UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
[Fee Required]
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
[No Fee Required]
For the transition period from _________ to _________
Commision file number 1-13559
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Fresh'n Lite, Inc.
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(Name of small business issuer in its charter)
Texas 75-2337102
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1705 E. Whaley Longview, Texas 75605
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (903) 758-2811
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on
which registered
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- - ---------------------------- -------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01
(Title of class)
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Issuer's revenues for the most recent fiscal year. $3,106,144.
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The aggregate market value of Common Stock held by non-affiliates of the
registrant based on the sale trade price of the Common Stock as reported on the
OTC-BB on April 29, 1997 was $18,607,644. For purposes of this computation, all
officers, directors, and 10% beneficial owners of registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
officers, directors or 10% beneficial owners are, in fact, affiliates of the
registrant. Number of shares outstanding of each of the issuer's classes of
common stock, as of April 19, 1997: 6,356,852 shares of common stock, par value
$.01.
Transitional Small Business Disclosure Format: Yes [X] No [ ]
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
History
Fresh'n Lite, Inc. (the "Company") was incorporated under the laws
of the State of Delaware on May 9, 1990. The Company was originally formed under
the name of Bosko's, Inc.
On June 5, 1989, the founders of the Company established the first
"Bosko's 3 N 1 D-Lite" restaurant in Marshall, Texas. The restaurant served an
assortment of submarine sandwiches, soups, salads, deli sandwiches, croissant
sandwiches, low fat burgers, baked potatoes, grilled chicken sandwiches, fat
free pizza, steaks, seafood, pastas, no-fat frozen yogurt, fat free & sugar free
desserts, soft drinks, potato chips, and other similar food products. This
restaurant was sold early in 1995.
The Company opened a second restaurant in Tyler, Texas, on February 15,
1991, under the name "Bosko's 3 N 1 D-Lite." This restaurant was sold in early
1995. The Marshall and Tyler restaurants were marginally profitable and were
sold to allow management to focus on the Company's more profitable restaurants
and to divest assets that were less compatible with the Company's current
restaurant concept.
The Company opened a third restaurant in Longview, Texas, on March 8,
1992, also under the name "Bosko's 3 N 1 D-Lite." This was the Company's first
step in the testing of a store using a geodesic dome design. The address of the
Longview store is 2804 Judson Road, Longview, TX 75601. This store was closed in
October of 1997 in order to allow management to concentrate it's efforts on it's
higher volume and more profitable urban market stores.
On December 9, 1992, the name of the Company was changed to "Fresh'n
Lite, Inc." Consequently, the stores' names also changed to "Fresh'n Lite Cafe &
Grill," with an accompanying marketing slogan "Tastes great, Less Fat." The name
change came about due to market research and the need for public name
recognition of what the Company sells.
The Company's fourth restaurant (bearing the "Fresh'n Lite" name) opened
in Nacogdoches, Texas, on May 24, 1993. This store was another test store for
the Company's geodesic design as well as the first location to have an
accompanying recreation center for the children of customers. The address for
the Nacogdoches store is 1122 North Street, Nacogdoches, Texas 75961. This store
was closed in February of 1997 in order to allow management to concentrate it's
efforts on it's higher volume and more profitable urban market stores. This
store was sold March 17, 1998 for $600,000. The proceeds of the sale were used
to pay down debt at East Texas National Bank in Marshall, Texas.
The fifth "Fresh'n Lite" restaurant opened in Texarkana, Texas, in June
of 1994. Although the geodesic design provides a unique, highly visible design,
the Company determined through operations of the Longview and Nacogdoches stores
that this design is not as efficient as a more proven and standard design.
Therefore, the Texarkana store is a 3,308 square foot rectangular building
utilizing a traditional floor plan. The address of the Texarkana store is 3520
Summerhill Road, Texarkana, Texas 75502. This store was closed in April of 1997
in order to allow management to concentrate it's efforts on it's higher volume
and more profitable urban market stores.
The sixth "Fresh'n Lite" restaurant opened in Dallas, Texas, in July of
1995. The design is considerably different and has been changed to be more
suitable to what management believes is the urban taste. It has approximately
4,500 square feet. It has take-out orders and drive-thru capability. It does not
have a recreation area. It is located at 6150 Frankfort Rd., Dallas, Texas.
The seventh Fresh'n Lite restaurant opened in Irving (Valley Ranch),
Texas in February, 1997. The design in comparable to that of the company's
Dallas store. The store is located at 8604 N. MacArthur Blvd., Irving, Texas.
The eight Fresh'n Lite restaurant opened in "The Colony", Texas in
October 1997. This store is also patterned after the more traditional design
used at its Dallas store. The store is located at 4707 Hwy 121 W. The Colony,
Texas.
The ninth restaurant is scheduled to open May 7, 1998 in Richardson,
Texas. This will be the company's first "Street Talk Cafe" concept. The store is
located at 1840 N. Plano Rd. Richardson, Texas. (See "Company Business")
Given that the Marshall, Tyler, and Nacogdoches stores were sold and the
Texarkana and Longview, stores were closed and are now under contract for sale,
there are now a total of three Company restaurants open and a fourth under
construction and scheduled to open May 7, 1998.
In October 1995, Fresh'n Lite, Inc., a Delaware corporation, merged into
its wholly owned subsidiary, F'NL, Inc., a Texas corporation, with the name
"Fresh'n Lite, Inc." continuing as the name of the Texas corporation. The
Company and its business continue as a Texas corporation. The purpose of the
merger was to merely change the domicile of the Company to Texas.
<PAGE>
Company Business
The Company currently owns and operates three full-service cafe and grill
restaurants located in the Texas cities of Dallas, The Colony, and Valley Ranch
(Irving) under the name of Fresh'n Lite Cafe & Grill. The Company's basic
concept is to offer its customers a healthy alternative to traditional casual
dining restaurants by utilizing high quality low-fat fresh cut meats and
cheeses, nonfat mayonnaise, and fresh cut vegetables as well as fat-free pizzas
and other specialty items which are not normally associated with healthy eating.
However, the Company feels it is essential that restaurant offerings do not
sacrifice taste for the benefit of more nutritional eating. The majority of the
Company's menu items are prepared to order using fresh meats, cheeses, and
vegetables which are prepared daily in order to meet the customers' expectations
created by the name "Fresh'n Lite." While the restaurants offer full service
casual dining, the menu is geared toward fast preparation selections. Drive-thru
and take-out service has proven to be very popular with consumers.
The Company is poised to change the name and reposition the Fresh'n Lite
concept as Street Talk Cafe. This is being done to eliminate confusion
associated with concepts that "sound" like Fresh'n Lite and to more accurately
reflect the "healthy casual" positioning management believes is a new and
winning niche in the casual dining segment. The Company plans to develop Street
Talk Cafe restaurants in key Texas markets as an immediate and intermediate
growth strategy.
The prototype Street Talk Cafe restaurant utilizes distinct concept
elements to provide guests with a superior "total dining" experience. The design
elements convey the "street" and "outdoor" ambiance associated with the name.
Guests walk into the restaurant on brick streets and wait to be seated in a
trolley car area, complete with authentic benches. Guests can dine in a variety
of rooms that reflect the type of shops, stores, and surroundings normally
associated with a "street experience". This makes dining at Street Talk Cafe a
true event and helps the concept deliver greater value by offering an
interesting and entertaining environment. The menu for Street Talk Cafe will
carry the same offerings as the Fresh'n Lite Cafe & Grill's and will also
include the nutritional content of each item.
The Fresh'n Lite restaurants' menu offerings are competitive in price
relative to other casual dining restaurants which use less nutritional food
products. For this reason, the Company feels consumers perceive an excellent
price/value relationship as they become aware of the higher quality food
selections they receive at comparable price points offered by competitors.
The Company's restaurants are subject to all local health department
codes and inspections, as well as all Federal Food & Drug Administration
policies and OSHA policies. Certain routine inspections have been made of the
restaurants and have resulted in no health code or other violations.
The Company's primary supplier of goods is Conco Food Systems, P.O. Box
8848, Shreveport, LA 71148. The Company currently purchases approximately 90% of
its inventory from Conco Foods. The Company has a written contract with Conco
Foods and purchases as needed on a net thirty (30) day basis. The Company is
current in its account with Conco Foods. The Company has accounts with other
suppliers to insure product availability in the event that Conco Food Systems is
unable to meet the Company's needs in the future. Conco Food's parent,
Consolidated Companies, Inc., purchased 133,332 shares of the Company's Common
Stock in March, 1995, for $199,999, and Consolidated Companies has entered into
a five-year Primary Distribution Agreement pursuant to which it has agreed to
provide 90% of products which are required by the Company and which it can
provide.
Control Systems
The Company utilizes point of sale computer systems at all stores which
allow the Company's corporate management to monitor the stores on a daily basis
via computer modems and tracking software which will assist the Company in
maintaining control of inventory, supplies and labor costs.
All personnel are provided with a detailed operations manual which
outlines their job duties, safety standards, Company policies, and food handling
and preparation responsibilities. The employees are expected to comply with all
information contained in this manual.
The Company also intends to utilize the services of area managers who
will be in the stores at least twice a week. An area manager will have direct
oversight of no more than seven stores within a given area. The area managers
will be responsible for insuring the stores' compliance with all Company
policies, including but not limited to, inventory control, hiring and firing,
training, maintenance of facilities, food purchasing and preparation, customer
relations, bookkeeping, and etc. The Area Manager will report directly to the
Chief Operating Officer of the Company on a weekly basis.
<PAGE>
Concept and Strategy
The Company feels that in order to be successful in today's competitive
environment, it must focus on a clearly differentiated identity and offer its
customers the highest quality food product in a comfortable, attractive
atmosphere at reasonable prices. The niche which Fresh'n Lite has identified for
urban, white-collar markets is that of a "healthy casual restaurant" which
offers a wide selection of sandwiches, salads, pizzas, steaks, seafood, Tex-Mex
and special dinner items and desserts which have nonfat or low-fat content and
appeal to the health conscious, yet do not sacrifice taste and are reasonably
priced. The concept addressing this niche is the "Fresh'n Lite" concept.
Company restaurants featuring the "Fresh'n Lite Cafe & Grill" and "Street
Talk Cafe" concepts are designed to offer full service to the casual diner with
food preparation time comparable to fast-food restaurants. This allows more
rapid turnover of busy lunch time crowds. All of the current stores have
substantial drive-thru and take-out business. While the Company's design allows
those customers who are time-constrained to be served in an efficient manner,
the atmosphere of the restaurants is such that those customers looking for a
more relaxed environment can be served quickly, yet not feel rushed.
Pricing
The Company's pricing strategy is to compete initially with other low
cost producers in order to gain an initial acceptance for the Company's product.
This will be possible because of the relatively low initial cost to establish
each new location. With other restaurant chains offering value pricing on many
items, it will also be necessary to keep price competitive to attract new
customers. However, because of the quality of the product and the hope for
repeat business, it is the Company's expectation that it will be able to
increase prices, subject to price strategies at competing restaurants.
Management and Employees
The Company believes that attracting and maintaining superior employees
will continue to be vital to its success. Managers receive an attractive
compensation package which includes performance bonuses and other incentives. In
return, they are expected to meet high standards in terms of store margins,
sales volumes, and overall atmosphere in their restaurants. Fresh'n Lite has
established a corporate culture which emphasizes a fun, yet professional,
environment where employees at all levels take pride in their work and
understand their individual importance to the Company's overall success as well
as their value to senior management. The Company currently has approximately 12
full time and 85 part time employees in its operations.
Competition
The Company believes it is competing with other restaurants which offer
similar products to that which Fresh'n Lite serves as well as those that offer
other food types. For instance, a consumer may typically eat at a hamburger
establishment one day, a Mexican food take-out restaurant another day, and a
deli-style restaurant such as Fresh'n Lite another day. By serving a
consistently good product and emphasizing its comparative healthfulness,
management expects to attract customers back on a more repetitive basis than
those serving other food products. By emphasizing this market niche the Company
hopes to maintain a competitive posture with respect to chain restaurants.
In competing in the healthy eating environment for its "Fresh'n Lite"
restaurants, the Company has the advantage of the "expanded menu" concept, which
will allow the same consumer to have a variety of meal choices for different
days. Yogurt and sandwich specialty shops offer products that are seasonal and
typically eaten at certain times of the day. By offering both of these products,
as well as other alternatives, Fresh'n Lite can accommodate the needs of a
broader customer base, thus generating better productivity throughout the day
and evening. In competing with those restaurants serving similar food products,
the Company believes that its superior service, quality of food products,
competitive pricing, and the combination of fast food and relaxing full service
environment, coupled with the need to eat healthier, has proven its competitive
edge in serving the consumer.
The restaurant industry is competitive on both a national and regional
basis. On a national level, overall marketing and pricing strategies are
dictated by the larger, well established fast food chains. As economic
conditions change, product prices at major chains may be lowered to entice
customers to eat out more. To the extent the Company competes with local
franchises of these national chains, the Company's prices will have to be
competitive to continue attracting their regular customers, as well as gaining
an additional market share in new locations.
<PAGE>
National firms will also have the benefit of substantial financial resources for
advertising and other marketing promotions. While Fresh'n Lite is not able to
compete on the same scale, by initially concentrating its efforts on a certain
geographic region, the Company hopes to gain name recognition through
advertisements and promotions with the local media. (See "Advertising and
Marketing") In competing with franchises of national restaurant chains, Fresh'n
Lite does have the advantage of paying no franchise fees to the parent. This
allows for higher operating margins for each dollar of revenue generated.
The Company also faces competition from other local restaurant
businesses. This will include small, one store restaurants, as well as regional
restaurant chains. By keeping overall set-up costs and overhead low, management
believes it will have more staying power than its competitors during those times
when consumers eat out less frequently.
Regulation Restaurants are subject to licensing and regulation by state
and local health, sanitation, safety, fire, and other authorities and are also
subject to state and local licensing and regulation of the sale of alcoholic
beverages and food. The company has experienced no problems in its current
operations in complying with these authorities.
Trademark The Company has been granted a registration for the name
"Fresh'n Lite Deli Cafe." Application for registration of the name "Fresh'n Lite
Deli and Grill" was filed in June 1995. While no assurance can be given
regarding the outcome of this later application, the favorable response received
to date on the first registration is an indication the second registration
should also be granted. Additionally the Company has filed for a trademark for
"Street Talk Cafe" on March 1, 1998.
Registration of these names does not assure the Company that its
ownership is incontestable until five (5) years after registration issues and
the Company files an additional affidavit with the Trademark Office. There are
other users of the name "Fresh'n Lite," several of which began use of the name
before the Company, but none of these users have made any claim regarding the
use of this name by the Company. Whether another user could restrict the
Company's use of the name will depend upon the facts of the particular case,
including priority of use, priority of registration, the area of use, the type
of use and the generic or descriptive nature of the name. The Company has, by
attempting registration, taken those actions the law allows to protect its name.
Item 2: DESCRIPTION OF PROPERTY
Restaurant Locations
The following table provides information with respect to each of the
Company's properties. The Dallas, Irving, The Colony, Longview, and Texarkana
buildings are owned, with a lease on the land. The Company's current plans are
to secure 20 year lease-purchases on the property to be used for the expansion
of the next four stores.
<TABLE>
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Location Status Square Feet Lease Term (1)
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<S> <C>
Dallas, Texas Open 4.500 sq. ft. 20 Years
Irving (Valley Ranch), Texas Open 4,700 sq. ft. 20 Years
The Colony, Texas Open 4,700 sq. ft. 20 Years
Texarkana, Texas Under contract to sell 3,308 sq. ft. 20 Years
Longview, Texas Under contract to sell 3,500 sq. ft. 20 Years
Richardson, Texas Opening May 7, 1998 4,700 sq. ft. 20 Years
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</TABLE>
(1) See Notes to Financial Statements for further information on leases.
Per the Company's plan to reposition the concept as "Street Talk Cafe"
there are currently plans to convert the Dallas store located at 6150 Frankford
Rd. The anticipated cost for this conversion is $200,000.
<PAGE>
Item 3: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
The Directors and Officers of the Company are set forth below.
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Name Age Position In Office Since
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<S> <C>
Chief Executive Officer, Chairman of
Stanley L. Swanson 53 the Board of 1990
Directors
Henry Leonard 49 President and Chief Operating Officer 1997
Curtis A. Swanson 30 Director, Treasurer, 1990
Chief Financial Officer
Jean Hedges 36 Controller
1993
Carole A. Swanson 55 Secretary 1990
Edward Dmytryk 50 Director 1992
Robert (Bob) Lilly 57 Director 1995
Dr. Donald Whittaker 65 Director 1997
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</TABLE>
All directors hold office until the next annual meeting of the
shareholders of the Company, and until their successors are elected and
qualified. Officers hold office until the first meeting of the Board of
Directors following the annual meeting of shareholders, subject to earlier
removal by the Board of Directors.
Family relationships among Officers and Directors: Stanley L. Swanson
and Carole A. Swanson are husband and wife. Curtis A. Swanson is the son of
Stanley L. and Carole A. Swanson.
BUSINESS EXPERIENCE OF DIRECTORS & OFFICERS
Stanley L. Swanson, a founder of the Company, has served as President , Chief
Executive Officer, and Chairman of the Board since its inception in May, 1990.
In addition to developing the Company's overall business strategy and expansion
plans, Mr. Swanson is responsible for selection and negotiations for all future
locations. Prior to establishing the first Fresh'n Lite restaurant in Marshall,
Texas in June 1989, Mr. Swanson was the President and CEO of Canaan Enterprises,
Inc., a Montana corporation involved in the development of real estate
franchises within the state. Under Mr. Swanson's leadership, the company grew
from one franchise in 1986 to ten franchises in 1988. It was at this time that
Mr. Swanson sold his holdings in Canaan Enterprises, Inc., in order to establish
the restaurant business that is now Fresh'n Lite, Inc. From 1981 to 1986, Mr.
Swanson was a real estate broker in the state of Montana, where he owned and
operated two real estate sales and development companies. From 1972 until 1981,
Mr. Swanson was an entrepreneur in the restaurant industry, owning and operating
two restaurant establishments. From 1962 until 1972, Mr. Swanson played
professional baseball, where he was primarily associated with the Cincinnati
Reds and Montreal Expos organizations.
Henry Leonard has been President and Chief Operating Officer of the Company
since December 1997. Mr. Leonard handles all day to day operations of the
Company as well as new concept development, marketing and real estate. Prior to
joining the Company in 1997, Mr. Leonard was President of Casa Ole' ALM, L.L.C.
a franchise market partner joint venture with Casa Ole' Restaurants, Inc. From
1995 to 1996 Mr. Leonard was Director of New Concept Development for Papa Gino's
of American, Inc. From 1974 to 1994 Mr. Leonard served in a variety of posts for
Pizza Systems / Summit Concepts (d.b.a. Mazzio's and Ken's Pizza) including
President and Chief Operating Officer.
<PAGE>
Curtis A. Swanson has been Chief Financial Officer, Executive Vice President,
and Treasurer of the Company since its inception in May, 1990. Mr. Swanson
handles all financial matters for the Company. Prior to his involvement with
Fresh'n Lite, Inc., Mr. Swanson was an officer in Canaan Enterprises, Inc., from
1986 to 1988. His duties with Canaan Enterprises, Inc., included the sales,
set-up, and oversight of franchises within the state of Montana. From 1987 to
1989, Mr. Swanson owned and operated two real estate franchises, a video rental
store, and a pizza establishment.
Jean M. Hedges has been Corporate Controller for the Company since September
1993. Ms. Hedges is responsible for all accounting and office management
functions including generating and analyzing financial reports, performing
monthly, quarterly, and annual closeout functions, budget planning, cash flow
forecasting, analyzing capital expenditures, and evaluating return on
investments. Ms. Hedges has had extensive CPA firm experience and brings a 10
year record as a controller and business manager to the Company. Prior to her
employment with Fresh'n Lite, Ms. Hedges was the controller of Stainback
Casting, a manufacturer based out of Tyler, Texas, from 1992 to 1993. From 1990
to 1992, Ms. Hedges was the controller of American Retirement Homes which owned
over 1/3 of all the retirement homes in the State of Virginia. It was through
this position that Ms. Hedges gained experience in a multi-unit environment.
From 1987 to 1990, Ms. Hedges was the business office manager for Goodman &
Company, CPA, the largest CPA firm in the State of Virginia. From 1984 to 1987
Ms. Hedges was an internal accounting manager with Price Waterhouse, CPA in
Norfolk, Virginia. Ms. Hedges has a Bachelor of Arts degree in Business
Management/Economics and Political Science from Randolph Macon College.
Carole A. Swanson, wife of Stanley L. Swanson and co-founder of Fresh'n Lite,
Inc., has served as Secretary of the Company since its inception in May, 1990.
Prior to establishing the first Fresh'n Lite restaurant in Marshall, Texas, in
June of 1989, Ms. Swanson was a broker/owner of a real estate company in
Hamilton, Montana, from 1983 to 1988. From 1980 to 1983, Ms. Swanson co-owned
and operated the Cedar Chest restaurant in Darby, Montana. From 1977 through
1980, Ms. Swanson took time off to concentrate on home and family. From 1972 to
1976, Ms. Swanson co-owned and operated the Lochsa Lodge Resort and restaurant
in Powell, Idaho. From 1954 through 1972, Ms. Swanson worked with her father in
the development of a 31 store restaurant chain based out of Knoxville,
Tennessee, called the Blue Circle's. This company was sold due to the death of
Ms. Swanson's father. She was involved in training, inventory control, food cost
analysis, labor cost analysis, and bookkeeping.
Edward C. Dmytryk has been a Director of the Company since 1992. Mr. Dmytryk is
currently the Chief Executive Officer and principal owner of Benchmark, Inc., a
metal fabricating company located in Fort Worth, Texas. Until January, 1995, Mr.
Dmytryk was formerly the chief operating officer for Bollinger Industries
International, located in Irving, Texas. Bollinger is a fitness product
corporation with annual sales nearing $60 million. Mr. Dmytryk served as Chief
Operating Officer for Bollinger from September, 1988 until January, 1995. From
November, 1986, until September, 1988, Mr. Dmytryk was the President and General
Manager of Mac's Snacks, Inc., located in Arlington, Texas. He was responsible
for the successful turnaround of a national snack food company. Through an
overhaul of the sales and marketing effort, sales increased by 250% under his
leadership. Mr. Dmytryk also successfully negotiated the sale of Mac's to Evans
Food Products. From November, 1985 until November, 1986, Mr. Dmytryk was the
Vice President of Sales and Marketing for Animed, Inc., located in Roslyn, New
York. He was functionally responsible for the overall corporate marketing of a
veterinarian's products and services company, to include research, planning,
execution, and evaluation. Under his leadership, sales volume grew from $8
million to $16 million through a combination of acquisitions and incremental
sales volume. From 1973 until 1985, Mr. Dmytryk held various executive positions
with Wulfsberg Electronics, Inc., Polaroid Corporation, and We Chemical
Products/Alfa Laval. From 1968 until 1973, Mr. Dmytryk was a captain, regular
officer and pilot in the United States Air Force. He is a graduate of the
Citadel in Charleston, South Carolina with a Bachelors degree in Business
Administration.
Robert (Bob) Lilly has been a director of the Company since March, 1995. Mr.
Lilly is currently the owner of Professional Imaging & Promotions, Inc., a
photography and graphics imaging company located in Graham, Texas. From 1961
through 1974, Mr. Lilly played football for the Dallas Cowboys, a National
Football League franchise. Subsequent to his retirement from the Dallas Cowboys,
Mr. Lilly has been involved in personal investments, endorsements and his
photography and graphic imaging business. Over the years he has acquired an
interest in nutrition and has attempted to learn and apply fundamental healthy
nutritional concepts to his personal living and, hence, has developed an
interest in the concept of the Company.
<PAGE>
Dr. Donald Whittaker has been a director of the Company since May, 1997. Dr.
Whittaker is the founder and operator of Dr. Whittaker's Vitamins and Completely
Fit Health Foundation.. From 1968 through the present Dr. Whittaker has been a
physician in private practice. Dr. Whittaker has been the host of "Calling Dr.
Whittaker" a weekly program dealing with cutting edge health issues. The program
has been broadcast internationally on TBN since 1979. Dr. Whittaker is a
graduate of Texas Wesleyan College where he received a degree in Chemistry. He
received his postgraduate training at Kansas City School of Medicine where he
graduated as a D.O..
Item 4: REMUNERATION OF DIRECTORS AND OFFICERS
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Name of Individual Capacities in which Aggregate
Or identity of group remuneration was received remuneration
- - --------------------------------------------------------------------------------
Stanley L. Swanson Chief Executive Officer
Chairman of the Board $24,700
Curtis A. Swanson Chief Financial Officer $24,700
Jean M. Hedges Controller $26,000
Henry Leonard President $ 2,885(a)
(a) Mr. Leonard joined the company December 15, 1997 therefore the salary
reflected is for only1/2of 1 month.
STOCK OPTIONS PLAN
On March 1, 1997, the Board of Directors of the Company adopted its 1997
Incentive Stock Option Plan pursuant to which 200,000 shares of the Company's
stock were set aside for the purpose of the granting of incentive stock options
to directors and key employees of the Company. The purchase price of the stock
purchased pursuant to the exercise of such an option is required to be not less
than 100% of the fair market value of the stock on the date of the grant of the
option. This plan was approved by the shareholders on May 23, 1997.
Under the 1995 Incentive Stock Option Plan, an option for 50,000 shares has
been granted to Bob Lilly for service as a member of the Board of Directors with
a purchase price of $1.50 per share. This option extends until March 1, 2000.
Also under the Incentive Stock Option Plan, Roland R. Jehl and Douglas K. Tabor
have been granted an option for 25,000 shares each for service as members of the
Board of Directors with a purchase price of $1.50 per share. These options
extend until October 19, 2000.
Additionally, Mr. Lilly was granted an option to acquire stock at $.10 per
share in a manner so that the difference between the price of $.10 per share and
the fair market value of the stock at the time of the issuance of the grant
multiplied by the number of shares equaled $2,500 for each day of promotional
appearances that Mr. Lilly made before December 1, 1995 on behalf of the
Company. Options covering 3,572 shares were granted for personal appearances
made by Mr. Lilly on behalf of the Company before December 1, 1995.
A new agreement has been entered into between the Company and Mr. Lilly
regarding personal appearances made by Mr. Lilly after December 1, 1995. For
each promotional appearance, Mr. Lilly will receive $1,500.00, plus the grant of
an option to acquire Common Stock of the Company at not less than 100% of the
fair market value as of the grant date. The grant of the option will be for
stock having a fair market value of $3,000 at the time of the grant with an
option term of 5 years.
<PAGE>
Item 5: SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The following table sets forth the number of Common Shares of the Company
owned by each Director, Officer, and by each person of record who beneficially
owns 10% or more of the outstanding Common Stock as of December 31, 1995.
<TABLE>
<S> <C>
Amount Owned Before & Percent of
Title of Class Name & Address of Owner(1) After Offering Class
- - ----------------- ----------------------------- ----------------------- -------------
Common Shares
Stan & Carole Swanson 1,203,921 18.94
3216 Page Road
Longview, Texas 76505
Common Shares Curtis & Kim Swanson 507,024 7.98
3218 Page Rd.
Longview, Texas 75605
Common Shares Edward Dmytryk 20,000 0.31
707 Kyle Drive
Arlington, Texas 76011
Common
Shares Dr. Donald Whittaker 10,000 0.16
210 E. Elizabeth St.
Jefferson, Texas 75657
- - ----------------- ----------------------------- ----------------------- -------------
</TABLE>
(1) Bob Lilly is not listed as owners of Common Shares, since at this time they
only have options to purchase Common Stock. Refer to the table set forth
below for information on these options.
The following table sets forth information concerning certain options held
by Stanley L. Swanson, Curtis A. Swanson, and Bob Lilly, Director and Douglas K.
Tabor and Roland R. Jehl, former Directors of the Company, and McCap, Inc. a
former consultant to the Company.
<TABLE>
<S> <C>
- - -------------------------------------------------------------------------------------------------
Name of Holder Amount of Common Shares Exercise Price Date of Exercise
Called for by Options
- - -------------------------------------------------------------------------------------------------
Bob Lilly 50,000 $1.50 On or before 02/28/2000
Bob Lilly 3,572 $0.10 On or before 02/28/2000
Douglas K. Tabor 25,000 $1.50 On or before 10/19/2000
Roland Jehl 25,000 $1.50 On or before 10/19/2000
Stanley L. Swanson 100,000 $3.00 On or before 12/31/2002
Curtis A. Swanson 100,000 $3.00 On or before 12/31/2002
McCap, Inc. 300,000 $2.50 On or before 12/21/2001
</TABLE>
On May 23, 1997, the Board of Directors of the Company adopted its 1997
Incentive Stock Option Plan pursuant to which 200,000 shares of the Company's
common stock were set aside for the purpose of granting of incentive stock
options to directors and key employees of the Company. The purchase price of the
stock purchased pursuant to the exercise of such an option is required to be not
less than 100% of the fair market value of the stock on the date of the grant of
the option, or 110% of such value in the case of a holder of 10% of the stock of
the Company. This plan was approved by shareholders on May 23, 1997. None of
these stock options have been exercised.
On March 1, 1995, the Board of Directors of the Company adopted its 1995
Incentive Stock Option Plan pursuant to which 100,000 shares of the Company's
common stock were set aside for the purpose of granting of incentive stock
options to directors and key employees of the Company. The purchase price of the
stock purchased pursuant to the exercise of such an option is required to be not
less than 100% of the fair market value of the stock on the date of the grant of
the option. This plan was approved by shareholders on October 19, 1995.
Under the Plan, an option for 50,000 shares has been granted to one shareholder
for service as a member of the Board of Directors with a purchase price of
$ 1.50 per share and expires March 1, 2000. Also, under the Plan, two other
Directors have been granted options for 25,000 shares each for service as
members of the Board with a purchase price of $ 1.50 per share and expire on
October 19, 2000. None of these stock options have been exercised.
<PAGE>
Under a contract approved by the Board of Directors, a consulting company was
granted options to purchase 300,000 shares of the Company's common stock with a
purchase price of $ 2.50 per share and expiring on October 10, 2002. Also, under
employment contracts approved by the Board of Directors, two officers of the
Company were granted options to purchase 100,000 shares each of the Company's
common stock with a purchase price of $3.00 per share expiring December 31,
2002. At December 31, 1997, none of these options had been exercised.
The company applies APB Opinion 25 and related interpretations in accounting for
the Plans. In 1995, the FASB issued FASB Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), which, if fully adopted by the Company,
would change the methods the Company applies in recognizing the cost of the
Plans. Adoption of the cost recognition provisions of SFAS 123 is optional and
the Company has decided not to elect these provisions of SFAS 123. The Company
recorded no stock-based compensation costs in 1997, 1996, or 1995. Had the fair
values of options been recognized as compensation expense, costs would have
increased by $ 228,270 ( $172,270 after tax) in 1997 and $90,108 ( no tax
effect) in 1995. No options were granted in 1996. The effects of applying SFAS
123 in this proforma disclosure are not indicative of future amounts.
A summary of the status of the Company's stock options as of December 31, 1995,
1996, and 1997 and the changes during the year ended on those dates is presented
below.
<TABLE>
<S> <C> <C>
1995
----
# Shares of Weighted
Underlying Average
Options Exercise Prices
------------------- ---------------------
Outstanding at beginning of the year 0 N/A
Granted 103,572 $ 1.45
Exercised 0 N/A
Forfeited 0 N/A
Expired 0 N/A
Outstanding at end of the year 103,572 $1.45
Exercisable at end of the year 103,572 $1.45
Weighted-average FV of options granted during the year $.87 -
1996
----
# Shares of Weighted
Underlying Average
Options Exercise Prices
------------------- ---------------------
Outstanding at beginning of the year 103,572 $1.45
Granted 0 N/A
Exercised 0 N/A
Forfeited 0 N/A
Expired 0 N/A
Outstanding at end of the year 103,572 $1.45
Exercisable at end of the year 103,572 $1.45
1997
----
# Shares of Weighted
Underlying Average
Options Exercise Prices
------------------- ---------------------
Outstanding at beginning of the year 103,572 $1.45
Granted 543,500 2.67
Exercised 0 N/A
Forfeited 0 N/A
Expired 0 N/A
Outstanding at end of the year 647,072 2.47
Exercisable at end of the year 647,072 2.47
Weighted-average FV of options granted during the year $ .42 -
</TABLE>
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions: dividend yield of 0%, risk-free interest rate of 5.57% and 7.8%,
expected lives of 1 1/4 years and 3 1/4 years, and volatility of 74.9%
respectively for 1997 and 1995.
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<S> <C> <C> <C> <C>
Options Outstanding Options Exercisable
- - ----------------------- ------------------------------------------------------------------- ----------------------------------------
Number Outstanding Weighted Avg. Number Exercisable
Range of at 12/31/97 Remaining Contr. Weighted Avg. at 12/31/97 Weighted Avg.
Exercise Prices Life Exercise Price Exercise Price
- - ----------------------- ---------------------- --------------------- ---------------------- ---------------------- -----------------
$ .10 - $1.50 103,572 2.49 $ 1.45 103,572 $ 1.45
$ 1.50 - $ 3.00 543,500 4.86 $ 2.67 543,500 $ 2.67
- - ----------------------- ---------------------- --------------------- ---------------------- ---------------------- -----------------
$ .10 - $ 3.00 647,072 4.48 $ 2.47 647,072 $ 2.47
- - ----------------------- ---------------------- --------------------- ---------------------- ---------------------- -----------------
</TABLE>
Item 6: INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
In May, 1994, the Marshall restaurant was sold by the Company to a business
entity owned, in part, by Curtis Swanson. The sales price was $25,000,
consisting of the assumption of indebtedness and the assumption of the lease.
The Company made this choice after determining that the Marshall restaurant was
not particularly profitable and did not fit into the long-range plans of the
Company. It believes that the terms of the sale were commercially reasonable.
Currently, Mr. Curtis Swanson, a director, treasurer, and chief financial
officer, and Mr. Edward Dmytryk, a director, formed F'NL Investments, LLC, a
Texas limited liability company, which has entered into a franchise agreement
with the Company for the establishment of a restaurant in Arlington, Texas. The
franchise restaurant was located at 900 Six Flags Dr. in Arlington. The parties
paid a $50,000 franchise fee and agreed to pay royalties of 5% of gross
revenues. The directors have elected to convert this restaurant to a pizza
restaurant because of demographics and open the franchise restaurant in
Arlington at a location to be determined in the future. FNL Investments, LLC
will not be required to pay additional franchise fee when the new franchise
sight is selected.
On December 1, 1995, the Company entered into an agreement with a Director,
Bob Lilly, whereby Mr. Lilly receives $1,500.00 plus the grant of an option to
acquire Common Stock of the Company at not less than 100% of the fair market
value as of the grant date, for each promotional appearance made by Mr. Lilly on
behalf of the Company. This agreement superseded a previous agreement between
Mr. Lilly and the Company through which Mr. Lilly acquired options to purchase
3,572 shares of Common Stock at $.10 per share.
On February 17, 1995, the Company sold 133,333 shares of common stock to the
Company's largest food distributor for $ 200,000, pursuant to a stock purchase
agreement. The agreement binds the Company to purchase 90% of its food products
from the distributor for five years, as well as to repurchase the common stock
at the original price if one of two repurchasing events occur. As of December
31, 1996, the Company's obligation under this agreement has expired. The Company
is unaware of and has not been notified that any repurchasing events have
occurred.
At December 31, 1997, the Company held a note receivable from an
officer/shareholder of the Company in the amount of $ 124,500. The note bears
interest at 5% and is payable in two semiannual installments of $ 77,845,
together with interest beginning on June 30, 1998.
At December 31, 1997, the Company held a note receivable from a shareholder of
the Company in the amount of $ 15,000. The note bears interest at 9% and is
payable in two semiannual installments of $ 8,018, together with interest
beginning on June 30, 1998.
At December 31, 1997, the Company held a note receivable from a company, owned
by a shareholder of the Company in the amount of $ 17,653. The note bears
interest at 9% and is payable in twelve monthly installments of $ 1,543,
together with interest beginning on February 1, 1998.
At December 31, 1997, the Company held a note receivable from a sister
corporation in the amount of $ 7,390. The note bears interest at 10% and is
payable in one installment of $ 7,390, together with interest on March 1, 1998.
The Company has a long-term operating lease agreement with a corporation that
owns a significant amount of the Company's stock. Minimum rents receivable are $
8,500 per month for five years and the lease covers office and retail space at
the Company's headquarters occupied by the corporation.
<PAGE>
PART II
Item 1: MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock began trading on the OTC-Bulletin Board under the
symbol FLTT on May 9, 1997 The following table sets forth for the quarters
indicated the high and low sale prices of the Company's common stock.
1997 High Low
- - --------------------------------------------------------------------------------
First Quarter N/A N/A
Second Quarter $3.000 $2.500
Third Quarter $3.750 $2.500
Fourth Quarter $3.625 $2.125
1998 High Low
First Quarter $3.000 $1.649
Second Quarter $4.625 $1.656
As of April 29, 1998, the Company estimates that there were approximately 500
beneficial owners of the Company's Common Stock, represented by 220 holders of
record.
Item 2: LEGAL PROCEEDINGS
The company is not currently a party to any litigation.
Item 3: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the shareholders of the Company
during the fourth quarter of the fiscal year ended December 31, 1997.
Item 5: COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
A From 3 was not filed by the officers, directors, and 10% shareholders
of the company when the Form 10SB was filed, since such parties were not aware
of any filing requirements. Also, a Form 5 has not been filed by such parties
for the company's most recent fiscal year for the same reason. However, the
parties have indicated that such forms shall be filed forthwith. The company
understands that no Form 4's were required to be filed by such parties, except
for Curtis Swanson who purchased an aggregate of 100,024 shares on the open
market over several months. He has indicated that appropriate reporting forms
will be filed.
Item 6: REPORTS OF FORM 8-K
None
FINANCIAL STATEMENTS
The financial statements and supplementary data are set forth herein commencing
on page F-1 of this report.
<PAGE>
Fresh'n Lite, Inc.
Financial Statements Together
With Auditors' Report
December 31, 1997
<PAGE>
T.G. PROTHRO & COMPANY, P.L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
100 Independence Place, Suite 213 Phone: 903-534-8811fFlip
Post Office Box 7337 Fax: 903-534-8891
Tyler, Texas 75711-7337 EMAIL: [email protected]
Independent Auditors' Report
Board of Directors,
Fresh'n Lite, Inc.
Longview, Texas
We have audited the accompanying balance sheet of Fresh'n Lite, Inc. as of
December 31, 1997, and the related statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our 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 Fresh'n Lite, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
Certified Public Accountants
/s/ T G Prothro & Company, PLLC
- - -------------------------------
Tyler, Texas
March 3, 1998
Members, American Institute of Certified Public Accountants
Members, Texas Society of Certified Public Accountants
<PAGE>
Financial Statements
<PAGE>
Fresh 'n Lite, Inc.
Balance Sheet
December 31, 1997
1997
-----------
ASSETS
CURRENT ASSETS
Cash $ 20,373
Inventory 26,571
-----------
Total Current Assets 46,944
-----------
PROPERTY AND EQUIPMENT (Pledged)
Buildings 3,774,141
Land 135,000
Capitalized Land Leases 2,175,000
Leasehold Improvements 30,113
Vehicles and Equipment 1,250,302
-----------
Total Property and Equipment 7,364,556
Accumulated Depreciation (430,325)
-----------
Property and Equipment - Net 6,934,231
-----------
OTHER ASSETS
Assets Held for Sale, Net of
Accumulated Depreciation 909,835
Corporate organizational Costs
and Other Assets, Net of
Accumulated Amortization 32,651
Deferred Franchise System Cost,
Net of Accumulated Amortization 57,333
Notes Receivable - Related Party 164,543
Total Other Assets 1,164,362
-----------
TOTAL ASSETS $ 8,145,537
-----------
Continued
2
<PAGE>
Fresh 'n Lite, Inc.
Balance Sheet
December 31, 1997
1997
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued Expenses $ 340,635
Accounts Payable 52,864
Bank Overdraft 48,104
Note Payable - Short Term 10,249
Income Taxes Payable 8,800
Current Portion of Capital Lease Obligations 32,139
Current Portion of Notes Payable-Long Term 465,015
-----------
Total Current Liabilities 957,806
OTHER LIABILITIES
Capital Lease Obligations, net of Current Portion 2,313,173
Notes Payable-Long-Term, net of Current Portion 1,101,437
Deferred Income Tax Liability 141,200
-----------
Total Liabilities 4,513,616
CONTINGENCIES
SHAREHOLDERS'EQUITY
Common Stock, $ 0.01 Par Value; 50,000,000
Shares Authorized; 6,158,482
Shares Issued and Outstanding 61,585
Additional Paid in Capital 3,278,499
Retained Earnings 293,087
-----------
3,633,171
Less: Treasury Stock, at Cost,
1,250 Shares (1,250)
-----------
Total Shareholder's Equity 3,631,921
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 8,145,537
-----------
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Fresh 'n Lite, Inc.
Statements of Income
For the Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------- ------------ -----------
<S> <C> <C>
SALES $ 3,106,144 $ 2,602,533 $ 1,840,756
COST OF SALES (890,944) (740,422) (522,180)
----------- ----------- -----------
GROSS PROFIT 2,215,200 1,862,111 1,319,576
Franchise Royalties Earned -- 34,774 5,211
Franchise Fees Earned -- -- 50,000
----------- ----------- -----------
Total Gross Profit and Franchise Income 2,215,200 1,896,885 1,373,787
EXPENSES
Salaries and Contract Labor 744,750 590,517 473,757
Payroll and Other Taxes 145,993 118,574 92,619
Professional Fees 95,662 88,542 17,646
Advertising and Promotional 129,274 64,878 42,275
Rent 33,079 47,423 48,932
Insurance 61,424 41,525 46,390
Telephone 41,346 20,823 22,765
Travel 12,269 5,763 8,412
Utilities 100,331 86,794 67,926
Depreciation 233,891 162,793 122,633
Amortization 206,480 133,731 137,445
Interest 105,131 155,466 106,265
Linen and Laundry 39,918 22,452 10,291
Repairs and Maintenance 40,062 19,164 12,261
Supplies 12,247 12,099 8,116
Miscellaneous 46,591 19,240 11,730
----------- ----------- -----------
Total Expenses 2,048,338 1,579,784 1,229,463
----------- ----------- -----------
OPERATING INCOME 166,862 317,101 144,324
Income Tax Expense: 8,800 -- --
Current 47,200 94,000 --
----------- ----------- -----------
Deferred
NET INCOME $ 110,862 $ 223,101 $ 144,324
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Fresh 'n Lite, Inc.
Statements of Changes in Shareholders' Equity
For the Years ended December 31, 1997, 1996 and 1995
Total
Additional Retained Share-
Common Paid In Earnings Treasury holders'
- Stock Capital (Deficits) Stock Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C>
Balances, January 1, 1995 $ 49,729 $ 999,520 $ (185,200) $ (1,250) $ 862,799
Net Income -- -- 144,324 144,324
Sale of Common Stock,
291,734 Shares 2,918 365,334 -- 368,252
----------- ----------- ----------- ----------- -----------
Balances, December 31, 1995 52,647 1,364,854 (40,876) (1,250) 1,375,375
Net Income -- -- 223,101 223,101
Sale of Common Stock,
226,400 Shares 2,264 563,736 -- 566,000
Stock Issuance Costs -- (159,980) -- (159,980)
----------- ----------- ----------- ----------- -----------
Balances, December 31, 1996 54,911 1,768,610 182,225 (1,250) 2,004,496
Net Income -- -- 110,862 110,862
Sale of Common Stock, --
667,400 Shares 6,674 1,661,826 -- 1,668,500
Stock Issuance Costs -- (151,937) -- (151,937)
----------- ----------- ----------- ----------- -----------
Balances, December 31, 1997 $ 61,585 $ 3,278,499 $ 293,087 $ (1,250) $ 3,631,921
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Fresh 'n Lite, Inc.
Statements of Cash Flows
For the Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------- ------------ ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 110,962 $ 223,101 $ 144,324
------------- ------------ ----------
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 233,881 162,793 122,633
Amortization 206,480 133,731 137,445
Deferred Income Taxes 47,200 94,000 -
Change in Net Capital Leases (15,167) (6,414) (2,476)
Not Change in Assets and Liabilities: 618 8,172 (11,063)
(Increase) Decrease in Inventory (15,173)
Increase (Decrease) in Accounts Payable 5,854 (13,074)
Increase (Decrease) in Accrued Expenses 45,924 (50,505) 96,121
Increase in Income Taxes Payable 8,800 - -
-------------- ------------ ----------
Total Adjustments 533,490 328,703 317,487
-------------- ------------ ----------
Net Cash Provided by
Operating Activities 644,352 551,804 461,811
-------------- ------------ ----------
Cash Flows from Investing Activities:
Capital Expenditures (2,288,392) (771,327) (928,617)
Expenditures for Preopening/Remodel
Costs and other Assets - (74,708) (54,495)
(Increase) Decrease in Note Receivable-Related Party (133,198) 9,712 (41,057)
(Increase) Decrease in Deferred Stock Issuance Cost
and Deferred Franchise System Costs (10,000) 90,624 (72,392)
-------------- ------------ ----------
Net Cash Used in
Investing Activities (2,431,590) (755,699) (1,096,561)
-------------- ------------ -----------
Cash Flows from Financing Activities:
Sale of Common Stock, net of Stock Issuance Costs 1,168,500 406,020 200,001
Financing through Bank Overdrafts 48,103 (31,004) 10,675
Borrowings on Notes Payable 1,451,239 144,694 487,550
Principal payments on Notes Payable (877,871) (312,570) (57,825)
-------------- ------------ -----------
Net Cash Provided by
Financing Activities 1,789,971 207,140 640,401
-------------- ------------ -----------
NET INCREASE IN CASH 2,733 3,245 5,651
CASH AT BEGINNING OF YEAR 17,640 14,395 8,744
-------------- ------------ -----------
CASH AT END OF YEAR $ 20,373 $ 17,640 $ 14,395
-------------- ------------ -----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
Notes to Financial Statements
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Fresh'n Lite, Inc., "the Company" (a Texas Corporation since October, 1995) was
incorporated as Bosko's, Inc., in May 1990 as a Delaware Corporation. In
December 1992 the corporate title was changed to Fresh'n Lite, Inc. in order to
have its restaurants' names more reflective of its products. The Company's
restaurants changed their names throughout 1992, which resulted in significant
costs being capitalized during that year. In 1995, the Corporation merged from a
Delaware Corporation into F'NL, Inc., a Texas Corporation. Immediately, the
Corporation changed its name to Fresh'n Lite, Inc.
Prior to 1994, the Company's restaurants provided healthy foods and beverages in
a "fast food" deli atmosphere. During 1994, the Company expanded all restaurants
into "full service" restaurants, offering dinner menus and a wait staff. During
1995, the Company closed the Texarkana, Longview and Nacogdoches restaurants and
reopened them as Aunt Bea's Home Cooking. During 1997, the Company closed the
Texarkana, Longview, and Nacogdoches restaurants. All of the Company's
restaurants are now located in the Dallas/Ft. Worth Metroplex.
Following is a summary of the Company's restaurants:
Location Date Opened/Status
Tyler, Texas (sold August 1994,
Repurchased March 1995, Closed December
1997) February 1991
Longview, Texas (Closed 1997) March 1992
Nacogdoches, Texas (Closed 1997) May 1993
Texarkana, Texas (Closed 1997) June 1994
Dallas (Frankford Avenue), Texas July 1995
Irving (Valley Ranch), Texas February 1997
The Colony, Texas October 1997
Richardson, Texas Under Construction
Other restaurant locations are under consideration.
INVENTORY
Inventory consists of food and beverage products and paper supplies stated at
the lower of cost (determined on the first-in, first-out basis) or market value.
7
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY AND EQUIPMENT
Property and equipment items are stated at cost. Expenditures for maintenance
and repairs are charged to expense as incurred. Major improvements are
capitalized. Significantly all Property and Equipment is pledged against the
Company's notes payable.
The Company has satisfactory title for all owned assets, except for the
Corporate headquarters, including land, purchased during the year ended December
31, 1997. These assets were purchased pursuant to a contract for sale dated
December 1, 1997, which transfers title via warranty deed to the Company upon
payment in full and fulfillment of all other obligations under the contract.
RESTAURANT PREOPENING/REMODEL COSTS
During the period of construction or major remodel of the Company's East Texas
restaurants, the Company capitalized certain costs pertaining to these
restaurants. These costs include interest, salaries, advertising, contract
labor, rent, repairs, supplies, and other costs that relate to either the
preopening period, in the case of a new restaurant, or the remodeling period, in
the case of a major remodel of an existing restaurant. Once the new restaurants
open or existing restaurants' major remodels were completed, capitalization
ceased. During the year ended December 31, 1997, certain of these costs were
reclassified as building costs. The remaining costs were fully amortized as a
result of the East Texas restaurants costs being closed.
DEFERRED STOCK ISSUANCE COSTS
The Company offered stock for sale during 1996, using an Underwriter for the
first time. As costs and expenses were incurred pursuant to the stock offering,
they were deferred until the stock sale took place. When the stock sale took
place in 1996, these costs, which aggregated $ 159,980, reduced the additional
paid in capital realized from the sale. During the year ended December 31, 1997,
additional attorney's fees and expense totaling $ 151,937 were incurred and
reduced the additional paid in capital realized from 1997 stock sales.
DEFERRED FRANCHISE SYSTEM COSTS
During 1995, 1996, and 1997, the Company incurred certain internal, as well as
external, costs as it developed its franchise system. Substantially all internal
phases of the franchise system were in place by February of 1996. The Company
amortizes total deferred franchise system costs over five years, beginning in
February of 1996. Total amortization of deferred franchise system cost in 1997
and 1996 were $ 17,941 and $ 14,430, respectively. No costs were amortized
during 1995, as the franchise system was not operational.
8
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FRANCHISE FEES
The Company has sold one franchise to a franchisee that is an entity partially
owned by an officer/stockholder of the Company. The terms of the franchise
require a $ 50,000 fee to be paid to the Company. The Company recognizes this
payment as revenue when it has completed its obligations under the franchise
agreement. At December 31, 1995, the Company had no further obligation under
this initial franchise and has received the fee of $ 50,000.
In addition to the franchise fee, the Company earns royalties based upon 5% of
the franchisee's gross sales. The Company recognizes franchise royalty revenue
when earned, not when received. During 1996, the Company's only franchise was
closed by its owner. Accordingly, the Company earned no royalties during 1997.
At December 31, 1996, the Company had earned $ 34,774 from royalties, of which $
7,500 was not paid at year end. At December 31, 1995, the Company had earned $
5,211 from such royalties which was not paid at year end. The Company is still
promoting its franchise operations and hopes to secure additional franchises in
the near future.
ADVERTISING AND PROMOTIONAL COSTS
All advertising and promotional costs are charged to operations when incurred.
Advertising and promotional costs were $ 129,274 for the year ended December 31,
1997. Advertising and promotional costs were $ 64,878 and $ 42,275 for the years
ended December 31, 1996 and 1995, respectively.
DEPRECIATION AND AMORTIZATION
Leasehold improvements are amortized over the terms of the underlying leases
using the straight-line method. Buildings are depreciated over the estimated
useful lives of twenty years using the straight-line method. Vehicles and
equipment are depreciated over the estimated useful lives of five to ten years
using the straight-line method.
CAPITALIZED LAND LEASES
At December 31, 1997, the Company was leasing land for its restaurants in
Longview, Texas; Texarkana, Texas; Dallas (Frankford Avenue), Texas; Irving
(Valley Ranch), Texas; The Colony, Texas; and Richardson, Texas. For financial
reporting purposes, such leases are capitalized at an amount equal to the lesser
of the present value of the lease payments or market value. No depreciation is
being recorded on the capitalized land leases.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. The Company paid no cash for income taxes in 1997 and paid $
231,790 for interest in 1997. The Company paid no cash for income taxes in 1996
and paid $ 177,370 for interest in 1996. The Company paid no cash for income
taxes in 1995 and paid $ 112,889 for interest in 1995.
9
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of tax currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes.
The differences relate primarily to depreciable assets (use of different
depreciation methods and lives for financial statement and income tax purposes),
capitalized land leases (capitalized for financial statement purposes but not
for income tax purposes) and basis of accounting (cash basis for income tax
purposes and accrual basis for financial statement purposes).
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred taxes also
are recognized for operating losses and tax credits that are available to offset
future taxable income.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates that affect certain reported
amounts and disclosures. These estimates are based on management's knowledge and
experience. Accordingly, actual results could differ from these estimates.
CONSIDERATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts at high quality
financial institutions. The balances are at all times within federal insurance
limits. The Company believes their cash management policies effectively address
their cash in bank credit risk. All restaurant sales are either cash or credit
card. The credit card sales are approved at point of sale with very little risk
of loss.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior periods' financial
statements in order to conform them to the classifications used for the current
year.
COMPENSATED ABSENCES
The Company requires employees to use their earned vacation prior to the end of
each year. If the employees fail to use their compensated absences prior to
year-end, they lose their benefit. Accordingly, no liability has been accrued in
the accompanying financial statements for compensated absences.
10
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ASSETS HELD FOR SALE
In accordance with SFAS 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", the Company has reclassified
certain assets from "Property and Equipment" to "Assets Held for Sale" in the
accompanying financial statements. Management identified assets totaling $
1,101,700, net of accumulated depreciation totaling $ 191,865, as being held for
sale during the year ended December 31, 1997. The assets reclassified were land,
capitalized land lease, building, furniture and equipment and leasehold
improvements of the Company's Longview and Nacogdoches restaurants that were
closed during the year ended December 31, 1997. Management is unable to provide
an expected disposal date, but is actively pursuing selling the assets as
quickly as possible while maximizing potential sales proceeds. Depreciation on
the reclassified assets was ceased at the point management committed to a plan
to dispose of the assets.
NOTE 2 - INVENTORY
A summary of inventory, by restaurant location, is as follows:
1997
---------
Tyler, Texas (Inventory will be transferred to
other locations) $ 5,179
Dallas (Frankfort Avenue), Texas 6,058
Irving (Valley Ranch), Texas 7,819
The Colony, Texas 7,515
Richardson, Texas -
---------
Total Inventory $ 26,571
=========
11
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 3 - CORPORATE ORGANIZATIONAL COSTS
Corporate Organizational Costs consist of the following:
Accumulated
Costs Amortization
------------------ ----------------
Balances, January 1, 1997 $ 42,695 $ 41,542
Additions - 1,153
================== ================
Balances, December 31, 1997 $ 42,695 $ 42,695
================== ================
Other costs included with Corporate Organizational Costs in the balance sheet
aggregated $ 32,651 as of December 31, 1997.
<TABLE>
<CAPTION>
NOTE 4 - INCOME TAXES
1997 1996 1995
------------------- ------------------- ------------------
<S> <C> <C> <C>
Earnings before income taxes $ 166,862 $ 317,101 $ 144,324
Add (Deduct):
Timing differences 50,884 (60,341) 10,851
------------------- -------------------- ------------------
Taxable income before net operating loss 217,746 256,760 155,175
Net operating loss utilized 191,877 256,760 155,175
-------------------
==================== =================
Taxable Income $ 25,869 $ - $ -
=================== ==================== =================
Current income tax expense $ 8,800 $ - $ -
=================== ==================== =================
</TABLE>
During the year ended December 31, 1997 the Company completely utilized its tax
loss carryforwards totaling $ 191,877 to offset taxable income.
12
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 4 - INCOME TAXES (Continued)
<TABLE>
<CAPTION>
Deferred taxes result from differences in the bases of assets and liabilities
for income tax and financial statement purposes. The source of the differences
and the tax effect creating the balance at December 31, 1997, 1996 and 1995 are
as follows:
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ - $ ( 53,405) $ ( 127,908)
Valuation allowance - - 11,962
----------------- ----------------- -----------------
Net deferred tax asset - ( 53,405) ( 115,946)
----------------- ----------------- -----------------
Deferred tax liabilities:
Difference in depreciation methods 124,000 97,800 48,500
Deduction of startup costs 15,900 82,750 95,040
Cash to accrual conversion ( 3,000) ( 47,900) ( 35,060)
Other 13,100 14,755 7,466
----------------- ----------------- -----------------
Net deferred tax liability 150,000 147,405 115,946
----------------- ----------------- -----------------
Balance $ 150,000 $ 94,000 $ -
================= ================= =================
NOTE 5 - NOTE PAYABLE-SHORT TERM
Note payable-short term at December 31, 1997 consisted of the following:
AFCO Credit Corporation Corporation, dated July 25, 1997, due May 28,
1998, interest rate at 10.5%, payable in 9 monthly payments of $ 2,619
beginning August 28, 1997 and the balance at maturity. $ 10,249
=================
</TABLE>
13
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
<TABLE>
<CAPTION>
NOTE 6 - NOTES PAYABLE-LONG TERM
Notes payable-long term at December 31, 1997 consisted of the following:
<S> <C>
Amount
------------------
East Texas National Bank, dated June 30, 1997, due June 20, 2000,
interest rate at 9.50%, payable in 36 monthly payments of $ 3,594
beginning June 30, 1997 and the balance at maturity, including
interest, collateralized by the Company's real and personal property
in Gregg, Nacogdoches and Bowie counties, Texas
$ 321,794
East Texas National Bank, dated January 28, 1994, due January 28,
1998, interest rate at 8.50%, payable in 36 monthly payments of $
3,282 beginning February 7, 1994 and the balance at maturity,
including interest, collateralized by the Company's real and
personal property in Gregg, Nacogdoches and Bowie counties, Texas
282,953
East Texas National Bank, dated November 1, 1995, due October 12,
1998, interest rate at 10.25%, payable in 35 Monthly payments of $
1,864 beginning November 12, 1995 and the balance at maturity,
including interest, collateralized by a second lien on the Company's
Frankford Avenue leasehold estate in Dallas, and by a security
interest in various equipment, fixtures and other personal property
at that location
128,481
Related Parties:
Carole A. Swanson, dated March 12, 1997, due September 15,
2001, interest rate at 9.26%, payable in 50 monthly
payments of $ 478 beginning April 15, 1997 and the balance
at maturity, including interest, collateralized by a second
lien on a Company automobile.
18,152
Four Seasons, Inc., dated December 1, 1997, due December 1,
2012, interest rate at 10%, payable in 180 monthly payments
of $ 8,060 beginning January 1, 1998 and the balance at
maturity, including interest, subject to contract for sale
dated December 1, 1997. 750,000
14
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 6 - NOTES PAYABLE-LONG TERM (Continued)
Infinity Financial Services, dated March 13, 1997, due March 27,
2002, interest rate at 9.99%, payable in 60 monthly payments of $
522 beginning April 27, 1997 and the balance at maturity, including
interest, secured by Company automobile.
21,850
Infinity Financial Services, dated March 13, 1997, due March 27,
2002, interest rate at9.99%, payable in 60 monthly payments of $ 373
beginning April 27, 1997 and the balance at maturity, including
interest, secured by a Company automobile. 15,820
Bank One, Texas, NA, dated May 9, 1997, due, June 15, 2002, interest
rate at 9.65%, payable in 59 monthly payments of $ 474 beginning
June 15, 1998 and the balance at maturity, including interest,
secured by a Company automobile. 21,062
Frost National Bank, dated March 31, 1995, due May 31, 2000,
interest rate at 11.990%, payable $ 241 monthly, including interest,
secured by a Company automobile.
6,340
--------------
Total Notes Payable-Long Term 1,566,452
Less Current Portion (465,015)
==============
Notes Payable-Long Term, net of Current Portion $1,101,437
==============
</TABLE>
During the years ended December 31, 1997, 1996 and 1995, the Company capitalized
as building and equipment costs $ 124,199, $ 44,500, and $ 12,347, respectively,
in interest related to the above notes payable.
Notes Payable-Long Term are expected to mature over the next five years as
follows:
1998 $ 465,015
1999 59,061
2000 341,940
2001 49,742
2002 40,818
Later Years 609,876
---------------
Total $1,566,452
===============
15
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 7 - LEASES
Following is a summary of the Company's operating and capital leases:
Tyler, Texas restaurant (land and building):
The sublease term is from April 1, 1995 to July 31, 1999. Minimum lease
rentals are $ 1,500 per month with no contingent rentals. The lease
includes a five year option at the same terms and conditions as during
the primary term. This has been classified as an operating lease.
Longview, Texas restaurant (land):
The lease term is for twenty years, beginning January 6, 1992. Minimum
lease rentals are $1,000 per month for the first 36 months, $ 1,300 per
month for the next 24 months, $ 1,500 per month for the next 60 months
and $ 1,600 per month for the final 120 months. The lease includes
contingent rentals based upon a percentage of gross sales, that becomes
due if the contingent rentals exceed the minimum rentals. No contingent
rentals have become due as of December 31, 1997. The lease also
contains an option to purchase the land for $ 160,000 within the first
five years of the lease. Management elected not to exercise their
option on the land. This lease has been classified as a capital lease.
Texarkana, Texas restaurant (land):
The lease term is for twenty years beginning February 1, 1994. Minimum
lease rentals are $ 1,547 per month for the first 36 months, $ 1,949
per month for the next 60 months, $ 2,258 per month for the next 60
months, $ 2,615 per month for the final 84 months, with no contingent
rentals. The lease also contains an option to purchase the land for
$ 200,000 during the first three years of the lease. Management elected
not to exercise their option on the land. This lease has been
classified as a capital lease.
Dallas (Frankford Avenue), Texas restaurant (land):
The lease term is for twenty years beginning February 21, 1995. Minimum
lease rentals are $ 4,250 per month for the first 60 months, $ 4,583
per month for the next 60 months, $ 5,167 per month for the next 60
months, and $ 5,417 per month for the final 60 months, with no
contingent rentals. The lease also contains two five year extensions at
$ 5,750 per month for the first five year period and $ 6,083 per month
for the second five year period. This has been classified as a capital
lease.
16
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 7 - LEASES (Continued)
Irving (Valley Ranch), Texas restaurant (land):
The lease term is for twenty years beginning November 15, 1996. Minimum
lease rentals are $ 3,625 per month for the first 60 months, $ 4,167
per month for the next sixty months, $ 4,667 per month for the next 60
months, and $ 5,250 per month for the final 60 months with no
contingent rentals. The lease also contains two five year extensions,
the first at market rate, but not to exceed $ 7,083 per month, and the
second at market rate. This lease has been classified as a capital
lease.
The Colony, Texas restaurant (land):
The lease term is for twenty years beginning October 15, 1997. Minimum
lease rentals are $ 4,300 per month for the first 60 months, $ 4,575
per month for the next 60 months, $ 4,900 per month for the next 60
months, and $ 5,117 per month for the final 60 months with no
contingent rentals. The lease also contains an option to purchase the
land for $ 550,000 at any time during, but not after, the first three
years of the initial term of the lease. This lease has been classified
as a capital lease.
Richardson, Texas restaurant (land):
The lease term is for twenty years beginning December 15, 1997. Minimum
lease rentals are $ 4,667 per month for the first 48 months, $ 4,947
per month for the next 36 months, $ 5,244 per month for the next 36
months, $ 5,559 per month for the next 36 months, $ 5,892 per month for
the next 36 months, $ 6,246 per month for the next 36 months, and $
6,620 per month for the final 36 years with no contingent rentals. The
Company has the option to renew the lease for one term of ten years.
This lease has been classified as a capital lease.
Computers and related equipment:
The lease is with AT&T Capital Corporation, dated October 5, 1993. The
lease term is for 60 months beginning October 14, 1993. Minimum lease
rentals are $ 579 per month. This lease has been classified as an
operating lease.
17
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 7 - LEASES (Continued)
OPERATING LEASES
At December 31, 1997 the Company was leasing its Tyler restaurant land and
building as well as certain computer equipment under operating leases. The
annual minimum lease payments under noncancelable operating leases as of
December 31, 1997 are as follows:
Years Ending December 31:
1998 $ 23,790
1999 9,000
2000 -
2001 -
2002 -
Later Years -
------------
Total Minimum Lease Payments $ 32,790
============
CAPITAL LEASES
At December 31, 1997, the Company was leasing the land for its Longview, Texas;
Texarkana, Texas; Dallas (Frankford Avenue), Texas; Irving (Valley Ranch),
Texas; and Richardson, Texas restaurants under capital leases. The economic
substance of the leases is that the Company is financing the acquisition of the
assets through the leases, and accordingly, it is recorded in the Company's
assets and liabilities.
18
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 7 - LEASES (Continued)
The following is a schedule by years of future minimum lease payments required
under the capital leases, together with their present value as of December 31,
1997:
Years Ending December 31:
1998 $ 229,491
1999 243,492
2000 245,490
2001 248,572
2002 263,277
Later Years 3,982,809
--------------
Total Minimum Lease Payments 5,213,131
Less Amount Representing Interest ( 2,867,819)
--------------
Present Value of Minimum
Lease Payments 2,345,312
Less Short Term Portion ( 32,139)
--------------
Present Value of Minimum Lease
Payments, net of Current Portion $ 2,313,173
==============
During the year ended December 31, 1997, the Company recognized $ 129,203 in
interest cost related to the above capital leases. During the year ended
December 31, 1996, the Company recognized $ 78,755 in interest cost related to
the above capital leases. During the year ended December 31, 1995, the Company
charged to expense $ 51,738 in interest costs related to the above capital
leases.
19
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
<TABLE>
<CAPTION>
NOTE 8 - SUMMARY OF NONCASH TRANSACTIONS
Following is a summary of noncash investing and financing activities for the
years ended December 31:
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Exchange Common Stock for Furniture
And Equipment $ - $ - $ 34,901
Exchange Common Stock for Building Costs 500,000 - 89,650
Exchange Common Stock for Deferred
Stock Issuance Costs - - 5,000
Exchange Common Stock for Debt Repayment - - 38,700
Capital Lease Obligations 1,010,000 400,000 500,000
Accrued Deferred Stock Issuance Cost ( 151,937 ) - ( 82,935)
Accrued Tyler Equipment Purchase - - 7,682
------------ ------------ ------------
Total Noncash Investing and
Financing Activities $ 1,358,063 $ 400,000 $ 592,998
============ ============ ============
</TABLE>
NOTE 9 - CONTINGENCIES
Litigation was threatened against the Company by AT&T Capital Corporation
regarding an equipment lease entered into by the Company. The potential claim
was for approximately $ 30,000. Counsel has advised the Corporation on April 12,
1997 that AT&T had agreed not to pursue its claims against the Company and that
the likelihood of a non-favorable outcome was nominal at all times.
Suit was filed against the Company in 1994 for damages arising from an employee
accident involving a meat slicer. The Company has paid the employee's medical
expenses of $ 2,014 during 1995. The employee was seeking unspecified additional
amounts for lost wages, pain and suffering, disfigurement and impairment. The
suit was scheduled for mediation on May 22, 1996 and for trial on July 8, 1996.
During 1996 the Company settled this claim for $ 14,000.
During the year ended December 31, 1997, a plaintiff filed suit against
the Company for an alleged breach of lease and service agreement with
regards to restaurant locations that have been closed. Plaintiff has
demanded approximately $ 27,000 in damages and other costs. Management
denies responsibility in the suit, but may agree to an out of court
settlement for a lesser amount in order to bring an expeditious end to
the matter. No estimate of a potential settlement amount has been
included in the accompanying financial statements as it is not
reasonably estimable.
20
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 10 - RELATED PARTY TRANSACTIONS
On February 17, 1995, the Company sold 133,333 shares of common stock to the
Company's largest food distributor for $ 200,000, pursuant to a stock purchase
agreement. The agreement binds the Company to purchase 90% of its food products
from the distributor for five years, as well as to repurchase the common stock
at the original price if one of two repurchasing events occur. As of December
31, 1996, the Company's obligation under this agreement has expired. The Company
is unaware of and has not been notified that any repurchasing events have
occurred.
At December 31, 1997, the Company held a note receivable from an
officer/shareholder of the Company in the amount of $ 124,500. The note bears
interest at 5% and is payable in two semiannual installments of $ 77,845,
together with interest beginning on June 30, 1998.
At December 31, 1997, the Company held a note receivable from a shareholder of
the Company in the amount of $ 15,000. The note bears interest at 9% and is
payable in two semiannual installments of $ 8,018, together with interest
beginning on June 30, 1998.
At December 31, 1997, the Company held a note receivable from a company, owned
by a shareholder of the Company in the amount of $ 17,653. The note bears
interest at 9% and is payable in twelve monthly installments of $ 1,543,
together with interest beginning on February 1, 1998.
At December 31, 1997, the Company held a note receivable from a sister
corporation in the amount of $ 7,390. The note bears interest at 10% and is
payable in one installment of $ 7,390, together with interest on March 1, 1998.
The Company has a long-term operating lease agreement with a corporation that
owns a significant amount of the Company's stock. Minimum rents receivable are $
8,500 per month for five years and the lease covers office and retail space at
the Company's headquarters occupied by the corporation.
NOTE 11 - STOCK OPTIONS
On May 23, 1997, the Board of Directors of the Company adopted its 1997
Incentive Stock Option Plan pursuant to which 200,000 shares of the Company's
common stock were set aside for the purpose of granting of incentive stock
options to directors and key employees of the Company. The purchase price of the
stock purchased pursuant to the exercise of such an option is required to be not
less than 100% of the fair market value of the stock on the date of the grant of
the option, or 110% of such value in the case of a holder of 10% of the stock of
the Company. This plan was approved by shareholders on May 23, 1997. None of
these stock options have been exercised.
21
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 11 - STOCK OPTIONS (Continued)
On March 1, 1995, the Board of Directors of the Company adopted its 1995
Incentive Stock Option Plan pursuant to which 100,000 shares of the Company's
common stock were set aside for the purpose of granting of incentive stock
options to directors and key employees of the Company. The purchase price of the
stock purchased pursuant to the exercise of such an option is required to be not
less than 100% of the fair market value of the stock on the date of the grant of
the option. This plan was approved by shareholders on October 19, 1995.
Under the Plan, an option for 50,000 shares has been granted to one shareholder
for service as a member of the Board of Directors with a purchase price of $
1.50 per share and expires March 1, 2000. Also, under the Plan, two other
Directors have been granted options for 25,000 shares each for service as
members of the Board with a purchase price of $ 1.50 per share and expire on
October 19, 2000. None of these stock options have been exercised.
Under a contract approved by the Board of Directors, a consulting company was
granted options to purchase 300,000 shares of the Company's common stock with a
purchase price of $ 2.50 per share and expiring on October 10, 2002. Also, under
employment contracts approved by the Board of Directors, two officers of the
Company were granted options to purchase 100,000 shares each of the Company's
common stock with a purchase price of $3.00 per share expiring December 31,
2002. At December 31, 1997, none of these options had been exercised.
The company applies APB Opinion 25 and related interpretations in accounting for
the Plans. In 1995, the FASB issued FASB Statement No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), which, if fully adopted by the Company,
would change the methods the Company applies in recognizing the cost of the
Plans. Adoption of the cost recognition provisions of SFAS 123 is optional and
the Company has decided not to elect these provisions of SFAS 123. The Company
recorded no stock-based compensation costs in 1997, 1996, or 1995. Had the fair
values of options been recognized as compensation expense, costs would have
increased by $ 228,270 ( $172,270 after tax) in 1997 and $90,108 ( no tax
effect) in 1995. No options were granted in 1996. The effects of applying SFAS
123 in this proforma disclosure are not indicative of future amounts.
22
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 11 - STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
A summary of the status of the Company's stock options as of December 31, 1995,
1996, and 1997 and the changes during the year ended on those dates is presented
below.
<S> <C> <C> <C>
1995
----
# Shares of Weighted
Underlying Average
Options Exercise Prices
------------------- ---------------------
Outstanding at beginning of the year 0 N/A
Granted 103,572 $ 1.45
Exercised 0 N/A
Forfeited 0 N/A
Expired 0 N/A
Outstanding at end of the year 103,572 $ 1.45
Exercisable at end of the year 103,572 $ 1.45
Weighted-average FV of options granted during the year $ .87 -
1996
----
# Shares of Weighted
Underlying Average
Options Exercise Prices
------------------- ---------------------
Outstanding at beginning of the year 103,572 $ 1.45
Granted 0 N/A
Exercised 0 N/A
Forfeited 0 N/A
Expired 0 N/A
Outstanding at end of the year 103,572 $ 1.45
Exercisable at end of the year 103,572 $ 1.45
23
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 11 - STOCK OPTIONS (Continued)
1997
----
# Shares of Weighted
Underlying Average
Options Exercise Prices
------------------- ---------------------
Outstanding at beginning of the year 103,572 $ 1.45
Granted 543,500 2.67
Exercised 0 N/A
Forfeited 0 N/A
Expired 0 N/A
Outstanding at end of the year 647,072 2.47
Exercisable at end of the year 647,072 2.47
Weighted-average FV of options granted during the year $ .42 -
</TABLE>
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions: dividend yield of 0%, risk-free interest rate of 5.57% and 7.8%,
expected lives of 1 1/4 years and 3 1/4 years, and volatility of 74.9%
respectively for 1997 and 1995.
<TABLE>
<CAPTION>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<S> <C> <C> <C>
- - ----------------------- ------------------------------------------------------------------- ----------------------------------------
Options Outstanding Options Exercisable
- - ----------------------- ------------------------------------------------------------------- ----------------------------------------
Number Outstanding Weighted Avg. Number Exercisable
Range of at 12/31/97 Remaining Contr. Weighted Avg. at 12/31/97 Weighted Avg.
Exercise Prices Life Exercise Price Exercise Price
- - ----------------------- ---------------------- --------------------- ---------------------- ---------------------- -----------------
$ .10 - $1.50 103,572 2.49 $ 1.45 103,572 $ 1.45
$ 1.50 - $ 3.00 543,500 4.86 $ 2.67 543,500 $ 2.67
- - ----------------------- ---------------------- --------------------- ---------------------- ---------------------- -----------------
$ .10 - $ 3.00 647,072 4.48 $ 2.47 647,072 $ 2.47
- - ----------------------- ---------------------- --------------------- ---------------------- ---------------------- -----------------
</TABLE>
24
<PAGE>
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 12 - RESTAURANT PREOPENING/REMODEL COSTS
A summary of Restaurant Preopening/Remodel Costs, by restaurant location, is as
follows:
Accumulated
Costs Amortization
--------------- --------------
Balances, January 1, 1997 $ 685,778 $ 397,217
Additions - 187,387
Transfers to building costs (122,552) (21,378)
Dispositions (563,226) (563,226)
--------------- --------------
Balances, December 31, 1997 $ - $ -
=============== ==============
25
<PAGE>
Part III. EXHIBITS
Hereafter set forth as an Exhibit to the Form 10-KSB of Fresh'n Lite, Inc (or
incorporated by reference) are the following exhibits:
No. as per Part III of Form 1A Description
2.1* Articles of Incorporation
2.2* By-Laws of the Company, as currently in effect
Warrant agreement
6.1* 1997 Stock Option Plan
6.2* Primary Distribution Agreement
6.3* Texarkana Ground Lease
6.4* Longview Ground Lease
6.5* Dallas (Preston/Frankford) Ground Lease
6.6* Valley Ranch Ground Lease
6.7* Colony Ground Lease
6.8* Richardson Ground Lease
*Filed as an exhibit to the Company's Form 10SB filed October 23rd 1997, and
incorporated herein by reference.
26
<PAGE>
Exhibit 3.1
WARRANT AGREEMENT
DATE: February 28, 1997
PARTIES: Fresh'n Lite, Inc.
2804 Judson Road
Longview, Texas 75601
Securities Transfer Corporation
P. O. Box 701629
Dallas, Texas 75370-0001
RECITALS:
A. Fresh'n Lite, Inc., a Texas corporation (the "Company"), proposes to
issue at least 100,000 and up to 650,000 Common Stock Purchase Warrants (the
"Warrants") evidencing the right to purchase, subject to limitations expressed
in Section 2.1, an aggregate of up to 650,000 authorized but previously unissued
shares of Common Stock, $.01 par value, of the Company (the "Common Stock"). The
Warrants would be issued in connection with the issuance by the Company of at
least 50,000 and up to 325,000 Units, each Unit consisting of four (4) shares of
Common Stock and two (2) Warrants, in connection with an offering (the
"Offering") of the Company's securities pursuant to an Application for Permit
(the "Registration Statement"), the most recent amendment which was filed with
the Texas Securities Board on February 28, 1997.
B. The Company desires that Securities Transfer Corporation ("Warrant
Agent") act as the Warrant Agent, and the Warrant Agent is willing to act as
Warrant Agent, in connection with the issuance, registration, transfer, exchange
and exercise of the Warrants.
AGREEMENT:
The Company and the Warrant Agent hereby covenant and agree as follows:
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ARTICLE I.
APPOINTMENT OF WARRANT AGENT,
ISSUANCE, FORM AND EXECUTION OF WARRANT CERTIFICATES
Section 1.1 Appointment of Warrant Agent. The Company hereby appoints
Securities Transfer Corporation, Dallas, Texas, as Warrant Agent to act as the
agent to perform the agency duties in accordance with the terms and conditions
of this Warrant Agreement.
Section 1.2 Warrant Certificates. The Company shall execute and make
available certificates which the Company has authorized to represent the
Warrants (the "Warrant Certifi cates"). The Warrant Certificates shall be
substantially as set forth in Exhibit A hereto and may have such legends,
summaries or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Warrant Agreement, or as may be required to comply with any law or with any
rule or regulation relating to listing of the Warrants on the NASDAQ system,
including the National Market System, or on any stock exchange or to conform to
usage. The Warrant Certificates shall be dated with the date of their issuance.
Section 1.3. Execution of Warrant Certificates. The Warrant
Certificates shall be executed on behalf of the Company by a duly authorized
officer of the Company, either manually or by facsimile signature printed
thereon. The Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. Any
Warrant Certificate may be signed on behalf of the Company by the person who at
the actual date of the signing of such Warrant Certificate shall have been the
proper officer of the Company although at the date of issuance of such Warrant
Certificate any such person has ceased to be such officer of the Company.
ARTICLE II.
EXERCISE OF WARRANTS, REDEMPTION AND LIMITATIONS ON TRANSFER
Section 2.1. Conditions Precedent to Exercise. THE WARRANTS MAY NOT BE
EXERCISED IN ACCORDANCE WITH SECTION 2.2 BELOW UNLESS (A) AS TO WARRANTS HELD BY
TEXAS RESIDENTS, A PERMIT HAS BEEN ISSUED BY THE STATE OF TEXAS FOR THE COMMON
STOCK WHICH ARE TO BE ISSUED UPON THE EXERCISE OF THE WARRANTS OR (B) AS TO ANY
WARRANTS HELD BY NON-TEXAS RESIDENTS, (i) A CURRENT PROSPECTUS UNDER THE
SECURITIES ACT OF 1933 RELATING TO THE COMMON STOCK TO BE SO ISSUED IS THEN IN
EFFECT (OR AN EXEMPTION FROM SUCH REGISTRATION OF SUCH COMMON STOCK IS AVAILABLE
UPON SUCH EXERCISE), AND (ii) SUCH COMMON STOCK IS QUALIFIED FOR SALE OR EXEMPT
FROM REGISTRATION UNDER THE APPLICABLE SECURITIES LAWS OF THE STATE IN WHICH
SUCH HOLDER OF THE WARRANT RESIDES.
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Notwithstanding the foregoing, the Company shall use reasonable efforts
to register such Common Stock in states in which holders of the Warrants are
known to reside and to maintain a current prospectus relating to such shares.
Section 2.2. Exercise. Subject to Section 2.1 above, any or all of the
Warrants represented by each Warrant Certificate may be exercised by the holder
thereof at any time before 5:00 P.M. Dallas, Texas time on February 27, 2002
("Exercise Period"), unless extended by the Company, by surrender of the Warrant
Certificate with the Purchase Form, which is printed on the reverse thereof (or
a reasonable facsimile thereof), duly executed by such holder, to the Warrant
Agent at its corporate office located at 16910 N. Dallas Parkway, Suite 100,
Dallas, Texas 75248, accompanied by payment, in cash or by certified or official
bank check payable to the order of the Company, in an amount equal to the
product of the number of shares of Common Stock issuable upon exercise of the
Warrant represented by such Warrant Certificate, as adjusted pursuant to the
provisions of Article III hereof, multiplied by the exercise price of $ 3.00 as
adjusted pursuant to the provisions of Article III hereof (such price as so
adjusted from time to time being herein called the "Purchase Price"), and such
holder shall be entitled to receive such number of fully paid and nonassessable
shares of Common Stock, as so adjusted, at the time of such exercise. The
Company shall promptly notify the Warrant Agent of any extensions of the
Exercise Period.
Section 2.3 Time and Method of Exercise. Each exercise of Warrants
shall be deemed to have been effective immediately prior to the close of
business on the business day on which the Warrant Certificate relating to such
Warrants shall have been surrendered to the Warrant Agent as provided in Section
2.2, and at such time the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such exercise as provided in Section 2.4, shall be deemed to have become the
holder or holders of record thereof.
Section 2.4. Issuance of Shares of Common Stock; No Fractional Shares.
As soon as practicable after the exercise of any Warrant, and in any event
within ten (10) days after receipt by the Company of the notice of exercise
under Section 2.2, the Company at its expense (including the payment by it of
any applicable issue taxes) will cause to be issued in the name of and delivered
to the holder thereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct:
(a) a certificate or certificates for the number of fully paid
and nonassessable shares of Common Stock to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, an amount in cash equal
to such fraction multiplied by the then current value of a share of
Common Stocks such current value to be determined as follows:
(i) if the Common Stock shall be listed or admitted
to unlisted trading privileges on any single national
securities exchange, then such current value shall be computed
on the basis of the last reported sale price of the Common
Stock on such exchange on the last business day prior to the
date of the exercise of such Warrant upon which a sale shall
have been effected; or
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(ii) if the Common Stock shall not be so listed or
admitted to unlisted trading privileges and bid and asked
prices therefor in the over-the-counter market shall be
reported by NASDAQ, including the National Market System, then
such current value shall be computed on the basis of the Last
Reported Sale Valuation Method or, in the event such method is
not then used by NASDAQ, the average of the closing bid and
asked prices on the last business day prior to the date of the
exercise of such Warrant as so reported; or
(iii) if the Common Stock shall be listed or admitted
to unlisted trading privileges on more than one national
securities exchange or one or more national securities
exchanges and in the over-the-counter market, then such
current value shall, if different as a result of calculation
under the applicable method(s) described above in this Section
2.4, be deemed to be the higher number calculated in
connection therewith; or
(iv) if the Common Stock shall not be so listed or
admitted to unlisted trading privileges and such bid and asked
prices shall not be so reported, then such current value shall
be computed on the basis of the book value of Common Stock as
of the close of business on the last day of the month
immediately preceding the date upon which such Warrant was
exercised, as determined by the Company; and
(b) in case such exercise includes only part of the Warrants
represented by any Warrant Certificate, a new Warrant Certificate or
Warrant Certificates of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock equal
(without giving effect to any adjustment therein) to the number of such
shares called for on the face of such Warrant Certificate minus the
number of such shares designated by the holder for such exercise as
provided in Section 2.2. Warrants represented by a properly assigned
Warrant Certificate may be exercised by a new holder without first
having a new Warrant Certificate issued.
Section 2.5. Extension of Exercise Period; Change of Exercise Price.
The Company in its sole discretion, may, without the consent of the holders of
the Warrant Certificates: (a) reduce the Purchase Price during all or any
portion of the originally stated exercise period or (b) extend the period over
which the Warrants are exercisable beyond February 27, 2002, and increase or
decrease the Purchase Price for any period the Warrant exercise period is
extended. In the case of the extension of the exercise period or a change in the
Purchase Price, the Company must provide the Warrantholders of record notice of
such extension of the exercise period, or specifying the new Purchase Price and
the periods for which such new Purchase Price is in effect, a reasonable time
prior to the date such extension or new Purchase Price is to take effect, such
reasonable time to be commercially reasonable and consistent with applicable
securities laws and regulations. The Company shall promptly notify the Warrant
Agent of any extensions of the Exercise Period.
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Section 2.6. Redemption of Warrants by Company. The Company, if the
Common Stock becomes listed on a national securities exchange and/or the NASDAQ
Small Cap Market, shall have the right to redeem the Warrants at a redemption
price of $.05 per Warrant upon 30 days' notice if the average closing bid of the
Company's Common Stock on any national securities exchange in which the Common
Stock is listed or NASDAQ Small Cap Market, exceeds $5.00 per share (subject to
adjustment under Article III) for 30 consecutive business days ending within 15
days of the notice of redemption. The Company will mail a prepaid, addressed
notice to each registered Warrantholder at the address of such Warrantholder as
shown on the books of the Company, which shall state that this Warrant
Certificate shall expire and be void and the Warrant and any rights represented
thereby shall cease unless exercised on or before 5:00 P.M. Dallas, Texas time,
on the date which is thirty days following the date of such notice, which notice
may be delivered by the Company at any time after the average of the daily
closing bid price of the Common Stock equals or exceeds $5.00 or more per share
as mentioned above. After this Date, such Warrants shall be deemed to be expired
and all rights of the holders of such un-surrendered Warrants shall cease and
terminate. The Company shall notify the Warrant Agent verbally, with
confirmation in writing, of the call of the Warrants and of the expiration Date
and the Company shall instruct the Warrant Agent accordingly as to the
procedures to be followed by the Warrant Agent in connection with the expiration
of the Warrants.
Section 2.7. Limitation on Transferability of Warrants. THE COMMON
STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS HAS NOT BEEN REGISTERED WITH THE
TEXAS SECURITIES BOARD AND HAS NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION. THE WARRANTS SOLD PURSUANT TO THE OFFERING WERE SOLD IN
RELIANCE ON THE INTRASTATE OFFERING EXEMP TION FROM THE REGISTRATION PROVISIONS
OF THE SECURITIES ACT. PURSUANT TO SAID EXEMPTION, FOR A PERIOD OF NINE MONTHS
FOLLOWING THE LAST SALE OF COMMON STOCK OR WARRANTS BY THE COMPANY, THE COMMON
STOCK AND WARRANTS MAY NOT BE RESOLD TO PERSONS WHO ARE NOT TEXAS RESIDENTS.
ADDITIONALLY, THE WARRANTS MAY NOT BE SOLD TO A NON-TEXAS RESIDENT UNLESS THE
COMMON STOCK ISSUABLE UPON THE EXERCISE OF THE WARRANTS HAS BEEN DULY REGISTERED
WITH APPLICABLE STATE AND FEDERAL SECURITIES AUTHORITIES OR EXEMPTIONS FROM SUCH
REGISTRATION ARE AVAILABLE.
ARTICLE III.
ANTI-DILUTION PROVISIONS
Section 3.1. Adjustment of Purchase Price.
(a) The Purchase Price shall be subject to the following
adjustments. In the event that:
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(i) any dividends on any class of stock of the
Company payable in Common Stock or securities convertible into
Common Stock shall be paid by the Company;
(ii) the Company shall subdivide its then outstanding
shares of Common Stock into a greater number of shares; or
(iii) the Company shall combine outstanding shares of
Common Stock by reclassification or otherwise;
then, in any such event, the Purchase Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full
cent) determined by dividing (A) the number of shares of Common Stock
outstanding immediately prior to such event, multiplied by the then
existing Purchase Price, by (B) the total number of shares of Common
Stock outstanding immediately after such event (including the maximum
number of shares of Common Stock issuable in respect of any securities
convertible into Common Stock), and the resulting quotient shall be the
adjusted Purchase Price per share.
(b) No adjustment of the Purchase Price shall be made if the
amount of such adjustments shall be less than $.05 per share, but in
such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
adjustment or adjustments so carried forward, shall amount to not less
than $.05 per share.
Section 3.2 Adjustment of Number of Shares Purchasable on Exercise of
Warrants. Upon each adjustment of the Purchase Price pursuant to Section 3.1
above, the registered holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Purchase Price the
number of shares, calculated to the nearest full share, obtained by multiplying
the number of shares specified in such Warrant (as adjusted as a result of all
adjustments in the Purchase Price in effect prior to such adjustment) by the
Purchase Price in effect prior to such adjustment and dividing the product so
obtained by the adjusted Purchase Price.
Section 3.3 Notice as to Adjustment. Upon any adjustment of the
Purchase Price and an increase or decrease in the number of shares of Common
Stock purchasable upon the exercise of the Warrants, then, and in each such
case, the Company shall within ten (10) days after the effective date of such
adjustment give written notice thereof, by first class mail, postage prepaid,
addressed to each registered Warrantholder at the address of such Warrantholder
as shown on the books of the Company, which notice shall state the adjusted
Purchase Price and the increased or decreased number of shares purchasable upon
the exercise of the Warrants, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
Section 3.4. Effect of Reorganization, Reclassification, Merger, Etc.
If at any time while any Warrant is outstanding there should be any capital
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reorganization or reclassification of the capital stock of the Company (other
than the issue of any shares of Common Stock in subdivision of outstanding
shares of Common Stock by reclassification or otherwise and other than a
combination of shares provided for in Section 3.1 hereof) or any consolidation
or merger of the Company with another corporation or any sale, conveyance, lease
or other transfer by the Company of all or substantially all of its property to
any other corporation, the holder of any Warrant shall during the remainder of
the period such Warrant is exercisable, be entitled to receive, upon payment of
the Purchase Price, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from such
consolidation or merger, or of the corporation to which the property of the
Company has been sold, conveyed, leased or otherwise transferred, as the case
may be, to which the Common Stock (any other securities and property) of the
Company, deliverable upon the exercise of such Warrant, would have been entitled
upon such capital reorganization, reclassification of capital stock,
consolidation, merger, sale, conveyance, lease or other transfer if such Warrant
had been exercised immediately prior to such capital reorganization,
reclassification of capital stock, consolidation, merger, sale, conveyance,
lease or other transfer; any, in any such case, appropriate adjustment (as
determined by the Board of Directors of the Company) shall be made in the
application of the provisions set forth in this Warrant Agreement with respect
to the rights and interests thereafter of the Warrantholders to the end that the
provisions set forth in this Warrant Agreement (including the adjustment of the
Purchase Price and the number of shares issuable upon the exercise of the
Warrants) shall thereafter be applicable, as near as may be reasonably
practicable, in relation to any shares or other property thereafter deliverable
upon the exercise of the Warrants as if the Warrants had been exercised
immediately prior to such capital reorganization, reclassification of capital
stock, consolidation, merger, sale, conveyance, lease or other transfer and the
Warrantholders had carried out the terms of the exchange as provided for by such
capital reorganization, reclassification, consolidation or merger. The Company
shall not effect any such capital reorganization, consolidation, merger or
transfer unless, upon or prior to the consummation thereof, the successor
corporation or the corporation to which the property of the Company has been
sold, conveyed, leased or otherwise transferred shall assume by written
instrument the obligation to deliver to the holder of each Warrant such shares
of stock, securities, cash or property as in accordance with the foregoing
provisions such holder shall be entitled to purchase.
Section 3.5. Prior Notice as to Certain Events. In case at any time:
(a) the Company shall pay any dividend upon its Common Stock
payable in stock or make any distribution (other than cash dividends)
to the holders of its Common Stock; or
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or any other rights; or
(c) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale, conveyance, lease or other
transfer of all or substantially all of its assets to, another
corporation; or
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(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then in any one or more of such cases, the Company shall give prior written
notice, by first class mail, postage prepaid, addressed to each registered
Warrantholder at the address of such Warrantholder as shown on the books of the
Company, of the date on which (x) the books of the Company shall close or a
record shall be taken for such stock dividend, distribution or subscription
rights or (y) such reorganization, reclassification, consolidation, merger,
sale, dissolution liquidation or winding up shall take place, as the case may
be. Such notice shall also specify the date as of which the holders of the
Common Stock of record shall participate in such dividend, distribution or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding up, as the case may be. Such written notice shall be given at least
twenty (20) days prior to the action in question and not less than twenty (20)
days prior to the record date or the date on which the Company's transfer books
are closed in respect thereto.
Section 3.6. Certain Obligations of the Company. The Company will not,
by amendment of its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant Agreement or the Warrant
Certificate, but will at all times in good faith assist in the carrying out of
all such terms. Without limiting the generality of the foregoing, the Company
(a) will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
such stock upon the exercise of all Warrants from time to time outstanding, and
(b) will not (i) transfer all or substantially all of its properties and assets
to any other person or entity, or (ii) consolidate with or merge into any other
entity where the Company is not the continuing or surviving entity, unless, in
any such case, the other entity acquiring such properties and assets, continuing
or surviving after such consolidate or merger or issuing or distributing such
shares or other securities or property, as the case may be, shall expressly
assume in writing and be bound by all the terms of this Warrant Agreement and
the Warrant Certificates.
Section 3.7. Reservation of Common Stock. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the exercise
of the Warrants, all shares of Common Stock from time to time issuable upon such
exercise. All such shares shall be authorized and, when issued upon such
exercise, shall be validly issued, fully paid and nonassessable with no
liability on the part of the holder thereof.
Section 3.8. Registration or Exemption for Common Stocks. The Company
will use its best efforts: (a) as soon as practicable following the effective
date of the Registration Statement, register the Common Stock and the Warrants
under the Securities Exchange Act of 1934, as amended; (b) to qualify for
exemption from the registration requirements of the Securities Act of 193 3, as
amended (the "Act") the Common Stock issuable upon exercise of the Warrants; and
(c) to maintain exemptions or qualifications, in those jurisdictions in which
the original Registration Statement relating to the Warrants was initially
qualified, to permit the
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exercise of the Warrants and the issuance of the Common Stock pursuant to such
exercise. The Warrant Agent shall have no responsibility for the maintenance of
such exemptions or qualifications or for liabilities arising from the exercise
or attempted exercise of Warrants in jurisdictions where exemptions or
qualifications have not been maintained or are otherwise unavailable.
ARTICLE IV.
CERTAIN OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANT CERTIFICATES
Section 4.1. No Rights of Shareholders. The Warrant Certificates shall
be issued in registered form only. No Warrant Certificate shall entitle the
holder thereof to any of the rights of a holder of shares of Common Stock of the
Company, including, without limitation, the right to vote, to receive dividends
and other distributions, or to receive any notice of, or to attend, meetings of
holders of Common Stock or any other proceedings of the Company.
Section 4.2. Loss, Theft, Destruction or Mutilation of Warrant
Certificates. Upon receipt by the Company and the Warrant Agent of evidence
reasonably satisfactory to the Company and Warrant Agent of the loss, theft,
destruction or mutilation of any Warrant Certificate, and: (a) in the case of
any such loss, theft, or destruction, upon delivery to the Warrant Agent of an
indemnity bond in form and amount and issued by a bonding company, reasonably
satisfactory to the Company or (b) in the case of any such mutilation, upon
surrender to and cancellation by the Warrant Agent of such Warrant Certificate,
the Company at its expense will execute and cause the Warrant Agent to
countersign and deliver, in lieu thereof, a new Warrant Certificate of like
tenor.
Section 4.3. Transfer Agent, Cancellation of Warrant Certificates;
Unexercised Warrants. The Company desires that Securities Transfer Corporation,
Dallas, Texas, act as transfer agent (the "Transfer Agent"). Transfer Agent is
hereby irrevocably authorized and directed at all times to reserve such number
of authorized and unissued shares of Common Stock as shall be sufficient to
permit the exercise in full of all Warrants from time to time outstanding
subject, however, to the provisions of Section 2.1. The Warrant Agent, and any
successor thereto, is hereby irrevocably authorized to requisition from time to
time from the Transfer Agent certificates for shares of Common Stock required
for exercise of Warrants. The Company will supply the Transfer Agent with duly
executed certificates for shares of Common Stock for such purpose and will make
available any cash required in settlement of fractional share interests. All
Warrant Certificates surrendered upon the exercise of Warrants shall be canceled
by the Warrant Agent and shall thereafter be delivered to the Company; such
canceled Warrant Certificates, with the Purchase Form on the reverse thereof
duly filled in and signed, shall constitute conclusive evidence as between the
parties hereto of the numbers of shares of Common Stock which shall have been
issued upon exercises of Warrants. Promptly after the last day on which the
Warrants are exercisable (set forth in Section 2.2 above), the Warrant Agent
shall certify to the Company the aggregate number of Warrants then outstanding
and unexercised. No shares of Common Stock shall be subject to reservation with
respect to Warrants not exercised prior to the time and date identified in
Section 2.2 above as the last time and date at which Warrants may be exercised.
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ARTICLE V.
TRANSFER AND EXCHANGE OF WARRANT CERTIFICATES
Section 5.1. Warrant Register; Transfer or Exchange of Warrant
Certificates. The Warrant Agent shall cause to be kept at the corporate office
of the Warrant Agent a register (the "Warrant Register") in which, subject to
such reasonable regulations as the Company may prescribe, provisions shall be
made for the registration of transfers and exchanges of Warrant Certificates.
Upon surrender for transfer or exchange of any Warrant Certificates, properly
endorsed, to the Warrant Agent, the Warrant Agent at the Company's expense will
issue and deliver to or upon the order of the holder thereof a new Warrant
Certificate or Warrant Certificates of like tenor, in the name of such holder or
as such holder (upon payment by such holder of any applicable transfer taxes)
may direct, calling in the aggregate on the face or faces thereof for the number
of shares of Common Stock called for on the face of the Warrant Certificate so
surrendered. Any Warrant Certificate surrendered for transfer or exchange shall
be canceled by the Warrant Agent and shall thereafter be delivered to the
Company.
Section 5.2. Identity of Warrantholders. Until a Warrant Certificate is
transferred in the Warrant Register, the Company and the Warrant Agent may treat
the person in whose name the Warrant Certificate is registered as the absolute
owner thereof and of the Warrants represented thereby for all purposes,
notwithstanding any notice to the contrary, except that, if and when any Warrant
Certificate is properly assigned in blank, the Company and the Warrant Agent may
(but shall not be obligated to) treat the bearer thereof as the absolute owner
of the Warrant Certificate and of the Warrants represented thereby for all
purposes, notwithstanding any notice to the contrary.
ARTICLE VI.
CONCERNING THE WARRANT AGENT
Section 6.1. Taxes. The Company will, from time to time, promptly pay
to the Warrant Agent, or make provision satisfactory to the Warrant Agent for
the payment of all taxes and charges that may be imposed by the United States or
any State upon the Company or the Warrant Agent upon the transfer or delivery of
shares of Common Stock upon the exercise of Warrants, but the Company shall not
be obligated to pay any tax imposed in connection with any transfer involved in
the delivery of a certificate for shares of Common Stock in any name other than
that of the registered holder of the Warrant Certificate surrendered in
connection with the purchase thereof.
Section 6.2. Registration of Warrant Agent and Appointment of New
Warrant Agent.
(a) The Warrant agent may resign its duties as Warrant Agent
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). The Warrant Agent shall, at least
fifteen (15) days prior to the date such resignation is to become
effective, at the expense of the Company, cause a copy of such notice
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of resignation to be mailed to the Registered Holder of each Warrant
Certificate.The Company shall appoint a new Warrant Agent. If the
Company shall fail to appoint a new Warrant Agent within a period of
thirty (30) days then the holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new
Warrant Agent. Any new Warrant Agent, whether appointed by the Company
or by such a court, shall be a corporation domiciled in the United
States which is authorized under applicable Federal or State law to
exercise corporate trust powers and is subject to supervision or
examination by Federal or State authority. Any new Warrant Agent
appointed hereunder shall execute, acknowledge and deliver to the
Company an instrument accepting such appointment hereunder and
thereupon such new Warrant Agent without any further act or deed shall
become vested with all the rights, powers, duties and responsibilities
of the Warrant Agent hereunder with like effect as if it had been
named as the Warrant Agent; but if for any reason it becomes necessary
or expedient to have the former Warrant Agent execute and deliver any
further assurance, conveyance, act or deed, the same shall be done and
shall be legally and validly executed and delivered by the former
Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the former
Warrant Agent. The Company shall promptly give notice of any such
appointment to the holders of the Warrant Certificates by mail to
their addresses as shown in the Warrant Register. Failure to file or
give such notice, or any defect therein, shall not affect the legality
or validity of the appointment of the successor Warrant Agent.
(b) Any company into which the Warrant Agent or any new
Warrant Agent may be merged or converted or with which it may be
consolidated or any company resulting from any merger, conversion or
consolidation to which the Warrant Agent or any new Warrant Agent shall
be a party shall be the successor Warrant Agent under this Warrant
Agreement without any further act; provided that if such company would
not be eligible for appointment as a successor Warrant Agent under the
provisions of paragraph (a) of this Section 6.2 the Company shall
forthwith appoint a new Warrant Agent in accordance with such
provisions. Any such successor Warrant Agent may adopt the prior
countersignature of any predecessor Warrant Agent and deliver Warrant
Certificates countersigned and not delivered by such predecessor
Warrant Agent or may countersign Warrant Certificates either in the
name of any predecessor Warrant Agent or the name of the successor
Warrant Agent.
Section 6.3. Remuneration of Warrant Agent. The Company will pay the
Warrant Agent reasonable remuneration for its services as Warrant Agent
hereunder as provided in the attached fee schedule and will reimburse the
Warrant Agent upon demand for all expenditures that the Warrant Agent may
reasonably incur in the execution of its duties hereunder.
Section 6.4. Further Assurances. The Company will perform, exercise,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
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reasonably be required by the Warrant Agent for the carrying out or performing
by the Warrant Agent of the provisions of this Warrant Agreement.
Section 6.5. Limitations on Liabilities of the Warrant Agent.
(a) Whenever, in the performance of its duties under this
Warrant Agreement, the Warrant Agent shall deem it necessary or
desirable that any matter be proved or established, or that any
instructions with respect to the performance of its duties hereunder
be given, by the Company prior to taking or suffering any action
hereunder, such matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively
proved and established, or such instructions may be given, by a
certificate or instrument signed by an officer of the Company and
delivered to the Warrant Agent: and such certificate or instrument
shall be full authorization to the Warrant Agent for any action taken
or suffered in good faith by it under the provisions of this Warrant
Agreement in reliance upon such certificate or instrument; but in its
discretion the Warrant Agent may in lieu thereof accept other evidence
of such matter or may require such further or additional evidence as
it may deem reasonable.
(b) The Warrant Agent shall be liable hereunder only for its
own negligence or willful misconduct, and the Warrant Agent shall act
hereunder solely as agent, and its duties shall be determined solely by
the provisions hereof. The Company agrees to indemnify the Warrant
Agent and save it harmless against any and all liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of this Warrant Agreement except as a
result of the Warrant Agent's negligence or willful miscon duct.
(c) The Warrant Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Warrant
Agreement or in the Warrant Certificates (except its countersignature
thereof) or be required to verify the same, but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(d) The Warrant Agent shall not be under any responsibility in
respect to the validity or execution of any Warrant Certificate (except
its countersignature thereof); (ii) nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this
Warrant Agreement or in any Warrant Certificate; (iii) nor shall it be
responsible for the making of any adjustment in the Purchase Price, or
number of shares issuable upon exercise of the Warrant Certificates or
responsible for the manner, method or amount of any such adjustment or
the facts that would require any such adjustment; (iv) nor shall it by
any act hereunder be deemed to make any representation or warranty as
to the authorization or reservation of any shares of Common Stock to be
issued pursuant to this Warrant Agreement or any Warrant Certificate or
as to whether any shares of Common Stock or other securities are or
will be validly authorized and issued and fully paid and nonassessable.
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Section 6.6. Amendment and Modification. The Warrant Agent may, without
the consent or concurrence of the holders of the Warrant Certificates, by
supplemental agreement or otherwise, join with the Company in making any changes
or corrections in this Warrant Agreement that they shall have been advised by
counsel: (a) are required to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest error herein
contained; (b) add to the obligations of the Company in this Warrant Agreement
further obligations thereafter to be observed by it, or surrender any right or
power reserved to or conferred upon the Company in this Warrant Agreement; or
(c) do not or will not adversely affect, alter or change the rights, privileges
or immunities of the holders of Warrant Certificates not provided for under this
Warrant Agreement; provided, however, that any term of this Warrant Agreement or
any Warrant Certificate may be changed, waived, discharged or terminated by an
instrument in writing signed by each party against which enforcement of such
change, waiver, discharge or termination is sought, or by which the same is to
be performed or observed.
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ARTICLE VII.
OTHER MATTERS
Section 7.1. Successors and Assigns. All the covenants and provisions
of this Warrant Agreement by or for the benefit of the Company or the Warrant
Agent shall bind and inure to the benefit of their respective successors and
assigns.
Section 7.2. Notices. Any notice or demand authorized by this Warrant
Agreement to be given or made by the Warrant Agent or by the holder of any
Warrant Certificate to or on the Company shall be sufficiently given or made if
sent by first class or registered mail, postage prepaid, addressed (until
another address is filed in writing by the Company with the Warrant Agent) as
follows:
Fresh'n Lite, Inc.
2804 Judson Road
Longview, Texas 75601
Attention: Curtis Swanson
Any notice or demand authorized by this Warrant Agreement to be given or made by
the holder of any Warrant Certificate or by the Company to or on the Warrant
Agent shall be sufficiently given or made if sent by first class or registered
mail, postage prepaid, addressed (until another address is filed in writing by
the Warrant Agent with the Company) as follows:
Securities Transfer Corporation
P. O. Box 701629
Dallas, Texas 75370-0001
Section 7.3. Governing Law. This Warrant Agreement and the Warrant
Certificates shall be construed and enforced in accordance with and governed by
the laws of Texas.
Section 7.4. No Benefits Conferred. Nothing in this Warrant Agreement
expressed and nothing that may be implied from any of the provisions hereof is
intended, or shall be construed, to confer upon, or give to, any person or
corporation other than the Company, the Warrant Agent, and the holders of the
Warrant Certificates, any right, remedy or claim under or by reason of this
Warrant Agreement or of any covenant, condition, stipulation, promise or
agreement herein; and all covenants, conditions, stipulations, promises and
agreements in this Warrant Agreement contained shall be for the sole and
exclusive benefit of the Company, the Warrant Agent, their respective successors
and the holders of the Warrant Certificates.
Section 7.5. Headings. The descriptive headings used in this Warrant
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by
the parties hereto as of the day and year first above written.
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<PAGE>
FRESH'N LITE, INC.
By: __________________________________
Its:
SECURITIES TRANSFER CORPORATION
By: __________________________________
Its:
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<PAGE>
EXHIBIT A
THIS WARRANT CERTIFICATE MAY BE
TRANSFERRED SEPARATELY FROM THE COMMON STOCK CERTIFICATE
WITH WHICH IT IS INITIALLY ISSUED
EXERCISABLE ON OR AFTER JUNE 26, 1996,
AND ON OR BEFORE AND VOID AFTER
5:00 P.M. DALLAS, TEXAS TIME, FEBRUARY 27, 2002
No. W-_______________________ Certificate for _____ Warrants
WARRANT CUSIP
WARRANTS TO PURCHASE COMMON STOCK OF
FRESH'N LITE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS
THIS CERTIFIES that ___________________________________________________
or assigns, is the owner of the number of Warrants set forth above, each of
which represents the right to purchase from Fresh'n Lite, Inc., a Texas
corporation (the "Company"), at any time on or after June 26, 1996, or on or
before 5:00 P.M. Dallas, Texas time on February 27, 2002, upon compliance with
and subject to the conditions set forth herein and in the Warrant Agreement
hereinafter referred to, one share (subject to adjustments referred to below) of
the Common Stock of the Company (such shares or other securities or property
purchasable upon exercise of the Warrants being herein called the "Shares"), by
surrendering this Warrant Certificate with the Purchase Form on the reverse side
duly executed, at the corporation office of Securities Transfer Corporation, as
warrant agent (the "Warrant Agent"), and by paying in full, in cash or by
certified or official bank check or other check acceptable to the Warrant Agent
payable to the order of the Company, the purchase price of $3.00 per share.
Upon any exercise of less than all the Warrants evidenced by this
Warrant Certificate, there shall be issued to the holder a new Warrant
Certificate in respect of the Warrants as to which this Warrant Certificate was
not exercised.
If the Common Stock of the Company becomes listed on a national
securities exchange and/or the NASDAQ Small Cap Market, the Warrants may be
redeemed by the Company at a redemption price of $.05 per Warrant upon 30 days
written notice to the registered holder if the average closing bid of the
Company's Common Stock in any national securities exchange and/or the
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NASDAQ Small Cap Market, exceeds $5.00 per share (subject to adjustment) for 30
consecutive business days ending within 15 days of the notice of redemption.
Upon the surrender for transfer or exchange hereof, properly endorsed,
to the Warrant Agent, the Warrant Agent at the Company's expense will issue and
deliver to the order of the holder hereof, a new Warrant Certificate or Warrant
Certificates of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face hereof.
The Warrant Certificates are issued only as registered Warrant
Certificates. Until this Warrant Certificate is transferred in the Warrant
Register, the Company and the Warrant Agent may treat the person in whose name
this Warrant Certificate is registered as the absolute owner hereof and of the
Warrants represented hereby for all purposes, notwithstanding any notice to the
contrary.
The Warrants may not be exercised unless (a) as to Warrants held by
Texas residents, a permit has been issued by the State of Texas for the Common
Stock which are to be issued upon the exercise of the Warrants or (b) as to any
Warrants held by non-Texas residents, (i) a current prospectus under the
Securities Act of 1933 relating to the Common Stock to be so issued is then in
effect (or an exemption from such registration of such Common Stock is available
upon such exercise), and (ii) such Common Stock is qualified for sale or exempt
from qualification under the applicable Securities laws of the state in which
such holder of the Warrant resides.
The Common Stock underlying the Warrants has been registered with the
Texas Securities Board, but has not been registered with the Securities and
Exchange Commission. The Common Stock and Warrants sold pursuant to the offering
were sold in reliance on the intrastate offering exemption from the registration
provisions of the Securities Act. Pursuant to said exemption, for a period of
nine months following the last sale of Common Stock or Warrants by the Company,
the Common Stock and Warrants may not be resold to persons who are not Texas
residents. Additionally, the Warrants may not be sold to a non-Texas resident
unless the Common stock issuable upon the exercise of the Warrants has been duly
registered with applicable state and federal securities authorities or
exemptions from such registration are available.
This Warrant Certificate is issued under the Warrant Agreement dated as
of February 28, 1997, between the Company and Securities Transfer Corporation as
Warrant Agent, and is subject to the terms and provisions contained in said
Warrant Agreement, to all of which terms and provisions the registered holder of
this Warrant Certificate consents by acceptance hereof. Copies of said Warrant
Agreement are on file at the corporate office of the Warrant Agent in Dallas,
Texas, and may be obtained by writing to the Warrant Agent.
The number of shares receivable upon the exercise of the Warrants
represented by this Warrant Certificate and the purchase price per share are
subject to adjustment upon the happening
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<PAGE>
of certain events specified in the Warrant Agreement (which provisions are
contained in Article III of the Warrant Agreement and are hereby incorporated by
reference).
No fractional Shares of the Company's Common Stock will be issued upon
the exercise of Warrants. As to any final fraction of a share which a holder of
Warrants exercised in the same transaction would otherwise be entitled to
purchase on such exercise, the Company shall pay a cash adjustment in lieu of
any fractional Share determined as provided in the Warrant Agreement.
This Warrant Certificate shall not entitle the holder hereof to any of
the rights of a holder of Common Stock of the Company, including without
limitation, the right to vote, to receive dividends and other distributions, to
exercise any preemptive right, or to receive any notice of, or to attend
meetings of holders of Common Stock or any other proceedings of the Company.
This Warrant Certificate shall be void and the Warrants and any rights
represented hereby shall cease unless exercised on or before 5:00 P.M. Dallas,
Texas on February 27, 2002, unless extended by the Company.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
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This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
WITNESS the facsimile signatures of the Company's duly authorized
officers.
Dated: _______________ FRESH'N LITE, INC.
BY: /s/ illegible
-----------------------------------------
Its: Vice President/Chief Financial Officer
ATTEST:
/s/ Carole A. swanson
- - -------------------------------------
Secretary
COUNTERSIGNED AND REGISTERED:
SECURITIES TRANSFER CORPORATION
BY: /s/ Kevin Halter, Jr.
-------------------------------
Authorized Signature
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(REVERSE OF WARRANT CERTIFICATE)
THE WARRANTS REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES ACT OTHER THAN THE TEXAS SECURITIES ACT. THESE WARRANTS
HAVE BEEN SOLD IN RELIANCE ON THE INTRASTATE OFFERING EXEMPTIONS FROM THE
REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933. IN NO EVENT, FOR A PERIOD
OF NINE MONTHS FROM THE DATE OF THE LAST SALE OF THE COMMON STOCK AND WARRANTS
IN SUCH OFFERING SHALL THE WARRANTS BE SOLD TO ANY PERSON WHO IS NOT A RESIDENT
OF THE STATE OF TEXAS. RESALES BY ANY PERSON OF THESE SECURITIES CAN BE MADE
ONLY TO A RESIDENT OF TEXAS.
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<PAGE>
TO: Fresh'n Lite, Inc.
c/o Fresh'n Lite, Inc., as Warrant Agent
PURCHASE FORM
(To be Executed by the Registered Holder in Order to Exercise Warrant
Certificates)
The undersigned hereby irrevocably elects to exercise 1___________ of
the Warrants represented by the Warrant Certificate and to purchase for cash the
Shares issuable upon the exercise of said Warrants, and herewith makes payment
of $_______________ therefor, and requests that certificates for such Shares
shall be issued in the name of:
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF REGISTERED
HOLDER OF CERTIFICATE
------------------------------------------------
------------------------------------------------
(Print Name)
------------------------------------------------
(Address)
------------------------------------------------
(Signature)
------------------------------------------------
(Signature)
- - ----------------------------------------
1Insert here the number of Warrants evidenced on the face of this Warrant
Certificate (or, in the case of a partial exercise, the portion thereof being
exercised), in either case without making any adjustment for additional Common
Stock or any other securities or property or cash which, pursuant to the
adjustment provisions referred to in this Warrant Certificate, may be
deliverable upon exercise.
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<PAGE>
ASSIGNMENT FORM
(To be Executed by the Registered Holder
in Order to Transfer Warrant Certificates)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers 2 ____________________ of the Warrants represented by this Warrant
Certificate unto:
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
------------------------------------------------
------------------------------------------------
(Print Name)
------------------------------------------------
(Address)
and does hereby irrevocably constitute and appoint _______________________
Attorney to transfer this Warrant Certificate on the records of the Company with
full power of substitution in the premises.
Dated: __________________ Signature(s)__________________________________
----------------------------------
Signature(s)
Guaranteed:___________________________________
NOTICE
The Signature(s) to the Purchase Form or the Assignment Form must
correspond to the name(s) as written upon the face of this Warrant Certificate
in every particular without alteration or enlargement or any change whatsoever.
- - ------------------------------------------
2Insert here the number of Warrants evidenced on the face of this Warrant
Certificate (or, in the case of a partial assignment, the portion thereof being
assigned), in either case without making any adjustment for additional Common
Stock or any other securities or property or cash which. pursuant to the
adjustment provisions referred to in this Warrant
Certificate, may be deliverable upon exercise.
22
