100,000 owed to the Company's president, prior to
September 30, 1996. The Company repaid $393,000 to International
Entertainment Consultants, Inc., a company owned by a relative of the
Company's president.
F-27
<PAGE> 92
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
4. Issuances of common stock
Private placement:
The Company is currently offering for sale in a private placement, 400,000
shares of the Company's common stock at $2.50 per share. During the nine
months ended September 30, 1996, the Company sold 95,200 shares of common
stock resulting in net proceeds of $238,000.
Stock compensation plan:
During the quarter ended September 30, 1996, the Company issued (1) 10,000
shares of the Company's common stock to the Company's president for
services rendered and recorded compensation of $35,000, (2) 15,000 shares
of the Company's common stock to a consultant as a reduction of accounts
payable of $52,500, (3) 10,000 shares of the Company's common stock to a
consultant for services valued at $35,000 and (4) 45,000 shares of the
Company's common stock and 145,000 options to purchase the Company's
common stock at $3.50 per share for three years in exchange for the
cancellation of 240,000 options to purchase the Company's common stock at
$2.50 per share. Each of the above issuances of common stock was valued at
$3.50 per share less the previously recorded compensation where warrants
were returned.
5. Gain on extinguishment of debt
During September 1996, the Company settled its remaining obligations under
the liability relating to the Tucson covenant not to compete for $300,000
in cash. The difference between the amount paid and the basis of the
obligation on the books has been recorded as an extraordinary gain of
$67,587 (net of the related income tax effect of $37,919).
6. Contingent liabilities
The Company is currently negotiating to dispose of its interest in Cowboys
Concert Hall/Atlanta, Ltd. ("CCHA, Ltd."), the partnership that owns the
Atlanta club. The Company anticipates that it will be relieved of any
further obligations to fund the operations of the Atlanta club, in
exchange for its limited partnership interest in CCHA, Ltd. and
forgiveness of the loans made to the limited partnership. The limited
partnership interest and loans were written-off by the Company as of
December 31, 1995.
The Company is presently offering to issue 154,000 of its common stock to
certain persons in exchange for 77,000 shares of common stock of Cowboys
Concert Hall - Arlington, Inc. ("Cowboys") and warrants to purchase an
additional 77,000 Cowboys shares as part of
F-28
<PAGE> 93
WESTERN COUNTRY CLUBS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
6. Contingent liabilities (continued)
a settlement with Cowboys. As partial consideration for the settlement,
Cowboys and Cowboys' president jointly and severally will execute and
deliver to the Company a promissory note in the amount of $385,000 bearing
interest at 8% per annum, and due in one year. There can be no assurance
that the exchange offer or the settlement will occur.
F-29
<PAGE> 94
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners
In Cahoots, Limited Partnership
We have audited the accompanying balance sheet of In Cahoots, Limited
Partnership as of December 31, 1994 and 1995, and the related statements of
income, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership'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 audits 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 In Cahoots, Limited
Partnership as of December 31, 1994 and 1995, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Denver, Colorado CAUSEY DEMGEN & MOORE INC.
October 12, 1996
F-30
<PAGE> 95
IN CAHOOTS, LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1994 AND 1995
ASSETS
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Current assets:
Cash $ 42,972 $ 33,717
Accounts receivable (Note 2):
Credit cards 605 609
Other 270 6,514
Related parties (Note 5) 39,000 43,803
Inventories (Note 2) 38,682 31,587
Prepaid expenses 32,788 2,120
Pre-opening expenses, net of accumulated
amortization of $159,959 (1994) and
$174,501 (1995) 14,542 --
-------- --------
Total current assets 168,859 118,350
Property and equipment, at cost (Note 2):
Leasehold improvements 168,464 174,939
Parking lot improvements 54,579 73,297
Furniture, fixtures and equipment 260,463 262,963
-------- --------
483,506 511,199
Less accumulated depreciation
and amortization 43,851 94,521
-------- --------
Net property and equipment 439,655 416,678
-------- --------
$608,514 $535,028
======== ========
</TABLE>
See accompanying notes.
F-31
<PAGE> 96
IN CAHOOTS, LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1994 AND 1995
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 43,468 $ 41,674
Notes payable - related parties (Note 2) 50,000 50,000
Current portion of long-term note
payable (Note 2) 48,514 75,425
Note payable - bank (Note 2) 137,758 18,307
Payroll and payroll taxes payable 19,218 16,548
Sales and liquor taxes payable 22,837 16,216
Accrued property taxes payable 7,993 36,471
Accrued rent - related party (Note 3) 9,905 32,011
Accrued interest payable 4,967 12,089
-------- --------
Total current liabilities 344,660 298,741
Long-term debt (Note 2):
Notes payable - related parties 10,000 10,000
Note payable - bank, net of current
portion 149,094 73,501
-------- --------
Total long-term debt 159,094 83,501
Commitments (Note 3)
Partners' capital (Note 4):
General partner 1,048 1,528
Limited partners 103,712 151,258
-------- --------
Total partners' capital 104,760 152,786
-------- --------
$608,514 $535,028
======== ========
</TABLE>
See accompanying notes.
F-32
<PAGE> 97
IN CAHOOTS, LIMITED PARTNERSHIP
INCOME STATEMENT
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Revenues:
Beverage and food sales $2,033,900 $1,616,741
Admission fees 718,712 735,881
Other revenues 59,164 67,133
---------- ----------
Total revenues 2,811,776 2,419,755
Costs and expenses:
Cost of products and services 879,494 811,945
Depreciation and amortization 203,810 65,212
Interest 43,460 46,002
Management fees - related party
(Note 5) 152,376 127,005
Rent - related party (Note 3) 164,052 157,011
General and administrative
expenses 1,144,824 1,104,554
---------- ----------
Total costs and expenses 2,588,016 2,311,729
---------- ----------
Net income $ 223,760 $ 108,026
========== ==========
</TABLE>
See accompanying notes.
F-33
<PAGE> 98
IN CAHOOTS, LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
General Limited
partner partners Total
--------- --------- ---------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 10 $ 990 $ 1,000
Net income for the year ended
December 31, 1994 2,238 221,522 223,760
Distributions to partners
(Note 4) (1,200) (118,800) (120,000)
--------- --------- ---------
Balance at December 31, 1994 1,048 103,712 104,760
Net income for the year
ended December 31, 1995 1,080 106,946 108,026
Distributions to partners
(Note 4) (600) (59,400) (60,000)
--------- --------- ---------
Balance at December 31, 1995 $ 1,528 $ 151,258 $ 152,786
========= ========= =========
</TABLE>
See accompanying notes.
F-34
<PAGE> 99
IN CAHOOTS, LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 223,760 $ 108,026
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 203,810 65,212
Change in assets and liabilities:
Decrease (increase)in accounts
receivable 1,643 (6,248)
Decrease (increase) in inventories (38,682) 7,095
Decrease (increase) in prepaid
expenses (32,788) 30,668
Increase (decrease) in accounts
payable 43,468 (1,794)
Increase in accrued expenses 58,904 48,415
--------- ---------
Total adjustments 236,355 143,348
--------- ---------
Net cash provided by operating
activities 460,115 251,374
Cash flows from investing activities:
Acquisition of property and equipment (456,539) (27,693)
Increase in pre-opening expenses (87,197) --
Increase in accounts receivable -
related party (21,371) (4,803)
--------- ---------
Net cash used in investing activities (565,107) (32,496)
Cash flows from financing activities:
Borrowings from related parties 175,000 1,000
Repayments of borrowings from related
parties (115,000) (1,000)
Borrowings from banks 359,794 --
Repayments of borrowings from banks (191,178) (168,133)
Distributions to partners (120,000) (60,000)
--------- ---------
Net cash provided by (used in)
financing activities 108,616 (228,133)
--------- ---------
Increase (decrease) in cash 3,624 (9,255)
Cash at beginning of period 39,348 42,972
--------- ---------
Cash at end of period $ 42,972 $ 33,717
========= =========
Supplemental cash flow information:
Cash paid for interest $ 38,493 $ 38,880
========= =========
</TABLE>
See accompanying notes.
F-35
<PAGE> 100
IN CAHOOTS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. Summary of significant accounting policies
Organization:
The Partnership was organized in Kansas on June 15, 1992. The general
partner is Entertainment Wichita, Inc., a Kansas corporation. The
Partnership commenced operations in February 1994. The Partnership's
operations have consisted primarily of owning and operating a
"Country-Western" theme nightclub in Wichita, Kansas.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents:
For purposes of the statement of cash flows, the Partnership considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories:
Inventories consist of liquor, wine, beer and bar supplies. Inventories
are stated at the lower of cost (first-in, first-out method) or market.
Depreciation and amortization:
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the assets' estimated useful lives as
follows:
Years
-----
Leasehold improvements 10
Parking lot improvements 10
Furniture, fixtures and equipment 10
Certain costs incurred before a nightclub is opened are capitalized as
pre-opening expenses and amortized over a 12 month period commencing the
first full month the nightclub begins operation.
Repairs and maintenance:
Normal costs incurred to repair and maintain fixed assets are charged to
operations as incurred. Repairs and betterments which extend the life of
an asset are capitalized and subsequently
F-36
<PAGE> 101
IN CAHOOTS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. Summary of significant accounting policies (continued)
depreciated on a straight-line basis over the remaining useful life of the
asset. When assets are sold or retired, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss
is included in operations.
Fair value of financial instruments:
Cash, accounts receivable, accounts payable and accrued liabilities are
carried in the financial statements in amounts which approximate fair
value because of the short-term maturity of these instruments. Long-term
debt is carried in the financial statements in amounts which approximate
fair value because interest rates have not changed significantly after the
debt was incurred.
Advertising costs:
The Partnership expenses the costs of advertising as incurred.
During the years ended December 31, 1994 and 1995, the Partnership
incurred advertising costs of $112,805 and $85,408, respectively.
Income taxes:
No provision for income taxes has been provided for the Partnership since
the partners report their distributive share of income or loss in their
personal capacity.
Concentration of credit risk:
Financial instruments which potentially subject the Partnership to
concentrations of credit risk are primarily cash and temporary cash
investments. The Partnership places its cash investments in highly rated
financial institutions.
2. Notes payable
Short-term notes payable to bank consisted of the following at December
31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Note payable to bank, payable in monthly installments of $13,444, including
interest at 1% over the bank's base rate with the final balance due on
December 8, 1995, unsecured. As of December 31, 1995 this note was in de-
fault but was paid in full during 1996 $137,758 $ 18,307
======== ========
</TABLE>
F-37
<PAGE> 102
IN CAHOOTS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
2. Notes Payable (continued)
Notes payable - related parties consists of the following at December 31,
1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Notes payable - affiliates of limited partners, payable in monthly installments
of $5,000, including interest at 10%, secured by the personal guarantee of
the Company's president, these loans
were in default at December 31, 1995 $ 50,000 $ 50,000
========= =========
Notes payable - limited partners, in the original principal amount of $50,000,
payable on demand, including interest at 10%, unsecured, due date
subsequently
extended to July 28, 1997 $ 10,000 $ 10,000
========= =========
Long-term note payable - bank consists of the following at December 31, 1994
and 1995:
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Note payable - bank, payable at the rate of $8,069 per month including interest
at 18%, secured by accounts receivable
inventory and furniture and equipment $ 197,608 $ 148,926
Less current maturities (48,514) (75,425)
--------- ---------
Amount due after one year $ 149,094 $ 73,501
========= =========
Maturities of long-term debt at December 31, 1995 are as follows for the years
ended December 31:
1996 $ 75,425
1997 83,501
---------
$ 158,926
=========
</TABLE>
3. Real estate leases
On July 30, 1993, the Partnership entered into a building lease for club
operations in Wichita, Kansas with a 20% limited partner. The lease term
is ten years commencing October 15, 1993. In addition to minimum rental
payments the Partnership is obligated to pay to the landlord, as
additional rent, a percentage of gross sales after deductions for alcohol
and sales taxes. The lease agreement contains two five-year renewal
options at the primary lease term rental rate. For the year ended December
31, 1994 and 1995, the Partnership has incurred additional percentage rent
expense of $9,011 and $12,052 respectively.
F-38
<PAGE> 103
IN CAHOOTS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
3. Real estate leases (continued)
Rent expense for the years ended December 31, 1994 and 1995 amounted to
$164,052 and $157,011, respectively, including percentage rent.
The minimum annual commitments under the real estate lease for the years
ended December 31, are as follows:
<TABLE>
<S> <C> <C>
1996 $ 150,000
1997 150,000
1998 150,000
1999 150,000
2000 150,000
2001-2003 431,250
----------
$1,181,250
==========
</TABLE>
4. Capital contributions and distributions of the Partnership
During 1993, the general partner contributed capital of $10 and the
limited partners contributed capital of $990. Profits and losses are
allocated 99% to the limited partners' interests and 1% to the general
partner. During the years ended December 31, 1994 and 1995, the
Partnership distributed $120,000 and $60,000, respectively, to the
partners.
5. Related party transactions
For the years ended December 31, 1994 and 1995, the Partnership paid
management fees to a company owned by relatives of the president of the
general partner amounting to $127,376 and $127,005, respectively, and an
additional $25,000 fee during 1994 for assistance in opening the club. At
December 31, 1994 and 1995, $24,000 and $28,803, respectively, had been
advanced to this related company.
During the year ended December 31, 1994, the Partnership provided training
services valued at $15,000 to the 20% limited partner who leases the club
to the Partnership. This amount has been reflected as a receivable at
December 31, 1994 and 1995. This amount is expected to be repaid upon the
payment by the Partnership of certain notes payable to companies related
to the 20% limited partner.
6. Litigation
A lawsuit has been brought against the Partnership for an alleged personal
injury sustained in 1994 at the club. The Partnership is currently
defending the action with defense costs being paid by the Partnership's
insurer. The Partnership's management believes that
F-39
<PAGE> 104
IN CAHOOTS, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
6. Litigation (continued)
the financial exposure is minimal and in any event is covered by insurance.
While the Partnership's insurance company has verbally suggested to
Partnership's counsel that they may contest coverage in this matter, no
such action has been filed and the insuror continues to pay for
representation. Claims such as this are routine in the industry and
management believes that the ultimate resolution of this matter will not
materially affect the partnership's financial position.
F-40
<PAGE> 105
IN CAHOOTS, LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 1995 AND 1996
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current assets:
Cash $ 43,305 $ 45,812
Accounts receivable (Note 2):
Credit cards 197 531
Other 1,477 6,297
Related parties (Note 5) 40,790 39,000
Inventories (Note 2) 29,372 29,773
Prepaid expenses 4,027 6,633
Pre-opening expenses, net of
accumulated amortization of
$174,501 (1995) and $174,501 (1996) -- --
-------- --------
Total current assets 119,168 128,046
Property and equipment, at cost (Note 2):
Leasehold improvements 174,939 176,536
Parking lot improvements 72,673 73,297
Furniture, fixtures and equipment 260,463 263,699
-------- --------
508,075 513,532
Less accumulated depreciation
and amortization 81,759 132,884
-------- --------
Net property and equipment 426,316 380,648
-------- --------
$545,484 $508,694
======== ========
</TABLE>
See accompanying notes.
F-41
<PAGE> 106
IN CAHOOTS, LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 1995 AND 1996
(Unaudited)
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 43,974 $ 48,629
Notes payable - related parties
(Note 2) 50,000 50,000
Current portion of long-term debt
(Note 2) 60,159 95,292
Note payable - bank (Note 2) 49,469 --
Payroll and payroll taxes payable 9,281 6,218
Sales and liquor taxes payable 15,493 12,732
Accrued property taxes payable 10,794 29,378
Accrued rent - related party (Note 3) 32,010 17,000
Accrued interest payable 10,309 17,000
-------- --------
Total current liabilities 281,489 276,249
Long-term debt (Note 2):
Notes payable - related parties 10,000 --
Note payable - bank, net of current
portion 100,268 14,807
-------- --------
Total long-term debt 110,268 14,807
Commitments (Note 3)
Partners' capital (Note 4):
General partner 1,538 2,177
Limited partners 152,189 215,461
-------- --------
Total partners' capital 153,727 217,638
-------- --------
$545,484 $508,694
======== ========
</TABLE>
See accompanying notes.
F-42
<PAGE> 107
IN CAHOOTS, LIMITED PARTNERSHIP
INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Revenues:
Beverage and food sales $1,276,176 $ 957,951
Admission fees 578,511 456,636
Other revenues 54,590 35,934
---------- ----------
Total revenues 1,909,277 1,450,521
Costs and expenses:
Cost of products and services 665,719 445,184
Depreciation and amortization 52,450 38,363
Interest 38,653 25,681
Management fees - related party
(Note 5) 101,483 73,685
Rent - related party (Note 3) 119,511 112,500
General and administrative
expenses 822,494 690,256
---------- ----------
Total costs and expenses 1,800,310 1,385,669
---------- ----------
Net income $ 108,967 $ 64,852
========== ==========
</TABLE>
See accompanying notes.
F-43
<PAGE> 108
IN CAHOOTS, LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
General Limited
partner partners Total
--------- --------- ---------
<S> <C> <C> <C>
Balance at December 31, 1994 $ 1,048 $ 103,712 $ 104,760
Net income for the nine months
ended September 30, 1995 1,090 107,877 108,967
Distributions to partners
(Note 4) (600) (59,400) (60,000)
--------- --------- ---------
Balance at September 30, 1995 1,538 152,189 153,727
Net loss for the three months ended
December 31, 1995 (10) (931) (941)
--------- --------- ---------
Balance at December 31, 1995 1,528 151,258 152,786
Net income for the nine months ended
September 30, 1996 649 64,203 64,852
--------- --------- ---------
Balance at September 30, 1996 $ 2,177 $ 215,461 $ 217,638
========= ========= =========
</TABLE>
See accompanying notes.
F-44
<PAGE> 109
IN CAHOOTS, LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 108,967 $ 64,852
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 52,450 38,363
Change in assets and liabilities:
Decrease (increase)in accounts
receivable (799) 295
Decrease in inventories 9,310 1,814
Decrease (increase) in prepaid
expenses 28,761 (4,513)
Increase in accounts payable 506 6,955
Increase (decrease) in accrued
expenses 12,967 (31,007)
--------- ---------
Total adjustments 103,195 11,907
--------- ---------
Net cash provided by operating
activities 212,162 76,759
Cash flows from investing activities:
Acquisition of property and equipment (24,569) (2,333)
Decrease (increase) in accounts
receivable - related party (1,790) 4,803
--------- ---------
Net cash provided by (used in)
investing activities (26,359) 2,470
Cash flows from financing activities:
Repayments of borrowings from banks (125,470) (67,134)
Distributions to partners (60,000) --
--------- ---------
Net cash used in financing activities (185,470) (67,134)
--------- ---------
Increase in cash 333 12,095
Cash at beginning of period 42,972 33,717
--------- ---------
Cash at end of period $ 43,305 $ 45,812
========= =========
Supplemental cash flow information:
Cash paid for interest $ 33,311 $ 20,770
========= =========
</TABLE>
See accompanying notes.
F-45
<PAGE> 110
IN CAHOOTS, LIMITED PARTNERSHIP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
1. Summary of significant accounting policies
Organization:
The Partnership was organized in Kansas on June 15, 1992. The general
partner is Entertainment Wichita, Inc., a Kansas corporation. The
Partnership commenced operations in February 1994. The Partnership's
operations have consisted primarily of owning and operating a
"Country-Western" theme nightclub in Wichita, Kansas.
Basis of presentation:
The accompanying financial statements have been prepared by the
Partnership, without audit. In the opinion of management, the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation of the
financial position as of September 30, 1995 and 1996, and the results of
operations and cash flows for the nine months ended September 30, 1995 and
1996.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents:
For purposes of the statement of cash flows, the Partnership considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories:
Inventories consist of liquor, wine, beer and bar supplies. Inventories
are stated at the lower of cost (first-in, first-out method) or market.
Depreciation and amortization:
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the assets' estimated useful lives as
follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Leasehold improvements 10
Parking lot improvements 10
Furniture, fixtures and equipment 10
</TABLE>
F-46
<PAGE> 111
IN CAHOOTS, LIMITED PARTNERSHIP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
1. Summary of significant accounting policies (continued)
Certain costs incurred before a nightclub is opened are capitalized as
pre-opening expenses and amortized over a 12 month period commencing the
first full month the nightclub begins operation.
Repairs and maintenance:
Normal costs incurred to repair and maintain fixed assets are charged to
operations as incurred. Repairs and betterments which extend the life of
an asset are capitalized and subsequently depreciated on a straight-line
basis over the remaining useful life of the asset. When assets are sold or
retired, the cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in operations.
Fair value of financial instruments:
Cash, accounts receivable, accounts payable and accrued liabilities are
carried in the financial statements in amounts which approximate fair
value because of the short-term maturity of these instruments. Long-term
debt is carried in the financial statements in amounts which approximate
fair value because interest rates have not changed significantly after the
debt was incurred.
Advertising costs:
The Partnership expenses the costs of advertising as incurred.
During the nine months ended September 30, 1995 and 1996, the Partnership
incurred advertising costs of $59,215 and $111,411, respectively.
Income taxes:
No provision for income taxes has been provided for the Partnership since
the partners report their distributive share of income or loss in their
personal capacity.
Concentration of credit risk:
Financial instruments which potentially subject the Partnership to
concentrations of credit risk are primarily cash and temporary cash
investments. The Partnership places its cash investments in highly rated
financial institutions.
2. Notes payable
Short-term notes payable to bank consisted of the following at September
30, 1995 and 1996:
F-47
<PAGE> 112
IN CAHOOTS, LIMITED PARTNERSHIP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
2. Notes payable (continued)
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Note payable to bank, payable in monthly installments of $13,444, including
interest at 1% over the bank's base rate with the final balance due on
December 8, 1995, unsecured. As of December 31, 1995 this note was in de-
fault but was paid in full during 1996 $ 49,469 $ --
========= =========
Notes payable - related parties consists of the following at September 30, 1995
and 1996:
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Notes payable - affiliates of limited partners, payable in monthly installments
of $5,000, including interest at 10%, secured by the personal guarantee of
the Company's president, these loans
were in default at September 30, 1996 $ 50,000 $ 50,000
========= =========
Notes payable - limited partners, in the original principal amount of $50,000,
payable on demand, including interest at 10%, unsecured, due date
subsequently
extended to July 28, 1997 $ 10,000 $ 10,000
========= =========
Long-term note payable - bank consists of the following at September 30, 1995
and 1996:
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Note payable - bank, payable at the rate of $8,069 per month including interest
at 18%, secured by accounts receivable
inventory and furniture and equipment $ 160,427 $ 100,099
Less current maturities (60,159) (85,292)
--------- ---------
Amount due after one year $ 100,268 $ 14,807
========= =========
Maturities of long-term debt at September 30, 1996 are as follows for the
twelve month periods ended September 30:
1997 $ 95,292
1998 14,807
---------
$ 110,099
</TABLE>
3. Real estate leases
On July 30, 1993, the Partnership entered into a building lease for club
operations in Wichita, Kansas with a 20% Limited Partner. The lease term
is ten years commencing October 15, 1993. In addition to minimum rental
payments the Partnership is obligated to pay to
F-48
<PAGE> 113
IN CAHOOTS, LIMITED PARTNERSHIP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
3. Real estate leases (continued)
the landlord, as additional rent, a percentage of gross sales after
deductions for alcohol and sales taxes. The lease agreement contains two
five-year renewal options at the primary lease term rental rate. For the
nine months ended September 30, 1995 and 1996, the Partnership has
incurred additional percentage rent expense of $6,711 and $0,
respectively.
Rent expense for the nine months ended September 30, 1995 and 1996
amounted to $119,511 and $112,500, respectively, including percentage
rent.
The minimum annual commitments under the real estate lease for the twelve
month periods ended September 30, are as follows:
<TABLE>
<S> <C> <C>
1997 $ 150,000
1998 150,000
1999 150,000
2000 150,000
2001 150,000
2002-2004 318,750
----------
$1,068,750
</TABLE>
4. Capital contributions and distributions of the Partnership
During 1993, the general partner contributed capital of $10 and the
limited partners contributed capital of $990. Profits and losses are
allocated 99% to the limited partners' interests and 1% to the general
partner. During the nine months ended September 30, 1995 and 1996 the
Partnership distributed $60,000 and $0, respectively, to the partners.
5. Related party transactions
For the nine months ended September 30, 1995 and 1996, the Partnership
paid management fees to a company owned by relatives of the general
partner amounting to $101,483 and $73,685, respectively. At September 30,
1995 and 1996, $25,790 and $24,000, respectively, had been advanced to
this related company.
During the year ended December 31, 1994, the Partnership provided training
services valued at $15,000 to the 20% limited partner who leases the club
to the Partnership. This amount has been reflected as a receivable at
September 30, 1995 and 1996. This amount is expected to be repaid upon the
payment by the Partnership of certain notes payable to companies related
to the 20% limited partner.
F-49
<PAGE> 114
IN CAHOOTS, LIMITED PARTNERSHIP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
6. Litigation
A lawsuit has been brought against the Partnership for an alleged personal
injury sustained in 1994 at the club. The Partnership is currently
defending the action with defense costs being paid by the Partnership's
insurer. The Partnership's management believes that the financial exposure
is minimal and in any event is covered by insurance. While the
Partnership's insurance company has verbally suggested to Partnership's
counsel that they may contest coverage in this matter, no such action has
been filed and the insuror continues to pay for representation. Claims
such as this are routine in the industry and management believes that the
ultimate resolution of this matter will not materially affect the
partnership's financial position.
F-50
<PAGE> 115
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholders
Entertainment Wichita, Inc.
We have audited the accompanying balance sheet of Entertainment Wichita, Inc.
as of December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Entertainment Wichita, Inc. as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
Denver, Colorado CAUSEY DEMGEN & MOORE INC.
December 4, 1996
F-51
<PAGE> 116
ENTERTAINMENT WICHITA, INC.
BALANCE SHEET
DECEMBER 31, 1994 AND 1995
ASSETS
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Current asset:
Cash $ 30 $ 224
Investment in limited partnership
(Note 2) 1,048 1,528
-------- --------
$ 1,078 $ 1,752
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10 $ 10
Income taxes payable 406 142
-------- --------
Total current liabilities 416 152
Stockholders' equity (Note 3):
Common stock, $1 par value;
50,000 shares authorized,
3,200 shares issued and
outstanding 3,200 3,200
Additional paid-in capital 1,800 1,800
Less notes receivable from stockholders (4,500) --
Retained earnings (deficit) 162 (3,400)
-------- --------
Total stockholders' equity 662 1,600
-------- --------
$ 1,078 $ 1,752
======== ========
</TABLE>
See accompanying notes.
F-52
<PAGE> 117
ENTERTAINMENT WICHITA, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C> <C>
Equity in earnings of limited
partnership (Note 2) $ 2,238 $ 1,080
General and administrative expenses 1,170 4,500
-------- --------
Income (loss) before income taxes 1,068 (3,420)
Provision for income taxes 406 142
-------- --------
Net income (loss) $ 662 $ (3,562)
======== ========
</TABLE>
See accompanying notes.
F-53
<PAGE> 118
ENTERTAINMENT WICHITA, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
Common Stock Additional Notes Retained
----------------------- paid-in receivable earnings
Shares Amount capital stockholders (deficit)
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 3,200 $ 3,200 $ 1,800 $ (4,500) $ --
Net income for the year
ended December 31, 1994 -- -- -- -- 662
Distributions made to
stockholders -- -- -- -- (500)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1994 3,200 3,200 1,800 (4,500) 162
Cancellation of notes receivable
for services performed -- -- -- 4,500 --
Net loss for the year ended
ended December 31, 1995 -- -- -- -- (3,562)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 3,200 $ 3,200 $ 1,800 $ -- $ (3,400)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-54
<PAGE> 119
ENTERTAINMENT WICHITA, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 662 $ (3,562)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Cancellation of notes receivable
for services performed -- 4,500
Equity in earnings of limited
partnership (2,238) (1,080)
Change in assets and liabilities:
Increase in accounts payable 10 --
Increase (decrease) in accrued
expenses 406 (264)
-------- --------
Total adjustments (1,822) 3,156
-------- --------
Net cash used in operating
activities (1,160) (406)
Cash flows from investing activities:
Investment in limited partnership (10) --
Distributions received from limited
partnership 1,200 600
-------- --------
Net cash provided by investing
activities 1,190 600
Cash flows from financing activities:
Proceeds from sale of common stock 500 --
Distributions to stockholders (500) --
-------- --------
Net cash provided by (used in)
financing activities -- --
-------- --------
Increase in cash 30 194
Cash at beginning of period -- 30
-------- --------
Cash at end of period $ 30 $ 224
======== ========
Supplemental cash flow information:
Cash paid for income taxes $ -- $ 406
======== ========
</TABLE>
See accompanying notes.
F-55
<PAGE> 120
ENTERTAINMENT WICHITA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
1. Summary of significant accounting policies
Organization:
The Company was incorporated in Kansas on July 27, 1992. The Company is
the General Partner of In Cahoots, Limited Partnership. The Partnership
commenced operations in February 1994. The Partnership's operations have
consisted primarily of owning and operating a "Country-Western" theme
nightclub in Wichita, Kansas.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Fair value of financial instruments:
Cash, accounts payable and accrued liabilities are carried in the
financial statements in amounts which approximate fair value because of
the short-term maturity of these instruments.
Investments:
Investments in partnerships, which the Company do not financially control,
are accounted for on the equity method until financial control is
established.
Income taxes:
Income taxes are provided based on earnings reported in the financial
statements. The Company follows Statement of Financial Accounting
Standards No. 109 whereby deferred income taxes are provided on temporary
differences between reported earnings and taxable income.
2. Investment of In Cahoots, Limited Partnership
During 1994, the Company, as general partner, contributed capital of $10
and the limited partners contributed capital of $990 to In Cahoots,
Limited Partnership. Profits and losses are allocated 99% to the limited
partners' interests and 1% to the general partner.
F-56
<PAGE> 121
ENTERTAINMENT WICHITA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
2. Investment of In Cahoots, Limited Partnership (continued)
During the years ended December 31, 1994 and 1995, the Partnership
distributed $1,200 and $600, respectively, to the general partner.
3. Subsequent events
Effective October 1, 1996, the Company's board of directors approved a 16
for 25 reverse stock split. All shares in the accompanying financial
statements have been adjusted to reflect the split.
Effective October 1, 1996, the Company issued 36,800 shares of its common
stock and assumed notes payable with an aggregate principal balance owed
of $150,000 in exchange for an additional 79% interest in the Partnership.
This transaction will be recorded as a reverse acquisition of the Company
by the Partnership using purchase accounting and the acquisition of
minority interests resulting in goodwill of $62,945 to be recognized.
On December 16, 1996, 100% of the Company's common stock was acquired in a
merger transaction by Western Country Clubs, Inc. (Western) in exchange
for 400,000 shares of common stock of Western. This transaction will be
accounted for as a transaction between companies under common control and
as such all assets and liabilities of the Company will be carried over at
historic cost.
4. Litigation
A lawsuit has been brought against the Partnership for an alleged personal
injury sustained in 1994 at the club. The Partnership is currently
defending the action with defense costs being paid by the Partnership's
insurer. The Partnership's management believes that the financial exposure
is minimal and in any event is covered by insurance. While the
Partnership's insurance company has verbally suggested to Partnership's
counsel that they may contest coverage in this matter, no such action has
been filed and the insuror continues to pay for representation. Claims
such as this are routine in the industry and management believes that the
ultimate resolution of this matter will not materially affect the
partnership's financial position.
F-57
<PAGE> 122
ENTERTAINMENT WICHITA, INC.
BALANCE SHEET
SEPTEMBER 30, 1995 AND 1996
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Current asset:
Cash $ 224 $ 224
Investment in limited partnership 1,538 2,177
------- -------
$ 1,762 $ 2,401
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10 $ 10
Income taxes payable 164 239
------- -------
Total current liabilities 174 249
Stockholders' equity:
Common stock, $1 par value;
50,000 shares authorized,
3,200 shares issued and
outstanding 3,200 3,200
Additional paid-in capital 1,800 1,800
Less notes receivable from stockholders (4,500) --
Retained earnings (deficit) 1,088 (2,848)
------- -------
Total stockholders' equity 1,588 2,152
------- -------
$ 1,762 $ 2,401
======= =======
</TABLE>
See accompanying notes.
F-58
<PAGE> 123
ENTERTAINMENT WICHITA, INC.
INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Equity in earnings of limited
partnership $ 1,090 $ 649
General and administrative expenses -- --
-------- --------
Income before income taxes 1,090 649
Provision for income taxes 164 97
-------- --------
Net income $ 926 $ 552
======== ========
</TABLE>
See accompanying notes.
F-59
<PAGE> 124
ENTERTAINMENT WICHITA, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Notes Retained
----------------------- paid-in receivable earnings
Shares Amount capital stockholders (deficit)
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 3,200 $ 3,200 $ 1,800 $ (4,500) $ 162
Net income for the nine months
ended September 30, 1995 -- -- -- -- 926
---------- ---------- ---------- ---------- ----------
Balance at September 30, 1995 3,200 3,200 1,800 (4,500) 1,088
Cancellation of notes receivable
for services performed -- -- -- 4,500 --
Net income for the three months
ended December 31, 1995 -- -- -- -- (4,488)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 3,200 3,200 1,800 -- (3,400)
Net income for the nine months
ended September 30, 1996 -- -- -- -- 552
---------- ---------- ---------- ---------- ----------
Balance at September 30, 1996 3,200 $ 3,200 $ 1,800 $ -- $ (2,848)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-60
<PAGE> 125
ENTERTAINMENT WICHITA, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 926 $ 552
Adjustments to reconcile net income
to net cash used in operating
activities:
Equity in earnings of limited
partnership (1,090) (649)
Change in assets and liabilities:
Increase (decrease) in accrued
expenses (242) 97
--------- ---------
Total adjustments (1,332) (552)
--------- ---------
Net cash used in operating
activities (406) --
Cash flows from investing activities:
Distributions received from limited
partnership 600 --
--------- ---------
Net cash provided by investing
activities 600 --
--------- ---------
Increase in cash 194 --
Cash at beginning of period 30 224
--------- ---------
Cash at end of period $ 224 $ 224
========= =========
Supplemental cash flow information:
Cash paid for income taxes $ 406 $ --
========= =========
</TABLE>
See accompanying notes.
F-61
<PAGE> 126
ENTERTAINMENT WICHITA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
1. Summary of significant accounting policies
Organization:
The Company was incorporated in Kansas on July 27, 1992. The Company is
the General Partner of In Cahoots, Limited Partnership. The Partnership
commenced operations in February 1994. The Partnership's operations have
consisted primarily of owning and operating a "Country-Western" theme
nightclub in Wichita, Kansas.
Basis of presentation:
The accompanying financial statements have been prepared by the Company,
without audit. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of the financial
position as of September 30, 1995 and 1996, and the results of operations
and cash flows for the nine months ended September 30, 1995 and 1996.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Fair value of financial instruments:
Cash, accounts payable and accrued liabilities are carried in the
financial statements in amounts which approximate fair value because of
the short-term maturity of these instruments.
Investments:
Investments in partnerships, which the Company do not financially control,
are accounted for on the equity method until financial control is
established.
Income taxes:
Income taxes are provided based on earnings reported in the financial
statements. The Company follows Statement of Financial
F-62
<PAGE> 127
ENTERTAINMENT WICHITA, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
1. Summary of significant accounting policies (continued)
Accounting Standards No. 109 whereby deferred income taxes are provided on
temporary differences between reported earnings and taxable income.
2. Litigation
A lawsuit has been brought against the Partnership for an alleged personal
injury sustained in 1994 at the club. The Partnership is currently
defending the action with defense costs being paid by the Partnership's
insurer. The Partnership's management believes that the financial exposure
is minimal and in any event is covered by insurance. While the
Partnership's insurance company has verbally suggested to Partnership's
counsel that they may contest coverage in this matter, no such action has
been filed and the insuror continues to pay for representation. Claims
such as this are routine in the industry and management believes that the
ultimate resolution of this matter will not materially affect the
partnership's financial position.
F-63
<PAGE> 128
[GROSS COLLINS CRESS, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To Western Country Clubs, Inc.
We have audited the accompanying balance sheets of
CRYSTAL CHANDELIER, INC.
as of December 31, 1993 and 1994, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 Crystal Chandelier, Inc. as
of December 31, 1993 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has experienced a
significant operating loss for the past fiscal year. As described in Note (8),
this condition raises substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ GROSS, COLLINS, & CRESS, P.C.
November 20, 1996
F-64
<PAGE> 129
CRYSTAL CHANDELIER, INC.
BALANCE SHEETS
DECEMBER 31, 1993 AND 1994 (AUDITED) AND JUNE 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
December 31, December 31, June 28,
1993 1994 1995
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ -- $ 85 $ 1,879
Accounts receivable
Credit cards 19,454 8,639 --
Employees -- 2,227 --
Inventories 58,224 19,558 21,391
----------- ----------- -----------
TOTAL CURRENT ASSETS 77,678 30,509 23,270
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation (Note 2) 1,266,805 1,105,065 1,000,167
OTHER ASSETS 19,425 1,859 4,184
----------- ----------- -----------
TOTAL ASSETS $ 1,363,908 $ 1,137,433 $ 1,027,621
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 16,259 $ -- $ --
Accounts payable 233,661 457,077 497,862
Notes and loan payable, related parties (Note 3) 84,795 193,421 437,688
Current portion of notes payable (Note 4) 115,609 171,638 141,915
Payroll and payroll taxes payable 57,767 71,849 39,828
Excise and sales tax payable 22,768 20,824 7,637
Other accrued expenses 25,388 50,082 21,839
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 556,247 964,891 1,146,769
NOTES PAYABLE, less current portion (Note 4) 88,923 -- --
----------- ----------- -----------
TOTAL LIABILITIES 645,170 964,891 1,146,769
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
STOCKHOLDERS' EQUITY (DEFICIT) 718,738 172,542 (119,148)
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,363,908 $ 1,137,433 $ 1,027,621
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
F-65
<PAGE> 130
CRYSTAL CHANDELIER, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1994 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 1994 AND JUNE 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Years Ended Six Months Ended
--------------------------- --------------------------
December 31, December 31, June 30, June 28,
1993 1994 1994 1995
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Beverage and food sales $ 2,389,055 $ 2,237,341 $ 1,178,052 $ 779,863
Admission fees 1,142,350 1,298,590 623,684 453,212
Other revenue 24,920 60,834 27,671 48,319
----------- ----------- ----------- -----------
TOTAL REVENUES 3,556,325 3,596,765 1,829,407 1,281,394
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Cost of products and services 1,532,237 1,491,621 744,081 446,591
Depreciation 163,237 240,001 119,038 105,792
Amortization of property and organizational costs 65,618 17,566 17,390 189
Interest 20,273 30,618 11,069 12,539
General and administrative expenses 1,827,722 2,271,644 1,122,762 1,007,973
Theft loss -- 91,511 91,511 --
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 3,609,087 4,142,961 2,105,851 1,573,084
----------- ----------- ----------- -----------
NET LOSS $ (52,762) $ (546,196) $ (276,444) $ (291,690)
=========== =========== =========== ===========
Loss per share $ (65.95) $ (682.75) $ (345.56) $ (364.61)
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
F-66
<PAGE> 131
CRYSTAL CHANDELIER, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993 AND 1994 (AUDITED)
AND SIX MONTHS ENDED JUNE 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock(1) Additional Retained Total
------------------ Paid-In Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Issuance of stock, net of
syndication costs 800 $ 8 $ 771,492 $ 771,500 $ --
Net loss -- -- -- (52,762) (52,762)
------- --------- --------- --------- ---------
Balance, December 31, 1993 800 8 771,492 (52,762) 718,738
Net loss -- -- -- (546,196) (546,196)
------- --------- --------- --------- ---------
Balance, December 31, 1994 800 8 771,492 (598,958) 172,542
Net loss (unaudited) -- -- -- (291,690) (291,690)
------- --------- --------- --------- ---------
Balance, June 28, 1995 (unaudited) 800 $ 8 $ 771,492 $(890,648) $(119,148)
======= ========= ========= ========= =========
</TABLE>
(1) $.01 par value, 1,000 shares authorized, 800 shares issued and outstanding.
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
F-67
<PAGE> 132
CRYSTAL CHANDELIER, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1994 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 1994 AND JUNE 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Years Ended Six Months Ended
--------------------------- --------------------------
December 31, December 31, June 30, June 28,
1993 1994 1994 1995
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (52,762) $ (546,196) $ (276,444) $ (291,690)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities
Depreciation and amortization 228,855 257,567 136,428 105,981
Changes in assets and liabilities
Decrease (increase) in accounts receivable (19,454) 8,588 9,081 10,866
Decrease (increase) in inventories (58,224) 38,666 26,950 (1,833)
Increase (decrease) in bank overdraft 16,259 (16,259) (16,259) --
Increase in accounts payable 233,661 223,416 84,547 40,785
Increase (decrease) in accrued expenses 105,923 36,832 110,517 (73,450)
----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 454,258 2,614 74,820 (209,341)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (1,430,042) (78,261) (42,417) (893)
Increase in preopening cost and organizational expense (85,043) -- -- --
Other assets -- -- -- (2,516)
----------- ----------- ----------- -----------
NET CASH USED BY
INVESTING ACTIVITIES (1,515,085) (78,261) (42,417) (3,409)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from related parties 91,362 134,956 -- 254,267
Repayments of borrowings from related parties (6,567) (26,330) (26,330) (10,000)
Borrowings from notes payable 250,100 25,457 53,950 --
Repayments of notes payable (45,568) (58,351) (33,484) (29,723)
Proceeds from sale of common stock 800,000 -- -- --
Syndication costs (28,500) -- -- --
----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 1,060,827 75,732 (5,864) 214,544
----------- ----------- ----------- -----------
NET INCREASE IN CASH -- 85 26,539 1,794
CASH AT BEGINNING OF PERIOD -- -- -- 85
----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ -- $ 85 $ 26,539 $ 1,879
=========== =========== =========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest $ 17,036 $ 23,197 $ 7,671 $ 18,001
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
F-68
<PAGE> 133
CRYSTAL CHANDELIER, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 1994 AND JUNE 28, 1995 (UNAUDITED)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Crystal Chandelier, Inc. (the "Company"), was organized in
the State of Georgia on September 22, 1992. The Company's operations
have consisted primarily of owning and operating a country-western theme
nightclub in the area of Atlanta, Georgia.
Cash and cash equivalents - For purposes of the statements
of cash flows, the Company considers all highly liquid investments
purchased with an original maturity of three (3) months or less to be
cash equivalents.
Depreciation and amortization - Property and equipment are
stated at cost. Depreciation is provided using the double-declining and
straight-line methods over the assets' estimated useful lives as
follows: leasehold improvements, 10 years; furniture and fixtures, 7
years; and equipment, 5-7 years.
Interim financial statements - The balance sheet as of
June 28, 1995, and the related statements of operations, stockholders'
equity and cash flows for the six-month periods ended June 30, 1994 and
June 28, 1995 are unaudited. However, in the opinion of management,
these interim financial statements include all adjustments (consisting
of only normal recurring adjustments) which are necessary for the fair
presentation of the results for the interim periods presented. The
results of operations for the unaudited six-month period ended June 28,
1995, are not necessarily indicative of the results which may be
expected for the entire 1995 fiscal year.
Income taxes - No provision for income taxes has been
provided since the Company has elected under the Internal Revenue Code
to be an S corporation. In lieu of corporation income taxes, the
stockholders of an S corporation are taxed on their proportionate share
of the Company's taxable income.
Inventories - Inventories consist of liquor, wine, and
beer. Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Preopening costs - Start up costs are capitalized and
amortized over a twelve-month period beginning when the Club opened.
Repairs and maintenance - Normal costs incurred to repair
and maintain fixed assets are charged to operations as incurred.
Repairs and betterments which extend the life of an asset are
capitalized and subsequently depreciated on a straight-line basis over
the remaining useful life of the asset. When assets are sold or
retired, the cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in operations.
Use of estimates - The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The
ultimate outcomes could differ from those estimates.
F-69
<PAGE> 134
CRYSTAL CHANDELIER, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 1994 AND JUNE 28, 1995 (UNAUDITED)
(2) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, December 31, June 28,
1993 1994 1995
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Cost
Machinery and equipment $ 375,828 $ 422,598 $ 423,491
Furniture 40,903 41,273 41,273
Signs 6,584 7,716 7,716
Leasehold improvements 1,006,727 1,036,716 1,036,716
----------- ----------- -----------
1,430,042 1,508,303 1,509,196
Accumulated depreciation (163,237) (403,238) (509,029)
----------- ----------- -----------
Total $ 1,266,805 $ 1,105,065 $ 1,000,167
=========== =========== ===========
</TABLE>
The depreciation policies followed by the Company are
described in Note (1). The aggregate depreciation charged to operations
is $163,237 in 1993 and $240,001 in 1994. The property and equipment
secure a note payable (Note 4). The leasehold improvements are also
subject to a claim for lien.
(3) NOTES AND LOAN PAYABLE, RELATED PARTIES
Notes and loan payable, related parties consist of the
following at December 31, 1993 and 1994, and June 28, 1995:
<TABLE>
<CAPTION>
December 31, December 31, June 28,
1993 1994 1995
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
Note payable, club manager, due on October
11, 1995, including interest at 6% per annum,
convertible into common stock at the rate of
one share for each $1,000 of principal $ 26,330 $114,956 $165,170
Notes payable, stockholder/director, payable
on demand with interest at prime plus .5% 58,465 58,465 58,465
Loan payable, stockholder/director, payable
on demand with interest at 8.75% per annum -- 20,000 20,000
Note payable, stockholder/director, payable
on demand with interest at 9% per annum
Unsecured -- -- 90,000
Notes payable, stockholders, payable during
July 1996, including interest at 9% per annum -- -- 104,053
-------- -------- --------
Total notes payable, related parties $ 84,795 $193,421 $437,688
======== ======== ========
</TABLE>
F-70
<PAGE> 135
CRYSTAL CHANDELIER, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 1994 AND JUNE 28, 1995 (UNAUDITED)
(4) NOTES PAYABLE
Notes payable consist of the following at December 31, 1993 and 1994, and
June 28, 1995:
<TABLE>
<CAPTION>
December 31, December 31, June 28,
1993 1994 1995
--------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Note payable, Cousins Property, payable in
monthly installments of $4,000, including principal
and interest at 10.25% per annum with final payment
due December 1, 1995 $ -- $ 25,457 $ 25,457
Note payable, bank, payable in monthly
installments of $9,266, including principal plus
interest at 8% per annum with the final payment due
October 25, 1995. Secured by substantially all
assets of the Company and guaranteed by a
stockholder 204,532 146,181 116,458
--------- --------- ---------
Total notes payable 204,532 171,638 141,915
Less current maturities (115,609) (171,638) (141,915)
--------- --------- ---------
Noncurrent portion $ 88,923 $ -- $ --
========= ========= =========
</TABLE>
The Company failed to make all principal payments when due
and therefore the notes were in default at December 31, 1994, and June
28, 1995.
(5) RELATED PARTY TRANSACTIONS
The Company retains the services of a law firm in which a
principal is a stockholder in the Company. Amounts paid for legal fees
for the years ended December 31, 1993 and 1994, were $26,916 and
$112,824, respectively. The Company has borrowed funds from various
stockholders (Note 3). In addition, a major stockholder has personally
guaranteed the note payable, bank (Note 4).
(6) OPERATING LEASE
On November 1, 1992, the Company entered into a ten-year
building lease for club operations, which was amended on June 23, 1994.
The lease provides for additional rent when gross sales of the Company
exceed a specified level and contains two five-year renewal options.
Rent expense was $128,289 and $131,044 for the years ended December 31,
1993 and 1994, respectively.
The minimum annual commitments under the real estate lease are as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
- ------------------------ ----------
<S> <C>
1995 $ 127,522
1996 141,634
1997 141,634
1998 141,634
1999 142,917
Thereafter 471,087
----------
Total $1,166,428
==========
</TABLE>
F-71
<PAGE> 136
CRYSTAL CHANDELIER, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994 (AUDITED)
AND SIX MONTHS ENDED JUNE 30, 1994 AND JUNE 28, 1995 (UNAUDITED)
(7) LITIGATION
The Company is involved in various claims, disputes with
third parties, and pending actions involving personal injuries.
Two suits have been brought for alleged personal injuries
sustained during altercations at the club. Initially, both claims were
covered under the Company's insurance policy, however, the insurer has
withdrawn coverage extension on one claim due to an exclusion in the
policy. The Company has contested this decision and currently, a
coverage decision is under review. The plaintiffs in the two cases have
claimed damages of $3,000,000 and $10,000,000, respectively. It is the
opinion of management that the outcomes will favor the Company, however,
potential claims could total within the range of $20,000 to $100,000
even if the insurance company extends coverage.
(8) GOING CONCERN
As presented in the accompanying financial statements, the
Company incurred losses of $546,196 and $291,690 for the year ended
December 31, 1994 and the six months ended June 28, 1995, respectively.
The Company had negative working capital of $934,382 and $1,123,499 at
December 31, 1994 and June 28, 1995, respectively. The Company also
experienced difficulty obtaining sufficient credit from its bank and its
suppliers during these periods. It was in default of two notes payable
on December 31, 1994 and June 28, 1995.
The ability of the Company to continue as a going concern
is dependent on the continuation of financing and the ability of
management to return the Company's operations to profitability. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
As discussed in Note (9), the Company sold substantially
all its assets on June 29, 1995.
(9) SUBSEQUENT EVENTS
On June 29, 1995, the Company sold substantially all of
its assets to Cowboys Concert Hall/Atlanta, Ltd. The total purchase
price for the assets of the company was $1,650,000 payable $425,000 at
closing plus a promissory note in the principal amount of $1,225,000,
bearing interest at 8% per annum, due December 29, 1999. Payments of
principal plus accrued interest are to commence on the earlier of
January 1, 1996, or the attainment of specified levels of revenues and
net income.
On September 16, 1996, Cowboys Concert Hall/Atlanta, Ltd.
filed a petition for relief under Chapter 11 of the Federal Bankruptcy
laws in the United States Bankruptcy Court for the Northern District of
Georgia.
F-72
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. The Colorado Business Corporation Act (the "Act") allows indemnification
of directors, officers, employees and agents of the Company against liabilities
incurred in any proceeding in which an individual is made a party because he
was a director, officer, employee or agent of the Company if such person
conducted himself in good faith and reasonably believed his actions were in, or
not opposed to, the best interests of the Company, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. A person must be found to be entitled to indemnification under
this statutory standard by procedures designed to assure that disinterested
members of the Board of Directors have approved indemnification or that, absent
the ability to obtain sufficient numbers of disinterested directors,
independent counsel or shareholders have approved the indemnification based on
a finding that the person has met the standard. Indemnification is limited to
reasonable expenses. In addition, the Company's By-Laws provide that the
Company shall have the power to indemnify its officers, directors, employees
and agents to the extent permitted by the Act.
Specifically, the Act provides as follows:
"7-109-102. AUTHORITY TO INDEMNIFY DIRECTORS
(1) Except as provided in subsection (4) of this section, a
corporation may indemnify a person made a party to a proceeding because
the person is or was a director against liability incurred in the
proceeding if:
(a) The person conducted himself or herself in good
faith; and
(b) The person reasonably believed:
(I) In the case of conduct in an official
capacity with the corporation, that his or her conduct was in the
corporation's best interests; and
(II) In all other cases, that his or her conduct
was at least not opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person
had no reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit
plan for a purpose the director reasonably believed to be in the
interests of the participants in or beneficiaries
II-1
<PAGE> 138
of the plan is conduct that satisfies the requirement of subparagraph
(II) of paragraph (b) of subsection (1) of this section. A director's
conduct with respect to an employee benefit plan for a purpose that the
director did not reasonably believe to be in the interests of the
participants in or beneficiaries of the plan shall be deemed not to
satisfy the requirements of paragraph (a) of subsection (1) of this
section.
(3) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent is not, of itself, determinative that the director did not
meet the standard of conduct described in this section.
(4) A corporation may not indemnify a director under this
section:
(a) In connection with a proceeding by or in the right
of the corporation in which the director was adjudged liable to the
corporation; or
(b) In connection with any other proceeding charging
that the director derived an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived an
improper personal benefit.
(5) Indemnification permitted under this section in
connection with a proceeding by or in the right of the corporation is
limited to reasonable expenses incurred in connection with the
proceeding.
7-109-103. MANDATORY INDEMNIFICATION OF DIRECTORS
Unless limited by its articles of incorporation, a corporation
shall indemnify a person who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which the person was a
party because the person is or was a director, against reasonable
expenses incurred by him or her in connection with the proceeding.
7-109-105 COURT-ORDERED INDEMNIFICATION OF DIRECTORS
(1) Unless otherwise provided in the articles of
incorporation, a director who is or was a party to a proceeding may
apply for indemnification to the court conducting the proceeding or to
another court of competent jurisdiction. On receipt of an application,
the court, after giving any notice the court considers necessary, may
order indemnification in the following manner:
(a) If it determines that the director is entitled to
mandatory indemnification under section 7-109-103, the court shall order
indemnification, in which case the court shall also order the
corporation to pay the director's reasonable expenses incurred to obtain
court-ordered indemnification.
II-2
<PAGE> 139
(b) If it determines that the director is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not the director met the standard of conduct
set forth in section 7-109-102(1) or was adjudged liable in the
circumstances described in section 7-109-102(4), the court may order
such indemnification as the court deems proper; except that the
indemnification with respect to any proceeding in which liability shall
have been adjudged in the circumstances described in section 7-109-
102(4) is limited to reasonable expenses incurred in connection with the
proceeding and reasonable expenses incurred to obtain court-ordered
indemnification.
7-109-106. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF
DIRECTORS
(1) A corporation may not indemnify a director under section
7-109-102 unless authorized in the specific case after a determination
has been made that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct set
forth in section 7-109-102. A corporation shall not advance expenses to
a director under section 7-109-104 unless authorized in the specific
case after the written affirmation and undertaking required by section
7-109-104(1)(a) and (1)(b) are received and the determination required
by section 7-109-104(1)(c) has been made.
(2) The determinations required by subsection (1) of this
section shall be made:
(a) By the board of directors by a majority vote of
those present at a meeting at which a quorum is present, and only those
directors not parties to the proceeding shall be counted in satisfying
the quorum; or
(b) If a quorum cannot be obtained, by a majority vote
of a committee of the board of directors designated by the board of
directors, which committee shall consist of two or more directors not
parties to the proceeding; except that directors who are parties to the
proceeding may participate in the designation of directors for the
committee.
(3) If a quorum cannot be obtained as contemplated in
paragraph (a) of subsection (2) of this section, and a committee cannot
be established under paragraph (b) of subsection (2) of this section,
or, even if a quorum is obtained or a committee is designated, if a
majority of the directors constituting such quorum or such committee so
directs, the determination required to be made by subsection (1)of this
section shall be made:
(a) By independent legal counsel selected by a vote of
the board of directors or the committee in the manner specified in
paragraph (a) or (b) of subsection (2) of this section or, if a quorum
of the full board cannot be obtained and a committee cannot be
established, by independent legal counsel selected by a majority vote of
the full board of directors; or
(b) By the shareholders.
II-3
<PAGE> 140
(4) Authorization of indemnification and advance of expenses
shall be made in the same manner as the determination that
indemnification or advance of expenses is permissible; except that, if
the determination that indemnification or advance of expenses is
permissible is made by independent legal counsel, authorization of
indemnification and advance of expenses shall be made by the body that
selected such counsel.
7-109-107. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND
AGENTS
(1) Unless otherwise provided in the articles of
incorporation:
(a) An officer is entitled to mandatory indemnification
under section 7-109-103, and is entitled to apply for court-ordered
indemnification under section 7-109-105, in each case to the same extent
as a director;
(b) A corporation may indemnify and advance expenses to
an officer, employee, fiduciary, or agent of the corporation to the same
extent as to a director; and
(c) A corporation may also indemnify and advance
expenses to an officer, employee, fiduciary, or agent who is not a
director to a greater extent, if not inconsistent with public policy,
and if provided for by its bylaws, general or specific action of its
board of directors or shareholders, or contract.
7-109-109. LIMITATION OF INDEMNIFICATION OF DIRECTORS
(1) A provision treating a corporation's indemnification of,
or advance of expenses to, directors that is contained in its articles
of incorporation or bylaws, in a resolution of its shareholders or board
of directors, or in a contract, except an insurance policy, or
otherwise, is valid only to the extent the provision is not
inconsistent with sections 7-109-101 to 7-109-108. If the articles of
incorporation limit indemnification or advance of expenses,
indemnification and advance of expenses are valid only to the extent not
inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a
corporation's power to pay or reimburse expenses incurred by a director
in connection with an appearance as a witness in a proceeding at a time
when he or she has not been made a named defendant or respondent in the
proceeding.
7-109-108. INSURANCE
A corporation may purchase and maintain insurance on behalf of a
person who is or was a director, officer, employee, fiduciary, or agent
of the corporation, or who, while a director, officer, employee,
fiduciary, or agent of the corporation, is or was serving at the request
of the corporation as a director, officer, partner, trustee, employee,
fiduciary, or agent
II-4
<PAGE> 141
of another domestic or foreign corporation or other person or of an
employee benefit plan, against liability asserted against or incurred by
the person in that capacity or arising from his or her status as a
director, officer, employee, fiduciary, or agent, whether or not the
corporation would have power to indemnify the person against the same
liability under section 7-109-102, 7-109-103, or 7-109-107. Any such
insurance may be procured from any insurance company designated by the
board of directors, whether such insurance company is formed under the
laws of this state or any other jurisdiction of the United States or
elsewhere, including any insurance company in which the corporation has
an equity or any other interest through stock ownership or otherwise.
7-109-110. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR
If a corporation indemnifies or advances expenses to a director
under this article in connection with a proceeding by or in the right of
the corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the notice
of the next shareholders' meeting. If the next shareholder action is
taken without a meeting at the instigation of the board of directors,
such notice shall be given to the shareholders at or before the time the
first shareholder signs a writing consenting to such action."
B. Article VI of the Registrant's Amended and Restated Articles of
Incorporation provides for the elimination of personal liability for monetary
damages for the breach of fiduciary duty as a director except for liability (i)
resulting from a breach of the director's duty of loyalty to the Registrant or
its shareholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) for approving
payment of distributions to shareholders to the extent that any such actions
are illegal under the Act; or (iv) for any transaction from which a director
derives an improper personal benefit. This Article further provides that the
personal liability of the Registrant's directors shall be eliminated or limited
to the fullest extent permitted by the Act.
C. The Underwriting Agreement between the Registrant and the Underwriters
provides that the Underwriters will indemnify and hold harmless the Registrant,
the directors of the Registrant, and each person, if any, who controls the
Registrant within the meaning of Section 15 of the Securities Act of 1933, as
amended (the "1933 Act"), against any and all losses, claims, demands,
liabilities and expenses (including reasonable legal or other expenses) to
which it may become subject, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or in any Blue Sky Application or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, resulting from the use of written
information furnished to the Registrant by the Underwriters or any
participating dealer for use in the preparation of the Registration Statement
or in any Blue Sky Application.
II-5
<PAGE> 142
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered. All expenses
are estimated except the registration fee.
<TABLE>
<S> <C>
Registration and filing fee ................................ $ 4,237
NASD filing fee ............................................ 1,071
Printing ................................................... 40,000*
Accounting fees and expenses ............................... 65,000*
Legal fees and expenses .................................... 75,000*
Blue Sky fees and filing fees .............................. 15,000*
Transfer and Warrant Agent fees ............................ 5,000*
Miscellaneous .............................................. 24,692*
--------
Total ...................................................... $230,000
========
</TABLE>
- --------
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued its securities to
the following persons for the cash or other consideration indicated in
transactions that were not registered under the 1933 Act.
A. In February, 1994, the Company sold 116,666 shares of its Common Stock
to the following persons for the consideration indicated:
<TABLE>
<CAPTION>
Name No. of Shares Consideration
---- ------------- -------------
<S> <C> <C>
Van Baal Investment 5,000 $ 15,000
John Titello 4,333 $ 13,000
Merrill Roberts 3,000 $ 9,000
Kim E. Hensley 20,000 $ 60,000
Jerome Wilensky 5,000 $ 15,000
Ronn Reidel 3,000 $ 9,000
Roxie G. Malara 1,667 $ 5,000
Richard B. Cutforth 15,000 $ 45,000
Col. Henry Graham 7,500 $ 22,500
Ray Orman 16,666 $ 50,000
Dennis W. Hartley, IRA 10,000 $ 30,000
Joel Fennern 3,000 $ 9,000
Sylvia S. Hensley 3,000 $ 9,000
Shelia E. Crawford 3,500 $ 10,500
Charles R. Harrison 6,000 $ 18,000
T-Group, Inc. 10,000 $ 30,000
------------ ------------
116,666 $ 350,000
============ ============
</TABLE>
II-6
<PAGE> 143
The Company claims the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D
adopted thereunder for the transactions described above. All certificates were
endorsed with a legend restricting the sale or transfer of the securities
except in accordance with federal securities laws. No brokers or dealers
received compensation in connection with the sale of these shares.
B. In February, 1994, the Company issued promissory notes in the aggregate
amount of $250,000 to two persons. The notes bear interest at the rate of 10%
per annum and are demand notes. As further consideration for making the loans,
the Company granted options to purchase an aggregate of 17,000 shares to the
lenders, exercisable over a five year period, at $2.50 per share. The
following sets forth the name and amount loaned by each lender:
<TABLE>
<CAPTION>
Name Amount of Loan
---- --------------
<S> <C>
Michael J. Skurich $100,000
Michele Freedman $150,000
</TABLE>
The Company claims the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended.
C. In February, 1994, the Company issued 25,000 shares to Merrill E.
Roberts as partial consideration for the exercise of an option to purchase 19%
of his limited partnership interest in WCC I, Ltd. The Company claims the
exemption provided by Section 4(2) of the Securities Act of 1933, as amended.
D. In October, 1994, effective September 30, 1994, the Company issued
232,264 shares to limited partners of Western Country Club I, Ltd. ("WCC I,
Ltd.") and Western Country Club III, Ltd. ("WCC III, Ltd.") pursuant to an
offer to limited partners to exchange interests in WCC I, Ltd. for stock or
cash and to purchase all of the assets of WCC III, Ltd., as follows:
<TABLE>
<CAPTION>
Shares received Shares received
for Limited Partnership for Limited Partnership
Interests in Interests In
Name WCC I, Ltd. WCC III, Ltd.
- ---- ----------- -------------
<S> <C> <C>
Van Baal Investments, Ltd 19,429
Heimy, Ltd 6,476
Robert Spencer 9,714
Margaret Spencer 9,714
Ray Orman 25,600 19,429
John Titello 16,000 16,190
Looking Ahead, Inc. 16,190
James Woods 3,200 6,476
Merrill Roberts 9,714
Eric Peterson 3,200 6,476
</TABLE>
II-7
<PAGE> 144
<TABLE>
<S> <C> <C>
Michael Ocello 1,619
Kevin Titello 6,400 1,619
Melvin Jennings 3,238
Vali Lowrie 16,000 12,952
ABDT Joint Venture 9,714
Harold Gorden 3,200 6,476
Syliva Hensley 3,238
------- -------
Totals 73,600 158,664
======= =======
</TABLE>
The Company claims the exemption from registration provided by Section 4(2) of
the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D adopted
thereunder for the transactions described above. All certificates were
endorsed with a legend restricting the sale or transfer of the securities
except in accordance with federal securities laws. No brokers or dealers
received compensation in connection with the sale of these shares.
E. On March 15, 1995, the Company authorized the issuance of 15,000 shares
to Michelle James for public relations services rendered. The Company claims
the exemption provided by Section 4(2) of the Securities Act of 1933, as
amended, for the issuance of these shares.
F. In June, 1996, the Company conducted a private placement of Common
Stock at a price of $2.50 per share as follows:
<TABLE>
<CAPTION>
Name No. of Shares Consideration
- ---- ------------- -------------
<S> <C> <C>
Richard B. Cutforth 8,200 $20,500
John M. Black 10,000 25,000
Joel O. Palmer 10,000 25,000
Sedco, Inc. 10,000 25,000
Stephen Douglas Sato 8,000 20,000
Howard J. Manetti 20,000 50,000
Joel Fennern 7,000 17,500
Kim E. Hensley 14,000 35,000
William Pallack 8,000 20,000
------ --------
95,200 $238,000
====== ========
</TABLE>
The offers and sales set forth above were made in reliance upon the exemption
from registration provided by Section 4(2) of the 1933 Act and/or Regulation D
and Rule 506 adopted thereunder. No broker/dealers were involved in the sale
and no commissions were paid. All purchasers represented that they purchased
the securities for investment, and all certificates issued to the purchasers
were impressed with a restrictive legend advising that the shares represented
by the certificates may not be sold, transferred, pledged or hypothecated
without having first been
II-8
<PAGE> 145
registered or the availability of an exemption from registration established.
"Stop transfer" instructions were placed against the transfer of these
certificates by the Company's transfer agent.
G. In July 1996, the Company granted options to acquire 145,000 shares to a
consultant to the Company. The options are exercisable at $3.50 per share for
three years. The Company also granted the consultant 45,000 shares of Common
Stock in exchange for the return to the Company of options to purchase 240,000
shares at $2.50 per share. The Company claims the exemption provided by
Section 4(2) of the 1944 Act for these transactions as the recipient has been a
consultant to the Company since 1993, and therefore has access to the type of
information a registration would provide and the ability to evalutate such
information. No broker/dealers were involved in the sale and no commissions
were paid.
H. In September, 1996, the Company offered certain holders of Cowboys
Concert Hall Arlington, Inc. ("Cowboys") common stock the opportunity to
exchange their shares of Cowboys common stock for shares of the Company on the
basis of one share of the Company's Common Stock for each Cowboy's share held
and one share of the Company's Common Stock for each Cowboy's warrant held.
These individuals had participated in a private placement conducted by Cowboys
in Fall, 1995 to raise funds for Cowboys to pay its expenses in connection with
a proposed merger between Cowboys and the Company which did not occur. These
shares were issued in February, 1997.
<TABLE>
<CAPTION>
Name Number of shares Number of Cowboys Number of Shares
- ---- ---------------- ----------------- ----------------
of Cowboys Warrants of Western
---------- -------- ----------
<S> <C> <C> <C>
Van Baal Investments 10,000 10,000 20,000
John T. Titello 10,000 10,000 20,000
Henry R. Graham 4,000 4,000 8,000
H. N. C. Associates 2,000 2,000 4,000
H. Samuel Greenwalt ITR 5,000 5,000 10,000
Bear Stearns Sec Corp. Cust
Acrodyme Profit Sharing Trust 5,000 5,000 10,000
Robert J. Richmeier, Jr 2,000 2,000 4,000
Lorence M. Colbert 2,000 2,000 4,000
Shelley B. Don 4,400 4,400 8,800
Richard A. Baker 2,000 2,000 4,000
Gregory A. Walda 5,000 5,000 10,000
Steven Feldman 2,000 2,000 4,000
</TABLE>
II-9
<PAGE> 146
<TABLE>
<S> <C> <C> <C>
Lear 171 Inc. 4,000 4,000 8,000
---------- ---------- ----------
TOTAL 57,400 57,400 114,800
========== ========== ==========
</TABLE>
I. In December, 1996, the Company acquired an 80% interest in InCahoots
Limited Partnership for 400,000 shares of Common Stock through a merger
transaction with Entertainment Wichita, Inc. ("EWI"), a Kansas corporation. As
a result, EWI is now a Kansas corporation, and is 80% owned by the Company.
EWI is the general partner and an 80% owner of InCahoots, a country-western
theme nightclub located in Wichita, Kansas. EWI is owned 62.625% by Shane
Investments, L.C., a corporation which is solely owned and controlled by Joe
Robert Love, Jr., the adult son of Joe R. Love, a Director of the Company. The
Company claims the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended, for the issuance of the 400,000 shares. No
broker/dealers were involved in the sale and no commissions were paid. All
purchasers represented that they purchased the securities for investment, and
all certificates issued to the purchasers were impressed with a restrictive
legend advising that the shares represented by the certificates may not be
sold, transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established. "Stop
transfer" instructions were placed against the transfer of these certificates
by the Company's transfer agent.
ITEM 27. EXHIBITS AND FINANCIAL SCHEDULES
The following is a complete list of exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation, dated December 20, 1989.(1)
3.2 Amendment to Articles of Incorporation, dated November 30, 1993(1)
3.3 Bylaws of Western Country Clubs, Inc.(1)
3.4 Amendment to Articles of Incorporation, dated February , 1996 -- (9)
4.1 Form of Representative's Purchase Option
4.2 Form of Series A Common Stock Purchase Warrant Certificate
4.3 Form of Representative's Warrants to Purchase Common Stock
5.0 Opinion of Brenman Bromberg & Tenenbaum, P.C.(9)
</TABLE>
II-10
<PAGE> 147
9.0 Voting Trust Agreement, dated as of September 20, 1996, between Red River
Concepts, Inc. and Troy H. Lowrie(7)
10.1 Lease Agreement, dated August 26, 1993, between Wal-Mart Stores, Inc. and
Western Country Clubs, Inc.(1)
10.2 License Agreement, dated January 20, 1993, between Western Country Clubs,
Inc. and Western Country Club I, Ltd.(1)
10.3 Option for Limited Partnership Interest, dated September 23, 1993, between
Western Country Clubs, Inc. and Merrill E. Roberts.(1)
10.4 Stock Option Agreement, dated December 16, 1993.(1)
10.5 Lease with Option to Purchase, dated December 26, 1993, between and among
Edward L. and Barbara L. Benshoof and Western Country Clubs, Inc.(1)
10.6 Agreement to Purchase and Sale of Business and Assets, with exhibits,
dated November 1, 1994(2)
10.7 Bill of Sale, dated November 1, 1994, transferring Arizona Bar Liquor
License No. 06100208 to Western(2)
10.8 Amendment to Covenant Not to Compete, undated, between Western and
Clarence O. Bond, Jack E. McMurrough and Ada L. Bond
10.9 Agreement and Plan of Merger, dated October 10, 1995, between Western
Country Clubs, Inc., Western Newco, Inc. and Cowboys Concert Hall -
Arlington, Inc. (6)
10.10 Lease with Option to Purchase, dated October 14, 1992, between Expo Bowl,
Inc. and Texas of Indy, Inc.(1)
10.11 Guaranty of Lease with Option to Purchase, dated October 14, 1992, by
Troy H. Lowrie.(1)
10.12 First Amendment to Lease with Option to Purchase dated January 20, 1993,
between Expo Bowl, Inc. and Texas of Indy, Inc.(1)
10.13 Warranty Deed, dated February 28, 1993, in the name of Western Country
Club I, Ltd.(1)
10.14 State of Indiana, Certificate of Trade Mark Registration, dated August
18, 1993, in the name of Texas of Indy, Inc. for "A Little Bit of Texas"
and Design.(1)
10.15 Lease, dated April 2, 1993, between Texas of Indy, Inc. and Great Western
Boot Company.(1)
II-11
<PAGE> 148
10.16 Operating Agreement, dated March 17, 1993, between Texas of Indy, Inc.
and Taco Bell Corp.(1)
10.17 Option Agreement, dated January 20, 1993, between and among Western
Country Club I, Ltd., Troy H. Lowrie and Merrill Roberts.(1)
10.18 Amended Limited Partnership Agreement of Western Country Club I, Ltd.(1)
10.19 Consulting Agreement, dated January 20, 1993, between Western Country
Club I, Ltd. and Texas of Indy, Inc.(1)
10.20 Security Agreement, dated March 18, 1993 between Western Country Club I,
Ltd. and Texas of Indy, Inc.(1)
10.21 Option to Purchase Assets, dated January 20, 1993, between Western
Country Club I, Ltd. and Texas of Indy, Inc.(1)
10.22 Promissory Note, dated January 31, 1994, from Western Country Club I,
Ltd. to Expo Bowl, Inc. in the amount of $150,000.(1)
10.23 Guaranty, dated January 31, 1994, of Promissory Note to Expo Bowl, Inc.
by Troy H. Lowrie.(1)
10.24 Promissory Note, dated January 31,1994, from Western Country Club I, Ltd.
to Dulaney National Bank.(1)
10.25 Articles of Incorporation, WCWW Acquisition Corporation, dated January
20, 1995.(4)
10.26 Interim Permit, dated February 9, 1995, from the Arizona Department of
Liquor Licenses and Control for the Wild Wild West nightclub.(5)
10.27 Stock Purchase Agreement, dated September 21, 1996, between and among
Troy H. Lowrie, Western Country Clubs, Inc. and Red River Concepts,
Inc.(7)
10.28 Lease Agreement, dated July 30, 1993, by and between Boots, Inc. and In
Cahoots Limited Partnership.
10.29 Agreement and Plan of Merger, dated December 16, 1996, by and between
Western Country Clubs, Inc., Entertainment Wichita, Inc. and WCCI
Acquisition Corp.(8)
10.30 Warrant Agreement, dated __________, 1997, between Western Country Clubs,
Inc. and American Securities Transfer & Trust, Inc.
11 Statement re: computation of per share earnings
II-12
<PAGE> 149
21 Subsidiaries of the Registrant
23.1 Consent of Causey Demgen & Moore, Inc.
23.2 Consent of Brenman Key & Bromberg, P.C. (included in Exhibit 5.0)
23.3 Consent of Gross, Collins & Cress, P.C.
27.1 Financial Data Schedule
- ----------------
(1) Incorporated by reference from the like numbered exhibits filed with the
Registrant's Registration Statement on Form SB-2, No. 33-72942.
(2) Incorporated by reference from Western's Current Report on Form 8-K,
dated November 1, 1994, attached as Exhibits 10.1 and 10.2 thereto.
(3) Incorporated by reference from Western's Annual Report on Form 10-KSB,
dated February 27, 1995, attached as Exhibit 21 thereto.
(4) Incorporated by reference from Western's Annual Report on Form 10-KSB,
dated February 27, 1995, attached as Exhibit 28.16 thereto.
(5) Incorporated by reference from Western's Annual Report on Form 10-KSB,
dated February 27, 1995, attached as Exhibit 28.17 thereto.
(6) Incorporated by reference from Western's Current Report on Form 8-K,
dated October 19, 1995, attached as Exhibit 10.1.
(7) Incorporated by reference from Western's Current Report on Form 8-K,
dated October 10, 1996, attached as Exhibit 9.
(8) Incorporated by reference from Western's Current Report on Form 8-K,
dated December 16, 1996, attached as Exhibit 2.
(9) To be filed by Amendment.
(b) Financial statement schedules have been omitted because they are not
required or the information is included in the financial statements and notes
thereto.
Item 28. Undertakings
The undersigned Registrant will:
(a)(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 information 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.
II-13
<PAGE> 150
The undersigned Registrant will provide to the Underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
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 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.
II-14
<PAGE> 151
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 and County of Denver, State of Colorado on
February 10, 1997.
WESTERN COUNTRY CLUBS, INC.
By: /s/ James E. Blacketer
---------------------------------
James E. Blacketer, President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ James E. Blacketer President, Principal February 10, 1997
- ------------------------------ Executive Officer and
James E. Blacketer Director
/s/ Ted W. Strickland Principal Financial February 10, 1997
- ------------------------------ Officer, Treasurer and
Ted W. Strickland Director
/s/ Joe R. Love Director February 10, 1997
- ------------------------------
Joe R. Love
II-15
<PAGE> 152
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation, dated December 20, 1989.(1)
3.2 Amendment to Articles of Incorporation, dated November 30, 1993(1)
3.3 Bylaws of Western Country Clubs, Inc.(1)
3.4 Amendment to Articles of Incorporation, dated February , 1996 -- (9)
4.1 Form of Representative's Purchase Option
4.2 Form of Series A Common Stock Purchase Warrant Certificate
4.3 Form of Representative's Warrants to Purchase Common Stock
5.0 Opinion of Brenman Bromberg & Tenenbaum, P.C.(9)
</TABLE>
<PAGE> 153
9.0 Voting Trust Agreement, dated as of September 20, 1996, between Red River
Concepts, Inc. and Troy H. Lowrie(7)
10.1 Lease Agreement, dated August 26, 1993, between Wal-Mart Stores, Inc. and
Western Country Clubs, Inc.(1)
10.2 License Agreement, dated January 20, 1993, between Western Country Clubs,
Inc. and Western Country Club I, Ltd.(1)
10.3 Option for Limited Partnership Interest, dated September 23, 1993, between
Western Country Clubs, Inc. and Merrill E. Roberts.(1)
10.4 Stock Option Agreement, dated December 16, 1993.(1)
10.5 Lease with Option to Purchase, dated December 26, 1993, between and among
Edward L. and Barbara L. Benshoof and Western Country Clubs, Inc.(1)
10.6 Agreement to Purchase and Sale of Business and Assets, with exhibits,
dated November 1, 1994(2)
10.7 Bill of Sale, dated November 1, 1994, transferring Arizona Bar Liquor
License No. 06100208 to Western(2)
10.8 Amendment to Covenant Not to Compete, undated, between Western and
Clarence O. Bond, Jack E. McMurrough and Ada L. Bond
10.9 Agreement and Plan of Merger, dated October 10, 1995, between Western
Country Clubs, Inc., Western Newco, Inc. and Cowboys Concert Hall -
Arlington, Inc. (6)
10.10 Lease with Option to Purchase, dated October 14, 1992, between Expo Bowl,
Inc. and Texas of Indy, Inc.(1)
10.11 Guaranty of Lease with Option to Purchase, dated October 14, 1992, by
Troy H. Lowrie.(1)
10.12 First Amendment to Lease with Option to Purchase dated January 20, 1993,
between Expo Bowl, Inc. and Texas of Indy, Inc.(1)
10.13 Warranty Deed, dated February 28, 1993, in the name of Western Country
Club I, Ltd.(1)
10.14 State of Indiana, Certificate of Trade Mark Registration, dated August
18, 1993, in the name of Texas of Indy, Inc. for "A Little Bit of Texas"
and Design.(1)
10.15 Lease, dated April 2, 1993, between Texas of Indy, Inc. and Great Western
Boot Company.(1)
<PAGE> 154
10.16 Operating Agreement, dated March 17, 1993, between Texas of Indy, Inc.
and Taco Bell Corp.(1)
10.17 Option Agreement, dated January 20, 1993, between and among Western
Country Club I, Ltd., Troy H. Lowrie and Merrill Roberts.(1)
10.18 Amended Limited Partnership Agreement of Western Country Club I, Ltd.(1)
10.19 Consulting Agreement, dated January 20, 1993, between Western Country
Club I, Ltd. and Texas of Indy, Inc.(1)
10.20 Security Agreement, dated March 18, 1993 between Western Country Club I,
Ltd. and Texas of Indy, Inc.(1)
10.21 Option to Purchase Assets, dated January 20, 1993, between Western
Country Club I, Ltd. and Texas of Indy, Inc.(1)
10.22 Promissory Note, dated January 31, 1994, from Western Country Club I,
Ltd. to Expo Bowl, Inc. in the amount of $150,000.(1)
10.23 Guaranty, dated January 31, 1994, of Promissory Note to Expo Bowl, Inc.
by Troy H. Lowrie.(1)
10.24 Promissory Note, dated January 31,1994, from Western Country Club I, Ltd.
to Dulaney National Bank.(1)
10.25 Articles of Incorporation, WCWW Acquisition Corporation, dated January
20, 1995.(4)
10.26 Interim Permit, dated February 9, 1995, from the Arizona Department of
Liquor Licenses and Control for the Wild Wild West nightclub.(5)
10.27 Stock Purchase Agreement, dated September 21, 1996, between and among
Troy H. Lowrie, Western Country Clubs, Inc. and Red River Concepts,
Inc.(7)
10.28 Lease Agreement, dated July 30, 1993, by and between Boots, Inc. and In
Cahoots Limited Partnership.
10.29 Agreement and Plan of Merger, dated December 16, 1996, by and between
Western Country Clubs, Inc., Entertainment Wichita, Inc. and WCCI
Acquisition Corp.(8)
10.30 Warrant Agreement, dated __________, 1997, between Western Country Clubs,
Inc. and American Securities Transfer & Trust, Inc.
11 Statement re: computation of per share earnings
<PAGE> 155
21 Subsidiaries of the Registrant
23.1 Consent of Causey Demgen & Moore, Inc.
23.2 Consent of Brenman Key & Bromberg, P.C. (included in Exhibit 5.0)
23.3 Consent of Gross, Collins & Cress, P.C.
27.1 Financial Data Schedule
- ----------------
(1) Incorporated by reference from the like numbered exhibits filed with the
Registrant's Registration Statement on Form SB-2, No. 33-72942.
(2) Incorporated by reference from Western's Current Report on Form 8-K,
dated November 1, 1994, attached as Exhibits 10.1 and 10.2 thereto.
(3) Incorporated by reference from Western's Annual Report on Form 10-KSB,
dated February 27, 1995, attached as Exhibit 21 thereto.
(4) Incorporated by reference from Western's Annual Report on Form 10-KSB,
dated February 27, 1995, attached as Exhibit 28.16 thereto.
(5) Incorporated by reference from Western's Annual Report on Form 10-KSB,
dated February 27, 1995, attached as Exhibit 28.17 thereto.
(6) Incorporated by reference from Western's Current Report on Form 8-K,
dated October 19, 1995, attached as Exhibit 10.1.
(7) Incorporated by reference from Western's Current Report on Form 8-K,
dated October 10, 1996, attached as Exhibit 9.
(8) Incorporated by reference from Western's Current Report on Form 8-K,
dated December 16, 1996, attached as Exhibit 2.
(9) To be filed by Amendment.
<PAGE> 1
400,000 Shares of Series A Cumulative Convertible Redeemable Preferred Stock
and
1,000,000 Redeemable Series A Warrants for Common Stock
of
WESTERN COUNTRY CLUBS, INC.
UNDERWRITING AGREEMENT
Atlanta, Georgia
February ___, 1997
ARGENT SECURITIES, INC.
3340 Peachtree Road, N.E.
Suite 450
Atlanta, Georgia 30326
Gentlemen:
Western Country Clubs, Inc., a Colorado corporation (the "Company"),
confirms its agreement with Argent Securities, Inc. ("Argent"), and each of the
other underwriters named in Schedule I hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom Argent is acting as
representative (in such capacity, Argent shall hereinafter be referred to as
the "Representative"), with respect to the sale by the Company listed on
Schedule III, and the purchase by the Underwriters, acting severally and not
jointly, of Four Hundred Thousand (400,000) shares (the "Shares") of the
Company's Series A Cumulative Convertible Redeemable Preferred Stock, par value
$.10 per share (the "Preferred Stock"), and One Million (1,000,000) Redeemable
Series A Warrants for Common Stock (the "Redeemable Warrants") ("Firm
Securities"). The Company grants to the Underwriters, acting severally and not
jointly, the option described in Section 2(b) hereof to purchase all or any
part of 60,000 additional Shares and 150,000 Redeemable Warrants (the
"Additional Securities") for the purpose of covering over-allotments, if any.)
The Preferred Stock is convertible commencing on the earlier of (i) twelve (12)
months after the Effective Date of the Registration Statement, or (ii) such
earlier date as is chosen by the Underwriter, into the Company's Common Stock
at a rate of three to five (3-5) shares for every share of Preferred Stock,
subject to adjustment in certain events. The Preferred Stock will be
automatically converted into common stock at a rate of _______ (__) shares of
Common Stock for each share
DRAFT V.03 February 4, 1997
Page 1
<PAGE> 2
of Preferred Stock, subject to adjustment, either (1) on ____________,1998 or
(2) during the first twelve (12) months after the Effective Date of the
Registration Statement if the closing price of the Common Stock exceeds 200% of
the closing bid price of the Common Stock on the Effective Date. The aforesaid
Firm Securities together with all or any part of the Additional Securities are
hereinafter collectively referred to as the "Securities." The Company also
proposes to issue and sell to the Underwriters, an option (the "Underwriters'
Purchase Option") pursuant to the Underwriters' Preferred Stock and Warrant
Purchase Option Agreement (the "Underwriters' Purchase Option Agreement") for
the purchase of an aggregate of 60,000 Shares (the "Underwriters' Shares") and
150,000 Redeemable Common Stock Purchase Warrants (the "Underwriters'
Warrants"). The shares of Common Stock issuable upon exercise of the Redeemable
Warrants and the Underwriters' Warrants are hereinafter sometimes referred to
as the "Warrant Shares." The Shares, the Redeemable Warrants, the Preferred
Stock and Underwriters' Purchase Option Agreement, Underwriters' Shares,
Underwriters' Warrants, and the Warrant Shares are more fully described in the
Registration Statement (as defined in Subsection 1(a) hereof) and the
Prospectus (as defined in Subsection 1(a) hereof) referred to below. Unless
the context otherwise requires, all references to the "Company" shall include
all subsidiaries and entities to be acquired by the Company on or prior to the
Closing Date (as defined in Subsection 2(c) hereof) referred to below and
identified in the Prospectus, as if separately stated herein. All
representations, warranties and opinions of counsel shall cover such
subsidiaries and entities.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters as of the
date hereof, and as of the Closing Date and any Option Closing Date, (as
defined in Subsection 2 (c) hereof), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Act"), a registration statement, and
an amendment or amendments thereto, on Form SB-2 (File No. 333-______) under
the Act (the "Registration Statement"), including a prospectus subject to
completion relating to the Shares which registration statement and any
amendment or amendments have been prepared by the Company in material
compliance with the requirements of the Act and the rules and regulations of
the Commission under the Act. The term "Registration Statement" as used in
this Agreement means the registration statement (including all financial
schedules and exhibits), as amended at the time it becomes effective, or, if
the registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a post-
effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an abbreviated
registration statement is prepared and filed with the Commission
DRAFT V.03 February 4, 1997
Page 2
<PAGE> 3
in accordance with Rule 462(b) under the Act (an "Abbreviated Registration
Statement"), the term "Registration Statement" as used in this Agreement
includes the Abbreviated Registration Statement. The term "Prospectus" as used
in this Agreement means the prospectus in the form included in the Registration
Statement, or, if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Act and such information is
included in a prospectus filed with the Commission pursuant to Rule 424(b)
under the Act, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement as supplemented
by the addition of the Rule 430A information contained in the prospectus filed
with the Commission pursuant to Rule 424(b). The term "Preliminary Prospectus"
as used in this Agreement means the prospectus subject to completion in the
form included in the registration statement at the time of the initial filing
of the registration statement with the Commission, and as such prospectus shall
have been amended from time to time prior to the date of the Prospectus.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or Prospectus or any part thereof and no
proceedings for a stop order have been instituted or are pending or, to the
best knowledge of the Company, threatened. Each of the Preliminary Prospectus,
the Registration Statement and Prospectus at the time of filing thereof
conformed in all material respects with the requirements of the Act and the
Rules and Regulations, and neither the Preliminary Prospectus, the Registration
Statement or Prospectus at the time of filing thereof contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein and necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished
to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in such Preliminary Prospectus, Registration
Statement or Prospectus.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriters or a dealer, the
Registration Statement and the Prospectus will contain all material statements
which are required to be stated therein in material compliance with the Act and
the Rules and Regulations, and will in all material respects conform to the
requirements of the Act and the Rules and Regulations; neither the Registration
Statement, nor any amendment thereto, at the time the Registration Statement or
such amendment is declared effective under the Act, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Prospectus at the time the Registration Statement becomes effective, at the
Closing Date and at any Option Closing Date, will not contain an untrue
statement of a material fact or omit to state a material fact
DRAFT V.03 February 4, 1997
Page 3
<PAGE> 4
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information supplied
to the Company in writing by or on behalf of the Underwriters expressly for use
in the Registration Statement or Prospectus or any amendment thereof or
supplement thereto.
(d) The Company has been duly organized and is now, and at the
Closing Date and any Option Closing Date will be, validly existing as a
corporation in good standing under the laws of the State of Colorado. Other
than the Company's Subsidiaries (as defined in Section (e)), the Company does
not own, directly or indirectly, an interest in any corporation, partnership,
trust, joint venture or other business entity; provided, that the foregoing
shall not be applicable to the investment of the net proceeds from the sale of
the Securities in short-term, low-risk investments as set forth under "Use of
Proceeds" in the Prospectus. The Company is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of its properties or the character of its operations
require such qualification or licensing, except where the failure to so
register or qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of the Company and the subsidiaries taken as a whole (a "Material Adverse
Effect"). The Company has all requisite power and authority (corporate and
other), and has obtained any and all necessary material applications,
approvals, orders, licenses, certificates, franchises and permits of and from
all governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental, liquor licenses or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all material federal, state, local and
foreign laws, rules and regulations; and the Company has not received any
notice of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, would have a Material Adverse Effect. The
disclosures in the Registration Statement concerning the effects of federal,
state, local, and foreign laws, rules and regulations on the Company's business
as currently conducted and as contemplated are correct in all material respects
and do not omit to state a material fact necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
(e) The Company's subsidiaries (collectively, the
"Subsidiaries") include ___________________________, a ___________ corporation,
and _________________________, a _______________ corporation. Each Subsidiary
is a corporation duly organized, validly existing and in good standing in the
jurisdiction of its incorporation, with full corporate power and authority to
own, lease and operate its properties and to conduct its business, and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its
DRAFT V.03 February 4, 1997
Page 4
<PAGE> 5
business requires such registration or qualification, except where the failure
so to register or qualify does not, singly or in the aggregate, have a Material
Adverse Effect; all of the outstanding shares of capital stock of each of the
Subsidiaries, have been duly authorized and validly issued, are fully paid and
nonassessable, and are owned by the Company directly, or indirectly through one
of the other Subsidiaries, free and clear of any lien, adverse claim, security
interest, equity or other encumbrance.
(f) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and will
have the adjusted capitalization set forth therein on the Closing Date and the
Option Closing Date, if any, based upon the assumptions set forth therein, and
the Company is not a party to or bound by any instrument, agreement or other
arrangement providing for the Company to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement and as
otherwise described in the Prospectus. The Securities, the Additional
Securities, Underwriters Shares, the Underwriter's Warrants, and the Warrant
Shares and all other securities issued or issuable by the Company conform or,
when issued and paid for, will conform in all material respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company has been duly
authorized and validly issued and are fully paid and non-assessable; the
holders thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company, or similar contractual rights granted by the
Company. The Securities, the Additional Securities, the Underwriters' Shares,
and the Underwriter's Warrants to be issued and sold by the Company, and the
Warrant Shares issuable upon exercise of the Redeemable Warrants and the
Underwriter's Warrants and payment therefor, are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the
terms hereof and thereof, will be validly issued, fully paid and non-assessable
and will conform in all material respects to the descriptions thereof contained
in the Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities, the Additional Securities, the
Underwriters' Shares, and the Underwriter's Warrants, and the Warrant Shares
has been duly and validly taken; and the certificates representing the
Securities, the Underwriter's Warrants, and the Warrant Shares will be in due
and proper form. Upon the issuance and delivery pursuant to the terms hereof
of the Securities to be sold by the Company hereunder, the Underwriters will
acquire good and marketable title to such Securities free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever.
(g) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration Statement,
the Preliminary Prospectus and the Prospectus fairly present the financial
position and the results of operations of the Company at the
DRAFT V.03 February 4, 1997
Page 5
<PAGE> 6
respective dates and for the respective periods to which they apply; and such
financial statements have been prepared in conformity with generally accepted
accounting principles, consistently applied throughout the periods involved.
There has been no material adverse change or development involving a
prospective change in the condition, financial or otherwise, or in the
earnings, business affairs, position, prospects, value, operation, properties,
business, or results of operation of the Company, whether or not arising in the
ordinary course of business, since the dates of the financial statements
included in the Registration Statement and the Prospectus and the outstanding
debt, the property, both tangible and intangible, and the business of the
Company, conforms in all material respects to the descriptions thereof
contained in the Registration Statement and in the Prospectus.
(h) Gross, Collins + Cress, whose report is filed with the
Commission as a part of the Registration Statement, is an independent certified
public accountant as required by the Act.
(i) The Company (i) has paid all federal, state, local, and
foreign taxes for which it is liable, including, but not limited to,
withholding taxes and taxes payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986 (the "Code"), (ii) has furnished all tax and
information returns it is required to furnish pursuant to the Code, and has
established adequate reserves for such taxes which are not due and payable, and
(iii) does not have knowledge of any tax deficiency or claims outstanding,
proposed or assessed against it (other than certain state or local tax returns,
as to which the failure to file, singly or in the aggregate, would not have a
Material Adverse Effect.)
(j) The Company maintains insurance, which is in full force
and effect, of the types and in the amounts which it reasonably believes to be
necessary for its business, including, but not limited to, personal and product
liability insurance covering all personal and real property owned or leased by
the Company against fire, theft, damage and all risks customarily insured
against.
(k) There is no action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending (to the knowledge of the Company) or threatened
against (or circumstances known to the Company that may give rise to the same),
or involving the properties or business of the Company which: (i) is required
to be disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects); or (ii) singly or in the aggregate
would have a Material Adverse Effect.
(l) The Company has full legal right, power and authority to
enter into this Agreement, the Underwriters' Purchase Option Agreement and the
Warrant Agreement and to consummate the transactions provided for in such
agreements; and this Agreement, the
DRAFT V.03 February 4, 1997
Page 6
<PAGE> 7
Underwriters' Purchase Option Agreement and the Warrant Agreement have each
been duly and properly authorized, executed and delivered by the Company. Each
of this Agreement, the Underwriters' Purchase Option Agreement and the Warrant
Agreement, constitutes a legal, valid and binding agreement of the Company,
subject to due authorization, execution and delivery by the Representative
and/or the Underwriters, enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application
of equitable principles in any action, legal or equitable, and except as rights
to indemnity or contribution may be limited by applicable law). Neither the
Company's execution or delivery of this Agreement, the Underwriters' Purchase
Option Agreement, and the Warrant Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, nor the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest defect or other restriction or
equity of any kind whatsoever upon any property or assets (tangible or
intangible) of the Company pursuant to the terms of: (i) the Articles of
Incorporation or By-Laws of the Company; (ii) any material license, contract,
indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or instrument
to which the Company is a party or by which the Company is bound or to which
any of its properties or assets (tangible or intangible) is or may be subject,
other than conflicts that, singly or in the aggregate, will not have a Material
Adverse Effect; or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties.
(m) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this
Agreement and the transactions contemplated hereby, except such as have been or
may be obtained under the Act or may be required under state securities or Blue
Sky laws in connection with (i) the Underwriters' purchase and distribution of
the Securities to be sold by the Company hereunder; or (ii) the issuance and
delivery of the Underwriters' Purchase Option, the Underwriters' Shares, the
Underwriter's Warrants, the Redeemable Warrants or the Warrant Shares.
(n) All executed agreements or copies of executed agreements
filed as exhibits to the Registration Statement to which the Company is a party
or by which the Company may be bound or to which any of its assets, properties
or businesses may be subject have been duly and
DRAFT V.03 February 4, 1997
Page 7
<PAGE> 8
validly authorized, executed and delivered by the Company, and constitute the
legal, valid and binding agreements of the Company, enforceable against it in
accordance with its respective terms. The descriptions contained in the
Registration Statement of contracts and other documents are accurate in all
material respects and fairly present the information required to be shown with
respect thereto by the Act and the Rules and Regulations and there are no
material contracts or other documents which are required by the Act or the
Rules and Regulations to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
(o) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not:
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money in any material amount; (ii) entered into any
transaction other than in the ordinary course of business; (iii) declared or
paid any dividend or made any other distribution on or in respect of its
capital stock; or (iv) made any changes in capital stock, material changes in
debt (long or short term) or liabilities other than in the ordinary course of
business, material changes in or affecting the general affairs, management,
financial operations, stockholders equity or results of operations of the
Company.
(p) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, no default exists in
the due performance and observance of any material term, covenant or condition
of any license, contract, indenture, mortgage, installment sales agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which
the Company is a party or by which the Company may be bound or to which any of
the property or assets (tangible or intangible) of the Company is subject or
affected.
(q) To the best knowledge of the Company, the Company has
generally enjoyed a satisfactory employer-employee relationship with its
employees and is in compliance in all material respects with all federal,
state, local, and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours.
(r) To the best knowledge of the Company, since its inception,
the Company has not incurred any liability arising under or as a result of the
application of the provisions of the Act.
DRAFT V.03 February 4, 1997
Page 8
<PAGE> 9
(s) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company does not
presently maintain, sponsor or contribute to, and never has maintained,
sponsored or contributed to, any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan" or a "multi-employer
plan" as such terms are defined in Sections 3(2), 3(l) and 3(37) respectively
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"). The Company does not maintain or contribute, now or at any
time previously, to a defined benefit plan, as defined in Section 3(35) of
ERISA.
(t) The Company is not in violation in any material respect of
any domestic or foreign laws, ordinances or governmental rules or regulations
to which it is subject, except to the extent that any such violation would not,
singly or in the aggregate, have a Material Adverse Effect.
(u) No holders of any securities of the Company or of any
options, warrants or other convertible or exchangeable securities of the
Company exercisable for or convertible or exchangeable for securities of the
Company have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
within twelve (12) months of the date hereof or to require the Company to file
a registration statement under the Act during such twelve (12) month period,
except such registration rights as have been waived or disclosed in the
Prospectus.
(v) Neither the Company, nor, to the Company's best knowledge,
any of its employees, directors, stockholders or affiliates (within the meaning
of the Rules and Regulations) has taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected to
cause or result in, under the Exchange Act, or otherwise, stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities or otherwise.
(w) Except as described in the Prospectus, to the best of the
Company's knowledge, none of the patents, patent applications, trademarks,
service marks, trade names and copyrights, or licenses and rights to the
foregoing presently owned or held by the Company is in dispute or are in any
conflict with the right of any other person or entity within the Company's
current area of operations nor has the Company received notice of any of the
foregoing. To the best of the Company's knowledge, the Company: (i) owns or
has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, trademarks, service marks, trade
names and copyrights, technology and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other
DRAFT V.03 February 4, 1997
Page 9
<PAGE> 10
entity under or with respect to any of the foregoing; and (ii) except as set
forth in the Prospectus, is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any patent, trademark, service mark, trade
name, copyright, know-how, technology or other intangible asset, with respect
to the use thereof or in connection with the conduct of its business or
otherwise.
(x) Except as described in the Prospectus, to the best of the
Company's knowledge, the Company owns and has the unrestricted right to use all
material trade secrets, trademarks, trade names, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "Intellectual
Property") required for or incident to the development, manufacture, operation
and sale of all products and services sold or proposed to be sold by the
Company, free and clear of and without violating any right, lien, or claim of
others, including without limitation, former employers of its employees;
provided, however, that the possibility exists that other persons or entities,
completely independently of the Company, or employees or agents, could have
developed trade secrets or items of technical information similar or identical
to those of the Company.
(y) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property owned
or leased by it free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects, or other restrictions or equities of any
kind whatsoever, other than those referred to in the Prospectus and liens for
taxes or assessments not yet due and payable.
(z) The Company has obtained such duly executed legally
binding and enforceable agreements as required by the Representative pursuant
to which the Company's President and _______________________, have agreed not
to, directly or indirectly, offer to sell, sell, grant any option for the sale
of, assign, transfer, pledge, hypothecate or otherwise encumber any of their
shares of Preferred Stock or other securities of the Company (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein for certain periods of up to 60 months subject to
earlier release upon the Company's achievement of certain performance
thresholds, following the effective date of the Registration Statement without
the prior written consent of the Representative. The Company will cause the
Transfer Agent, as defined below, to mark an appropriate legend on the face of
stock certificates representing all of such shares of Preferred Stock and other
securities of the Company.
(aa) Except as disclosed in the Prospectus, the Company has not
incurred any liability and there are no arrangements or understandings for
services in the nature of a finder's or origination fee with respect to the
sale of the Securities or any other arrangements, agreements, understandings,
payments or issuances with respect to the Company or any of its officers,
DRAFT V.03 February 4, 1997
Page 10
<PAGE> 11
directors, employees or affiliates that may adversely affect the Underwriters'
compensation, as determined by the NASD.
(bb) The Securities have been approved for quotation on the
Nasdaq SmallCap Market of the Nasdaq Stock Market, Inc., subject to official
notice of issuance.
(cc) Neither the Company nor any of its respective officers,
employees, agents or any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which: (a) might subject the Company, or any other such person to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign); (b) if not given in the past, might have had
a materially adverse effect on the assets, business or operations of the
Company; or (c) if not continued in the future, might adversely affect the
assets, business, operations or prospects of the Company. The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act 1977, as amended.
(dd) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any such person or entity or the Company, has or has had,
either directly or indirectly, (i) an interest in any person or entity which
(A) furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, except with respect to the
beneficial ownership of not more than 1% of the outstanding shares of capital
stock of any publicly-held entity; or (ii) a beneficial interest in any
contract or agreement to which the Company is a party or by which it may be
bound or affected. Except as set forth in the Prospectus under "Certain
Transactions," there are no existing agreements, arrangements, understandings
or transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company, and any officer, director, or
principal stockholder of the Company, or any affiliate or associate of any such
person or entity.
(ee) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to the Underwriters' Counsel shall be deemed a
representation and warranty by the Company to the Underwriters as to the
matters covered thereby.
DRAFT V.03 February 4, 1997
Page 11
<PAGE> 12
(ff) The Company has entered into an employment agreement with
James E. Blacketer as described in the Prospectus. Unless waived by the
Representative, the Company shall use its reasonable efforts at reasonable cost
to maintain a key-man life insurance policy in the amount of not less than
$1,000,000 on the life of James E. Blacketer, which policy shall be owned by
the Company and shall name the Company as the sole beneficiary thereunder.
(gg) No securities of the Company have been sold by the Company
within the three years prior to the date hereof, except as disclosed in Part II
of the Registration Statement.
(hh) The minute books of the Company have been made available
to Underwriter's Counsel and contain a complete summary of all meetings and
actions of the Board of Directors and Shareholders of the Company since the
date of its incorporation.
2. Purchase, Sale and Delivery of the Securities and Agreement to
Issue Underwriters' Preferred Stock and Warrant Purchase Option.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, and each
Underwriter, severally and not jointly, agree to purchase from the Company at
the price per share and the price per warrant set forth below, that proportion
of the number of Preferred Stock and Redeemable Warrants set forth in Schedule
I opposite the name of such Underwriter that such number of Preferred Stock and
Redeemable Warrants bears to the total number of shares of Preferred Stock and
Redeemable Warrants, respectively, subject to such adjustment as the
Underwriters in their discretion shall make to eliminate any sales or purchases
of fractional Securities, plus any additional numbers of Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the
terms and conditions herein set forth, the Company hereby grants an option to
the Underwriters, severally and not jointly, to purchase up to an additional
60,000 Shares from the Company and 150,000 Redeemable Warrants at the prices
set forth below. The option granted hereby will expire 45 days after the date
of this Agreement, and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Additional Securities upon
notice by the Representative to the Company setting forth the number of
Additional Securities as to which the Underwriters are then exercising the
option and the time and date of payment and delivery for such Additional
Securities. Any such time and date of delivery shall be determined by the
Underwriters, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Date, as defined
in paragraph (c) below, unless otherwise agreed to between the Representative
and the Company. In the event such option is exercised, each of the
Underwriters, acting severally and not jointly,
DRAFT V.03 February 4, 1997
Page 12
<PAGE> 13
shall purchase such number of Option Securities then being purchased which
shall have been allocated to such Underwriter by the Representative, and which
such Underwriter shall have agreed to purchase, subject in each case to such
adjustments as the Underwriters in their discretion shall make to eliminate any
sales or purchases of fractional Securities. Nothing herein contained shall
obligate the Underwriters to make any over-allotments. No Additional
Securities shall be delivered unless the Firm Securities shall be
simultaneously delivered or shall theretofore have been delivered as herein
provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of counsel
to the Representative in Atlanta, Georgia, or at such other place as shall be
agreed upon by the Underwriters and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on ______________, 1997 or at
such other time and date as shall be designated by the Representative but not
less than three (3) nor more than five (5) business days after the effective
date of the Registration Statement (such time and date of payment and delivery
being hereafter called "Closing Date"). In addition, in the event that any or
all of the Additional Securities are purchased by the Underwriters, payment of
the purchase price for, and delivery of certificates for such Additional
Securities shall be made at the above-mentioned office or at such other place
and at such time (such time and date of payment and delivery being hereinafter
called "Option Closing Date") as shall be agreed upon by the Representative and
the Company on each Option Closing Date as specified in the notice from the
Representative to the Company. Delivery of the certificates for the Additional
Securities and the Additional Securities, if any, shall be made to the
Underwriters against payment by the Underwriters of the purchase price for the
Securities and the Option Securities, if any, to the order of the Company as
the case may be by certified check in New York Clearing House funds or, at the
election of the Representative, all or a portion of the funds may be paid by
Bank wire transfer of funds or by Representative's commercial check.
Certificates for the Firm Securities and the Additional Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive
legends and shall be in such denominations and registered in such names as the
Underwriters may request in writing at least two (2) business days prior to
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates or the Depository Trust Corporation electronic notifications, as
the case may be, for the Securities and the Additional Securities, if any,
shall be made available to the Underwriters at the above-mentioned office or
such other place as the Underwriters may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing
Date or the relevant Option Closing Date, as the case may be.
The purchase price of the Preferred Stock and Redeemable
Warrants to be paid by each of the Underwriters, severally and not jointly, to
the Company for the Securities purchased under Clauses (a) and (b) above will
be $______ per Share and $______ per Redeemable Warrant (which price is net of
the Underwriters' discount and commissions). The Company shall not be
obligated to sell any Securities hereunder unless all Securities to be sold by
DRAFT V.03 February 4, 1997
Page 13
<PAGE> 14
the Company are purchased hereunder. The Company agrees to issue and sell
60,000 shares of the Preferred Stock and the Company agrees to issue and sell
150,000 Redeemable Warrants to the Underwriters in accordance herewith.
(d) On the Closing Date, the Company shall issue and sell to
the Underwriters the Underwriters' Purchase Option at a purchase price of $100,
which purchase option shall entitle the holders thereof to purchase an
aggregate of 40,000 Shares and 100,000 Warrants. The Underwriters' Purchase
Option shall be exercisable for a period of four (4) years commencing one (1)
year from the closing date of the Registration Statement at an initial exercise
price equal to one hundred twenty percent (120%) of the initial public offering
price of the Shares and Redeemable Warrants. The Underwriter's Purchase Option
Agreement and form of Purchase Option Certificate shall be substantially in the
form filed as an Exhibit to the Registration Statement. Payment for the
Underwriters' Purchase Option shall be made on Closing Date. The Company has
reserved and shall continue to reserve a sufficient number of Shares for
issuance upon exercise of the Underwriters' Purchase Option.
3. Public Offering of the Securities. As soon after the
Registration Statement becomes effective and as the Representative deems
advisable, but in no event more than three (3) business days after such
effective date, the Underwriters shall make a public offering of the securities
(other than to residents of or in any jurisdiction in which qualification of
the Securities is required and has not become effective) at the price and upon
the other terms set forth in the Prospectus. The Underwriters may allow such
concessions and discounts upon sales to other dealers as set forth in the
Prospectus.
4. Covenants of the Company. The Company covenants and agrees with
each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Exchange Act (i) before termination of the offering of the Securities
by the Underwriters, which the Underwriters shall not previously have been
advised and furnished with a copy, or (ii) to which the Underwriters shall have
objected or (iii) which is not in compliance with the Act, the Exchange Act or
the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriters and confirm by notice in
writing: (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of
DRAFT V.03 February 4, 1997
Page 14
<PAGE> 15
the issuance by the commission of any stop order or of the initiation, or the
threatening of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution or proceeding for that purpose; (iii) of the issuance by any state
securities commission of any proceedings for the suspension of the
qualification of the Securities for offering or sale in any jurisdiction or of
the initiation, or the threatening, of any proceeding for that purpose; (iv) of
the receipt of any comments from the Commission; and (v) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information. If the Commission
or any state securities commission or regulatory authority shall enter a stop
order or suspend such qualification at any time, the Company will make every
effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriters) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(1) (or, if applicable and if consented to by the Underwriters
pursuant to Rule 424(b)(4)) not later than the Commission's close of business
on the earlier of (i) the second business day following the execution and
delivery of this Agreement and (ii) the fifth business day after the effective
date of the Registration Statement.
(d) The Company will give the Underwriters notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), will furnish the Underwriters with copies of any such amendment
or supplement a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file any such prospectus to which the
Underwriters or Johnson & Montgomery ("Underwriters' Counsel") shall reasonably
object.
(e) The Company shall cooperate in good faith with the
Underwriters, and Underwriters' Counsel, at or prior to the time the
Registration Statement becomes effective, in endeavoring to qualify the
Securities for offering and sale under the securities laws of such
jurisdictions as the Underwriters may reasonably designate, and shall cooperate
with the Underwriters and Underwriters' Counsel in the making of such
applications, and filing such documents and shall furnish such information as
may be required for such purpose; provided, however, the Company shall not be
required to: (i) qualify as a foreign corporation or file a general consent to
service of process in any such jurisdiction; or (ii) qualify or "blue sky" in
any state which requires a lock-up of inside securities for a period greater
than five (5) years. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriters
DRAFT V.03 February 4, 1997
Page 15
<PAGE> 16
agree that such action is not at the time necessary or advisable, use all
reasonable efforts to file and make such statements or reports at such times as
are or may reasonably be required by the laws of such jurisdiction to continue
such qualification.
(f) During the time when the Prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act and the Exchange Act, as now
and hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when the Prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriters promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to Underwriters' Counsel, and the Company will furnish
to the Underwriters a reasonable number of copies of such amendment or
supplement.
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period commencing on the day after the end
of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriters, an earnings
statement which will be in such form and detail required by, and will otherwise
comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless required by
the Act, covering a period of at least 12 consecutive months after the
effective date of the Registration Statement.
(h) During a period of five (5) years after the date hereof
and provided that the Company is required to file reports with the Commission
under Section 12 of the Exchange Act, the Company will provide the
Representative's director Designee or Attendee, as defined herein, copies of
the below described documents prior to release where applicable and will
furnish to its stockholders and to the Underwriter as soon as practicable,
annual reports (including financial statements audited by independent public
accountants):
(i) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
DRAFT V.03 February 4, 1997
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<PAGE> 17
(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 securities exchange;
(iii) every press release and every material news item
or article of interest to the financial community in respect of the Company and
any future subsidiaries or their affairs which was released or prepared by the
Company;
(iv) any additional information of a public nature
concerning the Company and any future subsidiaries or their respective
businesses which the Underwriters may reasonably request;
(v) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or
13E-4 received or filed by the Company from time to time.
During such five-year period, if the Company has active
subsidiaries, the foregoing financial statements will be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) For as long as the Company is required to file reports
with the Commission under Section 12 of the Exchange Act, the Company will
maintain a Transfer Agent and a Warrant Agent, which may be the same entity,
and, if necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer and Warrant Agent) for
its Preferred Stock and Redeemable Warrants.
(j) The Company will furnish to the Underwriters or pursuant
to the Underwriters' direction, without charge, at such place as the
Underwriters may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits), the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such
quantities as the Underwriters may reasonably request.
(k) Neither the Company, nor its officers or directors, nor
affiliates of any of them (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(1) The Company shall apply the net proceeds from the sale of
the Securities in substantially the manner, and subject to the provisions, set
forth under "Use of Proceeds" in
DRAFT V.03 February 4, 1997
Page 17
<PAGE> 18
the Prospectus. No portion of the net proceeds will be used directly or
indirectly to acquire any securities issued by the Company.
(m) The Company shall timely file all such reports, forms or
other documents as may be required (including but not limited to a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under
the Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(n) The Company shall furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than forty-five
(45) days prior to the date of the Registration Statement) which have been read
by the Company's independent public accountants, as stated in their letters to
be furnished pursuant to Section 6(k) hereof.
(o) For a period of five (5) years from the Closing Date (or
such earlier date if the Representative has exercised the Underwriters'
Purchase Option Agreement), the Company shall furnish to the Underwriters at
the Company's sole expense, (i) daily consolidated transfer sheets relating to
the Securities upon the Representative's reasonable request; (ii) a list of
holders of Securities upon the Representative's reasonable request; (iii) a
list of, if any, the securities positions of participants in the Depository
Trust Company upon the Representative's reasonable request.
(p) For a period of five (5) years after the effective date of
the Registration Statement (or such earlier date if the Representative has
exercised the Underwriting Purchase Option Agreement), the Company shall use
its best efforts to cause two (2) individuals (the "Designees") selected by the
Representative to be elected to the Board of Directors of the Company (the
"Board"), if requested by the Representative. Alternatively, the
Representative shall be entitled to appoint an individual who shall be
permitted to attend all meetings of the Board (the "Attendee") and to receive
all notices and other correspondence and communications sent by the Company to
members of the Board. Upon election to the Board, the Designees shall be
entitled to call special meetings of the Board and to serve on the Audit and
Compensation Committees. The Designees may be removed by the Board only for
"justifiable cause" as that term is defined in the Employment Contract between
the Company and James E. Blacketer. The number of Board members may be
increased from time to time up to five (5) members. Any Nominee for
directorship (including re-election to another term) shall be approved by the
Representative prior to his or her election, which approval shall not be
unreasonably withheld. The Company shall reimburse the Representative's
Designees or Attendee for his or her out-of-pocket expenses reasonably incurred
and authorized in advance by the Company in connection
DRAFT V.03 February 4, 1997
Page 18
<PAGE> 19
with his or her attendance of the Board meetings and a fee of $1,000 month.
The Designees or Attendee shall also be entitled to participate in any Stock
Option Plans of the Company for non-employees. To the extent permitted by law,
the Company agrees to indemnify and hold the Designees (as a director or
Attendee) and the Representative harmless against any and all claims, actions,
awards and judgements arising out of his or her service as a director or
Attendee and in the event the Company maintains a liability insurance policy
affording coverage for the action of its officer and directors, to include such
Designees and the Representative as an insured under such policy.
(q) For a period equal to the lesser of (i) five (5) years
from the date hereof, or (ii) the sale to the public of the Warrant Shares, the
Company will use its best efforts not to take any action or actions which may
prevent or disqualify the Company's use of Forms S-1 or, if applicable, S-2 and
S-3 (or other appropriate form) for the registration under the Act of the
Warrant Shares.
(r) For a period of five (5) years from the date hereof, the
Company shall use its best efforts at its cost and expense to maintain the
listing of the Securities on the Nasdaq SmallCap Market or NASDAQ National
Market System if the Company meets all of the necessary qualifications,
including, but not limited to, complying with any present or future NASD or
NASDAQ rules regarding initial listing requirements and continued maintenance
requirements.
(s) On or before the effective date of the Registration
Statement, the Company shall retain or make arrangements to retain a financial
public relations firm reasonably satisfactory to the Representative which shall
be continuously engaged from such engagement date to a date 24 months from the
effective date of the Registration Statement. Upon the expiration of such two
(2) year period, such engagement shall continue until the expiration of any
lock-up period provided for in the Lock-Up Agreement of _______________ subject
to the Company's right to terminate any such firm with the consent of the
Underwriter's director Designees or Attendee. Further, the Company shall
engage for a period of two years at least three firms (one of which shall be
the Representative and one of which shall be Standard & Poor's Stock Reports
Professional Edition) which are reasonably acceptable to the Representative to
provide industry research and advice to the Company. Upon the expiration of
such two-year period, such engagement shall continue until the expiration of
any lock-up period provided hereunder, subject to the Company's right to
terminate any such firm with the consent of the Underwriters' director
Designees.
(t) The Company shall (i) file a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and
(ii) promptly take all necessary and appropriate actions to be included in
Standard and Poor's Corporation Descriptions and/or Moody's OTC Manual and to
continue such inclusion for a period of not less than five (5) years,
DRAFT V.03 February 4, 1997
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<PAGE> 20
as soon as practicable, but in no event more than five (5) business days' after
the effective date of the Registration Statement.
(u) Following the Effective Date of the Registration Statement
and for a period of five (5) years thereafter (or such earlier date if the
Representative has exercised the Underwriters' Purchase Option Agreement), the
Company shall, at its sole cost and expense, prepare and file such blue sky
trading applications with such jurisdictions as the Representative may
reasonably request after consultation with the Company, and on the
Representative's request, furnish the Underwriters with a secondary trading
survey prepared by securities counsel to the Company.
(v) The Company shall not amend or alter any term of any
written employment agreement nor Lock-Up Agreement between the Company and any
executive officer, during the term thereof, in a manner more favorable to such
employee, without the express written consent of the Representative until such
time as the Underwriter's Purchase Option has been exercised in full.
(w) Until the completion of the distribution of the
Securities, the Company shall not, without the prior written consent of the
Representative and Underwriters' Counsel, which consent shall not be
unreasonably withheld, issue, directly or indirectly, any press release or
other communication or hold any press conference with respect to the Company or
its activities or the offering contemplated hereby, other than trade releases
issued in the ordinary course of the Company's business consistent with past
practices with respect to the Company's operations.
(x) Commencing one (1) year from the date hereof, upon the
exercise of any Warrant, the exercise of which was solicited by the
Underwriters in accordance with the applicable rules and regulations of the
NASD prevailing at the time of such solicitation, the Company shall pay to the
soliciting Underwriter a fee of 5% of the aggregate exercise price of such
Warrant (the "Warrant Solicitation Fee") within five (5) business days of such
exercise, so long as the Underwriters provided bona fide services in exchange
for the Warrant Solicitation Fee and the Underwriters have been specifically
designated in writing by the holders of the Warrants as the broker. The
Company further agrees that it will not solicit the exercise of any Warrant
other than through the Underwriters, unless either: (i) the Underwriters cannot
legally solicit the exercise of the Warrants at the time of such solicitation;
(ii) the Representative declines, in writing, to solicit the exercise of the
Warrants within five (5) business days of such a written request by the
Company; or (iii) the Representative consents to the solicitation of the
exercise of the Warrants by the Company or another entity.
(y) The Company will use its best efforts to maintain its
registration under the Exchange Act in effect for a period of five (5) years
from the Closing Date.
DRAFT V.03 February 4, 1997
Page 20
<PAGE> 21
(z) For a period of twenty-four (24) months commencing on the
Effective Date (or such earlier date if the Representative has exercised the
Underwriters' Purchase Option Agreement), except with the written consent of
the Underwriters, which consent shall not be unreasonably withheld, the Company
will not issue or sell, directly or indirectly, any shares of its capital
stock, or sell or grant options, or warrants or rights to purchase any shares
of its capital stock, except pursuant to (i) this Agreement, (ii) the Purchase
Option and the Underwriters' Warrants, (iii) warrants and options of the
Company heretofore issued and described in the Prospectus, and (iv) the grant
of options and the issuance of shares issued upon exercise of options issued or
to be issued under the Company's stock option plan which is described in the
Prospectus; except that, during such period, the Company may (i) issue
securities to James E. Blacketer pursuant to his employment agreement, (ii)
issue up to ___________ shares pursuant to certain employee stock options as is
described in the Prospectus, and (iii) issue securities in connection with an
acquisition, merger or similar transaction, provided that such securities are
not publicly registered or issued pursuant to Regulation S of the Act, and the
acquirer of the securities is not granted registration rights with respect
thereto which are effective prior to 24 months after the Effective Date and
until the Underwriter's Purchase Option is exercised, the Underwriter grants
its consent. Notwithstanding anything to the contrary set forth in the prior
sentence, the Company may not issue any class or series of Preferred Stock for
a period of 24 months from the Effective Date without the unanimous vote or
consent of all members of the Board of Directors of the Company. Prior to the
Effective Date, the Company will not issue any options or warrants without the
prior written consent of the Underwriters.
(aa) The Company will not file any registration statement
relating to the offer or sale of any of the Company's securities, including any
registration statement on Form S-8, during the 12 months following the Closing
Date without the Underwriters' prior written consent.
(bb) Subsequent to the dates as of which information is given
in the Registration Statement and Prospectus and prior to the Closing Dates,
except as disclosed in or contemplated by the Registration Statement and
Prospectus, (i) the Company will not have incurred any liabilities or
obligations, direct or contingent, or entered into any material transactions
other than in the ordinary course of business; (ii) there shall not have been
any change in the capital stock, funded debt (other than regular repayments of
principal and interest on existing indebtedness) or other securities of the
Company, any adverse change in the condition (financial or other), business,
operations, income, net worth or properties, including any loss or damage to
the properties of the Company (whether or not such loss is insured against),
which could adversely affect the condition (financial or other), business,
operations, income, net worth or properties of the Company; and (iii) the
Company shall not pay or declare any dividend or other distribution on its
Preferred Stock or its other securities or redeem or repurchase any of its
Preferred Stock or other securities.
DRAFT V.03 February 4, 1997
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(cc) The Company, for a period of twenty-four (24) months
following the Effective Date (or such earlier date if the Representative has
exercised the Underwriters' Purchase Option Agreement), shall not redeem any of
its securities, and shall not pay any dividends or make any other cash
distribution in respect of its securities in excess of the amount of the
Company's current or retained earnings derived after the Effective Date without
obtaining the Underwriters' prior written consent, which consent shall not be
unreasonably withheld. The Underwriters shall either approve or disapprove
such contemplated redemption of securities or dividend payment or distribution
within five (5) business days from the date the Underwriters receive written
notice of the Company's proposal with respect thereto; a failure of the
Underwriters to respond within the five (5) business day period shall be deemed
approval of the transaction.
(dd) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance 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; (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences, and
(v) all quarterly reports filed on Form 10Q shall be reviewed by the Company's
accountant in accordance with SAS 71.
(ee) The Company, for a period of twenty-four (24) months
following the Effective Date (or such earlier date if the Representative has
exercised the Underwriters' Purchase Option Agreement), shall implement the
following procedures:
(i) Sixty days prior to fiscal year end, the President
will present to the Board of Directors a business plan to be adopted by the
Board of Directors at fiscal year end. The business plan will include the
following:
a) monthly projections - including balance
sheet, profit/loss statement and cash flow statements with
underlying assumptions
b) upon board approval, this document becomes
the annual budget
(ii) No later than the 20th day of each month, the
Company will provide the Board with comparative financial statements for the
previous month showing actual balance sheet, profit/loss and cash flow vs.
budget with written explanations for deviation in excess of $50,000 or 10% of
line item presented.
DRAFT V.03 February 4, 1997
Page 22
<PAGE> 23
(iii) Monthly Board meetings (which may be by telephone)
by the 25th of each month to include discussion of the Monthly Report and
approval of any changes to the business plan based on change of circumstances.
(iv) Implementation of a compensation committee, which
will be headed by an outside director, to make recommendations to the Board for
compensation for all outside consultants, officers and outside directors.
(v) Implementation of an audit committee which will be
headed by an outside director.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing
Date and the Option Closing Date (to the extent not paid at the Closing Date)
all expenses and fees (other than fees of Underwriters' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement, including, without limitation: (i) the fees and
expenses of accountants and counsel for the Company; (ii) all costs and
expenses incurred in connection with the preparation, duplication, printing,
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments
and supplements thereto and the printing, mailing and delivery of this
Agreement, the Selected Dealer Agreements, the Agreement Among Underwriters,
Underwriters Questionnaires, Powers of Attorney and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses
and of the Prospectus and any amendments thereof or supplements thereto
supplied to the Underwriters in quantities as hereinabove stated; (iii) the
printing, engraving, issuance and delivery of the Securities including any
transfer or other taxes payable thereon; (iv) disbursements and fees of
Underwriters' Counsel in connection with the qualification of the Securities
under state or foreign securities or "Blue Sky" laws and determination of the
status of such securities under legal investment laws, including the costs of
printing and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental
Blue Sky Memorandum" and "Legal Investments Survey," if any, which
Underwriters' Counsel blue sky fees (exclusive of filing fees and
disbursements) shall not exceed $25,000 without the consent of the Company; (v)
advertising costs and expenses, including but not limited to costs and expenses
in connection with the "road show," information meetings and presentations, and
prospectus memorabilia all of which costs and expenses shall be approved in
advance by the Company; (vi) fees and expenses of the transfer agent; (vii) the
fees payable to the NASD; (viii) the fees and expenses incurred in connection
with the listing of the Securities on the Nasdaq SmallCap Market and any other
fees for application and admission to a registered Stock Exchange for which the
Underwriter requires the Company to register its Securities; and (ix) fees and
expenses for any tombstone advertisements reasonably requested by the
Representative and Closing Binders. All
DRAFT V.03 February 4, 1997
Page 23
<PAGE> 24
fees and expenses payable to the Underwriters shall be payable at the Closing
Date or Option Closing Date, as applicable.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6, Section 10(a) or Section 12, the
Company shall reimburse and indemnify the Underwriters for all of their
out-of-pocket expenses reasonably incurred in connection with the transactions
contemplated hereby.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, they will pay to
the Underwriters a non-accountable expense allowance equal to three percent
(3%) of the gross proceeds received by the Company from the sale of the
Securities, $5,000 of which has been paid to date to the Underwriters. The
Company will pay the remainder of the non-accountable expense allowance on the
Closing Date by direct payment to third parties for fees and expenses
including, but not limited to, fees and expenses of Underwriter's Counsel and
the balance by deduction from the proceeds of the offering contemplated herein.
In the event the Underwriters elect to exercise the over-allotment option
described in Section 2(b) hereof, the Company further agrees to pay to the
Underwriters on the Option Closing Date (by deduction from the proceeds of the
offering) a non-accountable expense allowance equal to three percent (3%) of
the gross proceeds received by the Company from the sale of the Option
Securities.
(d) The Company further agrees to pay to the Underwriters any
costs or expenses, including attorneys' fees, incurred or resulting from any
demands or causes of actions brought by the Underwriters or by third parties
against the Underwriters for the Company's failure to comply with any
provisions of this Underwriting Agreement.
6. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the Closing Date and
each Option Closing Date, if any, as if they had been made on and as of the
Closing Date or each Option Closing Date, as the case may be; the accuracy on
and as of the Closing Date or Option Closing Date, if any, of the statements of
officers of the Company made pursuant to the provisions hereof; and the
performance by the Company on and as of the Closing Date and each Option
Closing Date, if any, of each of its covenants and obligations hereunder and to
the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M., New York City time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Underwriters,
and, at Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional
DRAFT V.03 February 4, 1997
Page 24
<PAGE> 25
information shall have been complied with to the reasonable satisfaction of
Underwriter and Underwriters' Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Securities and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Underwriters of such timely
filing, or a post-effective amendment providing such information shall have
been promptly filed and declared effective in accordance with the requirements
of Rule 430A of the Rules and Regulations.
(b) The Underwriters shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriters' opinion, is material or omits to
state a fact which, in the Underwriters' opinion, is material and is required
to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Underwriters' reasonable opinion, is
material, or omits to state a fact which, in the Underwriters' reasonable
opinion, is material and is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(c) On or prior to the Closing Date and each Option Closing
Date, as the case may be, the Underwriters shall have received from
Underwriters' Counsel, such opinion or opinions with respect to the
organization of the Company the validity of the Securities, the Registration
Statement, the Prospectus and other related matters as the Underwriters
reasonably may request and such counsel shall have received such papers and
information as they request to enable them to pass upon such matters.
(d) At the Closing Date and the Option Closing Date the
Underwriters shall have received an opinion of Brenman Key & Bromberg, counsel
to the Company, dated the Closing Date, or Option Closing Date, as the case may
be, addressed to the Underwriter and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) The Company: (A) has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Colorado with full corporate power and authority to own and operate its
properties and to carry on its business as set forth in the Registration
Statement and Prospectus; (B) to the best knowledge of such counsel, the
Company is duly registered or qualified as a foreign corporation in all
jurisdictions in which by reason of maintaining an office in such jurisdiction
or by owning or leasing real property in such jurisdiction it is required to be
so registered or qualified except where failure to register or qualify does not
have, singly or in the aggregate, a Material Adverse Effect; and (C) to the
best
DRAFT V.03 February 4, 1997
Page 25
<PAGE> 26
knowledge of such counsel, the Company has not received any notice of
proceedings relating to the revocation or modification of any such registration
or qualification.
(ii) The Registration Statement, each Preliminary
Prospectus that has been circulated and the Prospectus and any post-effective
amendments or supplements thereto (other than the financial statements,
schedules and other financial and statistical data included therein, as to
which no opinion need be rendered) comply as to form in all material respects
with the requirements of the Act and Regulations and the conditions for use of
a registration statement on Form SB-2 have been satisfied by the Company. 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 for the Company and representatives of the
Underwriters at which the contents of the Registration Statement, the
Prospectus and related matters were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and Prospectus, on the basis of the foregoing, no facts have come to
the attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto at the time such Registration
Statement or amendment became effective or the Prospectus as of the date
thereof contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or 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 opinion with respect to the
financial statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus or with respect to
statements or omissions made therein in reliance upon information furnished in
writing to the Company on behalf of any Underwriter expressly for use in the
Registration Statement or the Prospectus).
(iii) To the best of such counsel's knowledge, the
Company has a duly authorized, issued and outstanding capitalization as set
forth in the Prospectus as of the date indicated therein, under
"Capitalization." The Shares, Redeemable Warrants, the Purchase Option, the
Underwriters' Warrants, and the Warrant Shares conform in all material respects
to all statements with respect thereto contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the holders thereof, to counsel's best knowledge, are not subject to personal
liability by reason of being such holders, and none of such securities were
issued in violation of the preemptive rights of any holder of any security of
the Company.
(iv) The issuance of the Shares, Redeemable Warrants and
the Warrant Shares have been duly authorized and when issued and paid for in
accordance with this Agreement and the Warrant Agreement, respectively, will be
validly issued, fully paid and non-assessable securities of the Company. The
holders of the Securities when issued and paid for, will not be subject to
personal liability by reason of being such holders. To the best of such
counsel's
DRAFT V.03 February 4, 1997
Page 26
<PAGE> 27
knowledge, the Securities are not and will not be subject to the preemptive or
similar contractual rights of any shareholder of the Company. All corporate
action required to be taken for the authorization, issuance and sale of the
Securities has been duly and validly taken. The certificates representing the
Shares and Redeemable Warrants are in due and proper form.
(v) Based solely on telephonic, verbal confirmation
provided to such counsel by the staff of the Commission, the Registration
Statement and all post-effective amendments, if any, have become effective
under the Act, and, if applicable, filing of all pricing information has been
timely made in the appropriate form under Rule 430A, and, to the best of such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and to the best of such counsel's
knowledge, no proceedings for that purpose have been instituted or are pending
or threatened or contemplated under the Act; and any required filing of the
Prospectus pursuant to Rule 424(b) has been made.
(vi) To the best of such counsel's knowledge, (A) there
are no material contracts or other documents required to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and (B) the descriptions in
the Registration Statement and the Prospectus and any supplement or amendment
thereto regarding such material contracts or other documents to which the
Company is a party or by which it is bound, are accurate in all material
respects and fairly represent the information required to be shown by Form SB-2
and the Rules and Regulations.
(vii) This Agreement, the Underwriters Purchase Option
Agreement, the Warrant Agreement, and the Financial Consulting Agreement have
each been duly and validly authorized, executed and delivered by the Company,
and assuming that it is a valid and binding agreement of the Underwriters, so
as the case may be, constitutes a legal, valid and binding agreement of the
Company enforceable as against the Company in accordance with its respective
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law or pursuant to
public policy).
(viii) Neither the execution or delivery by the Company of
this Agreement, the Underwriter's Purchase Option Agreement, and the Warrant
Agreement, nor its performance hereunder or thereunder, nor its consummation of
the transactions contemplated herein or therein, nor the conduct of its
business as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, nor the issuance of the securities conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
material default under, or result in the creation or imposition
DRAFT V.03 February 4, 1997
Page 27
<PAGE> 28
of any material lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon any property
or assets (tangible or intangible) of the Company pursuant to the terms of (A)
the Articles of Incorporation of the Company, or (B) to the best knowledge of
such counsel, and except to the extent it would not have a Material Adverse
Effect on the Company, any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body, having jurisdiction
over the Company or any of its respective activities or properties.
(ix) No consent, approval, authorization or order, and
no filing with, any court, regulatory body, government agency or other body,
(other than such as may be required under state securities laws, as to which no
opinion need be rendered) is required in connection with the issuance by the
Company of the Securities pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement, the Underwriters' Purchase Option
Agreement, the Financial Consulting Agreement and the Warrant Agreement by the
Company, and the taking of any action by the Company contemplated hereby or
thereby, which has not been obtained.
(x) To the best of such counsel's knowledge, except as
described in the Prospectus, no person, corporation, trust, partnership,
association or other entity holding securities of the Company has the
contractual right to include and/or register any securities of the Company in
the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration statement
for twelve months from the date hereof.
(xi) After the public offering, the Securities will be
eligible for listing on the Nasdaq SmallCap Market.
In rendering such opinion such counsel may rely, (A) as to
matters involving the application of laws other than the laws of the United
States, the corporate laws of Colorado and jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the extent specified
in such opinion, if at all, upon an opinion or opinions (in form and in
substance reasonably satisfactory to Underwriters' Counsel) of other counsel
reasonably acceptable to Underwriters' Counsel, familiar with the applicable
laws, and (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company; provided, that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and, in their
opinion, the Underwriters and they are justified in relying thereon.
DRAFT V.03 February 4, 1997
Page 28
<PAGE> 29
(e) At each Option Closing Date, if any, the Underwriters
shall have received the an opinion of counsel to the Company, each dated the
Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of Option Closing Date the
statements made by such firm, in their opinion, delivered on the Closing Date.
(f) On or prior to each of the Closing Date and the Option
Closing Date, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions herein
contained.
(g) Prior to the Closing Date and each Option Closing Date, if
any: (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
prospects or the business activities of the Company, whether or not in the
ordinary course of business, from the latest dates as of which such condition
is set forth in the Registration Statement and Prospectus; (ii) there shall
have been no transaction, not in the ordinary course of business, entered into
by the Company, from the latest date as of which the financial condition of the
Company is set forth in the Registration Statement and Prospectus which is
materially adverse to the Company; (iii) the Company shall not be in material
default under any provision of any instrument relating to any outstanding
indebtedness; (iv) no material amount of the assets of the Company shall have
been pledged or mortgaged, except as set forth in the Registration Statement
and Prospectus; (v) no action, suit or proceeding, at law or in equity, shall
have been pending or to its knowledge threatened against the Company, or
affecting any of its properties or businesses before or by any court or
federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may materially adversely
affect the business, operations, prospects or financial condition or income of
the Company, except as set forth in the Registration Statement and Prospectus;
and (vi) no stop order shall have been issued under the Act and no proceedings
therefor shall have been initiated, threatened or contemplated by the
Commission.
(h) At the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the Closing
Date or the Option Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at or
prior to such Closing Date or Option Closing Date, as the case may be;
DRAFT V.03 February 4, 1997
Page 29
<PAGE> 30
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose
have been instituted or are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits 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 and
neither the Preliminary Prospectus nor any supplement thereto includes any
untrue statement of a material fact or omits 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; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and
except as otherwise contemplated therein: (A) the Company has not incurred up
to and including the Closing Date or the Option Closing Date as the case may
be, other than in the ordinary course of its business, any material liabilities
or obligations, direct or contingent; (B) the Company has not paid or declared
any dividends or other distributions on its capital stock; (C) the Company has
not entered into any transactions not in the ordinary course of business; (D)
there has not been any change in the capital stock or any increase in long-term
debt or any increase in the short-term borrowings (other than any increase in
the short term borrowings in the ordinary course of business) of the Company;
(E) the Company has not sustained any material loss or damage to its property
or assets, whether or not insured; (F) there is no litigation which is pending
or threatened against the Company which is required to be set forth in an
amended or supplemented Prospectus which has not been set forth;
(v) Neither the Company nor any of its officers or
affiliates shall have taken, and the Company, its officers and affiliates will
not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in the stabilization or manipulation
of the price of the Company's securities to facilitate the sale or resale of
the Shares.
References to the Registration Statement and the Prospectus in
this subsection (i) are to such documents as amended and supplemented at the
date of such certificate.
(i) By the Effective Date, the Underwriters shall have
received clearance from NASD as to the amount of compensation allowable or
payable to the Underwriters, as described in the Registration Statement.
DRAFT V.03 February 4, 1997
Page 30
<PAGE> 31
(j) At the time this Agreement is executed, the Representative
shall have received a letter, dated such date, addressed to the Representative
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriters, from Gross, Collins + Cress:
(i) confirming that they are independent public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion that the condensed
financial statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations
thereunder and that the Underwriters may rely upon the opinion of Gross,
Collins + Cress with respect to the financial statements and supporting
schedules included in the Registration Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited interim condensed
financial statements of the Company (with an indication of the date of the
latest available unaudited interim condensed financial statements), a reading
of the latest available minutes of the stockholders and board of directors and
the various committees of the boards of directors of the Company, consultations
with officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A) the unaudited
condensed financial statements of the Company included in the Registration
Statement do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited condensed
financial statements of the Company included in the Registration Statement, or
(B) at a specified date not more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in the capital stock,
or any increase in total borrowings of the Company, or any decrease in the
stockholders' equity or working capital of the Company as compared with amounts
shown in the financial statements included in the Registration Statement, other
than as set forth in or contemplated by the Registration Statement, or, if
there was any change or decrease, setting forth the amount of such change or
decrease, and (C) during the period from ______________ to a specified date not
more than five (5) days prior to the effective date of the Registration
Statement, there was any decrease in revenue, net earnings or increase in net
income or earnings per common share of the Company, in each case as compared
with the corresponding period of the prior year other than as set forth in or
contemplated by the Registration Statement, or, if there was any such decrease,
setting forth the amount of such decrease;
DRAFT V.03 February 4, 1997
Page 31
<PAGE> 32
(iv) stating that they have compared specific dollar
amounts, numbers of Securities, percentages of revenue and earnings, statements
and other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures did not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(v) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriters may reasonably request.
(k) At the Closing Date and each Option Closing Date, the
Underwriters shall have received from Gross, Collins + Cress, a letter, dated
as of the Closing Date, or Option Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to Subsection (j) of this Section, except that the specified date referred to
shall be a date not more than five days prior to the Closing Date and, if the
Company has elected to rely on Rule 430A of the Rules and Regulations, to the
further effect that they have carried out procedures as specified in clause
(iii) of subsection (j) of this Section with respect to certain amounts,
percentages and financial information as specified by the Underwriters and
deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and
have found such amounts, percentages and financial information to be in
agreement with the records specified in such clause (iii).
(l) On each of the Closing Date and the Option Closing Date,
if any, there shall have been duly tendered to the Underwriters for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriters pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the
Option Closing Date, if any, and no proceedings for that purpose shall have
been instituted or to its knowledge or that of the Company shall be
contemplated.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Underwriters may terminate this
Agreement or, if the Underwriters so elect, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification.
DRAFT V.03 February 4, 1997
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(a) The Company (but such indemnity shall be limited to the
proceeds received from the sale of his shares, if any, as a portion of the
Additional Securities) agrees to indemnify and hold harmless each of the
Underwriters, including specifically each person who may be substituted for an
Underwriter as provided in Section 11 hereof and each person, if any, who
controls any Underwriter ("controlling person") within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which such Underwriter or such controlling person may become
subject under the Act, the Exchange Act or any other federal or state statutory
laws or regulations at common law or otherwise or under the laws of foreign
countries arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in any Preliminary Prospectus
(except that the indemnification contained in this paragraph with respect to
any preliminary prospectus shall not inure to the benefit of the Underwriter or
to the benefit of any person controlling the Underwriter on account of any
loss, claim, damage, liability or expense arising from the sale of the
Securities by the Underwriter to any person if a copy of the Prospectus, as
amended or supplemented, shall not have been delivered or sent to such person
within the time required by the Act, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus, as amended and
supplemented, and such correction would have eliminated the loss, claim,
damage, liability or expense), the Registration Statement or the Prospectus (as
from time to time amended and supplemented); (ii) in any post-effective
amendment or amendments or any new registration statement and prospectus in
which is included securities of the Company issued or issuable upon exercise of
the Underwriters' Purchase Option; or (iii) in any application or other
document or written communication (in this Section 8 collectively called
"application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq Stock Market, Inc. or any other
securities exchange; or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company with respect to any Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto, in any
post-effective amendment, new registration statement or prospectus or in any
application, as the case may be, or (iv) any failure of the Company to comply
with any provision of this Underwriting Agreement resulting in a claim or loss
to the Underwriters.
The indemnity agreement in this subsection (a) shall be in
addition to any liability which the Company may have at common law or
otherwise.
DRAFT V.03 February 4, 1997
Page 33
<PAGE> 34
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company within the meaning of Section 20 of
the Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to the Underwriters but only with respect to
statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto in any post-effective amendment, new registration statement or
prospectus, or in any blue sky application or any other such application made
in reliance upon, and in strict conformity with, written information furnished
to the Company with respect to any Underwriter by such Underwriter expressly
for use in such Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto or in any
post-effective amendment, new registration statement or prospectus, or in any
such application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto, in any
post-effective amendment, new registration statement or prospectus or in any
such application, provided, further, that the liability of each Underwriter to
the Company shall be limited to the amount of the net proceeds of the Offering
received by the Company. The Company acknowledges that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend and the last paragraph of the cover
page in the Prospectus have been furnished by the Underwriters expressly for
use therein and any information furnished by or on behalf of the Underwriter
filed in any jurisdiction in order to qualify the Securities under State
Securities laws or filed with the Commission, the NASD or any securities
exchange constitute the only information furnished in writing by or on behalf
of the Underwriters for inclusion in the Prospectus and the Underwriters hereby
confirm that such statements and information are true and correct.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against
one or more indemnifying parties under this Section 7, notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not relieve
it from any liability which it may have under this Section 7 except to the
extent that it has been prejudiced in any material respect by such failure or
from any liability which it may have otherwise avoided). In case any such
action is brought against any indemnified party, and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties will be entitled to participate therein, and to the extent it
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing the indemnified party or parties shall have the
right to employ its or their own
DRAFT V.03 February 4, 1997
Page 34
<PAGE> 35
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the
indemnifying party, (ii) the indemnifying parties shall not have employed
counsel reasonably satisfactory to such indemnified party to have charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnifying party or parties shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement
of any claim or action effected without its written consent; provided however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of this Section 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of
any indemnified party, then each indemnifying party in lieu of indemnifying
such indemnified party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, expenses or
liabilities (or actions in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand from the offering of the Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (A) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriters are the indemnified party 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 Securities (before deducting expenses) bear to the total
underwriting discounts and commissions received by the Underwriters hereunder,
in each case as set forth in the table on the Cover Page of the Prospectus.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged
DRAFT V.03 February 4, 1997
Page 35
<PAGE> 36
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subdivision (d), the Underwriters shall not be required to
contribute any amount in excess of the amount of the net proceeds of the
Offering received by the Company. 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. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has 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 this subparagraph (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 to which a claim for contribution may be made
against another party or parties under this subparagraph (d), 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 obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Underwriters.
9. Effective Date.
This Agreement shall become effective: (i) upon the execution and
delivery hereof by the parties hereto; or (ii) if, at any time this Agreement
is executed and delivered, it is necessary for the Registration Statement or a
post-effective amendment thereto to be declared effective before the offering
of the Shares may commence, when notification of the effectiveness of the
Registration Statement or such post-effective amendment has been released by
the Commission. Until such time
DRAFT V.03 February 4, 1997
Page 36
<PAGE> 37
as this Agreement shall have become effective, it may be terminated by the
Company, by notifying you, or by you, as Representatives of the several
Underwriters, by notifying the Company.
10. Termination.
(a) The Underwriters shall have the right to terminate this
Agreement (i) if any calamitous domestic or international event or act or
occurrence has materially disrupted, or in the Underwriters' opinion will in
the immediate future materially disrupt general securities markets in the
United States; or (ii) if trading on the New York Stock Exchange, the American
Stock Exchange, the Nasdaq National Market, or in the over-the-counter market
shall have been suspended or minimum or maximum prices for trading shall have
been fixed, or maximum ranges for prices for securities shall have been
required on the over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction; or (iii) if
the United States shall have become involved in a war or major hostilities; or
(iv) if a banking moratorium has been declared by a New York State or federal
authority; or (v) if a moratorium in foreign exchange trading has been
declared; or (vi) if the Company shall have sustained a material adverse loss,
whether or not insured, by reason of fire, flood, accident or other calamity
that materially impairs the investment quality of the Units; or (vii) if there
shall have been such material adverse change in the conditions or prospects of
the Company, involving a change not contemplated by the Registration Statement.
(b) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 9 and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities), the
Underwriters shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
Underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Underwriters shall not have completed such arrangements
within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective
DRAFT V.03 February 4, 1997
Page 37
<PAGE> 38
underwriting obligations hereunder bear to the underwriting obligations of all
nondefaulting Underwriters; or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Underwriters shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Underwriters option, by notice from the Underwriters to the Company,
terminate the Underwriters' several obligations to purchase Securities from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5 and Section 7 hereof. No action taken
pursuant to this Section shall relieve the Company from liability, if any, in
respect of such default.
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Argent Securities, Inc., 3340 Peachtree Road, Suite 450,
Atlanta, GA 30326, with a copy to Johnson & Montgomery, One Buckhead Plaza,
3060 Peachtree Road, N.W., Suite 400, Atlanta, Georgia 30305, Attention:
Robert E. Altenbach, Esq. Notices to the Company shall be directed to the
Company, Western Country Clubs, Inc., at 5218 Classen Boulevard, Oklahoma City,
OK 73118 Attention: Mr. James E. Blacketer, with a copy to Brenman Key &
Bromberg, Mellon Financial Center, 1775 Sherman Street, Suite 1001, Denver, CO
80203, Attention: A. Thomas Tenenbaum, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and their respective
heirs and legal representatives and no other person shall have or be construed
to have any legal or equitable right, remedy or claim under or in respect of or
by virtue of this Agreement
DRAFT V.03 February 4, 1997
Page 38
<PAGE> 39
or any provisions herein contained. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such
purchase.
15. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado without
giving effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
WESTERN COUNTRY CLUBS, INC.
By:
--------------------------------
James E. Blacketer, President
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN
ON BEHALF OF THEMSELVES AND THE OTHER SEVERAL UNDERWRITERS
NAMED IN SCHEDULE I HERETO:
Argent Securities, Inc., as
Representative of the Several Underwriters
By:
--------------------------------------------
Name: L. Phillips Reames
Title: Chairman
DRAFT V.03 February 4, 1997
Page 39
<PAGE> 40
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Number of Securities
- ----------- --------------------
<S> <C>
Argent Securities, Inc. 400,000 Shares Series A Cumulative
Convertible Redeemable Preferred Stock
1,000,000 Redeemable Series A Warrants
for Common Stock
</TABLE>
DRAFT V.03 February 4, 1997
Page 40
<PAGE> 41
SCHEDULE II
Warrant Agent -
DRAFT V.03 February 4, 1997
Page 41
<PAGE> 1
THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION (REGISTRATION NO. 333-______).
HOWEVER, NEITHER THE OPTIONS NOR SUCH SECURITIES CAN BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION STATEMENT, (ii)
A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS OPTION IS
RESTRICTED AS DESCRIBED HEREIN.
WESTERN COUNTRY CLUBS, INC.
UNDERWRITERS' PURCHASE OPTION
400,000 Shares of Series A Cumulative Convertible Redeemable Preferred Stock
and
1,000,000 Redeemable Series A Warrants for Common Stock
THIS CERTIFIES that, for receipt in hand of $100.00 and other value
received, Argent Securities, Inc., 3340 Peachtree Road, N.E., Suite 450,
Atlanta, Georgia 30326 (hereinafter referred to as the "Holder" or
"Underwriter") is entitled to subscribe for and purchase from WESTERN COUNTRY
CLUBS, INC., a Colorado corporation (the "Company"), upon the terms and
conditions set forth herein, at any time or from time to time after
___________, 1998 and before 5:00 P.M. on _____________, 2002, New York time
(the "Exercise Period"), 400,000 shares of the Company's Series A Cumulative
Convertible Redeemable Preferred Stock, par value $.001 per share (the
"Preferred Shares" or "Preferred Stock") at a price of $_____ per share (the
"Exercise Price per Share"), and an Underwriters' Common Stock Purchase Warrant
or Warrants ("Underwriters' Warrants") for the purchase of an additional
1,000,000 Redeemable Series A Warrants for Common Stock (the "Warrant Shares")
at a price of $_______ per Underwriters' Warrant. Each share of Preferred
Stock may be converted into ____ shares of the Company's common stock (the
"Common Stock") pursuant to the terms of the Company's Articles of
Incorporation. If all of the Preferred Shares have been either redeemed or
converted prior to the expiration of the Exercise Period, this Underwriters'
Purchase Option shall be applicable at the rate of ____ shares of Common Stock
to each share of Preferred Stock. As used herein, the term "Shares" shall be
either the Preferred Stock or the Common Stock if the Preferred Stock has been
converted or redeemed. This Option may not be sold, transferred, assigned or
hypothecated, until ___________, 1998 except that it may be transferred in
whole or in part, to (i) either party who is a "Holder" or one or more officers
or partners of the Holder (or the officers or partners of any such person);
(ii) a successor to the Holder, or the officers or partners of such successor;
(iii) a purchaser of substantially all of the assets of the
<PAGE> 2
Holder; or (iv) by operation of law. The term "Holder" as used herein shall
include any transferee to whom this Option has been transferred in accordance
with the above. As used herein the term "Option" shall mean and include this
Underwriters' Purchase Option and any option or options of like form and tenor
hereafter issued as a consequence of the exercise or transfer of this Option in
whole or part.
Each Underwriters' Warrant shall entitle the holder thereof to
purchase the Warrant Shares at $_____ per share. Each Underwriters' Warrant
shall be in the form attached hereto as "Exhibit A" and shall be identical in
all material respects to the warrants (the "Public Warrants"), issued pursuant
to the Warrant Agreement, dated ___________, 1997 (the "Warrant Agreement"),
between the Company and American Stock Transfer and Trust Co., as Warrant
Agent; provided, however, the Underwriters' Warrants shall not be subject to
redemption by the Company under any circumstances. The Warrant Agreement shall
provide that at any time prior to (i) the expiration of the Underwriters'
Warrants into Public Warrants or (ii) the redemption of the Public Warrants,
the Holders shall have the right, but not the obligation, to convert any or all
of the Underwriters' Warrants into Public Warrants, in which case such
converted Underwriters' Warrants received upon the exercise of the Option shall
become covered by the Warrant Agreement. Such conversion shall be effected
immediately upon notice from a converting Holder to the Company and the Warrant
Agent.
1. Term of Exercise.
(a) This Option may be exercised during the Exercise
Period as to the whole or any lesser number of Preferred Shares and
Underwriters' Warrants, by the surrender of an Underwriters' Option Certificate
for this Option (with the election at the end thereof duly executed) to the
Company at its offices at 5218 Classen Boulevard, Oklahoma City, OK 73118 or
such other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the Exercise Price (per Preferred Share and per Warrant,
respectively) multiplied by the number of Preferred Shares and Underwriters'
Warrants for which this Option is being exercised.
(b) For purposes of this Option, the term "Current Market
Price" at any date shall be deemed to be: (i) the average of the daily closing
prices of the Preferred Shares or the Public Warrants, as the case may be, for
the 20 consecutive trading days immediately preceding such date in reported
sales price, or (ii) in case no such reported sale takes place on such date,
the last sales price regular way in either case as reported on the principal
national securities exchange on which the Preferred Shares or the Public
Warrants, as the case may be, is listed or admitted to trading, or (iii) if the
Preferred Shares or the Public Warrants, as the case may be, is not listed or
admitted to trading on any national securities exchange, the average of the
closing bid and asked prices regular way for the Preferred Shares or the Public
Warrants, as the case may be, on the Nasdaq National Market System or Nasdaq
SmallCap Market of the Nasdaq Stock Market, Inc. (together referred to as
"Nasdaq") or (iv) if the Preferred Shares or the Public Warrants, as the case
may be, is not listed or admitted for trading on any national securities
exchange and is not reported on NASDAQ or any
-2-
<PAGE> 3
similar organization, the average of the closing bid and asked prices in the
over-the-counter market as furnished by the National Quotation Bureau, Inc. or
if no such quotation is available, the fair market value as determined by the
Board of Directors in good faith.
2. Delivery of Certificates to Registered Holder. Upon each
exercise of this Option, the Holder shall be deemed to be the holder of record
of the Shares and Underwriters' Warrants issuable upon such exercise
notwithstanding that the transfer books of the Company shall then be closed or
certificates representing such Shares or Underwriters' Warrants shall not then
have been actually delivered to the Holder. As soon as practicable after each
such exercise of this Option, the Company shall issue and deliver to the Holder
a certificate or certificates for the Shares and a certificate or certificates
for the Underwriters' Warrants registered in the name of the Holder or its
designee. If this option should be exercised in part only, the Company shall,
upon surrender of an Underwriters' Option Certificate for this Option for
cancellation, execute and deliver a new Underwriters' Option Certificate
evidencing the right of the Holder to purchase the balance of the Shares and
Underwriters' Warrant (or portions thereof) subject to purchase hereunder.
3. Option Register. Any Option issued upon the transfer or
exercise in part of this Option shall be numbered and shall be registered in an
Option Register as they are issued. The Company shall be entitled to treat the
registered holder of any Option on the Option Register as the owner in fact
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Option on the part of any other person, and
shall not be liable for any registration or transfer of Options which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or participation
therein amounts to bad faith. The Options shall be transferable only on the
books of the Company upon delivery of an Underwriters' Option Certificate duly
endorsed by the Holder or by its duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment or authority to
transfer in all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence his or its
authority shall be produced. Upon any registration of transfer, the Company
shall deliver an Underwriters' Option Certificate to the Holder thereof, for
another Option, or other options of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Shares (or
portions thereof) and Underwriters' Warrants upon surrender to the Company or
its duly authorized agent. Notwithstanding the foregoing, the Company shall
have no obligation to cause this Option to be transferred on its books to any
person if, in the opinion of counsel to the Company, such transfer does not
comply with the provisions of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations thereunder.
4. Reservation of Preferred and Common Stock. The Company shall
at all times reserve and keep available out of its authorized and unissued
Preferred and Common Stock, solely for the purpose of providing for the
exercise of this Option and the Underwriters' Warrants, such number of shares
of Preferred and Common Stock as shall, from time to time, be sufficient
therefor. The Company covenants that all shares of Preferred and Common Stock
issuable upon exercise of this
-3-
<PAGE> 4
Option and the Underwriters' Warrants when paid for in accordance with the
respective terms thereof, shall be validly issued, fully paid and nonassessable
by the Company.
5. Anti-Dilution; Adjustments to Exercise Price.
(a) Upon the occurrence of any event (an "Event") as a
result of which an adjustment is made to the exercise price (the "Public
Exercise Price") of any of the Public Warrants, the number of Shares issuable
upon exercise of this Option shall be adjusted to equal thereafter the number
of Shares issuable prior to such Event multiplied by a fraction, the numerator
of which shall be the Public Exercise Price in effect prior to such Event and
the denominator of which shall be the Public Exercise Price subsequent to such
Event.
(b) Upon each adjustment of the number of Shares issuable
upon exercise of this Option pursuant to subparagraph 5(a) above, this Option
shall thereupon evidence the right to purchase such number of Shares at the
Exercise Price per Share obtained by (1) multiplying the Exercise Price per
share in effect immediately prior to the triggering Event by the number of
shares then purchasable upon exercise of this Option and (2) dividing the
product so obtained by the number of Shares purchasable upon exercise of this
Warrant subsequent to the triggering Event.
(c) Notwithstanding any other provision of this Option,
any adjustment of the exercise price, and/or the number of Warrant Shares
purchasable upon the exercise of the Underwriters' Warrants shall be determined
solely by the antidilution and other adjustment provisions contained in the
Warrant Agreement (which provisions are incorporated herein by reference) as if
such Underwriters' Warrants were and had been outstanding on and from
__________, 1997.
(d) Whenever there shall be an adjustment as provided in
this paragraph 5, the Company shall promptly cause written notice thereof to be
sent by registered mail, postage prepaid, to the Holder, at its principal
office, which notice shall be accompanied by an officer's certificate setting
forth the number and Exercise Price per Share and per Warrant of the Shares and
Underwriters' Warrants issuable upon exercise of this Option and the exercise
price per Warrant Share and the number of Warrant Shares purchasable upon the
exercise of the Underwriters' Warrants after such adjustment and setting forth
a brief statement of the facts requiring such adjustment and the computation
thereof.
(e) All calculations under this paragraph 5 shall be made
to the nearest cent or to the nearest one-thousandth of a Share or Warrant, as
the case may be.
(f) The Company shall not be required to issue fractions
of shares of Preferred or Common Stock or other capital stock of the Company
upon the exercise of Options. If any fraction of a share would be issuable on
the exercise of any Option (or specified portions thereof), the Company, in its
sole discretion, shall purchase such fraction for an amount in cash equal to
the same fraction of the Current Market Price of such share on the date of
exercise of the Option.
-4-
<PAGE> 5
6. Reorganization/Reclassification.
(a) In case of any consolidation with or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the surviving or continuing corporation), or in case of
any sale, lease or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, such successor, leasing
or purchasing corporation, as the case may be, shall (i) execute with the
Holder an agreement providing that the Holder shall have the right thereafter
to receive upon exercise of this Option solely the kind and amount of shares of
stock and other securities, property, cash or any combination thereof
receivable upon such consolidation, merger, sale, lease or conveyance by a
Holder of the number of shares of Preferred or Common Stock and the
Underwriters' Warrants for which this Option might have been exercised
immediately prior to such consolidation, merger, sale, lease or conveyance, and
(ii) make effective provision in order to effect such agreement. Such
agreement shall provide for adjustment which shall be as nearly equivalent as
practicable to the adjustments for which paragraph 5 provides.
(b) In case of any reclassification or change of the
shares of Preferred or Common Stock issuable upon exercise of this Option
(other than a change in par value or from par value to no par value, or as a
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), or in case of any consolidation
or merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property) of the
shares of Preferred or Common Stock (other than a change in par value, or from
par value to no par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or series of
shares), the Holder shall have the right thereafter to receive upon exercise of
this Option solely the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger by a holder of the number of
shares of Preferred or Common Stock and the Underwriters' Warrants for which
this Option might have been exercised immediately prior to such
reclassification, change, consolidation or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments for which paragraph 5 provides.
(c) The above provisions of this paragraph 6 shall
similarly apply to successive reclassifications and changes of shares of
Preferred and Common Stock and to successive consolidations, mergers, sales,
leases or conveyances similar to those described in subparagraphs 6(a) and (b).
7. Notice of Dividends/Distributions. If , in case at any time
the Company shall propose:
(a) to pay any dividend or make any distribution of
shares of Preferred or Common Stock in shares of Common Stock or make any other
distribution (other than regularly
-5-
<PAGE> 6
scheduled cash dividends which are not in a greater amount per share than the
most recent such cash dividend) to all holders of Preferred and Common Stock;
or
(b) to issue any rights, warrants or other securities to
all holders of Preferred and Common Stock or Public Warrants entitling them to
purchase any additional shares of Preferred and Common Stock or any other
rights, warrants or other securities; or
(c) to effect any reclassification or change or
outstanding shares of Preferred and Common Stock, or any consolidation,
merger, sale, lease or conveyance of property, described in paragraph 6; or
(d) to effect any liquidation, dissolution, or winding-up
of the Company; or
(e) to take any other action which would cause an
adjustment to the exercise price of the Public Warrants; then, on each such
occasion, the Company shall give written notice thereof, by registered mail,
postage prepaid, to the Holder at the Holder's address as it shall appear in
the Option Register, mailed at least 15 days prior to: (i) the date as of which
the holders of record of shares of Preferred and Common Stock to be entitled to
receive any such dividend, distribution, rights, warrants or other securities
are to be determined; (ii) the date on which any such reclassification, change
of outstanding shares of Preferred or Common Stock, consolidation, merger,
sale, lease, conveyance of property, liquidation, dissolution, or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of shares of Preferred or Common Stock or Public Warrants, as
the case may be, shall be entitled to exchange their shares or warrants for
securities or other property, if any, deliverable upon such reclassification,
change of outstanding shares, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution, or winding-up; or (iii) the date of such
action which would require an adjustment to the Public Exercise Price.
8. Payment of Taxes. The issuance of any Shares or Underwriters'
Warrants or other securities upon the exercise of this Option, and the delivery
of certificates or other instruments representing such shares of Preferred or
Common Stock, Warrants or other securities, shall be made without charge to the
Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid
or is not due and payable.
9. Registration Rights.
(a) If, at any time after ___________, 1998, and before
___________, 2002, the Company shall file a registration statement (other than
on Form S-8, or any successor form) with
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<PAGE> 7
the Securities and Exchange Commission (the "Commission") while Shares or
Underwriters' Warrants are available for purchase upon exercise of this Option
or while any Shares, Underwriters' Warrants or Warrant Shares (which have not
been so registered) are outstanding, the Company shall give the Holder and all
the then registered holders of such Shares, Underwriters' Warrants or Warrant
Shares at least 30 days prior written notice of the filing of such registration
statement. If requested by the Holder or by any such holder in writing within
20 days after receipt of any such notice, the Company shall, at the Company's
sole expense (other than the fees and disbursements of counsel for the Holder
or such holder and the underwriting discounts and commissions, if any, payable
in respect of the Warrants, Shares, Underwriters' Warrants and Warrant Shares
sold by the Holder or any such holder), use its best efforts to register or
qualify the Shares, Underwriters' Warrants and Warrant Shares (collectively,
the "Underwriters' Securities") of the Holder or any such holders who shall
have made such request concurrently with the registration covering such other
securities, all to the extent requisite to permit the public offering and sale
of the Underwriters' Securities through the facilities of all appropriate
securities exchanges and the over-the-counter market, and will use its best
efforts through its officers, directors, auditors and counsel to cause such
registration statement to become effective as promptly as practicable.
Notwithstanding the foregoing, if the managing underwriter of any such offering
shall advise the Company in writing that, in its opinion, the distribution of
all or a portion of the Underwriters' Securities requested to be included in
the registration concurrently with the securities being registered by the
Company would materially adversely affect the distribution of such securities
by the Company for its own account, the Underwriters' Securities shall not be
included in such registration statement or such registration statement shall
include only so many of the Underwriters' Securities as will not have such an
effect, provided that if any securities of the Company are included in such
registration statement for the account of any person other than the Company and
the Holder or any such holder, the securities included in such registration
statement for such other person shall have been reduced pro rata to the
reduction of the Underwriters' Securities which were requested to be included
in such registration.
(b) If at any time after __________, 1998 and before
_____________, 2002, the Company shall receive a written request from holders
of Underwriters' Securities who, in the aggregate, own (or upon exercise of the
Option and Underwriters' Warrants, will own) a majority of the total number of
shares of Common Stock issued or issuable upon exercise of the Option and the
Underwriters' Warrants, the Company shall, as promptly as practicable, prepare
and file with the Commission a registration statement sufficient to permit the
public offering and sale of the Underwriters' Securities through the facilities
of all appropriate securities exchanges and the over-the-counter market, and
will use its best efforts through its officers, directors, auditors and counsel
to cause such registration statement to become effective as promptly as
practicable; provided however, that the Company shall only be obligated to file
one such registration statement for which all expenses incurred in connection
with such registration (other than the fees and disbursements of counsel for
the Holder or such holders and underwriting discounts and commissions, if any,
payable in respect of the Underwriters' Securities sold by the Holder or any
such holder) shall be borne by the Company and one additional such registration
statement for which all such expenses shall be paid by the Holder and such
holders.
-7-
<PAGE> 8
(c) In the event of a registration pursuant to the
provisions of this paragraph 9, the Company shall use its best efforts to cause
the Underwriters' Securities so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the Holder
or such holders may reasonably request; provided, however, that the Company
shall not be required to (i) qualify to do business in any state by reason of
this paragraph 9(c) in which it is not otherwise required to qualify to do
business, (ii) or register or qualify in any state which will impose material
burdens on the Company or its principals.
(d) The Company shall keep effective any registration or
qualification contemplated by this paragraph 9 and shall from time to time
amend or supplement each applicable registration statement, preliminary
prospectus, final prospectus, application, document and communication for such
period of time as shall be required to permit the Holder or such holders to
complete the offer and sale of the Underwriters' Securities covered thereby.
The Company shall in no event be required to keep any such registration or
qualification effect for a period in excess of nine months from the date on
which the Holder and such holders are first free to sell such Underwriters'
Securities; provided, however, that if the Company is required to keep any such
registration or qualification in effect with respect to securities other than
the Underwriters' Securities beyond such period, the Company shall keep such
registration or qualification in effect as it relates to the Underwriters'
Securities for so long as such registration or qualification remains or is
required to remain in effect in respect of such other securities.
(e) In the event of a registration pursuant to the
provisions of this paragraph 9, the Company shall furnish to each of the five
largest holders of any Underwriters' Securities included therein such amendment
and supplement thereto (in each case, including all exhibits), such reasonable
number of copies of each prospectus contained in such registration statement
and each supplement or amendment thereto (including each preliminary
prospectus), all of which shall conform to the requirements of the Act and the
rules and regulations thereunder, and such other documents, as the Holder or
such holders may reasonably request in order to facilitate the disposition of
the Underwriters' Securities included in such registration.
(f) In the event of a registration pursuant to the
provisions this paragraph 9, the Company shall furnish to each holder of any
Underwriters' Securities so registered with an opinion of its counsel
(reasonably acceptable to the Holder) to the effect that (i) the registration
statement has become effective under the Act and no order suspending the
effectiveness of the registration statement, preventing or suspending the use
of the registration statement, any preliminary prospectus, any final
prospectus, or any amendment or supplement thereto has been issued, nor has the
Commission or any state securities authority instituted or threatened to
institute any proceedings with respect to such an order, (ii) the registration
statement and each prospectus forming a part thereof (including each
preliminary prospectus), and any amendment or supplement thereto, materially
complies as to form with the Act and the rules and regulations thereunder
(except as to financial statements, including schedules, and other accounting
and financial data, as to which counsel need express no opinion), and (iii)
such counsel has no knowledge or reason to know of any
-8-
<PAGE> 9
material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented.
(g) The Company agrees that until all the Underwriters'
Securities have been sold under a registration statement or pursuant to Rule
144 under the Act, it shall keep current in filing all reports, statements and
other materials required to be filed with the Commission to permit holders of
the Underwriters' Securities to sell such securities under Rule 144.
10. Indemnification.
(a) Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless the Holder, any holder of any of
the Underwriters' Securities, their officers, directors, partners, employees,
agents and counsel, and each person, if any, who controls any such person
within the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and
all loss, liability, charge, claim, damage and expense whatsoever (which shall
include, for all purposes of this paragraph 10, but not be limited to,
reasonable attorneys' fees and any and all expense whatsoever reasonably
incurred, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in connection
with (i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any registration statement, preliminary prospectus or final
prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, or (B) in any application or other document or
communication (in this paragraph 10 collectively called an "application")
executed by or on behalf of the Company filed in any jurisdiction in order to
register or qualify any of the Underwriters' Securities under the securities or
blue sky laws thereof or filed with the Commission or any securities exchange;
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to the Holder or
any holder of any of the Underwriters' Securities by or on behalf of such
Holder or Holders, or such other holder, exclusively for inclusion in any such
preliminary prospectus, or final prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, or (ii) any breach of any
representation, warranty, covenant or agreement of the Company to indemnify,
which shall be in addition to any liability the Company may otherwise have,
including liabilities arising under this Option.
If any action is brought against the Holder or any
holder of any of the Underwriters' Securities or any of its officers,
directors, partners, employees, agents or counsel, or any controlling persons
of such person (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of
the institution of such action (but the failure so to notify shall not relieve
the Company from any liability it may have other than pursuant to this
paragraph 10(a) except to the extent that it has been harmed in any material
respect by such failure) and the Company shall promptly assume the defense of
such action, including the employment of counsel (reasonably satisfactory to
such indemnified party or parties) and payment of expenses. Such indemnified
party or parties shall have the right to employ its or their own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the defense
of such action or the Company shall not have promptly employed counsel
reasonably satisfactory to such indemnified party or parties to have charge of
the defense of such
-9-
<PAGE> 10
action or such indemnified party or parties shall have reasonably concluded
that there may be one or more legal defenses available to it or them or to
other indemnified parties which are different from or in addition to those
available to the Company, if any, in which events the reasonable fees and
expenses of such counsel shall be borne by the Company and the Company shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this paragraph 10 (a) to the
contrary notwithstanding, the Company shall not be liable for any settlement of
any such claim or action effected without its written consent.
(b) The Holder and any other holder of Underwriters'
Securities agree to indemnify and hold harmless the Company, each director of
the Company, each officer of the Company who shall have signed any registration
statement covering Underwriters' Securities held by the Holder and such other
holder and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to the
same extent as the foregoing indemnity from the Company to the Holder and such
other holder in paragraph 10(a), but only with respect to statements or
omissions, if any, made in any registration statement, preliminary prospectus,
or final prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to the Company with respect to
the Holder or such other holder by or on behalf of the Holder or such other
holder expressly for inclusion in any such registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement thereto, or in
any application, as the case may be. If any action shall be brought against
the Company or any other person so indemnified based on any such registration
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, and in respect of which indemnity
may be sought against the Holder pursuant to this paragraph 10(b), the Holder
and such other holder shall have the rights and duties given to the Company,
and the Company and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of paragraph 10(a).
(c) To provide for just and equitable contribution, if
(i) an indemnified party makes a claim for indemnification pursuant to
paragraph 10(a) or 10(b) (subject to the limitations thereof) but is found in a
final judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act or
otherwise, then the Company (including for this purpose any contribution made
by or on behalf of any director of the Company, any officer of the Company who
signed any such registration statement and any controlling person of the
Company), as one entity, and the Holder and any holder of any of the
Underwriters' Securities included in such registration in the aggregate
(including for this purpose any contribution by or on behalf of an indemnified
party), as a second entity, shall contribute to the losses, liabilities,
claims, damages and expenses whatsoever to which any of them may be subject, on
the basis of relevant equitable considerations such as the relative fault of
the Company and the Holder or any such holder in connection with the facts
which resulted in such losses, liabilities, claims, damages and expenses. The
relative fault, in the case of an untrue statement, alleged untrue statement,
omission or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission or alleged omission relates
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<PAGE> 11
to information supplied by the Company, by the Holder or by any holder of
Underwriters' Securities included in such registration, and the parties
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company and the Holder agree that it would be unjust and inequitable if the
respective obligations of the Company and the Holder or any such other holder
of the Underwriters' Securities for contribution were determined by pro rata or
per capita allocation of the aggregate losses, liabilities, claims, damages and
expenses (even if the Holder and the other indemnified parties were treated as
one entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this paragraph 10(c). No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this paragraph
10(c), each person, if any, who controls the Holder or any holder of any of the
Underwriters' Securities within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee, agent
and counsel of each such person, shall have the same rights to contribution as
such person and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee, agent and counsel of each such person,
shall have the same rights to contribution as such person and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, each officer of the Company who shall have
signed any such registration statement, and each director of the Company shall
have the same rights to contribution as the Company, subject in each case to
the provisions of this paragraph 10(c). Anything in this paragraph 10(c) to
the contrary notwithstanding, no party shall be liable for contribution with
respect to the settlement of any claim or action effected without its written
consent. This paragraph 10(c) is intended to supersede any right to
contribution under the Act, the Exchange Act or otherwise.
(d) The provisions of this paragraph 10 shall survive
regardless of the expiration, exercise or surrender of this Option.
11. Legend. The securities issued upon exercise of this Option
shall be subject to a stop transfer order and, when Company's counsel deem
appropriate, the certificate or certificates evidencing any such securities
shall bear the following legend:
"THE SHARES (OR OTHER SECURITIES) REPRESENTED BY THIS
CERTIFICATE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. HOWEVER, SUCH
SHARES (OR OTHER SECURITIES) CANNOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH
REGISTRATION STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT
UNDER SUCH ACT,
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<PAGE> 12
OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
12. Lost Certificates. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of any Option (and
upon surrender of any Option if mutilated), and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall execute and deliver
to the Holder thereof a new Option of like date, tenor and denomination.
13. No Rights as Shareholder. No Holder of any Option shall have,
solely on account of such status, any rights of a shareholder of the Company,
either at law or in equity, or to any notice of meetings of stockholders or of
any other proceedings of the Company, except as provided in this Option.
14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered holder of this Option, to the
address of such holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in
Paragraph l(a) of this Option; or
(c) if to the Holder, to the address set forth on the
first page of this Option.
15. Governing Law. This Option shall be construed in accordance
with the laws of the State of Colorado, without giving effect to conflict of
laws.
Dated: February __, 1997
WESTERN COUNTRY CLUBS, INC.
By:__________________________________
Name: James E. Blacketer
(Seal) Title: President
- ---------------------------------------
Secretary
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<PAGE> 1
EXHIBIT 4.2
WESTERN COUNTRY CLUBS, INC.
Incorporated Under the Laws of the State of Colorado
No. W- __Series A Common Stock
Purchase Warrants
CUSIP ___________
CERTIFICATE FOR (See Reverse
SERIES A COMMON STOCK For Certain
PURCHASE WARRANTS Definitions)
This Warrant Certificate certifies that ___________________, or
registered assigns ("the Warrant Holder"), is the registered owner of the above
indicated number of Series A Common Stock Purchase Warrants (the "Warrants")
expiring on __________, 2000 (the "Expiration Date"). One Warrant entitles the
Warrant Holder to purchase one share of common stock ("Share") from Western
Country Clubs, Inc., a Colorado corporation (the "Company"), at a purchase
price of $____ (the "Exercise Price"), commencing on __________, 1997, and
terminating on the Expiration Date ("Exercise Period"), upon surrender of this
Warrant Certificate with the exercise form hereon duly completed and executed
with payment of the Exercise Price at the office of American Securities
Transfer & Trust, Inc. (the "Warrant Agent"), but only subject to the
conditions set forth herein and in a Warrant Agreement dated as of _________,
1997 (the "Warrant Agreement") between the Com pany and the Warrant Agent. The
Exercise Price, the number of shares purchasable upon exercise of each Warrant,
the number of Warrants outstanding and the Expiration Date are subject to
adjustments upon the occurrence of certain events. The Warrant Holder may
exercise all or any number of Warrants. Reference hereby is made to the
provisions on the reverse side of this Warrant Certificate and to the
provisions of the Warrant Agreement, all of which are incorporated by reference
in and made a part of this Warrant Certificate and shall for all purposes have
the same effect as though fully set forth at this place.
Upon due presentment for transfer of this Warrant Certificate at the
office of the Warrant Agent, a new Warrant Certificate or Warrant Certificates
of like tenor and evidencing in the aggregate a like number of Warrants,
subject to any adjustments made in accordance with the provi sions of the
Warrant Agreement, shall be issued to the transferee in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, upon payment of $_____ per Warrant Certificate and any tax or
governmental charge imposed in connection with such transfer.
The Warrant Holder of the Warrants evidenced by this Warrant
Certificate may exercise all or any whole number of such Warrants during the
period and in the manner stated hereon. The Exercise Price shall be payable in
lawful money of the United States of America and in cash or by certified or
bank cashier's check or bank draft payable to the order of the Company. If upon
exercise of any Warrants evidenced by this Warrant Certificate the number of
Warrants exercised shall be less
<PAGE> 2
than the total number of Warrants so evidenced, there shall be issued to the
Warrant Holder a new Warrant Certificate evidencing the number of Warrants not
so exercised.
Subject to the following paragraph, no Warrant may be exercised after
5:00 p.m. Mountain Time on the Expiration Date and any Warrant not exercised by
such time shall become void, unless extended by the Company.
Commencing on the date the Warrants are separately tradeable and
transferable, the Warrants are subject to redemption by the Company at $.125
per Warrant, at any time commencing ________, 1998 (twelve months from the date
of Registration Statement No. 333-_______) and at any time prior to their
expiration, on not less than 30 days' prior written notice to the holders of
Warrants, provided that the daily trading price per share of Common Stock has
been at least $______ (150% of the closing bid price for the Company's Common
Stock on the effective date of Registration Statement No. 333-_____) for a
period of at least 5 consecutive trading days ending within 10 days prior to
the date upon which the notice of redemption is given. During the 30-day period
immedi ately following the giving of such notice, the Warrant Holders shall
have the right to exercise the Warrants so held by them. Upon expiration of
such 30-day period, all rights of the Warrant Holders shall terminate, other
than the rights to receive the redemption price, without interest, and the
right to receive the redemption price shall itself expire on the Warrant
Expiration Date.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its President and by its Secretary, each by a facsimile of his/her
signature, and has caused a facsimile of its corporate seal to be imprinted
hereon.
Dated:
------------------------
WESTERN COUNTRY CLUBS, INC.
By
- ----------------------------- -------------------------------
Dominic W. Grimmitt, Secretary James E. Blacketer, President
AMERICAN SECURITIES TRANSFER &
TRUST, INC.
Warrant Agent
By
--------------------------------
Charles R. Harrison, President
-2-
<PAGE> 3
FORM OF REVERSE SIDE OF WARRANT
This Warrant Certificate, when surrendered to the Warrant Agent at its
principal office by the Warrant 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, upon the payment of any tax or
other governmental charge imposed in connection with such exchange, for another
Warrant Certificate or Warrant Certificates of like tenor and evidencing a like
number of Warrants, subject to any adjustments made in accordance with the
provisions of the Warrant Agreement.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone) for all proposes and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary. No Warrant Holder, as such, shall have
any rights of a holder of the Common Stock of the Company, either at law or at
equity, and the rights of the Warrant holder, as such, are limited to those
rights expressly provided in the Warrant Agreement and in the Warrant
Certificate.
Under the Warrant Agreement the Exercise Price is subject to
adjustment if the Company shall effect any stock split or stock combination
with respect to the Common Stock. Any such adjustment of the Exercise Price
will also result in an adjustment of the number of shares of Common Stock
purchasable upon exercise of a Warrant or, if the Company should elect, an
adjustment of each outstanding Warrant into a different number of Warrants.
The Company shall not be required to issue fractions of Warrants upon
any such adjustment or to issue fractions of shares upon the exercise of any
Warrants upon any such adjustment, in accordance with the Warrant Agreement.
The Warrant Agreement is subject to amendment upon the approval of
holders of at least two-thirds of the outstanding Warrants as a group, except
that no such approval is required for the reduction of the Exercise Price or
extension of the Expiration Date. No amendment shall accelerate the Expiration
Date or increase the Exercise Price without the approval of all the holders of
all outstanding Warrants. A copy of the Warrant Agreement will be available at
all reasonable times at the office of the Warrant Agent for inspection by any
Warrant Holder. As a condition of such inspection, the Warrant Agent may
require any Warrant Holder to submit the Warrant Holder's Warrant Certificate
for inspection.
IMPORTANT: The Warrants represented by this Certificate may not be exercised by
a Warrant Holder unless at the time of exercise the underlying shares of Common
Stock are qualified for sale by registration or otherwise in the state where
the Warrant Holder resides or unless the issuance of the shares of Common Stock
would be exempt under the applicable state securities laws. Further, a
registration statement under the Securities Act of 1933, as amended, covering
the issuance of shares of Common Stock upon the exercise of this Warrant must
be in effect and current at the time of exercise unless the issuance of shares
of Common Stock upon any exercise is exempt from the registration requirements
of the Securities Act of 1933. Unless such registration statement is in effect
and current at the time of exercise, or unless such an exemption is available
the Company may decline to permit the exercise of this Warrant.
-3-
<PAGE> 4
TRANSFER FEE $_____ PER CERTIFICATE
WESTERN COUNTRY CLUBS, INC.
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
---------------
JT TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts
tenants in common to Minors Act _______
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To Be Executed by the Registered Holder if the Registered Holder
Desires to Assign Series A Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED___________________hereby sells, assigns and transfers
unto _____________ Series A Warrants, evidenced by the within Warrant
Certificate, and does hereby irrevocably constitute and appoint _______________
Attorney to transfer the said Warrants evidenced by the within Warrant
Certificate on the books of the Company, with full power of substitution.
Dated:
---------------- -------------------------------
Signature
NOTICE: The above signature must correspond with the name as written
upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change
whatsoever.
Signature Guaranteed:
--------------------------------------
-4-
<PAGE> 5
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if the Registered Holder Desires to Exercise
Warrants Evidenced by the Within Warrant Certificate)
To Western Country Clubs, Inc.:
The undersigned hereby irrevocably elects to exercise ____ Series A
Warrants, evidenced by the within Warrant Certificate for, and to purchase
thereunder, ____ full shares of Common Stock issuable upon exercise of said
Warrants and delivery of $ ____ and any applicable taxes.
The undersigned requests that certificates for such shares be issued
in the name of:
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
- ------------------------------- ---------------------------------
(Please print name and address)
- ------------------------------- ---------------------------------
- ------------------------------- ---------------------------------
If said number of Series A Warrants shall not be all the Warrants
evidenced by the within Warrant Certificate, the undersigned requests that a
new Warrant Certificate evidencing the Warrants not so exercised be issued in
the name of and delivered to:
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Dated: Signature:
---------------------------- ----------------------
NOTICE: The above signature must correspond with the name as written upon the
face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever, or if signed by
any other person the Form of Assignment hereon must be duly executed
and if the certificate representing the shares or any Warrant
Certificate representing Warrants not exercised is to be registered
in a name other than that in which the within Warrant Certificate is
registered, the signature of the holder hereof must be guaranteed.
Signature Guaranteed:
-----------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO
S.E.C. RULE 17Ad-15.
-5-
<PAGE> 1
EXHIBIT 4.3
WESTERN COUNTRY CLUBS, INC.
Incorporated Under the Laws of the State of Colorado
No. W- ______Series A Common Stock
Purchase Warrants
CUSIP ____________
CERTIFICATE FOR (See Reverse
SERIES A COMMON STOCK For Certain
PURCHASE WARRANTS Definitions)
This Warrant Certificate certifies that Argent Securities, Inc., or
registered assigns ("the Warrant Holder"), is the registered owner of the above
indicated number of Series A Common Stock Purchase Warrants (the "Warrants")
expiring on __________, 2000 (the "Expiration Date"). One Warrant entitles the
Warrant Holder to purchase one share of Common Stock ("Share") from Western
Country Clubs, Inc., a Colorado corporation (the "Company"), at a purchase
price of $____ (the "Exercise Price"), commencing on __________, 1997, and
terminating on the Expiration Date ("Exercise Period"), upon surrender of this
Warrant Certificate with the exercise form hereon duly completed and executed
with payment of the Exercise Price at the office of American Securities
Transfer & Trust, Inc. (the "Warrant Agent"), but only subject to the
conditions set forth herein and in a Warrant Agreement dated as of _________,
1997 (the "Warrant Agreement") between the Com pany and the Warrant Agent. The
Exercise Price, the number of shares purchasable upon exercise of each Warrant,
the number of Warrants outstanding and the Expiration Date are subject to
adjustments upon the occurrence of certain events. The Warrant Holder may
exercise all or any number of Warrants. Reference hereby is made to the
provisions on the reverse side of this Warrant Certificate and to the
provisions of the Warrant Agreement, all of which are incorporated by reference
in and made a part of this Warrant Certificate and shall for all purposes have
the same effect as though fully set forth at this place.
Until _____, 1998, this Warrant Certificate is not transferrable
except to an underwriter that participated in the public offering by the
Company that resulted in the original issuance of the Warrants, to a partner or
an officer of such an underwriter or by will on operation of law. Upon due
presentment for transfer of this Warrant Certificate at the office of the
Warrant Agent, a new Warrant Certificate or Warrant Certificates of like tenor
and evidencing in the aggregate a like number of Warrants, subject to any
adjustments made in accordance with the provisions of the Warrant Agreement,
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, upon payment of
$_____ per Warrant Certificate and any tax or governmental charge imposed in
connection with such transfer.
The Warrant Holder of the Warrants evidenced by this Warrant
Certificate may exercise all or any whole number of such Warrants during the
period and in the manner stated hereon. The
<PAGE> 2
Exercise Price shall be payable in lawful money of the United States of America
and in cash or by certified or bank cashier's check or bank draft payable to
the order of the Company. If upon exercise of any Warrants evidenced by this
Warrant Certificate the number of Warrants exercised shall be less than the
total number of Warrants so evidenced, there shall be issued to the Warrant
Holder a new Warrant Certificate evidencing the number of Warrants not so
exercised.
Subject to the following paragraph, no Warrant may be exercised after
5:00 p.m. Mountain Time on the Expiration Date and any Warrant not exercised by
such time shall become void, unless extended by the Company.
Commencing on the date the Warrants are separately tradeable and
transferable, the Warrants are subject to redemption by the Company at $.125
per Warrant, at any time commencing _______, 1998 (twelve months from the
effective date of the Company's Registration Statement No. 333- _____) and
prior to their expiration, on not less than 30 days' prior written notice to
the holders of Warrants, provided that the daily trading price per share of
Common Stock has been at least $______ (150% of the closing bid price for the
Company's Common Stock on the effective date of Registration Statement No.
333-_________) for a period of at least five (5) consecutive trading days
ending within 10 days prior to the date upon which the notice of redemption is
given. During the 30-day period immediately following the giving of such
notice, the Warrant Holders shall have the right to exercise the Warrants so
held by them. Upon expiration of such 30-day period, all rights of the Warrant
Holders shall terminate, other than the rights to receive the redemption price,
without interest, and the right to receive the redemption price shall itself
expire on the Warrant Expiration Date.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its President and by its Secretary, each by a facsimile of his/her
signature, and has caused a facsimile of its corporate seal to be imprinted
hereon.
Dated:
-------------------
WESTERN COUNTRY CLUBS, INC.
By
- ------------------------------- --------------------------------
Dominic W. Grimmett, Secretary James E. Blacketer, President
AMERICAN SECURITIES TRANSFER &
TRUST, INC.
Warrant Agent
By
--------------------------------
Charles R. Harrison, President
-3-
<PAGE> 4
FORM OF REVERSE SIDE OF WARRANT
This Warrant Certificate, when surrendered to the Warrant Agent at its
principal office by the Warrant 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, upon the payment of any tax or
other governmental charge imposed in connection with such exchange, for another
Warrant Certificate or Warrant Certificates of like tenor and evidencing a like
number of Warrants, subject to any adjustments made in accordance with the
provisions of the Warrant Agreement.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone) for all proposes and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary. No Warrant Holder, as such, shall have
any rights of a holder of the Common Stock of the Company, either at law or at
equity, and the rights of the Warrant holder, as such, are limited to those
rights expressly provided in the Warrant Agreement and in the Warrant
Certificate.
Under the Warrant Agreement the Exercise Price is subject to
adjustment if the Company shall effect any stock split or stock combination
with respect to the Common Stock. Any such adjustment of the Exercise Price
will also result in an adjustment of the number of shares of Common Stock
purchasable upon exercise of a Warrant or, if the Company should elect, an
adjustment of each outstanding Warrant into a different number of Warrants.
The Company shall not be required to issue fractions of Warrants upon
any such adjustment or to issue fractions of shares upon the exercise of any
Warrants upon any such adjustment, in accordance with the Warrant Agreement.
The Warrant Agreement is subject to amendment upon the approval of
holders of at least two-thirds of the outstanding Warrants as a group, except
that no such approval is required for the reduction of the Exercise Price or
extension of the Expiration Date. No amendment shall accelerate the Expiration
Date or increase the Exercise Price without the approval of all the holders of
all outstanding Warrants. A copy of the Warrant Agreement will be available at
all reasonable times at the office of the Warrant Agent for inspection by any
Warrant Holder. As a condition of such inspection, the Warrant Agent may
require any Warrant Holder to submit the Warrant Holder's Warrant Certificate
for inspection.
IMPORTANT: The Warrants represented by this Certificate may not be exercised by
a Warrant Holder unless at the time of exercise the underlying shares of Common
Stock are qualified for sale by registration or otherwise in the state where
the Warrant Holder resides or unless the issuance of the shares of Common Stock
would be exempt under the applicable state securities laws. Further, a
registration statement under the Securities Act of 1933, as amended, covering
the issuance of shares of Common Stock upon the exercise of this Warrant must
be in effect and current at the time of exercise unless the issuance of shares
of Common Stock upon any exercise is exempt from the registration requirements
of the Securities Act of 1933. Unless such registration statement is in effect
and current at the time of exercise, or unless such an exemption is available
the Company may decline to permit the exercise of this Warrant.
-4-
<PAGE> 5
TRANSFER FEE $_____ PER CERTIFICATE
WESTERN COUNTRY CLUBS, INC.
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
JT TEN - as joint tenants with right --------------------
of survivorship and not as (Cust) (Minor)
tenants in common under Uniform Gifts
to Minors Act _______
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To Be Executed by the Registered Holder if the Registered Holder
Desires to Assign Series A Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED __________________hereby sells, assigns and transfers
unto ________________ Series A Warrants, evidenced by the within Warrant
Certificate, and does hereby irrevocably constitute and appoint
____________________Attorney to transfer the said Warrants evidenced by the
within Warrant Certificate on the books of the Company, with full power of
substitution.
Dated:
------------------------ -----------------------------
Signature
NOTICE: The above signature must correspond with the name as written
upon the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever.
Signature Guaranteed:
---------------------------------
-5-
<PAGE> 6
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if the Registered Holder Desires to Exercise
Warrants Evidenced by the Within Warrant Certificate)
To Western Country Clubs, Inc.:
The undersigned hereby irrevocably elects to exercise ____ Series A
Warrants, evidenced by the within Warrant Certificate for, and to purchase
thereunder, ____ full shares of Common Stock issuable upon exercise of said
Warrants and delivery of $____ and any applicable taxes.
The undersigned requests that certificates for such shares be issued
in the name of:
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
- ------------------------------- ---------------------------------
(Please print name and address)
- ------------------------------- ---------------------------------
- ------------------------------- ---------------------------------
If said number of Series A Warrants shall not be all the Warrants
evidenced by the within Warrant Certificate, the undersigned requests that a
new Warrant Certificate evidencing the Warrants not so exercised be issued in
the name of and delivered to:
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Dated: Signature:
---------------------- --------------------------
NOTICE: The above signature must correspond with the name as written upon the
face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever, or if signed by
any other person the Form of Assignment hereon must be duly executed
and if the certificate representing the shares or any Warrant
Certificate representing Warrants not exercised is to be registered
in a name other than that in which the within Warrant Certificate is
registered, the signature of the holder hereof must be guaranteed.
Signature Guaranteed:
------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO
S.E.C. RULE 17Ad-15.
-6-
<PAGE> 1
EXHIBIT 10.08
AMENDMENT TO
COVENANT NOT TO COMPETE
THIS AMENDMENT TO COVENANT NOT TO COMPETE is entered into between
WESTERN COUNTRY CLUBS, INC., a Colorado Corporation (hereafter referred to as
Beneficiary), and Clarence O. Bond, Jack E. McMurrough and Ada L. Bond
(hereafter collectively referred to as Competitor).
WHEREAS, Competitor and Beneficiary previous executed a Covenant Not to
Compete to be effective on November 1, 1994, and
WHEREAS, Competitor and Beneficiary desire to amend their prior
covenant and to memorialize their agreement,
Now, therefore, in consideration of the payment of One dollar ($1.00)
and other good and valuable consideration, Competitor and Beneficiary agree to
amend the Covenant Not to Compare as follows: the term of the period of
non-competition shall be for fifteen(15) years beginning on November 1, 1994.
Competitor and Beneficiary also agree that all other terms of the covenant not
to compete except for the amendment to the period of non-competition shall
remain the same.
Wherefore, we have signed our names below.
"BENEFICIARY"
WESTERN COUNTRY CLUBS, INC.
Beneficiary's Address:
1601 West Evans
Denver, Co. 80223 By: /s/ TROY LOWRIE
----------------------------------------
Troy Lowrie, President
"COMPETITOR"
/s/ CLARENCE O. BOND
-------------------------------------------
Clarence O. Bond
Competitor's Address:
4903 McLeod Evans
Denver, CO 80223
<PAGE> 1
EXHIBIT 10.28
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this 30th day of July, 1993, by
and between BOOTS, Inc., a Kansas corporation hereinafter referred to as
"Lessor" and In Cahoots Limited Partnership, a Kansas Limited Partnership,
hereinafter referred to as "Tenant", all upon the following terms and
conditions and in consideration of the mutual promises and covenants
hereinafter set out:
WITNESSETH:
The Property
1. The Lessor hereby agrees to construct a building upon the land
which is described in Exhibit A for the intended use as a Nightclub on a
turnkey basis in accordance with the architectural drawings, detailed plans
and specifications to be furnished to Lessor by Tenant, which shall be
incorporated herein by reference and become a part of this lease upon delivery
of same to Lessor. The building to be built will be approximately 30,000 square
feet, it will be fully sprinkled for fire protection, it will be fully air
conditioned and heated, with all other customary utilities in place. The
building will be constructed in such a way as to have multiple uses, however,
the first use that is anticipated will be for the In Cahoots Nightclub.
Lessor agrees to expend the sum of, not less than, $1,155,000.00 for
the purchase, construction and outfitting of the building. The said sum shall
include the purchase price of the property including the improvements in place
and certain personal property acquired thereunder. It shall further include
furniture, fixtures and equipment as reflected on attached "Schedule 1".
Lessor hereby demises and leases to Tenant, in consideration of the
faithful performance by Tenant of all the terms and conditions hereof, the
property and premises located at 10001 E. Kellogg, in Wichita, Kansas, more
particularly described as follows:
PLEASE SEE ATTACHED EXHIBIT "A" WHICH IS SPECIFICALLY MADE A PART
HEREOF.
Term
2. It is agreed that the term of this lease shall be for ten (10)
years. The term is to commence when Tenant commences operation as a night
club, which is to say, when the same is "open" to business. But, in any event,
not later than October 15, 1993. Tenant will notify Lessor by mail of the date
of "opening". The primary term of this lease shall expire, unless sooner
terminated
-1-
<PAGE> 2
as herein provided, on the last day of the tenth (10th) "lease year". See rider
for extended terms.
Provided, however, if the Tenant shall fail to open the lease premises
by the date provided immediately above the lease term will begin anyway.
However, the Tenant shall be only liable for one half (1/2) of the rent and
other leasehold charges accruing until such time as the Tenant commences
operation as a nightclub, as described above at which time the lease and the
other obligations shall be fully due and collectable under this lease.
Rent
3. Tenant shall pay to the Lessor a minimum monthly rental of
Twelve Thousand Five Hundred Dollars ($12,500.00) per month. The minimum
monthly rent of $12,500.00 is due monthly, in advance.
The monthly installments of the annual minimum rent shall be payable
by the Tenant on or before the first day of each month in advance and shall be
prorated for any fractional calendar month. The prorated annual minimum rent for
the fractional calendar month (if any) preceding the first lease year shall be
payable upon the commencement of the term.
Tenant will pay to Lessor, in addition to the minimum monthly rent a
percentage rent to the extent, if any, that Six percent (6%) of "Gross Sales"
exceeds the minimum monthly rent, and payable 15 days after the last day of
each calendar quarter. Due dates for percentage rent are January 15th, April
15th, July 15, and October 15. ("Gross Sales" for the purposes of this
preceding sentence shall include complimentary sales, and exclude the
following: sales taxes, and beer/liquor taxes. "Gross sales" is that amount
which is shown on the sales tax return furnished to the Kansas Department of
Revenue. A copy of such sales tax return shall be submitted to Lessor monthly
within a reasonable time after filing with the Kansas Department of Revenue.
Tenant agrees to prepare true and complete records and accounts of all
gross receipts for each lease year in accordance with generally accepted
accounting principles consistently followed. Such records and accounts shall
include such sales records as an independent certified public accountant would
need in order to examine a Tenants annual statement of gross receipts pursuit
to generally accepted accounting standards. Such records and accounts shall
include such sales records as an independent certified public accountant would
need in order to examine a Tenants annual statement of gross receipts pursuit
to generally accepted accounting standards. Such records and accounts for any
lease year shall be maintained at the lease premises or at the Tenants main or
accounting office for a period of 24 months after the end of such lease year.
Tenant shall also retain copies
-2-
<PAGE> 3
of all its sales and occupation tax returns covering its operations in the
lease premises and any other governmental tax or other return which show Tenant
sales therein (other than a return which shows the combined sales from the
lease premises and other premises) and shall upon demand provide a photocopy to
the Lessor.
Taxes
4. During the term of the lease, the Tenant will pay ad valorem
taxes and special assessments upon the Real Property and the improvements
thereon. Also, Tenant will pay all taxes, charges, levies or assessments, of
every kind and nature, upon the fixtures, equipment, personal property,
inventory, tangible or intangible property, accounts receivable, etc., and all
similar taxes upon the property of Tenant, said property not being described or
set forth herein.
Utilities
5. Tenant shall pay promptly, when due, all charges for water,
gas, sewer, electricity, heat, power, telephone and all similar services used
and supplied to Tenant in connection with the demised premises and shall
contract for same in its own name.
Insurance
6. a) Tenant shall, maintain fire and extended coverage
insurance upon the structure and improvements upon said real property. All
proceeds of such insurance, when received by the Lessor, shall be used first to
restore the leased premises and the building or buildings thereon to the
condition they were in prior to the occurrence of the damage. The Tenant agrees
to include the bank or finance company at Mr. Dan Fioroni's direction, or as it
may change from time to time, the bank or finance company as a loss payee on
the insurance policy covering fire and extended coverage insurance as described
above as their interest may appear.
b) Tenant shall, throughout the term of this lease, at
Tenant's expense, maintain usual and general public liability insurance against
claims of third parties in or about the demised premises. The liability under
such insurance shall be not less than One Million Dollars ($1,000,000) for each
occurrence. Such policy shall, by its terms indemnify both Lessor and Tenant
and copies of the insurance policy, or, certificates of insurance showing same
in full force and effect, shall be furnished to Lessor. The Tenant also agrees
to include the bank or finance company named by Mr. Dan Fioroni, or the bank or
finance company as it changes from time to time, as a loss payee on the general
liability insurance policy as their interest may appear.
c) Tenant will insure its own property, including, but
not limited to fixtures, inventory, merchandise, etc. including
-3-
<PAGE> 4
$300,000.00 coverage for "soft costs" which shall include certain extra expense
and pre-opening items. Such coverage shall be reflected in the policy of
insurance "as their interest may appear loss payable".
d) Each party hereby waives any and every claim which
arises or may arise in its favor and against the other party during the term
of this lease or any extension or renewal thereof for any and all loss of, or
damage to, any of its property which loss or damage is covered by valid and
collectable fire and extended coverage insurance policies, to the extent that
such loss or damage is recovered under said insurance policies. Said waivers
shall be in addition to, and not in limitation or derogation of, any other
waiver or release contained in this lease with respect to any loss or damage
to property of the parties hereto.
Maintenance
7. Tenant will, at his sole cost and expense, maintain all of the
improvements and structures upon said premises and parking areas, including,
but not limited to, plate glass, doorways, the interior and exterior of the
premises, the heating and air conditioning equipment, roof, mechanical
equipment in connection therewith and shall promptly make necessary repairs of
maintenance thereof. The premises and improvements shall be maintained in a
"first class" condition.
Improvements
8. Tenant may make any additions, alterations, changes and
improvements on the demised premises as Tenant shall deem necessary, same to be
approved by Lessor; provided, however, there shall be no addition, alteration,
change or improvement which will weaken the structural strength of the building
or structure, and such additions, alterations, changes or improvements, shall
be made in a workmanlike manner and in full compliance with all building laws
and codes and all ordinances applicable thereto, and same shall become a part
of the premises and structure, and shall remain and be surrendered as a part
thereof upon the termination of this lease. All such additions, alterations,
changes and improvements will be paid for by Tenant. Tenant will not suffer nor
allow any liens of any sort of kind or of nature to attach to or upon the
premises at any time.
Lessor's Right of Entry
9. Tenant agrees that Lessor and any authorized representative
of Lessor may enter the demised premises and structure at reasonable time
during usual business hours for the purpose of inspecting same or making
necessary repairs to same an performing any work thereon that may be necessary
by reason hereof or by reason of Tenant's default in the terms of the Lease
-4-
<PAGE> 5
Agreement. Nothing contained herein shall imply any duty on the part of Lessor
to do any such work, which under the provisions of this lease, Tenant is
required to perform, and the performance thereof by Lessor shall not
constitute a waiver of the Tenant's default and failure to perform same.
Lessor shall not in any event, be liable for any inconvenience, annoyance,
disturbance, loss of business, or other damage sustained by Tenant while
making such repairs or the performance of any such work upon the structure and
demised premises or on account of bringing materials, supplies and equipment
into or thought the premises or structure during the course thereof.
Lessor is granted the right during the usual business hours to enter
the structure or demised premises to exhibit the same for the purpose of sale
or for mortgage; and, during the last six (6) months of the term of this lease,
Lessor may exhibit the same to any prospective Tenant. Lessor agrees that it
will use its best efforts not to disturb the normal business operation of
Tenant.
Subleasing, etc.
10. The Tenant shall not voluntarily, involuntarily or by
operation of law, assign or incumber this lease, in whole or in part, nor
sublet any or all of the lease premises, nor allow the operation of any
businesses therein or thereon by a licensee or concessionaire (herein after
collectively referred to as a "licensing" of the leased premises) without the
prior written consent of the Lessor in each instance. The consent by the Lessor
to any assignment, incumbrance, licensing or subletting shall not constitute a
waiver of the necessity for such consent to any subsequent assignment,
incumbrance, licensing or subletting. Not withstanding any assignment or
subletting, Tenant shall remain fully liable under this lease and shall not be
relieved from performing any of its obligations hereunder. As a condition to
any assignment of this lease by Tenant which is permitted under this section,
the assignee thereof shall be required to execute and deliver to Lessor an
agreement whereby such assignee assumes and agrees with the Lessor to discharge
all obligation of Tenant under this lease.
Attornment
11. Tenant shall in the event of any proceedings of brought for
the foreclosure, or in the event of the exercise of the power of sale under,
any mortgage made by Lessor covering any part of the property, attorn to the
purchaser upon any such foreclosure or sale and recognize such purchaser as
Lessor under this lease. Upon the request of any interested party, Tenant shall
execute, acknowledge and deliver an instrument, in form and substance
satisfactory to such party, evidencing the attornment provided for in this
Section.
-5-
<PAGE> 6
Insurance Proceeds
12. It is agreed that if the structure or improvements an the
demised premises be damaged or destroyed during the term of this lease or any
extension hereof by fire or the cause beyond the control of the parties hereto,
the Lessor, except as otherwise provided herein, shall immediately upon receipt
of insurance proceeds, but in no event later than ninety (90) days after such
damage has occurred, proceed to repair and/or rebuild same, including any
additions or improvements made by the Lessor or Tenant, on the same plan and
design as existed immediately before such damage or destruction occurred,
subject to such delays as may be reasonably attributed to governmental
restrictions, failure to obtain material and/or labor, strike, Act of God, war
or other causes of similar nature beyond the control of Lessor. The rent due
hereunder shall be reduced for such period of time as the Tenant is precluded
from the continuing operation of its business; however, in the event Tenant can
substantially operate from said premises, proportional rental required under
this lease shall be abated. The lease term shall be extended by the amount of
time the premises are closed for construction.
In the event the structure or premises are damaged by an uninsured
casualty to such an extent as to render the structure or improvements unusable,
then and in such event, either party hereto may elect to cancel and terminate
this lease effective as of the date of such destruction or damage. Such
election shall be evidenced by written notice to that effect mailed within
thirty (30) days of the determination and knowledge by the terminating party
that such casualty was uninsured. The rental hereunder shall be abated as of
the date and time of the casualty.
Waiver of subrogation and limitation of liability.
13. Anything in this lease to the contrary not withstanding, it is
agreed that each party (the "releasing party") hereby releases that other (the
"released party") from any liability which the released party would, but for
this section, have had to the releasing party during the term if this lease,
resulting from the occurrence of any accident or occurrence or casualty, (a)
which is or would be covered by a fire and extended coverage policy (with
vandalism and malicious mischief endorsement attached) or by a sprinkler
leakage, boiler and machinery or water damage policy in the State of Kansas
(irrespective of whether such coverage is being carried by the releasing
party), and (b) covered by any other casualty or property damage insurance being
carried by the releasing party at the time of the occurrence, which accident,
occurrence or casualty may have resulted in whole or in part from any act or
neglect of the released party, its officers, agents or employees; an, in so far
as the Tenant is the releasing party, it will also release from any such
liability Lessor as if Lessor was a release party under this section; provided,
however, the release
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<PAGE> 7
here and above herewith set forth shall become inoperative and null and void
if the release party wishes to replace the appropriate insurance with an
insurance company which (i) takes the position that the existence of such
release vitiates or would adversely effect any policy so insuring the releasing
party in a substantial manner and notice thereof is given to the released
party, or (ii) requires the payment of a higher premium by reason of the
existence of such release, unless in the latter case the release party within
ten (10) days after the notice thereof from the releasing party pays such an
increase in premium.
Anything in this lease to the contrary not withstanding it is agreed
that the Lessor shall not be liable for any damage arising from any negligent
act or omission of any other Tenant or occupant of the leased premises.
Tenant shall give prompt notice to Lessor in case of casualty damage
or accidents on the leased premises.
Indemnification
14. Tenant will indemnify and save harmless Lessor, its offices,
agents and servants, from and against any and all claims, actions, liability
and expense in connection with the loss of life, bodily injury and or damage to
property (a) arising from or out of any occurrence in upon or at the leased
premises, where the occupancy or use by Tenant of the leased premises or any
part thereof, unless the same be caused by the willful or negligent act or
omission of Lessor or its agents, employees or servants, and/or (b) occasioned
wholly or in part by any negligent act or omissions of Tenant, its agents,
employees, servants, sub Tenants, lessees, or concessionaires. If any action or
proceeding is brought against the Lessor, its offices, agents or servants by
reason of any of the aforementioned causes, Tenant upon receiving notice
thereof from the Lessor, agrees to defend such action or proceeding by adequate
counsel at its own expense.
Eminent Domain
15. It is agreed that if, during the term of this lease, the title
to the whole or substantially all of the premises shall be taken, or if the
premises shall be deprived or adequate ingress or egress to and from the
streets and highways, or any of them, abutting the premises, as the result of
the exercise of eminent domain, Tenant shall have the option of terminating
this agreement. In the event that Tenant elects to terminate this agreement,
this lease shall terminate as of the date of vesting of title pursuant to such
taking and proceedings. For the purpose hereof, "substantially all the
premises" shall be deemed to have been taken if Tenant cannot reasonably
operate in the remainder the business being conducted an the premises at the
time of such taking. If, during the term hereto or any extension, title to less
than the
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<PAGE> 8
whole or substantially all of the demised premises be taken be eminent domain,
this lease shall not terminate and the rent thereafter due and payable be
Tenant shall be reduced in just proportion as the nature, value and extent of
the part taken bears to the whole of the premise so leased and let herein, a
Lessor shall, as may be reasonably required, proceed to repair, restore and
place in proper condition for use and occupancy that part of the improvements
and structure not so taken. The rental shall not be reduced if Lessor can
provide adequate substitute for the part taken or adjacent to the leased
premises. Lessor and Tenant shall share, as their respective interests may
appear, in any award in any such taking.
Surrender; removal and restoration by Tenant.
16. On the last day of the term or on the sooner termination
hereof Tenant shall (a) peacefully surrender the leased premises broom clean
and in good order, condition and repair except for reasonable wear and tear;
and (b) at its expense remove from the leased premises the signs, movable
furniture, trade fixtures an carpeting which were furnished and installed by
and at the Tenants sole expense and any of the Tenants property not so removed
may at Lessors election and without limiting Lessor right to compel removal
thereof be deemed abandoned. Any damage to the leased premises caused by the
Tenant and the removal of Tenant property shall be repaired by Tenant and at
Tenants expense.
The title to all alterations, additions, improvements, repairs,
decoration including any hard surface, bonded or adhesively affixed flooring,
heating and air conditioning equipment and fixtures (other than the Tenants
property which shall have been made, furnished or installed by or at the
expense of Tenant in or upon the leased premises), shall vest in the Lessor
upon the installation thereof, and the same shall remain upon and be
surrendered with the lease premises as a part thereof, without disturbance and
without charge.
Tenant shall have the right to use the demised premises for any lawful
purpose. Tenant shall not assign this lease or any part thereof or its rights
or leasehold estate hereunder without the written consent of Lessor being first
obtained, and which consent shall not be unreasonable withheld.
Termination
17. If this lease shall terminate at any time other than the term
herein fixed as the expiration of the term or any extension hereof, Tenant
shall have a reasonable time thereafter to effect the removal of the items set
out, but not to exceed thirty (30) days, during which time the rent shall not
abate.
-8-
<PAGE> 9
Tenant's Liens
18. Tenant shall not suffer any mechanics' or materialman' liens
to be filed against the leased premises by reason of work, labor, services or
materials performed or furnished to Tenant or anyone holding any part of the
lease premises under Tenant. If any such lien shall at any time be filed as
aforesaid, Tenant may contest the same in good faith but not withstanding such
contests Tenant shall, within fifteen (15) days after the filing thereof, cause
such a lien to be released of record by payment, bond, order of a court of
public jurisdiction or otherwise. In the event of Tenant's failure to release a
record of any such lien within the aforesaid period, Lessor may remove such
lien by paying the full amount thereof or by bonding or by any other method the
Lessor deems appropriate, without investigating the validity thereof and
irrespective of the fact that Tenant may contest the propriety or the amount
thereof, and Tenant, upon demand, shall pay Lessor the amount so paid out by
the Lessor in connection with the discharge of the said lien, together the
expenses incurred in connection therewith, including attorneys fees. Nothing
contained in this lease shall be construed as a consent on the part of the
Lessor to subject the Lessor's estate and the leased premises to any rent or
liability other than the land laws of the State of Kansas.
Tenant agrees to operate, occupy and maintain the leased premises in a
lawful manner and in compliance with all ordinances, statutes, and laws that
may apply or pertain thereto. In this connection, Tenant is aware of the
present zoning of said property and accepts said premises subject to the
present zoning. Also, Tenant will comply with all applicable rules and
regulations of any governmental agency or body having any jurisdiction upon or
over the premises, the operation or the maintenance thereof.
Tenant's Sign
19. Tenant may erect, supply and maintain any sign and Lessor has
no liability or duties concerning the sign, which is to say, Tenant will be
responsible for any lettering, re-painting, wording, refurbishing, maintenance,
etc.
Non Payment of Rent
20. a) Late charge and interest. If Tenant shall fail to
pay, when the same is due and payable, any rent or base rent or percentage
rent, the Tenant shall, upon demand, pay Lessor a late charge of four percent
(4%) of the past due amount together with interest on the arrears at the rate
of nine percent (9%) per annum; provided, however, the foregoing shall not
exceed the highest lawful charge that may be made to the Tenant under the laws
of the State of Kansas.
-9-
<PAGE> 10
b) It is specifically agreed by Tenant that should
Tenant neglect or fail to make any rental payment, and if such nonpayment
continues for ten (10) days, Tenant shall be deemed to be in default. In
addition, should Tenant neglect or fail to perform or to deserve any of the
other provisions of this lease and if such shall continue for ten (10) days
after Lessor shall have given written notice to Tenant specially such failure
to perform (unless such cannot reasonably be wholly cured within said 10 day
period, in which case Tenant shall have a longer period as shall be necessary
to cure the failure on the part of Tenant, so long as Tenant proceeds promptly
to completion with due diligence), Tenant shall be deemed to be in default.
c) In the event that Tenant is deemed to be in default
pursuant to the terms hereof, the Lessor may, at its sole option, terminate
this lease, or may without terminating the lease, but the Lessor shall not be
under any obligation to do so, enter into said premises, remove the Tenant's
property and signs therefrom and may relet the premises in good faith on
account of the Tenant on the best rental available and on the best terms
available without such re-entry working a forfeiture of the rents to be paid
or the covenant and promises to be performed during the full term of the Lease
Agreement. Tenant shall pay to Lessor all necessary costs and expense of such
re-entry, including, but not limited to, the cost of any repairs, changes,
alterations or additions and Tenant shall satisfy and pay to Lessor at the time
specified herein the fixed monthly rental lease due, less the amount of any
rent Lessor receives as a result of said re-entry. Also, and in any event,
Lessor shall be entitled to all of the right and remedies provided by the laws
of the State of Kansas in such cases.
d) If Lessor defaults in the observance or performance
of any term or covenant required to be performed by it under this lease, Tenant
after not less than fifteen (15) days notice and in connection therewith may
pay expenses and employ counsel, provided that Tenant shall have the right to
remedy such default without notice in the event of an emergency. All sums
expended or obligations incurred by Tenant in connection therewith shall be
paid by Lessor to Tenant upon demand, and if lessor fails to reimburse Tenant,
Lessor may, in addition to any other right or remedy that Lessor may have,
deduct such amount from subsequent installments of rent hereunder which from
time to time thereafter become due to Lessor.
The Existing Donray Sign
21. The real estate at 10001 E. Kellogg which is the subject
property of this lease currently has a Donray advertising sign installed and
leased to Donray. All rental income attributable to this sign or any future
similar signs that may from time to time be leased by the lessors such monies
shall be the sole property of the
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<PAGE> 11
lessor. The lessor agrees not to place any additional signage on the property
in such a way as would materially detract from the business of the tenant.
Accord and Satisfaction
22. No payment by tenant or receipt by lessor of a lesser amount
than the monthly rent an other charges herein reserved shall be deemed to be
other than on account of the earlier stipulated rent or other charges, nor
shall any endorsement or statement on any check or on any letter accompanying
any check be deemed in accord and satisfaction.
Nondisturbance agreement
23. The Landlord represents that there is presently no existing
superior lease. The Landlord shall deliver to the Tenant, on the Commencement
Date of this Lease, a nondisturbance agreement from the then existing
mortgagee, and concurrently with the execution of future superior mortgages,
shall deliver a nondisturbance agreement from such mortgagees, in the form
approved and prepared by such holder, and reasonably satisfactory to the
Tenant.
24. It is specifically understood and agreed by Tenant that all of
the fixtures, equipment, furniture, trade fixtures, shelving, signs, utensils,
etc., of every kind and nature, and all improvements made in and about the
premises, and everything used therein, are subject to a lien and security
interest, in favor of the Lessor, to secure Lessor for the full, faithful and
complete performance of all of the terms and conditions of this Lease Agreement
by Tenant or any assignee of Tenant. In the event of default in any of the
terms and conditions of the Lease Agreement Lessor may avail himself of the
rights granted to him by virtue of the laws of the State of Kansas in all such
cases made and provided and all of the rights afforded Lessor under and by
virtue of the terms of the Lease Agreement.
25. It is agreed this Lease Agreement shall not be placed of
record in the records of Sedgewick County, Kansas, but a memorandum of lease in
short form shall be executed and may be filed or record, if the parties so
desire.
26. The specific remedies to which the parties may resort under
the terms hereof are cumulative and are not intended to be exclusive of any
other remedy to which either party may be lawfully entitled.
27. Any notice or document required to be delivered hereunder
shall be deemed delivered when deposited in the United States mail,
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<PAGE> 12
postage prepaid, certified or registered mail, return receipt requested,
addressed to the parties hereto at the respective addresses set opposite their
names below, or at such other address as may have been given written notice,
to-wit:
Lessor: BOOTS, Inc., a Kansas corporation
c/o Mr. Daniel J. Fioroni
60 North May Avenue
Oklahoma City, Oklahoma 73107
Tenant: In Cahoots Limited Partnership
3141 Northwest 63rd Street, Suite 4
Oklahoma City, Oklahoma 73116
with a copy to:
Jack T. Crabtree, Esquire
Crabtree and Associates
Two Leadership Square
211 North Robinson, Suite 810
Oklahoma City, Oklahoma 73102
28. In case either party brings an action at law or in equity
against the other in order to enforce the provisions of this lease or as a
result of any alleged default, the prevailing party shall be entitled to a
reasonable attorney's fee from the other.
29. Subject to the terms hereof, the covenants, agreements,
provisions and conditions of this lease shall be binding on an inure to the
benefit of the parties hereto, their respective representatives, successors an
assigns. Invalidity of any part of portion of the lease shall not affect the
remaining terms and conditions hereof which shall remain in full force and
effect.
30. It is agreed that the covenants and conditions contained herein
are the full and complete terms of this Lease Agreement and there are no other
agreement outstanding and that no alterations, amendments or modifications
shall be binding unless first reduced to writing and signed by both parties
hereto. This Lease Agreement may be signed in counterpart.
Hazardous Substances and Waste
31. Tenant agrees and covenants that it shall not keep, ship to,
ship from store, permit, generate, treat, or dispose in, on, and/or around, the
Leased Premises any "hazardous substances" or any "hazardous waste", as defined
in the Resource conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.
and/or the Comprehensive Environmental Response, Compensation and Liability
thereunder; or "hazardous substance" or "radioactive substances" as
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<PAGE> 13
those terms are defined by Kansas law effecting the same subject matter, or any
regulations promulgate thereunder; or any radioactive material, including any
source, special nuclear or by-product material as defined at 42 U.S.C. 2011 et
seq., as amended or hereinafter amended; or any pollutant or containment or
hazardous, dangerous or toxic chemicals, materials, or substances within the
meaning of any other applicable federal, state, or local law, regulation,
ordinance, or requirement (including consent decrees and administrative orders)
relating to or imposing liability or standards of conduct concerning any
hazardous, toxic or dangerous waste, substance or material, all as amended or
hereinafter amended; unless all such laws, ordinances, rules, regulations,
requirements, etc., and each of them, are strictly adhered to and compiled with
by the Tenant.
Rider
32. A Rider consisting of one (1) page is attached hereto and
incorporated herein by this reference.
IN WITNESS WHEREOF, the parties hereto have executed this Lease
Agreement the day and year first above written.
BOOTS, INC>
By: KENNETH R. WILEY
---------------------------------
Officer
ATTEST:
[ILLEGIBLE]
- -------------------------------------
SECRETARY "LESSOR"
IN CAHOOTS LIMITED PARTNERSHIP
By: J. BLACKETER
---------------------------------
ENTERTAINMENT WICHITA, INC.
General Partner
JIM BLACKETER
ATTEST:
[ILLEGIBLE]
- -------------------------------------
SECRETARY "Tenant"
-13-
<PAGE> 14
RIDER
Attached to and forming a part of the certain Lease date June 13, 1993,
between ("Lessor") and IN CAHOOTS LIMITED PARTNERSHIP ("Tenant"). In the event
of a conflict between any of the provisions of this lease, this Rider shall
control.
Section 1. Option to Extend Term of Lease.
(A) Tenant shall, subject to the terms of paragraph (B) and (C) thereof,
have the right to extend the term of the Lease for Two (2) periods of five (5)
Lease years each (such five year periods being herein sometimes referred to as
the "First Extended Term" and the "Second Extended Term", respectively, and any
reference to "Extended Term" shall include both the First and Second Extended
Term) from the date upon which the Primary Term of the Lease, or the term of
the Lease as extended by the First Extended Term, would otherwise expire; the
Extended Term to be upon the same terms and conditions as those specified in
the Lease including the Annual Minimum Rent specified therefor in Section 3 of
the Lease.
(B) If Tenant elects to exercise its option for either or both of the
extended Terms, Tenant shall do so by giving Lessor notice of such election, at
lease 180 days before the beginning of the applicable Extended Term.
(C) Notwithstanding anything to the contrary contained in paragraph (A)
of this Section, if (i) Tenant shall be in default in the payment of Annual
Minimum Rent or any other charge payable under the Lease or if Tenant shall be
in default of any of the other terms and provisions to be performed by Tenant
under the Lease as or the date Tenant shall have give Landlord notice of its
election to exercise its option for the Option Period or (ii) Tenant fails to
give Landlord notice of its election to exercise its option for the Option
Period in the manner required in paragraph (B) above, or (iii) Tenant having
given such notice thereafter defaults under the Lease prior to the expiration
of the then current term, and Landlord notifies Tenant that Landlord elects to
current term, negate such notice by reason of such default, the tenant shall be
deemed without further notice and without further agreement between landlord and
Tenant to have elected not to exercise its option for the Extended Term. Any
holding over or failure to vacate the Leased Premises at the end or any term
shall not be deemed or construed to be an exercise of the option for the
Extended Term or an extension of the Lease. Any termination of the Lease shall
terminate Tenant's rights of further extension hereunder. Notwithstanding
anything to the contrary contained in the Lease, the rights granted Tenant
named herein under this Section shall be personal to Tenant named herein and,
in the event of an assignment of the Lease pursuant to Article XVI of the
Lease, the rights granted to Tenant named herein under this Section shall be
of no further force and effect.
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<PAGE> 15
Exhibit A
Attached to and forming a part of this lease between the and the In
Cahoots Limited Partnership.
Legal Description:
Commencing at the Northeast corner of the East Quarter of Section 28, Township
27 South, range 2 East of the sixty Principal Meridian, Sedgewick County,
Kansas; thence south along the West line of the East half of said Northwest
Quarter, 81.9 feet to the South right-of-way line of U.S. Highway 54 as
condemned in Case No. A-54089; thence East along said highway right-of-way
line, 440 feet for a place of beginning; thence south parallel with the West
line of said East Half of said Northwest Quarter, 520 feet; thence west
parallel with said highway right-of-way line, 440 feet to a point on the West
line of the said East Half of said Northwest Quarter; thence South along the
West line of the said East Half of the said Northwest Quarter, 558.10 feet;
thence east parallel with the North line of said Northwest Quarter, 495 feet;
thence north parallel with the West line of the said East Half of said
Northwest Quarter, 1078.3 feet to a point on the South line of said highway
right-of-way; thence west 55 feet to the place of the beginning
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<PAGE> 16
WARRANTY DEED
009988
KNOW ALL MEN BY THESE PRESENTS:
That THE MULL CORPORATION, an Oklahoma corporation, a corporation, party of
the first part, in consideration of the use of ****Ten and No/100**** dollars,
and other valuable considerations, in [illegible] the receipt of which is hereby
acknowledged, does hereby grant, bargain, sell and [illegible] BOOTS, INC., 60
N. May, Oklahoma City, OK 73107, a Kansas Corporation part(y)(ies) of the second
part, the following described real property and premises situated in Sedgwick
County, State of Kansas, to wit:
Commencing at the Northwest corner of the East Half of the Northwest Quarter
of Section 28, Township 27, South, Range 2 East of the sixth Principal
Meridian, Sedgwick County, Kansas; thence south along the West line of the
East half of said Northwest Quarter, 81.9 feet to the South right-of-way
line of U.S. Highway 54 as condemned in Case No. A-54089; thence east along
said highway right-of-way line, 440 feet for a place of beginning; thence
south parallel with the West line of said East Half of said Northwest
Quarter, 520 feet; thence west parallel with said highway right-of-way line,
440 feet to a point on the West line of the said East Half of said Northwest
Quarter; thence south along the West Line of the said East Half of the said
Northwest Quarter, 558.10 feet; thence east parallel with the North line of
said Northwest Quarter, 495 feet; thence North parallel with the West line
of said East Half of said Northwest Quarter, 1078.3 feet to a point on the
South line of said highway right-of-way; thence west 55 feet to the place of
beginning,
together with all its right title and interest in and to one certain private
sewer line owned by seller,
together with all the improvements thereon and the appearances thereunto
belonging and warrant the title to the same.
TO HAVE AND TO HOLD said described premises unto the said part(y)(ies) of
the second part(ies) (they) (their) heirs and assigns forever free, clear and
discharged of and from all former grants, charges, taxes, judgments, mortgages
and other items and encumbrances of whatsoever nature. EXCEPT
Signed and delivered this 31st day of August, 1993
THE MULL CORPORATION
-----------------------------
ATTEST:
[ILLEGIBLE] By [ILLEGIBLE]
--------------------------- -----------------------------
Secretary President
Note: See statutory requirements appearing on the reverse side hereof.
================================================================================
CORPORATION ACKNOWLEDGMENT
(Oklahoma Form)
STATE OF Oklahoma, County of Oklahoma, [ILLEGIBLE]
On this 31st day of August, A.D. 1993, before me, the undersigned, a
Notary Public in and for the County and State aforesaid, personally appeared
R. T. McLain to me [illegible] to be the identical person who signed the name of
the maker thereof to the within and foregoing instrument [illegible] President
and acknowledged to me that he executed the same as his free and voluntary act
and deed and as the free and voluntary act and deed of said corporation, for the
uses and purposes therein set forth.
Given under my hand and seal the day and year last above written.
My commission expires 12-31-94 /s/ LAVERNE BEOUGLIER
---------------------------
LaVerne Beouglier
[SEAL] Notary Public
<PAGE> 1
EXHIBIT 10.30
WARRANT AGREEMENT
--------------------
WESTERN COUNTRY CLUBS, INC.
AND
AMERICAN SECURITIES TRANSFER & TRUST, INC.
Warrant Agent
, 1997
--------------
--------------------
<PAGE> 2
THIS AGREEMENT (the "Agreement") is dated as of ______________, 1997,
between WESTERN COUNTRY CLUBS, INC., a Colorado corporation (the "Company"),
and AMERICAN SECURITIES TRANSFER & TRUST, INC., a Colorado corporation (the
"Warrant Agent").
WHEREAS, the Company proposes to offer to the public up to 460,000
shares of Series A Cumulative Convertible Redeemable Preferred Stock (the
"Series A Preferred Stock") and 1,000,000 Series A Common Stock Purchase
Warrants (the "Warrants"), each of which is exercisable to purchase shares of
Common Stock on the basis of one Warrant to purchase one share of Common Stock;
WHEREAS, upon exercise of the Representative's Purchase Option, the
Company further proposes to issue 100,000 warrants (the "Argent Warrants") to
Argent Securities, Inc. ("Argent") or its designees;
WHEREAS, the Company desires to provide for issuance of warrant
certificates (the "Warrant Certificates") representing the Warrants and the
Argent Warrants; 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
issuance, registration, transfer and exchange of Warrant Certificates and
exercise of the Warrants and the Argent Warrants,
NOW, THEREFORE, in consideration of the promises and the mutual
agreements hereinafter set forth, it is agreed that:
1. Warrants/Warrant Certificates. Each Warrant will entitle the
registered holder of such Warrant to purchase from the Company one share of
Common Stock at $______ per share (the "Exercise Price"). Each Argent Warrant
will entitle the registered holder of such Argent Warrant ("Argent Warrant
Holder") to purchase from the Company one share of Common Stock at $______ per
share (the "Argent Exercise Price"). Hereinafter, unless the context indicates
otherwise, as used herein the words "Registered Warrant Holders" will mean the
holders of the Warrants and the Argent Warrants, the word "Warrants" will mean
the Warrants and the Argent Warrants and the words "Warrant Shares" will mean
the Company's securities issuable upon exercise of the Warrants. Unless
changed pursuant to Section 8 hereof, the Warrant Shares will consist of the
Company's Common Stock. A copy of the form of Warrant Certificate for the
Warrants is attached hereto as Exhibit A and a copy of the form of Warrant
Certificate for the Argent Warrants is attached hereto as Exhibit B.
Warrant Certificates representing the right to purchase
Warrant Shares shall be executed by the Company's President and attested to by
the Company's Secretary or Assistant Secretary and delivered to the Warrant
Agent upon execution of this Agreement. The Warrant Certificates shall be
distributed to the purchasers of Units in the Company's initial public offering
pursuant to Registration Statement No. 333-_____.
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<PAGE> 3
Subject to the provisions of Sections 3, 5, 6,7 and 8, the
Warrant Agent shall deliver Warrant Certificates in required whole number
denominations to Registered Holders in connection with any transfer or exchange
permitted under this Agreement. No Warrant Certificates shall be issued except
(i) Warrant Certificates initially issued hereunder, (ii) Warrant Certificates
issued on or after the initial issuance date, upon the exercise of any
Warrants, to evidence the unexercised Warrants held by the exercising
Registered Holder, and (iii) Warrant Certificates issued after the initial
issuance date, upon any transfer or exchange of Warrant Certificates or
replacements of lost or mutilated Warrant Certificates.
2. Form and Execution of Warrant Certificates. The Warrant
Certificates shall be substantially in the form attached as Exhibits A and B.
The Warrant Certificates shall be dated as of the date of their issuance,
whether on initial issuance, transfer or exchange or in lieu of mutilated,
lost, stolen or destroyed Warrant Certificates.
Each such Warrant Certificate shall be numbered serially with
the letter "W" appearing on each Warrant Certificate.
The Warrant Certificates shall be manually countersigned by
the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In the event any officer of the Company who executed the
Warrant Certificates shall cease to be an officer of the Company before the
date of issuance of the Warrant Certificates or before countersignature and
delivery by the Warrant Agent, such Warrant Certificates may be countersigned,
issued and delivered by the Warrant Agent with the same force and effect as
though the person who signed such Warrant Certificates had not ceased to be an
officer of the Company.
3. Exercise. Subject to the provisions of Sections 4, 7 and 8,
the Warrants, when evidenced by a Warrant Certificate, may be exercised at a
price (the "Exercise Price") set forth in Section 1 hereof, on the basis of one
Warrant for one share of Common Stock in whole or in part at any time during
the period (the "Exercise Period") commencing on _______,1997, or earlier if so
determined by Argent (the "Initial Exercise Date") and terminating on
______________, 2000 (the "Expiration Date"), unless extended by a majority
vote of the Company's Board of Directors at its discretion. Notwithstanding
the foregoing, the Argent Warrants will be exercisable commencing on the date
of their issuance and terminating on the Expiration Date. The Company shall
promptly notify the Warrant Agent of any such extension of the Exercise Period
of the Warrants. A Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date (the "Exercise Date") of the
surrender for exercise of the Warrant Certificate. The exercise form shall be
executed by the Registered Holder thereof or his attorney duly authorized in
writing and will be delivered together with payment to the Warrant Agent at
1825 Lawrence Street, Suite 444, Denver, CO 80202 (the "Corporate Office"), in
cash or by official bank or certified check, of an amount equal to the
aggregate Exercise Price, in lawful money of the United States of America.
Unless Warrant Shares may not be issued as provided herein,
the person entitled to receive the number of Warrant Shares deliverable on such
exercise shall be treated for all purposes as the holder of such Warrant Shares
as of the close of business on the Exercise Date. In addition,
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<PAGE> 4
the Warrant Agent shall also, at such time, verify that all of the conditions
precedent to the issuance of Warrant Shares set forth in Section 4 are
satisfied as of the Exercise Date. If any one of the conditions precedent set
forth in Section 4 is not satisfied as of the Exercise Date, the Warrant Agent
shall request written instructions from the Company as to whether to return the
Warrant and Exercise Price to the exercising Registered Holder or to hold the
same until all such conditions have been satisfied. The Company shall not be
obligated to issue any fractional share interests in Warrant Shares issuable or
deliverable on the exercise of any Warrant or scrip or cash therefor and such
fractional shares shall be of no value whatsoever. If more than one Warrant
shall be exercised at one time by the same Registered Holder, the number of
full Warrant Shares which shall be issuable on exercise thereof shall be
computed on the basis of the aggregate number of full Warrant Shares issuable
on such exercise.
Within thirty days after the Exercise Date and in any event
prior to the pertinent Expiration Date, pursuant to a Stock Transfer Agreement
between the Company and the Warrant Agent, the Warrant Agent shall cause to be
issued and delivered to the person or persons entitled to receive the same, a
certificate or certificates for the number of Warrant Shares deliverable on
such exercise. No adjustment shall be made in respect of cash dividends on
Warrant Shares delivered on exercise of any Warrant. The Warrant Agent shall
promptly notify the Company in writing of any exercise and of the number of
Warrant Shares delivered and shall cause payment of an amount in cash equal to
the Exercise Price to be promptly made to the order of the Company.
Expenses incurred by the Warrant Agent while acting in the
capacity as Warrant Agent will be paid by the Company. These expenses,
including delivery of exercised share certificates to the shareholder, will be
deducted from the exercise fee submitted prior to distribution of funds to the
Company.
A detailed accounting statement relating to the number of
Warrants exercised and the net amount of exercised funds remitted will be given
to the Company with the payment of each exercise amount. This will serve as an
interim accounting for the Company's use during the Exercise Period. A
complete accounting will be made by the Warrant Agent to the Company concerning
all persons exercising Warrants, the number of Warrant Shares issued and the
amounts paid at the completion of the Exercise Period.
The Company may deem and treat the Registered Holder of the
Warrants at any time as the absolute owner thereof for all purposes, and the
Company shall not be affected by any notice to the contrary. The Warrants
shall not entitle the holder thereof to any of the rights of shareholders or to
any dividend declared on the Common Stock unless the holder shall have
exercised the Warrants and purchased the Warrant Shares prior to the record
date fixed by the Board of Directors of the Company for the determination of
holders of Common Stock entitled to such dividend or other right.
4. Reservation of Shares and Payment of Taxes. The Company
covenants that it will at all times reserve and have available from its
authorized Common Stock such number of Warrant Shares as shall then be issuable
on the exercise of all outstanding Warrants. The Company
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<PAGE> 5
covenants that all Warrant Shares which shall be so issuable shall be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens
and charges with respect to the issue thereof.
The Company and the Warrant Agent acknowledge that the Company
will be required, pursuant to the Securities Act of 1933, as amended (the
"Act"), to deliver to each Registered Holder, upon the exercise of Warrants and
delivery of Warrant Shares, a prospectus covering the issuance of the Warrant
Shares which meets the requirements of the Act, which prospectus must be a part
of an effective registration statement under the Act at the time that the
Warrants are exercised.
The Company agrees to use its best efforts to maintain, to the
extent required by the Act, a currently effective registration statement under
the Act covering the issuance of the Warrant Shares during the period the
Warrants are exercisable. The Company further agrees, from time to time, to
furnish the Warrant Agent with copies of the Company's prospectus to be
delivered to exercising Registered Holders, as set forth above. If any Warrant
Shares require any other registration with or approval of any government
authority under any federal or state law before such Warrant Shares may be
validly issued or delivered, then the Company covenants that it will in good
faith and as expeditiously as possible endeavor to secure such registration or
approval, as the case may be. No Warrant Shares shall be issued unless and
until any such registration requirements have been satisfied.
The Company shall have the authority to suspend the exercise
of all Warrants, until such registration or approval shall have been obtained;
but all Warrants, the exercise of which are requested during any such
suspension, shall be exercisable at the Exercise Price. If any such period of
suspension continues past the Expiration Date, all Warrants, the exercise of
which have been requested on or prior to the Expiration Date, shall be
exercisable upon the removal of such suspension until the close of the business
day immediately following the expiration of such suspension.
The Registered Holder shall pay all documentary, stamp or
similar taxes and other government charges that may be imposed with respect of
the issuance of the Warrants, or the issuance, transfer or delivery of any
Warrant Shares on exercise of the Warrants. In the event the Warrant Shares
are to be delivered in a name other than the name of the Registered Holder of
the Warrant Certificate, no such delivery shall be made unless the person
requesting the same has paid to the Warrant Agent the amount of any such taxes
or charges incident thereto.
In the event the Warrant Agent ceases to also serve as the
stock transfer agent for the Company, the Warrant Agent is irrevocably
authorized to requisition the Company's new transfer agent from time to time
for Certificates of Warrant Shares required upon exercise of the Warrants, and
the Company will authorize such transfer agent to comply with all such
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of its new transfer agent, for shares of Common
Stock or other capital stock issuable upon exercise of the Warrants and of each
successor transfer agent.
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<PAGE> 6
5. Registration of Transfer. Other than as provided below with
respect to the Argent Warrants, the Warrant Certificates may be transferred in
whole or in part. Warrant Certificates to be exchanged shall be surrendered to
the Warrant Agent at its Corporate Office. The Company shall execute and the
Warrant Agent shall countersign, issue and deliver in exchange therefor the
Warrant Certificate or Certificates which the holder making the transfer shall
be entitled to receive.
The Argent Warrants may not be sold, transferred, assigned,
pledged, or hypothecated until __________, 1998 except to officers of Argent,
except to the underwriters of the Company's initial public offering pursuant to
Registration Statement No. 333-_____, and except by will or operation of law.
After such date, the Argent Warrants may be sold, transferred, assigned,
pledged, or hypothecated provided that any such transaction is in accordance
with the registration or exemption from registration provisions of the Act and
any applicable state securities laws. If the Argent Warrants are exercised by
___________, 1998, then any Warrant Shares acquired as a result of any such
exercise may not be sold, transferred, assigned, pledged, or hypothecated until
__________, 1998, except to officers of Argent, except to the underwriters of
the Company's initial public offering pursuant to Registration Statement No.
333-_____, and except by will or operation of law.
The Warrant Agent shall keep transfer books at its Corporate
Office which shall register Warrant Certificates and the transfer thereof. On
due presentment for registration of transfer of any Warrant Certificate at such
office, the Company shall execute and the Warrant Agent shall issue and deliver
to the transferee or transferees a new Warrant Certificate or Certificates
representing an equal aggregate number of Warrants. All Warrant Certificates
presented for registration of transfer or exercise shall be duly endorsed or be
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company and the Warrant Agent. At the time of exercise,
the transfer fee shall be paid by the Holder. The Company may require payment
of a sum sufficient to cover any tax or other government charge that may be
imposed in connection therewith.
All Warrant Certificates so surrendered, or surrendered for
exercise, or for exchange in case of mutilated Warrant Certificates, shall be
promptly cancelled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of the agency created by this Agreement. Prior to due
presentment for registration of transfer thereof, the Company and the Warrant
Agent may treat the Registered Holder of any Warrant Certificate as the
absolute owner thereof (notwithstanding any notations of ownership or writing
thereon made by anyone other than the Company or the Warrant Agent), and the
parties hereto shall not be affected by any notice to the contrary.
6. Loss or Mutilation. On receipt by the Company and the Warrant
Agent of evidence satisfactory as to the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate, the Company shall
execute, and the Warrant Agent shall countersign and deliver in lieu thereof, a
new Warrant Certificate representing an equal aggregate number of Warrants. In
the case of loss, theft or destruction of any Warrant Certificate, the
individual requesting issuance of a new Warrant Certificate shall be required
to indemnify the Company and Warrant Agent in an amount
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<PAGE> 7
satisfactory to each of them. In the event a Warrant Certificate is mutilated,
such Certificate shall be surrendered and cancelled by the Warrant Agent prior
to delivery of a new Warrant Certificate. Applicants for a new Warrant
Certificate shall also comply with such other regulations and pay such other
reasonable charges as the Company may prescribe.
7. Redemption of Warrants. (a) Commencing on ____________, 199_,
the Warrants are subject to redemption by the Company at $.125 per Warrant on
not less than 30 days' prior written notice to the holders of Warrants,
provided that the daily trading price per share of Common Stock has been at
least $______ (150% of the closing bid price for the Company's Common Stock on
the effective date of Registration Statement No. 333-_____) for a period of at
least 5 consecutive trading days ending within 10 days prior to the date upon
which the notice of redemption is given. For purposes of determining the daily
trading price of the Company's Common Stock, (i) if the Common Stock is listed
on a national securities exchange, is admitted to unlisted trading privileges
on a national securities exchange, or is quoted on a trading system of the
National Association of Securities Dealers, Inc. such as the NASDAQ Small Cap
Market or the NASDAQ/NMS, then the last reported sale price of the Common Stock
on such exchange or system each day shall be used, but if no such sale has
occurred on such day or if the last sale price is not reported, then the
average of the closing bid prices for the Common Stock for such day on such
exchange or system shall be used; or (ii) if the Common Stock is not then
traded on any such exchange or system, then the average of the daily bid prices
for the Company's Common Stock reported by the National Quotation Bureau, Inc.
each day shall be used if the Company's Common Stock is included in the
National Quotation System. The Warrants will be exercisable until the close of
the business day preceding the date fixed for redemption, if any.
Notwithstanding the foregoing, the Company will not be entitled to call any of
the Warrants for redemption or redeem any of the Warrants at a time when the
Warrants are not exercisable because the Company has not maintained a current
registration statement as described in Section 4 hereof. On the redemption
date, the Warrant Holders of record of redeemed Warrants shall be entitled to
payment of the Redemption price upon surrender of such redeemed Warrants to the
Company at the principal office of the Warrant Agent.
(b) Notice of redemption of any Warrants shall be given by
mailing, by registered or certified mail, return receipt requested, a copy of
such notice to all of the affected Warrant Holders of record as of two days
prior to the mailing date at their respective addresses appearing on the books
or transfer records of the Company or such other address designated in writing
by the Warrant Holder of record to the Warrant Agent not less than seventy-five
(75) days prior to the redemption date and shall be effective upon receipt.
(c) Notwithstanding any other provision of this Agreement, from
and after the redemption date, all rights of the affected Warrant Holders
(except the right to receive the Redemption Price) shall terminate, but only if
(i) on or prior to the redemption date the Company shall have irrevocably
deposited with the Warrant Agent, as paying agent, a sufficient amount to pay
on the redemption date the Redemption Price for all Warrants called for
redemption and (ii) the notice of redemption shall have stated the name and
address of the Warrant Agent and the intention of the Company to deposit such
amount with the Warrant Agent on or before the redemption date.
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<PAGE> 8
(d) The Warrant Agent shall pay to the Warrant Holders of record
of redeemed Warrants all monies received by the Warrant Agent for the
redemption of Warrants to which the Warrant Holders of record of such redeemed
Warrants are entitled under the provisions of this Agreement.
(e) Any amounts deposited with the Warrant Agent which are not
required for redemption of the Warrants may be withdrawn by the Company. Any
amounts deposited with the Warrant Agent which shall be unclaimed after six (6)
months after the redemption date may be withdrawn by the Company, and
thereafter the Warrant Holders of the Warrants called for redemption for which
such funds were deposited shall look solely to the Company for payment. The
Company shall be entitled to the interest , if any, on funds deposited with the
Warrant Agent, and the Warrant Holders of redeemed Warrants shall have no right
to any such interest.
(f) If the Company fails to make a sufficient deposit with the
Warrant Agent as provided above, the Warrant Holders of any Warrants called for
redemption may at the option of the Warrant Holder (i) by notice to the Company
declare the notice of redemption a nullity, or (ii) maintain an action against
the Company for the Redemption Price. If the Warrant Holder brings such an
action the Company will pay reasonable attorneys' fees of the Warrant Holder.
If the Warrant Holder fails to bring an action against the Company for
Redemption Price within ninety (90) days after the redemption date, the Warrant
holder shall be deemed to have elected to declare the notice of redemption to
be a nullity and such notice shall be without any force or effect.
8. Adjustment of Exercise Price and Warrant Shares. After each
adjustment of the Exercise Price pursuant to this Section 8, the number of
Warrant Shares purchasable upon the exercise of each Warrant shall be the
number receivable upon exercise thereof prior to such adjustment multiplied by
a fraction, the numerator of which shall be the original Exercise Price as
defined in Section 3 above and the denominator of which shall be such adjusted
Exercise Price. The Exercise Price shall be subject to adjustment as set forth
below:
(a)(i) In case the Company shall hereafter (A) pay a dividend
or make a distribution on its Common Stock in shares of its capital stock
(whether shares of Common Stock or of capital stock of any other class), (B)
subdivide its outstanding shares of Common Stock, (C) combine its outstanding
shares of Common Stock into a smaller number of shares, or (D) issue by
reclassification of its shares of Common Stock any shares of capital stock of
the Company, the Exercise Price in effect immediately prior to such action
shall be adjusted so that the Registered Holder of any Warrant thereafter
exercised shall be entitled to receive the number of shares of capital stock of
the Company which he would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this subsection shall become effective immediately after the record
date in the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, as a result of an adjustment made pursuant to this subsection, the
Registered Holder of any Warrant thereafter exercised shall become entitled to
receive shares of two or more classes of capital stock of the Company, the
Board of Directors (whose determination shall be conclusive and shall be
described in a statement filed with the Warrant Agent) shall determine the
allocation of the adjusted Exercise Price between or among shares of such
classes of capital stock.
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<PAGE> 9
(ii) In any case in which this Section 8(a) shall require
that an adjustment to the Exercise Price be made immediately following a record
date, the Company may elect to defer (but only until five business days
following the filing by the Company with the Warrant Agent of the certificate
of independent public accountants described in subsection (i) of Section 8(d))
issuing to the holder of any Warrants exercised after such record date the
shares of Common Stock and other capital stock of the Company issuable upon
such exercise over and above the shares of Common Stock and other capital stock
of the Company issuable upon such exercise on the basis of the Exercise Price
prior to adjustment.
(iii) No adjustment in the Exercise Price shall be required
to be made unless such adjustment would require an increase or decrease of at
least $.05; provided, however, that any adjustments which by reason of this
subsection are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 8
shall be made to the nearest cent or to the nearest one tenth of a share, as
the case may be, but in no event shall the Company be obligated to issue
fractional shares upon the exercise of any Warrant.
(b) In case of any reclassification or change of Warrant
Shares (other than a change in par value or from par value to no par value or
from no par value to par value or as a result of a subdivision or combination),
or in case of any consolidation or merger of the Company with or into another
corporation (other than a merger with a Subsidiary in which merger the Company
is the continuing corporation and which does not result in any reclassification
or change of the then Warrant Shares (other than a change in par value or from
par value to no par value or from no par value to par value) or in the case of
any sale or conveyance to another corporation of the property of the Company as
an entirety or substantially as an entirety, then, as a condition of such
reclassification, change, consolidation, merger, sale or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
make lawful and adequate provision whereby the Registered Holder of each
Warrant then outstanding shall have the right thereafter to receive on exercise
of such Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of Warrant Shares issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and the Company or its successors
shall forthwith file at the Corporate Office of the Warrant Agent a statement
setting forth such provisions signed by (1) its Chairman of the Board or Vice
Chairman of the Board or President or a Vice President and (2) by its Treasurer
or an Assistant Treasurer or its Secretary or an Assistant Secretary evidencing
such provisions. Such provisions shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in Section 8(a). The above provisions of this Section 8(b) shall similarly
apply to successive reclassification and changes of Warrant Shares and to
successive consolidations, mergers, sales or conveyances.
(c) Before taking any action which could cause an
adjustment reducing the Exercise Price below the then par value of the Warrant
Shares, the Company will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares at such adjusted Exercise
Price.
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<PAGE> 10
(d)(i) Upon any adjustment of the Exercise Price required to
be made pursuant to this Section 8, the Company within 30 days thereafter shall
(A) cause to be filed with the Warrant Agent a certificate of a firm of
independent accountants setting forth the Exercise Price after such adjustment
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based, which certificate shall be conclusive
evidence of the correctness of such adjustment, and (B) cause to be mailed to
each of the Registered Holders of the Warrant Certificates written notice of
such adjustment. Where appropriate, such notice may be given in advance and
included as a part of the notice required to be mailed under the provisions of
subsection 8(d)(ii).
(ii) In case at any time:
(A) The Company shall declare any dividend
upon its Common Stock payable otherwise than in cash; or
(B) The Company shall offer for subscription
to the holders of its Common Stock any additional shares of stock of any class
or any other securities convertible into shares of stock or any rights to
subscribe thereto; or
(C) There shall be any capital
reorganization or reclassification of the capital stock of the Company, or a
sale of all or substantially all of the shares of the assets of the Company, or
a consolidation or merger of the Company with another corporation (other than a
merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then Warrant Shares issuable upon exercise of the Warrants other than a change
in par value or from par value to no par value or from no par value to par
value); or
(D) There shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed to
each of the Registered Holders of the Warrant Certificates, at the earliest
practicable time (and, in any event, not less than 20 days before any record
date or other date set for definitive action), written notice of the date on
which the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or such reorganization,
reclassification, sale, consolidation, merger, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also set
forth such facts as shall indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Exercise Price and
the kind and amount of the shares of stock and other securities and property
deliverable upon exercise of the Warrants. Such notice shall also specify the
date as of which the holders of the Common Stock of record shall participate in
said dividend, distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, sale, consolidation, merger,
dissolution, liquidation or winding up, as the case may be (on which date, in
the event of voluntary or involuntary dissolution, liquidation or winding up of
the Company, the right to exercise the Warrants shall terminate).
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<PAGE> 11
(iii) Without limiting the obligation of the Company to
provide notice to the Registered Holders of the Warrant Certificates of
corporate actions hereunder, is agreed that failure of the Company to give
notice shall not invalidate such corporate action of the Company.
9. Reduction in Exercise Price at Company's Option. In addition
to any adjustments made to the Exercise Price pursuant to Section 8, the
Company's Board of Directors may, at its sole discretion, reduce the Exercise
Price of the Warrants in effect at any time either for the life of the Warrants
or any shorter period of time determined by the Company's Board of Directors.
The Company shall promptly notify the Warrant Agent and the Registered Holders
of any such reductions in the Exercise Price.
10. Duties, Compensation and Termination of Warrant Agent. The
Warrant Agent shall act hereunder as agent and in a ministerial capacity for
the Company, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not, by issuing and delivering Warrant
Certificates or by any other act hereunder, be deemed to make any
representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of the Warrant Shares or
other property delivered on exercise of any Warrant. The Warrant Agent shall
not at any time be under any duty or responsibility to any holder of the
Warrant Certificates to make or cause to be made any adjustment of the Exercise
Price or to determine whether any fact exists which may require any such
adjustments.
The Warrant Agent shall not (i) be liable for any recital or
statement of fact contained herein or for any action taken or omitted by it in
reliance on any Warrant Certificate or other document or instrument believed by
it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement except for its own negligence or willful misconduct, or (iii) be
liable for any act or omission in connection with this Agreement except for its
own negligence or willful misconduct.
The Company agrees to indemnify the Warrant Agent against any
and all losses, expenses and liabilities which the Warrant Agent may incur in
connection with the delivery of copies of the Company's prospectus to
exercising Registered Holders upon the exercise of any Warrants as set forth in
Section 3.
The Warrant Agent may at any time consult with counsel
satisfactory to it (which may be counsel for the Company) and shall incur no
liability or responsibility for any action taken or omitted by it in good faith
in accordance with the opinion or advice of such counsel. Any notice,
statement, instruction, request, direction, order or demand of the Company
shall be sufficiently evidenced by an instrument signed by its President and
attested by its Secretary or Assistant Secretary. The Warrant Agent shall not
be liable for any action taken or omitted by it in accordance with such notice,
statement, instruction, request, order or demand.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse the Warrant Agent for
its reasonable expenses as per the fee
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<PAGE> 12
schedule attached hereto as Exhibit C. The Company further agrees to indemnify
the Warrant Agent against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for any action taken or omitted by
the Warrant Agent in the execution of its duties and powers hereunder,
excepting losses, expenses and liabilities arising as a result of the Warrant
Agent's negligence or willful misconduct.
The Warrant Agent may resign its duties or the Company may
terminate the Warrant Agent and the Warrant Agent shall be discharged from all
further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or willful misconduct), on 30
days' prior written notice to the other party. At least 15 days prior to the
date such resignation is to become effective, the Warrant Agent shall cause a
copy of such notice of resignation to be mailed to the Registered Holder of
each Warrant Certificate. On such resignation or termination the Company shall
appoint a new warrant agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified in writing of
the resignation by the Warrant Agent, then the registered holder of any Warrant
Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent.
After acceptance in writing of an appointment of a new warrant
agent is received by the Company, such new warrant agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; provided, however, if it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed. The Company shall file a notice of appointment of a new
warrant agent with the resigning Warrant Agent and shall forthwith cause a copy
of such notice to be mailed to the Registered Holder of each Warrant
Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged, or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent shall be a successor Warrant Agent under this Agreement, provided
that such corporation is eligible for appointment as a successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
Warrant Agent shall promptly cause notice of its succession as Warrant Agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate. No further action shall be required for establishment and
authorization of such successor warrant agent.
The Warrant Agent, its officers or directors and its
subsidiaries or affiliates may buy, hold or sell Warrants or other securities
of the Company and otherwise deal with the Company in the same manner and to
the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
11. Modification of Agreement. The Warrant Agent and the Company
may by supplemental agreement make any changes or corrections in this Agreement
(i) that they shall deem
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<PAGE> 13
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or mistake or error herein contained; or (ii) that they may deem
necessary or desirable and which shall not adversely affect the interests of
the holders of Warrant Certificates; provided, however, this Agreement shall
not otherwise be modified, supplemented or altered in any respect except with
the consent in writing of the Registered Holders of Warrant Certificates
representing not less than two-thirds of the Warrants outstanding.
Additionally, except as provided in Section 8, no change in the number or
nature of the Warrant Shares purchasable on exercise of a Warrant, increase in
the purchase price therefor, or the acceleration of the Expiration Date of a
Warrant shall be made without the consent in writing of the Registered Holder
of the Warrant Certificate representing such Warrant, other than such changes
as are specifically prescribed or allowed by this Agreement.
12. Notices. All notices, demands, elections, opinions or
requests (however characterized or described) required or authorized hereunder
shall be deemed given sufficiently if in writing and sent by registered or
certified mail, return receipt requested and postage prepaid, or by tested
telex, telegram or cable to, in the case of the Company:
Western Country Clubs, Inc.
5218 Classen Boulevard
Oklahoma City, OK 73118
with a copy to:
Brenman Key & Bromberg, P.C.
Mellon Financial Center
1775 Sherman Street
Suite 1001
Denver, Colorado 80203
and in the case of the Warrant Agent:
American Securities Transfer and Trust, Inc.
1825 Lawrence Street, Suite 444
Denver, CO 80202
and if to the Registered Holder of a Warrant Certificate, at the address of
such holder as set forth on the books maintained by the Warrant Agent.
13. Binding Agreement. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim or to impose on any
other person any duty, liability or obligation.
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<PAGE> 14
14. Further Instruments. The parties shall execute and deliver
any and all such other instruments and shall take any and all other actions as
may be reasonably necessary to carry out the intention of this Agreement.
15. Severability. If any provision of this Agreement shall be
held, declared or pronounced void, voidable, invalid, unenforceable, or
inoperative for any reason by any court of competent jurisdiction, government
authority or otherwise, such holding, declaration or pronouncement shall not
affect adversely any other provision of this Agreement, which shall otherwise
remain in full force and effect and be enforced in accordance with its terms,
and the effect of such holding, declaration or pronouncement shall be limited
to the territory or jurisdiction in which made.
16. Waiver. All the rights and remedies of either party under
this Agreement are cumulative and not exclusive of any other rights and
remedies as provided by law. No delay or failure on the part of either party
in the exercise of any right or remedy arising from a breach of this Agreement
shall operate as a waiver of any subsequent right or remedy arising from a
subsequent breach of this Agreement. The consent of any party where required
hereunder to act or occurrence shall not be deemed to be a consent to any other
action or occurrence.
17. General Provisions. This Agreement shall be construed and
enforced in accordance with, and governed by, the laws of the State of
Colorado. Except as otherwise expressly stated herein, time is of the essence
in performing hereunder. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, and this Agreement may
not be modified or amended or any term or provisions hereof waived or
discharged except in writing signed by the party against whom such amendment,
modification, waiver or discharge is sought to be enforced. The headings of
this Agreement are for convenience in reference only and shall not limit or
otherwise affect the meaning hereof. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
-13-
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
WESTERN COUNTRY CLUBS, INC.
ATTEST:
By
- ------------------------------- ----------------------------------
Dominic W. Grimmett, Secretary James E. Blacketer, President
AMERICAN SECURITIES TRANSFER AND
TRUST, INC.
Warrant Agent
By
----------------------------------
Charles R. Harrison, President
-14-
<PAGE> 16
EXHIBIT A
WESTERN COUNTRY CLUBS, INC.
Incorporated Under the Laws of the State of Colorado
No. W- __Series A Common Stock
Purchase Warrants
CUSIP ___________
CERTIFICATE FOR (See Reverse
SERIES A COMMON STOCK For Certain
PURCHASE WARRANTS Definitions)
This Warrant Certificate certifies that ___________________, or
registered assigns ("the Warrant Holder"), is the registered owner of the above
indicated number of Series A Common Stock Purchase Warrants (the "Warrants")
expiring on __________, 2000 (the "Expiration Date"). One Warrant entitles the
Warrant Holder to purchase one share of common stock ("Share") from Western
Country Clubs, Inc., a Colorado corporation (the "Company"), at a purchase
price of $____ (the "Exercise Price"), commencing on __________, 1997, and
terminating on the Expiration Date ("Exercise Period"), upon surrender of this
Warrant Certificate with the exercise form hereon duly completed and executed
with payment of the Exercise Price at the office of American Securities
Transfer & Trust, Inc. (the "Warrant Agent"), but only subject to the
conditions set forth herein and in a Warrant Agreement dated as of _________,
1997 (the "Warrant Agreement") between the Com pany and the Warrant Agent. The
Exercise Price, the number of shares purchasable upon exercise of each Warrant,
the number of Warrants outstanding and the Expiration Date are subject to
adjustments upon the occurrence of certain events. The Warrant Holder may
exercise all or any number of Warrants. Reference hereby is made to the
provisions on the reverse side of this Warrant Certificate and to the
provisions of the Warrant Agreement, all of which are incorporated by reference
in and made a part of this Warrant Certificate and shall for all purposes have
the same effect as though fully set forth at this place.
Upon due presentment for transfer of this Warrant Certificate at the
office of the Warrant Agent, a new Warrant Certificate or Warrant Certificates
of like tenor and evidencing in the aggregate a like number of Warrants,
subject to any adjustments made in accordance with the provi sions of the
Warrant Agreement, shall be issued to the transferee in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, upon payment of $_____ per Warrant Certificate and any tax or
governmental charge imposed in connection with such trans fer.
The Warrant Holder of the Warrants evidenced by this Warrant
Certificate may exercise all or any whole number of such Warrants during the
period and in the manner stated hereon. The Exercise Price shall be payable in
lawful money of the United States of America and in cash or by certified or
bank cashier's check or bank draft payable to the order of the Company. If upon
exercise of any Warrants evidenced by this Warrant Certificate the number of
Warrants exercised shall be less
<PAGE> 17
than the total number of Warrants so evidenced, there shall be issued to the
Warrant Holder a new Warrant Certificate evidencing the number of Warrants not
so exercised.
Subject to the following paragraph, no Warrant may be exercised after
5:00 p.m. Mountain Time on the Expiration Date and any Warrant not exercised by
such time shall become void, unless extended by the Company.
Commencing on the date the Warrants are separately tradeable and
transferable, the Warrants are subject to redemption by the Company at $.125
per Warrant, at any time commencing ________, 1998 (twelve months from the date
of Registration Statement No. 333-_______) and at any time prior to their
expiration, on not less than 30 days' prior written notice to the holders of
Warrants, provided that the daily trading price per share of Common Stock has
been at least $______ (150% of the closing bid price for the Company's Common
Stock on the effective date of Registration Statement No. 333-_____) for a
period of at least 5 consecutive trading days ending within 10 days prior to
the date upon which the notice of redemption is given. During the 30-day period
immedi ately following the giving of such notice, the Warrant Holders shall
have the right to exercise the Warrants so held by them. Upon expiration of
such 30-day period, all rights of the Warrant Holders shall terminate, other
than the rights to receive the redemption price, without interest, and the
right to receive the redemption price shall itself expire on the Warrant
Expiration Date.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its President and by its Secretary, each by a facsimile of his/her
signature, and has caused a facsimile of its corporate seal to be imprinted
hereon.
Dated:
------------------------
WESTERN COUNTRY CLUBS, INC.
By
- ----------------------------- -------------------------------
Dominic W. Grimmitt, Secretary James E. Blacketer, President
AMERICAN SECURITIES TRANSFER &
TRUST, INC.
Warrant Agent
By
--------------------------------
Charles R. Harrison, President
-2-
<PAGE> 18
FORM OF REVERSE SIDE OF WARRANT
This Warrant Certificate, when surrendered to the Warrant Agent at its
principal office by the Warrant 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, upon the payment of any tax or
other governmental charge imposed in connection with such exchange, for another
Warrant Certificate or Warrant Certificates of like tenor and evidencing a like
number of Warrants, subject to any adjustments made in accordance with the
provisions of the Warrant Agreement.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone) for all proposes and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary. No Warrant Holder, as such, shall have
any rights of a holder of the Common Stock of the Company, either at law or at
equity, and the rights of the Warrant holder, as such, are limited to those
rights expressly provided in the Warrant Agreement and in the Warrant
Certificate.
Under the Warrant Agreement the Exercise Price is subject to
adjustment if the Company shall effect any stock split or stock combination
with respect to the Common Stock. Any such adjustment of the Exercise Price
will also result in an adjustment of the number of shares of Common Stock
purchasable upon exercise of a Warrant or, if the Company should elect, an
adjustment of each outstanding Warrant into a different number of Warrants.
The Company shall not be required to issue fractions of Warrants upon
any such adjustment or to issue fractions of shares upon the exercise of any
Warrants upon any such adjustment, in accordance with the Warrant Agreement.
The Warrant Agreement is subject to amendment upon the approval of
holders of at least two-thirds of the outstanding Warrants as a group, except
that no such approval is required for the reduction of the Exercise Price or
extension of the Expiration Date. No amendment shall accelerate the Expiration
Date or increase the Exercise Price without the approval of all the holders of
all outstanding Warrants. A copy of the Warrant Agreement will be available at
all reasonable times at the office of the Warrant Agent for inspection by any
Warrant Holder. As a condition of such inspection, the Warrant Agent may
require any Warrant Holder to submit the Warrant Holder's Warrant Certificate
for inspection.
IMPORTANT: The Warrants represented by this Certificate may not be exercised by
a Warrant Holder unless at the time of exercise the underlying shares of Common
Stock are qualified for sale by registration or otherwise in the state where
the Warrant Holder resides or unless the issuance of the shares of Common Stock
would be exempt under the applicable state securities laws. Further, a
registration statement under the Securities Act of 1933, as amended, covering
the issuance of shares of Common Stock upon the exercise of this Warrant must
be in effect and current at the time of exercise unless the issuance of shares
of Common Stock upon any exercise is exempt from the registration requirements
of the Securities Act of 1933. Unless such registration statement is in effect
and current at the time of exercise, or unless such an exemption is available
the Company may decline to permit the exercise of this Warrant.
-3-
<PAGE> 19
TRANSFER FEE $_____ PER CERTIFICATE
WESTERN COUNTRY CLUBS, INC.
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
-------------------
JT TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts
tenants in common to Minors Act _______
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To Be Executed by the Registered Holder if the Registered Holder
Desires to Assign Series A Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED___________________hereby sells, assigns and transfers
unto _____________ Series A Warrants, evidenced by the within Warrant
Certificate, and does hereby irrevocably constitute and appoint _______________
Attorney to transfer the said Warrants evidenced by the within Warrant
Certificate on the books of the Company, with full power of substitution.
Dated:
---------------- -------------------------------
Signature
NOTICE: The above signature must correspond with the name as written
upon the face of the within Warrant Certificate in every
particular, without alteration or enlargement or any change
whatsoever.
Signature Guaranteed:
--------------------------------------
-4-
<PAGE> 20
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if the Registered Holder Desires to Exercise
Warrants Evidenced by the Within Warrant Certificate)
To Western Country Clubs, Inc.:
The undersigned hereby irrevocably elects to exercise ______ Series A
Warrants, evidenced by the within Warrant Certificate for, and to purchase
thereunder, ______ full shares of Common Stock issuable upon exercise of said
Warrants and delivery of $______ and any applicable taxes.
The undersigned requests that certificates for such shares be issued
in the name of:
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
- ------------------------------- ---------------------------------
(Please print name and address)
- ------------------------------- ---------------------------------
- ------------------------------- ---------------------------------
If said number of Series A Warrants shall not be all the Warrants
evidenced by the within Warrant Certificate, the undersigned requests that a
new Warrant Certificate evidencing the Warrants not so exercised be issued in
the name of and delivered to:
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Dated: Signature:
---------------------------- ----------------------
NOTICE: The above signature must correspond with the name as written upon the
face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever, or if signed by
any other person the Form of Assignment hereon must be duly executed
and if the certificate representing the shares or any Warrant
Certificate representing Warrants not exercised is to be registered
in a name other than that in which the within Warrant Certificate is
registered, the signature of the holder hereof must be guaranteed.
Signature Guaranteed:
-----------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO
S.E.C. RULE 17Ad-15.
-5-
<PAGE> 21
EXHIBIT B
WESTERN COUNTRY CLUBS, INC.
Incorporated Under the Laws of the State of Colorado
No. W- ______ Series A Common Stock
Purchase Warrants
CUSIP ____________
CERTIFICATE FOR (See Reverse
SERIES A COMMON STOCK For Certain
PURCHASE WARRANTS Definitions)
This Warrant Certificate certifies that Argent Securities, Inc., or
registered assigns ("the Warrant Holder"), is the registered owner of the above
indicated number of Series A Common Stock Purchase Warrants (the "Warrants")
expiring on __________, 2000 (the "Expiration Date"). One Warrant entitles the
Warrant Holder to purchase one share of Common Stock ("Share") from Western
Country Clubs, Inc., a Colorado corporation (the "Company"), at a purchase
price of $____ (the "Exercise Price"), commencing on __________, 1997, and
terminating on the Expiration Date ("Exercise Period"), upon surrender of this
Warrant Certificate with the exercise form hereon duly completed and executed
with payment of the Exercise Price at the office of American Securities
Transfer & Trust, Inc. (the "Warrant Agent"), but only subject to the
conditions set forth herein and in a Warrant Agreement dated as of _________,
1997 (the "Warrant Agreement") between the Com pany and the Warrant Agent. The
Exercise Price, the number of shares purchasable upon exercise of each Warrant,
the number of Warrants outstanding and the Expiration Date are subject to
adjustments upon the occurrence of certain events. The Warrant Holder may
exercise all or any number of Warrants. Reference hereby is made to the
provisions on the reverse side of this Warrant Certificate and to the
provisions of the Warrant Agreement, all of which are incorporated by reference
in and made a part of this Warrant Certificate and shall for all purposes have
the same effect as though fully set forth at this place.
Until _____, 1998, this Warrant Certificate is not transferrable
except to an underwriter that participated in the public offering by the
Company that resulted in the original issuance of the Warrants, to a partner or
an officer of such an underwriter or by will on operation of law. Upon due
presentment for transfer of this Warrant Certificate at the office of the
Warrant Agent, a new Warrant Certificate or Warrant Certificates of like tenor
and evidencing in the aggregate a like number of Warrants, subject to any
adjustments made in accordance with the provisions of the Warrant Agreement,
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, upon payment of
$_____ per Warrant Certificate and any tax or governmental charge imposed in
connection with such transfer.
<PAGE> 22
The Warrant Holder of the Warrants evidenced by this Warrant
Certificate may exercise all or any whole number of such Warrants during the
period and in the manner stated hereon. The Exercise Price shall be payable in
lawful money of the United States of America and in cash or by certified or bank
cashier's check or bank draft payable to the order of the Company. If upon
exercise of any Warrants evidenced by this Warrant Certificate the number of
Warrants exercised shall be less than the total number of Warrants so evidenced,
there shall be issued to the Warrant Holder a new Warrant Certificate evidencing
the number of Warrants not so exercised.
Subject to the following paragraph, no Warrant may be exercised after
5:00 p.m. Mountain Time on the Expiration Date and any Warrant not exercised by
such time shall become void, unless extended by the Company.
Commencing on the date the Warrants are separately tradeable and
transferable, the Warrants are subject to redemption by the Company at $.125
per Warrant, at any time commencing _______, 1998 (twelve months from the
effective date of the Company's Registration Statement No. 333- _____) and
prior to their expiration, on not less than 30 days' prior written notice to
the holders of Warrants, provided that the daily trading price per share of
Common Stock has been at least $______ (150% of the closing bid price for the
Company's Common Stock on the effective date of Registration Statement No.
333-_________) for a period of at least five (5) consecutive trading days
ending within 10 days prior to the date upon which the notice of redemption is
given. During the 30-day period immediately following the giving of such
notice, the Warrant Holders shall have the right to exercise the Warrants so
held by them. Upon expiration of such 30-day period, all rights of the Warrant
Holders shall terminate, other than the rights to receive the redemption price,
without interest, and the right to receive the redemption price shall itself
expire on the Warrant Expiration Date.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent.
-2-
<PAGE> 23
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its President and by its Secretary, each by a facsimile of his/her
signature, and has caused a facsimile of its corporate seal to be imprinted
hereon.
Dated:
-------------------
WESTERN COUNTRY CLUBS, INC.
By
- ------------------------------- --------------------------------
Dominic W. Grimmett, Secretary James E. Blacketer, President
AMERICAN SECURITIES TRANSFER &
TRUST, INC.
Warrant Agent
By
--------------------------------
Charles R. Harrison, President
-3-
<PAGE> 24
FORM OF REVERSE SIDE OF WARRANT
This Warrant Certificate, when surrendered to the Warrant Agent at its
principal office by the Warrant 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, upon the payment of any tax or
other governmental charge imposed in connection with such exchange, for another
Warrant Certificate or Warrant Certificates of like tenor and evidencing a like
number of Warrants, subject to any adjustments made in accordance with the
provisions of the Warrant Agreement.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone) for all proposes and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary. No Warrant Holder, as such, shall have
any rights of a holder of the Common Stock of the Company, either at law or at
equity, and the rights of the Warrant holder, as such, are limited to those
rights expressly provided in the Warrant Agreement and in the Warrant
Certificate.
Under the Warrant Agreement the Exercise Price is subject to
adjustment if the Company shall effect any stock split or stock combination
with respect to the Common Stock. Any such adjustment of the Exercise Price
will also result in an adjustment of the number of shares of Common Stock
purchasable upon exercise of a Warrant or, if the Company should elect, an
adjustment of each outstanding Warrant into a different number of Warrants.
The Company shall not be required to issue fractions of Warrants upon
any such adjustment or to issue fractions of shares upon the exercise of any
Warrants upon any such adjustment, in accordance with the Warrant Agreement.
The Warrant Agreement is subject to amendment upon the approval of
holders of at least two-thirds of the outstanding Warrants as a group, except
that no such approval is required for the reduction of the Exercise Price or
extension of the Expiration Date. No amendment shall accelerate the Expiration
Date or increase the Exercise Price without the approval of all the holders of
all outstanding Warrants. A copy of the Warrant Agreement will be available at
all reasonable times at the office of the Warrant Agent for inspection by any
Warrant Holder. As a condition of such inspection, the Warrant Agent may
require any Warrant Holder to submit the Warrant Holder's Warrant Certificate
for inspection.
IMPORTANT: The Warrants represented by this Certificate may not be exercised by
a Warrant Holder unless at the time of exercise the underlying shares of Common
Stock are qualified for sale by registration or otherwise in the state where
the Warrant Holder resides or unless the issuance of the shares of Common Stock
would be exempt under the applicable state securities laws. Further, a
registration statement under the Securities Act of 1933, as amended, covering
the issuance of shares of Common Stock upon the exercise of this Warrant must
be in effect and current at the time of exercise unless the issuance of shares
of Common Stock upon any exercise is exempt from the registration requirements
of the Securities Act of 1933. Unless such registration statement is in effect
and current at the time of exercise, or unless such an exemption is available
the Company may decline to permit the exercise of this Warrant.
-4-
<PAGE> 25
TRANSFER FEE $_____ PER CERTIFICATE
WESTERN COUNTRY CLUBS, INC.
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
JT TEN - as joint tenants with right ---------------
of survivorship and not as (Cust) (Minor)
tenants in common under Uniform Gifts
to Minors Act _______
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To Be Executed by the Registered Holder if the Registered Holder
Desires to Assign Series A Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED __________________hereby sells, assigns and transfers
unto ________________ Series A Warrants, evidenced by the within Warrant
Certificate, and does hereby irrevocably constitute and appoint
____________________Attorney to transfer the said Warrants evidenced by the
within Warrant Certificate on the books of the Company, with full power of
substitution.
Dated:
------------------------ -----------------------------
Signature
NOTICE: The above signature must correspond with the name as written
upon the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever.
Signature Guaranteed:
---------------------------------
-5-
<PAGE> 26
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if the Registered Holder Desires to Exercise
Warrants Evidenced by the Within Warrant Certificate)
To Western Country Clubs, Inc.:
The undersigned hereby irrevocably elects to exercise ______ Series A
Warrants, evidenced by the within Warrant Certificate for, and to purchase
thereunder, ______ full shares of Common Stock issuable upon exercise of said
Warrants and delivery of $______ and any applicable taxes.
The undersigned requests that certificates for such shares be issued
in the name of:
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
- ------------------------------- ---------------------------------
(Please print name and address)
- ------------------------------- ---------------------------------
- ------------------------------- ---------------------------------
If said number of Series A Warrants shall not be all the Warrants
evidenced by the within Warrant Certificate, the undersigned requests that a
new Warrant Certificate evidencing the Warrants not so exercised be issued in
the name of and delivered to:
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Dated: Signature:
---------------------- --------------------------
NOTICE: The above signature must correspond with the name as written upon the
face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever, or if signed by
any other person the Form of Assignment hereon must be duly executed
and if the certificate representing the shares or any Warrant
Certificate representing Warrants not exercised is to be registered
in a name other than that in which the within Warrant Certificate is
registered, the signature of the holder hereof must be guaranteed.
Signature Guaranteed:
------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO
S.E.C. RULE 17Ad-15.
-6-
<PAGE> 1
EXHIBIT 11
WESTERN COUNTRY CLUBS, INC
CALCULATION OF EARNINGS PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
WEIGHTED
SHARES DAYS AVERAGE
OUTSTANDING OUTSTANDING SHARES
-----------------------------------------------------
<S> <C> <C> <C>
COMMON SHARES OUTSTANDING AT DECEMBER 31, 1994 3,477,264 365 3,477,264
MARCH 6, 1995 - REPURCHASE OF LOWRIE SHARES (700,000) 301 (577,260)
MARCH 15, 1995 - SHARES ISSUED TO CONSULTANT 15,000 292 12,000
MARCH 28, 1995 - RELEASE SHARES SUBJECT TO RECISION 116,666 307 98,127
MAY 10, 1995 - EXERCISE OF STOCK OPTIONS 27,000 236 17,458
SEPTEMBER 7, 1995 - SHARES ISSUED TO SETTLE ACCOUNTS PAYABLE 8,791 116 2,794
-----------------------------------------------------
SHARES OUTSTANDING AT DECEMBER 31, 1995 / SUB-TOTAL 2,944,721 3,030,383
=========
SUB-TOTAL
---------
STOCK OPTIONS:
NUMBER OF OPTIONS 240,000 240,000
EXERCISE PRICE $2.50
---------
600,000
INITIAL PUBLIC OFFERING PRICE $5.25 (114,286) 125,714
------------------------------
NUMBER OF OPTIONS 60,000 60,000
EXERCISE PRICE $6.00
---------
360,000
INITIAL PUBLIC OFFERING PRICE $6.50 (55,385) 4,615
-----------------------------------------------------
WEIGHTED AVERAGE COMMON SHARES 3,160,712
NET LOSS FOR THE YEAR ENDED DECEMBER 31, 1995 (211,233)
-----------
NET LOSS PER SHARE ($0.07)
===========
</TABLE>
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
The Registrant has three wholly owned subsidiaries: WCWW Acquisition
Corporation, an Arizona corporation, Western Newco, Inc., a Colorado
corporation, and Entertainment Wichita, Inc., an Oklahoma corporation.
WCWW Acquisition Corporation was formed in January, 1995, to hold the
interim and final liquor licenses for the Wild Wild West nightclub in Tucson,
Arizona due to the Registrant's inability to register as a foreign corporation
in Arizona because of an existing Arizona corporation with a similar name.
Western Newco, Inc. was formed on October 5, 1995, for the purpose of
participating in the proposed merger with Cowboys Concert Hall - Arlington, Inc.
The merger was never submitted to the shareholders of Cowboys Concert Hall -
Arlington, Inc. for approval; hence, Western Newco, Inc. is presently inactive.
Entertainment Wichita, Inc. was formed on December 10, 1996 for the purpose
of participating in the merger with Entertainment Wichita, Inc. a Kansas
corporation, pursuant to which the Registrant acquired an 80% interest in
InCahoots, a country-western nightclub located in Wichita, Kansas.
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in the Registration Statement of Western Country Clubs,
Inc. on Form SB-2 of the following: (1) our report dated February 26, 1996,
except for Note 11 as to which the date is March 27, 1996, relating to the
consolidated balance sheet of Western Country Clubs, Inc. and Subsidiaries as
of December 31, 1994 and 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended, (2)
our report dated October 12, 1996 relating to the balance sheet of In Cahoots,
Limited Partnership as of December 31, 1994 and 1995 and the related statements
of income, partner's capital and cash flows for the years then ended and (3) our
report dated December 4, 1996 relating to the balance sheet of Entertainment
Wichita, Inc. as of December 31, 1994 and 1995 and the related statements of
operations, stockholders' equity and cash flows for the years then ended. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
Denver, Colorado /s/ CAUSEY DEMGEN & MOORE INC.
February 10, 1997
<PAGE> 1
[GROSS COLLINS CRESS, P.C. LETTERHEAD]
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in the Registration Statement of Western Country Clubs,
Inc. on Form SB-2 of our report dated November 20, 1996, relating to the
balance sheets of Crystal Chandelier, Inc. as of December 31, 1993 and 1994,
and the related statements of operations, stockholders' equity and cash flows
for the years ended December 31, 1993 and 1994. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ GROSS, COLLINS + CRESS, P.C.
---------------------------------
GROSS, COLLINS + CRESS, P.C.
Atlanta, Georgia
February 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
FOR THE PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-KSB
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 223,839
<SECURITIES> 0
<RECEIVABLES> 135,533
<ALLOWANCES> 0
<INVENTORY> 96,867
<CURRENT-ASSETS> 877,372
<PP&E> 4,537,737
<DEPRECIATION> 722,999
<TOTAL-ASSETS> 6,009,143
<CURRENT-LIABILITIES> 1,517,587
<BONDS> 0
0
0
<COMMON> 29,447
<OTHER-SE> 3,539,181
<TOTAL-LIABILITY-AND-EQUITY> 6,009,143
<SALES> 0
<TOTAL-REVENUES> 8,508,058
<CGS> 0
<TOTAL-COSTS> 8,029,688
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,059
<INCOME-PRETAX> 341,311
<INCOME-TAX> 133,660
<INCOME-CONTINUING> (211,233)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211,233)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
