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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FRESH'N LITE, INC.
(Name of small business in its charter)
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TEXAS 75-2337102
(State or jurisdiction of 5812 (I.R.S. Employer
incorporation or organization) (Primary Standard Industrial Classification Code Number) Identification No.)
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CURTIS A. SWANSON
CHIEF FINANCIAL OFFICER
1705 WHALEY
LONGVIEW, TEXAS 75605
(903) 758-2811
(Name, address and telephone
number of agent for service)
1705 WHALEY
LONGVIEW, TEXAS 75605
(903) 758-2811
(Address and telephone number
of principal executive offices)
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COPY TO:
TOM D. HARRIS
HAYNES AND BOONE, LLP
901 MAIN STREET, SUITE 3100
DALLAS, TEXAS 75202-3789
(214) 651-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE FEE
- -------------------------------------- ------------ ---------------------- ------------------ -----------------
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Common Stock, par value $0.01
per share (1) ...................... 1,595,744 $ 3.76(3) $ 5,999,997(4) $ --
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01
per share (2) ...................... 500,000 $ 4.43 $ 2,215,000 $ --
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Total: 2,095,744 -- $ 8,214,997 $ 2,423
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(1) Represents 200% of the shares of Common Stock issuable upon the conversion
of the $3,000,000 aggregate principal amount of 6% Convertible Debentures
calculated based on the number of shares into which such Debentures could
have been converted as of June 29, 1998.
(2) Represents 200% of the 250,000 shares of Common Stock reserved for issuance
upon exercise of certain Common Stock Purchase Warrants as required under
the terms of such Common Stock Purchase Warrants including, pursuant to
Rule 416, an indeterminate number of shares issuable to prevent dilution
resulting from stock splits, stock dividends or similar events or by reason
of changes in the exercise price of Common Stock Purchase Warrants.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) based on the average of the bid and asked prices reported by
the OTC Bulletin Board on June 29, 1998.
(4) Pursuant to Rule 457(c), the proposed maximum aggregate offering price of
all the securities being registered on this Registration Statement has been
estimated for purposes of calculating the registration fee by multiplying
the amount to be registered and the estimated proposed maximum offering
price per share calculated as described in Note 3 above.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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FRESH'N LITE, INC.
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404
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REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
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1. Front of the Registration Statement and Outside Forepart of Registration Statement and Outside Back
Front Cover Page of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover of Prospectus
Prospectus
3. Summary Information and Risk Factors Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Page; Plan of Distribution
6. Dilution Not Applicable
7. Selling Security Holders Selling Shareholders
8. Plan of Distribution Outside Front Cover; Plan of Distribution
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers, Promoters and Control Management
Persons
11. Security Ownership of Certain Beneficial Owners Security Ownership of Certain Beneficial Owners and
and Management Management
12. Description of Securities Outside and Inside Cover of Prospectus; Description of
Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on Disclosure of Commission Position on Indemnification
Indemnification for Securities Act Liabilities for Securities Act Liabilities
15. Organization Within Last Five Years Prospectus Summary
16. Description of Business Prospectus Summary; the Company, Business Strategy
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Operations
Operation
18. Description of Property Description of Property
19. Certain Relationships and Related Transactions Certain Relationships and Related Transactions
20. Market for Common Equity and Related Stockholder Outside Front Cover; Description of Securities
Matters
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes in Disagreements with Accountants on Management's Discussion and Analysis of Operations
Accounting and Financial Disclosure
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PRELIMINARY PROSPECTUS DATED JUNE 30, 1998
SUBJECT TO COMPLETION
FRESH'N LITE, INC.
RESALE OF SECURITIES
1,595,744 SHARES OF COMMON STOCK
UNDERLYING 6% CONVERTIBLE SERIES A AND B DEBENTURES AND
500,000 SHARES UNDERLYING COMMON STOCK PURCHASE WARRANTS
$.01 PAR VALUE PER SHARE
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This Prospectus relates to 2,095,744 shares of common stock, $.01 par
value (the "Common Stock"), of Fresh'n Lite, Inc., a Texas corporation (the
"Company"), which may be offered from time to time by certain entities including
three investors (the "Investors" or "Investor Selling Shareholders") and a
placement agent (the "Placement Selling Shareholder") (collectively, the
"Selling Shareholders"), upon conversion of the outstanding principal amount of
certain 6% Convertible Debentures (the "Debentures") and certain Common Stock
Purchase Warrants (the "Warrants"). The shares of Common Stock registered
hereunder are sometimes referred to as the "Common Stock" or the "Securities."
See "Selling Shareholders" and "Plan of Distribution." All costs in connection
with the registration of the Securities are being borne by the Company. The
Company will not receive any of the proceeds from the sale of the Securities
pursuant to this Prospectus.
The Common Stock is quoted on the OTC Bulletin Board under the symbol
"FLTT." The closing bid and asked price of the Common Stock on June 29, 1998
were $3.902 and $3.625, per share, respectively.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Selling Shareholders' shares of Common Stock may be offered and
sold from time to time as market conditions permit in the over-the-counter
market, or otherwise, at prices and terms then prevailing or at prices related
to the then current market price, or in negotiated transactions. To the extent
required, the number of Securities to be sold, the respective purchase price and
public offering price, the name of any agent, dealer or underwriter and any
applicable commissions or discounts with respect to a particular offer will be
set forth in and accompanied by a Prospectus Supplement. See "Selling
Shareholders" and "Plan of Distribution."
Any agents, dealers or underwriters that participate with the Selling
Shareholders in the distribution of the shares of Common Stock may be deemed to
be "underwriters" within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"), and any commissions received by them and any profits on
the resale of the Selling Shareholders' shares, may be deemed to be underwriting
commissions or discounts under the Securities Act. Under applicable rules and
regulations promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including without limitation Regulation M, any person
engaged in a distribution of securities may not simultaneously engage in
market-making activities with respect to such securities for a period beginning
on the later of five business days, or such other period as may be required by
Regulation M, prior to the determination of the offering price or such time that
a person becomes engaged in the distribution and ending when the distribution is
completed (for a selling security holder) or when any other person's
participation has been distributed. In addition to, and without limiting the
foregoing, each of the Selling Shareholders and any other person participating
in a distribution will be subject to the applicable provisions of the Exchange
Act and the rules and regulations thereunder, including, without limitation,
Regulation M, which provisions may limit the timing of purchases and sales of
any of the Securities by each of the Selling Shareholders or any such other
person. All of the foregoing may affect the marketability of the Securities.
The date of this Prospectus is __________ ____, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and the rules and regulations promulgated thereunder, and in
accordance therewith files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, as well
as at the following regional offices: Northeast Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048 and Midwest Regional Office, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission maintains an Internet Web-Site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form SB-2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement and the exhibits thereto, copies of which
may be obtained from the Public Reference Section of the Commission at Room
1024, 450 Fifth Street, NW, Washington, D.C. 20549, upon payment of the fees
prescribed by the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement for a full statement of the
provisions thereof, each such statement contained herein is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference the following documents
heretofore filed with the Commission: the Annual Report of the Company on Form
10-KSB for the fiscal year ended December 31, 1997; the Quarterly Report of the
Company on Form 10-QSB for the quarterly period ended March 31, 1998 and the
Current Report of the Company on Form 8-K dated May 29, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c),14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein (or in any other
subsequently-filed document which also is incorporated herein by reference)
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed to constitute a part hereof except as so modified or
superseded.
The Company will provide, without charge to each person to whom a
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference, other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into the information that is incorporated into the Prospectus. Such
written requests should be directed to the Secretary of the Company at 1705
Whaley, Longview, Texas 75605; (903) 758-2811.
2
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FORWARD-LOOKING STATEMENTS
This Prospectus and any Prospectus Supplement may contain or
incorporate by reference forward-looking statements. The factors identified
under "Risk Factors" are important factors (but not necessarily all important
factors) that could cause actual results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, the Company
(or its subsidiaries).
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, the Company
cautions that, while such assumptions or bases are believed to be reasonable and
are made in good faith, assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending upon the circumstances. Where, in any forward-looking
statement, the Company (or its subsidiaries), or its management, express an
expectation or belief as to future results, such expectation or belief is
expressed in good faith and is believed to have a reasonable basis, but there
can be no assurance that the statement of expectation or belief will result or
be achieved or accomplished. The words "believe," "expect," "estimate,"
"project" and "anticipate" and similar expressions identify forward-looking
statements.
3
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RISK FACTORS
Investment in the Company's securities involves a high degree of risk.
In addition to the other information in this Prospectus, the following Risk
Factors should be considered carefully by prospective investors in evaluating
the Company and its business before purchasing the shares.
NEWNESS OF COMPANY
The Company was incorporated in May, 1990. Its founders opened their
first restaurant in June of 1989. Currently, only four Company owned restaurants
are operating. A restaurant was opened on October 31, 1995 near Six Flags in
Arlington, Texas as a franchised restaurant owned by F'NL Investments, LLC which
is owned by two of the Company's directors. The operators of that restaurant
have elected to convert that restaurant to a pizza restaurant and to open the
franchised restaurant in Arlington at a location yet to be determined. The
Company has no significant presence in the markets it hopes to enter, and older,
more established and higher-capitalized companies may develop concepts similar
to the Company's and hence provide a greater competitive threat. Also, there is
as yet no broad-based proven market for the Company's "Fresh'n Lite" or "Street
Talk Cafe" business concepts. Investing in immature enterprises like the Company
entails risks not often encountered in older, more established companies. Small,
relatively new companies historically experience a relatively high rate of
failure due to such factors as shortage of funds, shortage of competent
personnel, competition from larger companies, and general economic conditions.
There is no assurance that management's previous experience will enable it to
successfully build the Company nor is there any assurance that the Company can
raise sufficient capital to continue its expansion operations or further develop
its concept.
NEED FOR ADDITIONAL CAPITAL AND ADDITIONAL FINANCING
The Company's ability to generate operating and net income in the
future will depend on the success of its operating restaurants. There can be no
assurance that the Company will be profitable in the future. The Company
anticipates that its expansion plans will require substantial additional capital
that may be greater than can be funded from operations. In such a case, the
Company will be required to raise additional capital through equity or debt
financings. Such sources of financing, if available, may include bank financing,
third-party equity investors, joint venture financing and similar arrangements.
The Company typically borrows funds in connection with specific real estate
transactions and does not have outstanding any revolving line of credit. The
Company, however, has raised $2,670,000 in net proceeds from the private
placement of the Debentures underlying this registration. The Company has no
other current arrangement with respect to, or potential sources of, additional
financing. Consequently, there can be no assurance that any additional financing
will be available to the Company when needed, on commercially reasonable terms,
or at all. Any inability to obtain additional financing when needed would have a
material adverse effect on the Company. In addition, any additional equity
financing may involve substantial dilution to the interests of the Company's
then existing stockholders.
LIMITED RESTAURANT BASE; DEPENDENCE UPON FOUR RESTAURANTS;
HIGH RESTAURANT FAILURE RATE
All of the Company's revenues are presently derived from only four
restaurants. There can be no assurance that any new restaurants will be opened
or if opened will be successful or operate profitably. The lack of success or
closing of any of the Company's existing restaurants, or the unsuccessful
operation of any new restaurant, would have a material adverse effect upon the
financial condition and results of operations of the Company.
RELIANCE ON KEY EMPLOYEES
The Company relies heavily on the Chief Executive Officer, the
President and the Chief Financial Officer for the operation of the Company's
business. The Company could be adversely affected should any of these
individuals become unable to operate in this capacity. See "Management--Business
4
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Experience of Directors and Officers." The Company hopes to be able to
internally train people or to attract sufficient personnel by offering appealing
career opportunities and benefits, but there is no assurance that the Company
will succeed. An inability to attract such personnel or the unavailability of
these persons, whether as a result of labor shortages, death, disability,
termination or otherwise, could have a substantial adverse effect on the
Company's prospects and anticipated operations and, consequently, the value of
the Common Stock. The Company currently holds $300,000 in "key man" life
insurance on Stanley Swanson and $300,000 on Curtis Swanson. The Company may
purchase key man life insurance on Henry Leonard as well. There can be no
assurance that such insurance can be obtained. Other than this insurance, the
Company does not anticipate that it will have any protection in the event that
any of such persons or other key personnel become incapacitated, disabled or
otherwise unable to serve. See "Management."
DEPENDENCE ON LOCAL ECONOMY; LACK OF GEOGRAPHIC DIVERSIFICATION
The Company presently operates stores only in the Dallas/Fort Worth
metropolitan area. Therefore, the Company's results will initially be tied to
the economic strength of this area. Though the management believes that the
economic outlook for Texas in general and this area in particular is reasonably
favorable, there can be no assurance of this.
RISKS OF EXPANSION
The Company intends to pursue a strategy for expansion which includes
the opening of new Company owned restaurants and the development and
implementation of a franchising program. The success of the Company's planned
expansion will depend upon a number of factors not entirely within the Company's
control, including among others, the cost and availability of suitable locations
and the negotiation of acceptable leases, the ability to meet development and
construction schedules, the securing of required governmental permits and other
regulatory approvals, the hiring and training of management and other personnel,
the terms and availability of financing and other general economic and business
conditions. Any problems or delays encountered in any one of these areas can
result in substantial increases in costs to the Company as well as delays in the
opening of new restaurants. The Company has only four restaurants to date, and,
accordingly, because of its lack of expertise, its cost and timing estimates may
be inaccurate and additional unanticipated problems may arise. The Company's
proposed expansion plans will also require the implementation of enhanced
operational and financial systems and will require additional management,
operational and financial resources. There can be no assurance that the Company
will effectively manage its expanding operations and anticipate all of the
changing demands that its planned expansion will impose on its systems and
controls. The Company's failure to upgrade management, operating and financial
control systems or unexpected difficulties encountered during expansion could
adversely affect the Company's business, financial condition and results of
operations. Additionally, in light of the Company's limited number of
restaurants, the failure of any one of its restaurants could have a
disproportionate effect on the financial results of operations of the Company as
a whole.
LACK OF MARKETING EXPERIENCE AND ACTIVITIES
The Company has limited marketing experience and, to date, has engaged
in limited marketing activities. The growth of the Company's current restaurants
and the success of its new restaurants, if any, will depend, to a large extent,
upon its marketing efforts which will require substantial expenditures by the
Company. There can be no assurance that the Company will be able to obtain
financing for its marketing activities on terms acceptable to the Company, or at
all, in addition to the proceeds of this offering which have been allocated for
advertising and promotion. There can be no assurance that the Company's
marketing efforts will be successful, that its restaurants will achieve
significant market acceptance or that the Company will have the necessary funds
to conduct its marketing activities.
5
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RISKS OF FRANCHISING
The Company intends to develop and implement a franchising program.
Such program may not be implemented until after the Company opens additional
Company-owned restaurants. The success of a franchising program will depend on
numerous factors, including, but not limited to, the Company's ability to comply
with regulatory requirements and to attract and retain qualified franchisees
(which in turn will depend upon the Company's ability to successfully market and
promote the Company's restaurant concepts). Compliance with Federal and state
franchise sales laws and state franchise relationship laws is costly and time
consuming and there can be no assurance that the Company will not encounter
difficulties or delays in this area. There can be no assurance that the Company
will be successful in its efforts to expand through franchising or that future
franchisees, if any, will be able to operate restaurants in a manner consistent
with the Company's methods, standards and specifications.
GEOGRAPHIC CONCENTRATION; SEASONALITY
The Company's existing restaurants are all located in the Dallas/Forth
Worth metropolitan area and the Company currently plans to cluster its new
restaurants within Texas and the southwestern states. Consequently, the
Company's operating results may be affected by adverse economic, weather or
other conditions in these regions that are beyond the Company's control. See
"Management's Discussion and Analysis of Operations" and "Business." Moreover,
adverse publicity, if any, regarding any Company restaurant could have a more
severe impact on the Company's revenue than might be the case if the Company's
restaurants were more broadly dispersed.
SITE LOCATIONS
The choice of site location for each of the Company's restaurants is
extremely important to the potential success of the particular establishment.
The Company will be competing with a wide range of establishments in attempting
to identify and secure desirable locations. Although the Company believes that
it will be able to locate additional suitable sites, there can be no assurance
that such sites will be available or viable or on economic terms acceptable to
the Company.
DEVELOPMENT AND CONSTRUCTION DELAYS
In connection with the development and construction of any new Company
restaurant, a number of events over which the Company will have no control could
occur that might materially adversely affect the costs and completion time of
such projects. Such events include governmental regulatory approvals, shortages
of or the inability to obtain labor and/or materials, inability of the general
contractor or subcontractors to perform under their contracts, strikes, adverse
weather conditions and acts of God, availability and cost of needed debt or
lease financing, and changes in Federal, state or local laws or regulations. In
addition, the Company will also be dependent on unaffiliated third parties to
complete the construction of its restaurants. Accordingly, there can be no
assurance that the Company will be able to complete any restaurant in a timely
manner or within its proposed budget.
NEED FOR ADDITIONAL PERSONNEL
The Company's ability to successfully open and operate additional
restaurants will depend upon the Company's hiring and retaining additional
personnel who are experienced in the operation of casual dining restaurants, of
which there can be no assurance. The Company's failure to hire additional
experienced personnel will have a material adverse effect on the ability of the
Company to open and successfully operate restaurants and to expand its
operations thereafter.
6
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INCREASES IN OPERATING AND FOOD COSTS; AVAILABILITY OF SUPPLIES
Increases in the cost of fresh meats and fresh produce could have a
direct and immediate effect on the Company's results of operations. A
substantial portion of the Company's revenues and food costs are derived from
the sale and purchase of fresh products. The cost of fresh products fluctuates
from time to time depending on a variety of factors beyond the control of the
Company, such as weather conditions and seasonal demand. Dependence on frequent
deliveries of fresh products also subjects food service businesses to the risk
that shortages or interruptions in supply, caused by adverse weather or other
conditions, could adversely affect restaurant sales. Additional factors such as
inflation, increased utility, labor and employee benefit costs and the
availability of qualified management and hourly employees are beyond the
Company's control and may in the future affect the restaurant industry in
general and the Company's restaurants in particular.
SIGNIFICANT INDUSTRY COMPETITION; SPECIAL RESTAURANT INDUSTRY CONSIDERATIONS
The restaurant industry is intensely competitive with respect to price,
service, location and food quality. There are many competitors of the Company
that are better established, have substantially greater financial, marketing and
other resources, have been in existence for a substantially longer period of
time and have greater name brand recognition. Further, the restaurant industry
is significantly affected by many external factors, including changes in the
national economy or in regional or local economies, changes in the demographics
of areas in which restaurants are situated, changes in consumer preferences and
demands, and increases in the number and density of restaurants in a particular
locale. Factors such as inflation and food costs may also affect the restaurant
industry. There can be no assurance that the Company will be able to
successfully compete in the restaurant industry.
INSURANCE COVERAGE AND POSSIBLE CLAIMS
The Company does not carry workers' compensation insurance. The Company
has attempted to comply with Texas law to give proper notice to its employees
and to the Texas Labor Board about its failure to provide such insurance.
Failure to provide such insurance could subject the Company to additional risks
because injuries to employees have no limitation on damages and certain common
law defenses are not available to the Company. The Company has, however,
obtained an occupational accident plan for injuries to its employees. This plan
is adopted under the Employee Retirement Income Security Act ("ERISA" ) and is
provided by Clarendon America Insurance Company with a combined single limit of
$500,000 to cover accidental death, medical benefits, legal costs and a portion
of lost wages for two years. There is a $1,000 deductible for each claim. There
is no assurance that this policy will cover a major employee claim for injury or
death. The Company also carries fire insurance, casualty insurance, burglary
insurance and general liability insurance with such limits and deductibles as
management deems prudent giving due consideration to the cost of such insurance.
Companies in the food services industry are from time to time the subject of
complaints, claims, litigation from customers alleging illness or injury or
otherwise relating to food quality, health or other operational complaints.
Adverse publicity resulting from such allegations may materially and adversely
affect the Company and its restaurants, regardless of whether such allegations
are valid or whether the Company is liable. Further, activities of the Company's
franchisees, if any, over which the Company will have no control could expose
the Company to litigation. There can be no assurance that the Company's
liability insurance coverage is adequate or maintainable by the Company on
acceptable terms or that the Company will be able to increase coverage, on
acceptable terms, as new restaurants are opened and additional insurance is
warranted. A partially or completely uninsured successful claim against the
Company or a franchisee could have a material adverse effect on the Company's
business and operations.
NO DIVIDENDS WITH RESPECT TO COMMON STOCK
The Company has not paid or declared any cash dividends with respect to
its Common Stock, nor does it anticipate any such payments or declarations in
the foreseeable future. Any future dividends will be declared at the discretion
of the Board of Directors of the Company and will depend, among other
7
<PAGE> 10
things, on the Company's earnings, if any, its financial requirements for future
operations and growth and such other factors as the Company may then deem
appropriate. Prospective investors should not rely on the receipt of dividends
in the near future or at any time in the future when evaluating the merits of an
investment in the Common Stock.
NO PREEMPTIVE RIGHTS
The shares offered in this Offering have no preemptive rights for
shareholders to subsequently acquire unissued or treasury shares when additional
shares are sold to subsequent shareholders. Therefore, each shareholder's
percentage share of the Company will decrease when the Company sells additional
shares to subsequent shareholders.
NO CUMULATIVE VOTING
Neither the Company's Articles of Incorporation nor its Bylaws provide
cumulative voting rights. Therefore, the present holders of more than 50% of the
shares voting for election of directors can elect all of the directors if they
choose to do so, and in such event, the other shareholders holding less than 50%
will not be able to elect any person or persons to the Board of Directors of the
Company.
POTENTIAL ADVERSE EFFECT OF SALE OF SHARES OF
COMMON STOCK OFFERED BY SELLING SHAREHOLDERS
The Company currently has 6,356,852 shares outstanding. The Selling
Shareholders may sell all of their shares registered pursuant to this
registration. The sale, or availability for sale, of substantial amounts of
shares of Common Stock pursuant to this Offering could materially adversely
affect the market price of the Securities and could impair the Company's ability
to raise additional capital through the sale of its equity securities or debt
financing.
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS
For the term of the Debentures and Warrants issued by the Company, the
holders thereof are given an opportunity to profit from a rise in the market
price of the Common Stock with a resulting dilution in the interests of the
other shareholders. Further, the terms on which the Company may obtain
additional financing during that period may be adversely affected by the
existence of such Debentures and Warrants. The holders of the Warrants and the
Debentures may exercise them at a time when the Company might be able to obtain
additional capital through a new offering of securities on terms more favorable
than those provided by such Warrants and Debentures.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market
following this Offering, or the market perception that such sales could occur,
could adversely affect prevailing market prices for the Common Stock. The
Securities offered hereby will be freely tradable by persons who are not
"affiliates" of the Company without restriction under the Securities Act. In
Addition, pursuant to Rule 144 under the Securities Act, upon completion of this
Offering, additional shares of Common Stock will be deemed "restricted
securities" that may be resold to the extent permitted under Rule 144 and Rule
701 of the Securities Act or under any exemption under the Securities Act.
GOVERNMENT REGULATION
The Company is subject to various Federal, state and local laws
affecting its business. Each of the Company's restaurants will be subject to
licensing regulation by numerous governmental authorities, which may include
alcohol beverage control, building, health and safety, and fire agencies in the
state or municipality in which the restaurant is located. Difficulties in
obtaining or failure to obtain the necessary licenses or approvals could delay
or prevent the development of a new restaurant in an area.
8
<PAGE> 11
The Company is also subject to federal and state laws and regulations governing
employer-employee relations, including those related to minimum wage
requirements, overtime, working and safety conditions and immigrant status. Any
difficulties or failures in obtaining required licenses or approvals could delay
or prevent the opening of a new restaurant. The failure to obtain or retain food
or other licenses or increases in the minimum wage rate, employee benefits
(including costs associated with the mandated health insurance coverage) or
other costs relating to employees could have an adverse effect on the Company's
business. The Company also will be subject to compliance with federal and state
franchise sales law and state franchise relationship laws to the extent it
develops and implements a franchising program. Compliance with such franchise
laws can be time consuming and costly and the Company's inability to comply with
existing or future franchise laws may have a material adverse effect on the
Company's business and prospects. The Company may become subject to government
labeling and other requirements which would require disclosure of fat, sodium
and other items in the Company's food, and in complying with these requirements,
the Company may incur additional expense.
Alcoholic beverage control regulations in each state require that the
Company's restaurants apply to the specific state authority and, in certain
locations, county and municipal authorities for a license or permit to sell
alcoholic beverages on the premises and to provide service for extended hours
and on Sundays. Typically, an alcoholic beverage license must be renewed
annually and may be revoked or suspended for cause at any time. Alcohol beverage
control regulations relate to numerous aspects of the daily operations of the
Company's restaurants, including minimum age of patrons and employees, hours of
operation, advertising, wholesale purchasing, inventory control and handling,
and storage and dispensing of alcoholic beverages. The failure of a restaurant
to obtain or retain a liquor or food service license would adversely affect the
particular restaurant's operations.
Restaurants in most states are subject to "dram shop" laws and
legislation, which imposes liability on licensed alcoholic beverage servers for
injuries or damages caused by their negligent service of alcoholic beverages to
a visibly intoxicated person or to a minor, if such service is the proximate
cause of the injury or damage and such injury or damage is reasonably
foreseeable. The Company maintains liquor liability insurance as part of its
existing comprehensive general liability insurance, which it believes to be
adequate to protect against such liability, although there can be no assurance
that it will not be subject to a judgment in excess of such insurance coverage
or that it will be able to continue to maintain such insurance coverage at
reasonable costs or at all. The imposition of a judgment substantially in excess
of the Company's insurance coverage would have a material adverse effect on the
Company. In the event that such insurance coverage were to become unavailable in
the future, it could materially and adversely affect the Company.
9
<PAGE> 12
THE COMPANY
The Company currently operates three full-service restaurants
located in the Texas cities of Dallas, The Colony and Valley Ranch (Irving)
under the name "Fresh'n Lite Cafe & Grill." The Company also operates a
full-service cafe and grill in Richardson, Texas, under the name "Street Talk
Cafe."
The Company's restaurants offer low-fat and non-fat meals and food
items, including a wide selection of sandwiches, salads, pizzas, steaks,
seafood, Tex-Mex and other food items and desserts that appeal to
health-conscious customers. The Company believes that its restaurants' offerings
do not sacrifice taste and represent a health-conscious alternative to
traditional restaurant fare.
The majority of the Company's food items are prepared to order using
fresh meats, cheeses, and vegetables. While the restaurants offer full-service
casual dining, the menus are designed to permit quick food preparation. The
restaurants offer drive-thru and take-out service.
The Company intends to focus on the Street Talk Cafe concept and may
convert some or all of the Fresh'n Lite Cafe & Grill restaurants to the Street
Talk Cafe format. The differences between the Street Talk Cafe concept and the
Fresh'n Lite Cafe & Grill concept primarily relate to the restaurant's design
and decor. In the Company's Street Talk Cafe restaurant, the dining area is
divided into separate areas identified by decor and signage that represents Wall
Street, a sports memorabilia shop, an antique store, a country general store, a
farmer's market and a sidewalk cafe. Dividing the dining area into smaller units
is intended to promote a more private dining atmosphere for the Company's
customers. The Company believes that its customers will perceive the Street Talk
Cafe concept as offering a quieter, less-bustling dining experience than is
offered in an undivided dining area. The Company also believes that the Street
Talk Cafe decor is distinctive from competing restaurants and is aesthetically
attractive.
The Company believes that its menu offerings are competitive in price
relative to other casual dining restaurants that do not emphasize low-fat and
non-fat food items. The Company believes that many consumers will perceive that
the Company's restaurants offer high-quality food selections that can be part of
a healthy eating regimen for the same price as food selections offered by
competitors that would be less appropriate as part of a healthy eating regimen.
The Company's primary supplier of goods is Consolidated Companies, Inc.
("Conco"). As of February 17, 1995, Conco entered into a five-year primary
distribution agreement with the Company (the "Primary Distribution Agreement"),
pursuant to which Conco has agreed to provide 90% of the products that are
required by the Company and that Conco can provide. The Company currently
purchases approximately 90% of its inventory from Conco. The Company purchases
items from Conco, as-needed, on a net-30 day basis. The Company is current in
its account with Conco. The Company also has accounts with other suppliers to
ensure product availability in the event that Conco is unable to meet the
Company's needs in the future. In connection with entering into the Primary
Distribution Agreement, Conco purchased 133,332 shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), in March, 1995, for
$199,999.
The Company utilizes point of sale computer systems at all of the
Company's restaurants. This system allows the Company to monitor the restaurants
on a daily basis via computer modems and tracking software. These systems assist
the Company in maintaining control of inventory, supplies and labor costs.
Recently the Company issued in a private placement to the Investors,
two tranches of the Debentures raising $3,000,000 in gross proceeds ($2,670,000
in net proceeds). The Company intends to use the proceeds of the issuance to
pursue the Company's business strategy. See "Business Strategy" and
"Management's Discussion and Analysis of Operations."
10
<PAGE> 13
COMPANY HISTORY
The Company is a Texas corporation. The Company originally was
incorporated as a Delaware corporation on May 9, 1990, under the name "Bosko's,
Inc." On November 9, 1992, the Bosko's, Inc. name was changed to "Fresh'n Lite,
Inc."
In October 1995, the Delaware corporation merged into its wholly-owned
subsidiary, F'NL, Inc., a Texas corporation. F'NL, Inc. was the surviving
corporation in the merger. F'NL, Inc. then changed its name to "Fresh'n Lite,
Inc." The purpose of the merger was to convert the Delaware corporation into a
Texas corporation.
The Company was formed in connection with the creation of a restaurant
in Marshall, Texas, which was named "Bosko's 3 N 1 D-Lite." In the past, the
Company has operated restaurants in the Texas cities of Marshall, Tyler,
Longview, Nacogdoches and Texarkana. Each of these restaurants has been closed
or sold as the Company has developed its restaurant concept and as the Company
has focused on middle class urban markets in the Dallas/Forth Worth metropolitan
area.
BUSINESS STRATEGY
The Company offers high-quality food products that appeal to
health-conscious consumers. The Company's restaurants offer reasonably-priced
items in a comfortable and attractive atmosphere at reasonable prices. The
Company currently focuses on middle-class urban markets in the Dallas/Fort Worth
metropolitan area. The Company's restaurants offer a wide selection of
sandwiches, salads, pizzas, steaks, seafood, Tex-Mex and other food items and
desserts.
The Company's restaurants are designed to offer full service to the
casual diner with food preparation time comparable to fast-food restaurants.
This allows rapid turnover of lunch-time crowds. The Company's restaurants offer
drive-thru or take-out service.
The Company currently intends to concentrate its expansion efforts in
the Dallas/Fort Worth metropolitan area. The Company believes that this area can
support up to 20 additional Street Talk Cafe restaurants. The Company's strategy
is to grow through: identifying appropriate target markets within the
Dallas/Fort Worth metropolitan area and constructing new Street Talk Cafe
restaurants in such markets. The Company also may consider expanding through
franchising.
Currently, the Company has not entered into any leases for additional
locations for Street Talk Cafe restaurants. The Company's expansion plans are
subject to the following: (1) identification of appropriate locations, (2) the
successful negotiation of ground or building leases on acceptable terms, (3) the
availability of capital or other financing for the construction of new
restaurants, (4) the availability of full-time and part-time employees, and (5)
economic and competitive conditions. The Company intends to pursue a plan for a
10 store build-to-suit package at $1 million per store with a developer that
will build the stores and lease them back to the Company. Under any such plan
the Company would find the land and provide all fixtures, signage and build-outs
for the restaurants. No assurances can be given that the Company will be able to
implement successfully its expansion strategy.
11
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
OVERVIEW
The Company was organized in June of 1990 as Bosko's, Inc. under the
laws of the State of Delaware. In November of 1992 the Company changed its name
to Fresh'n Lite, Inc. and in November of 1995 merged into a Texas corporation
also bearing the name Fresh'n Lite, Inc.. The Company currently owns and
operates 3 Fresh'n Lite Cafe & Grill restaurants, in Dallas, Irving (Valley
Ranch), and The Colony, Texas. The Company also operates one Street Talk Cafe
restaurant which opened May 9, 1998 in Richardson, Texas. The Company intends to
expand by opening additional Street Talk Cafe restaurants on a Company owned
basis in the Dallas/Ft Worth metropolitan area.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1997
Operating revenues for 1996 were $2,602,533, with a gross profit of
$1,862,111 (71.5%), and operating income of $282,327, before adding royalty
revenues of $34,744, which increased operating income to $317,101.
Operating revenues for 1997 were $3,106,144 a 19.4% increase from 1996,
with a gross profit of $2,215,200 (71.4 %), and operating income of $166,862
which included a one time charge of $169,075 for the accelerated amortization of
start up costs associated with the closing of the Nacogdoches, Texarkana, and
Longview facilities. Prior to this charge operating income was $335,937. The
Company discontinued its franchise operation in early 1996 therefore no royalty
revenues or franchise fees are reflected in the 1997 numbers. The 19.4% increase
in revenues over 1996 is attributed to the opening of the Irving (Valley Ranch),
and The Colony, Texas facilities.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
For the thirteen weeks ending March 31, 1998 the Company generated
revenues of $798,219 compared to revenues in the same period 1997 of $712,352, a
12.1% gain, a profit of $215,435 compared to a net operating loss of $174,558 in
the first quarter of 1997. The difference in profitability from 1997 to 1998 is
attributed to the following factors; (1) in the first quarter of 1997 the
Company accelerated the amortization of costs in the amount of $169,075
associated with the closing of the Nacogdoches and Texarkana, Texas facilities;
(2) in the first quarter of 1997 the Company had a one time charge of $50,000
for professional fees associated with the Company's filing to trade on the OTC
Bulletin Board; (3) in the first quarter of 1998 the Company realized a one time
gain of $111,593 on the sale of the Nacogdoches, Texas facility; and (4) in the
first quarter of 1998 the company realized rental income of $28,086 on a
temporary lease of the Texarkana facility.
LIQUIDITY AND CAPITAL RESOURCES
Historically the Company has required capital to fund the operations
and capital expenditure requirements of its Company-owned restaurants.
From January 4, 1995 through December 12, 1997 the Company received
proceeds in the amount of $2,219,500 from intra-state offerings of the Company's
securities. Approximately $287,600 of the proceeds from the offerings were used
to cover offering related costs, including underwriting discounts and
commissions. See "Recent Sales of Unregistered Securities." The remaining
proceeds were used for the development of additional restaurants, the
acquisition of the Company's corporate headquarters, and general corporate
purposes. The Company's corporate headquarters were purchased for $1,250,000
which was the appraised value of the facility. See "Certain Relationships and
Related Transactions."
The Company met fiscal 1997 capital requirements with cash generated by
operations, the proceeds from the 1997 intra-state offering, and borrowing on
notes payable. In fiscal 1997 the Company's operations generated approximately
$644,352 in cash, as compared to $551,804 in fiscal 1996
12
<PAGE> 15
and $461,811 in fiscal 1995. The Company's restaurant operations are labor
intensive and do not have significant receivables or inventory. The Company
receives trade credit based upon negotiated terms in purchasing food and
supplies and ordinarily operates with a relatively small level of working
capital.
The Company's principal capital requirements are the funding of new
restaurant development or acquisitions and remodeling of existing units. During
fiscal 1997, the Company constructed and opened one unit in The Colony, Texas
and began construction of a second unit in Richardson, Texas, and purchased its
corporate headquarters. The total capital outlay for the year was $2,288,392.
Opening additional Company-owned restaurants is a key component of the Company's
expansion plans.
In March of 1997 the Company was able to refinance it's existing debt
with East Texas National Bank in Marshall, Texas in order to extend the due
dates from 1997 to March of the year 2000. The refinancing was done on a renewal
basis as the notes came due under the same terms and conditions as the
predecessor notes.
On May 29,1998, the Company issued $1,500,000 of the A Debentures to
the Investors. The private placement yielded $1,335,000 in net proceeds to the
Company (after deduction for the payment of the placement agent's fees and fees
of counsel for the Investors). In connection with the private placement, the
Company also issued to the Investors Warrants to purchase up to an aggregate of
75,000 shares of the Company's Common Stock. The Company issued to the placement
agent a Warrant to purchase up to 50,000 shares of the Company's Common Stock.
The exercise price for the Warrants is $4.43, which is equal to 110% of the
average closing bid prices of the Company's Common Stock for the five trading
days immediately preceding May 29, 1998.
The A Debentures can be converted into shares of the Company's Common
Stock. The number of shares of Common Stock to be issued upon any such
conversion will be determined based upon the lesser of (a) $4.00 per share (the
closing bid price of the Common Stock on May 28, 1998), or (b) the average
closing bid prices of the Company's Common Stock for the five trading day period
ending on the trading day immediately preceding the date on which such A
Debenture is converted, multiplied by a discount ranging from 25% to 17.5%. The
Company granted to the Investors certain registration rights with respect to the
shares of Common Stock underlying the A Debentures and the Warrants.
On June 30, 1998, the Company issued $1,500,000 of the B Debentures to
two of the Investors. The private placement yielded $1,335,000 in net proceeds
to the Company (after deduction for the payment of the placement agent's fees
and fees of counsel for two of the Investors). In connection with the private
placement, the Company also issued to two of the Investors, Warrants to
purchase up to an aggregate of 75,000 shares of the Company's Common Stock. The
Company issued to the placement agent a Warrant to purchase up to 50,000 shares
of the Company's Common Stock. The exercise price for the Warrants is $4.43,
which is equal to 110% of the average closing bid prices of the Company's
Common Stock for the five trading days immediately preceding May 29, 1998.
The B Debentures can be converted into shares of the Company's Common
Stock. The number of shares of Common Stock to be issued upon any such
conversion will be determined based upon the lesser of (a) $4.00 per share (the
closing bid price of the Common Stock on May 28, 1998), or (b) the average
closing bid prices of the Company's Common Stock for the five trading day period
ending on the trading day immediately preceding the date on which such B
Debenture is converted, multiplied by a discount ranging from 25% to 17.5%. The
Company granted to two of the Investors certain registration rights with
respect to the shares of Common Stock underlying the B Debentures and the
Warrants.
The Debentures were sold in an exempt private placement pursuant to
Section 4(2) of the Securities Act.
Additionally, the Company's management has determined that in order to
reduce the amount of intangible assets on its balance sheet the amortization of
capitalized franchise costs will be accelerated
13
<PAGE> 16
from a 60 month schedule which is reflected in the 1997 financial statements to
a 24- month schedule with the balance of $57,333 to be expensed in 1998. The net
difference between the two methods will result in an additional expense of
$38,222 in 1998.
YEAR 2000 DISCLOSURE
The Company uses current versions of widely used, publicly available
software for its accounting, data processing, and point of sale computer
requirements. The providers of the software utilized by the Company have stated
that there will be no failures in the programs used by the Company resulting
from the year 2000. The Company does not utilize any customized software. The
Company has not yet determined the impact, if any, that year 2000 issued may
have on its vendors. However, the Company believes there are adequate
alternative vendors that can supply products and services to the Company if
necessary. Finally, the Company's business is not highly dependent upon
electronic data processing. In conclusion, the Company does not believe it is at
a material risk from year 2000 issues.
DESCRIPTION OF PROPERTY
RESTAURANT LOCATIONS
The following table provides information with respect to each of the
Company's restaurant properties. The Dallas, Irving, The Colony, Texarkana,
Longview and Richardson buildings are owned, with a lease on the land. The
Company's current plan is to secure a 20-year lease with an option to purchase
on any land to be used for an additional restaurant.
<TABLE>
<CAPTION>
LOCATION SQUARE FEET LEASE EXPIRATION DATE
- ---------------------------------------- -------------- ---------------------
<S> <C> <C>
Dallas, Texas .......................... 4,500 sq. ft. February 21, 2015
Irving (Valley Ranch), Texas ........... 4,700 sq. ft. November 15, 2016
The Colony, Texas ...................... 4,700 sq. ft. October 15, 2017
Texarkana, Texas ....................... 3,308 sq. ft. February 1, 2014
Longview, Texas ........................ 3,500 sq. ft. January 6, 2012
Richardson, Texas ...................... 4,700 sq. ft. December 15, 2017
</TABLE>
The Company no longer operates restaurants in the Texarkana and
Longview locations. The Company's lease on the Longview land included an option
to purchase the property which expired in 1997. In connection with the Company's
proposed sale of the building on the Longview property, the Company solicited
and received an extension of the purchase option through December 15, 1998. The
Company currently intends to exercise the purchase option and simultaneously
sell the land and the Company's building to a single purchaser. The Company has
entered into a written agreement for this sale and the transaction is expected
to close during the third quarter of 1998. In addition, the Company is
negotiating with potential purchasers of the Texarkana location and expects that
the Texarkana building will be sold and the Texarkana ground lease will be
assumed by the end of 1998.
The Company currently plans to convert the Dallas restaurant from the
Fresh'n Lite Grill and Cafe concept to the Street Talk Cafe concept. The
anticipated cost of this conversion is approximately $200,000.
HEADQUARTERS LOCATION
The Company owns a building located at 1705 Whaley, Longview, Texas.
The Company utilizes approximately 5,000 sq. ft. of the building for its
administrative operations. The Company leases the remainder (approximately
15,000 sq. ft.) to another company. The Company purchased the headquarters land
and building in December 1997 from a company that is partially owned by Messrs.
Stanley L.
14
<PAGE> 17
Swanson and Curtis A. Swanson, both directors and officers of the Company. See
"Certain Relationships and Related Transactions."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock of
the Company beneficially owned as of June 19, 1998 by (i) each person of record
known to the Company who beneficially owns 5% or more of the outstanding Common
Stock, (ii) the named executive officers of the Company, (iii) each director of
the Company, and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME AND ADDRESS OF OWNER OF OWNERSHIP CLASS
- ----------------------------------------------------- ----------------- ----------
<S> <C> <C>
Stanley L. & Carole Swanson
1705 E. Whaley
Longview, Texas 76505 .......................... 1,303,921(1) 19.4%
Curtis A. & Kim Swanson
1705 E. Whaley
Longview, Texas 75605 .......................... 607,000(2) 8.9%
Edward Dmytryk ...................................... 20,000 *
Henry Leonard ....................................... 25,000 *
Robert Lilly ........................................ 53,572(3) *
All directors and executive officers as a
group (5 persons) ................................. 2,009,493 30.4%
</TABLE>
* Less than 1%.
(1) Includes 100,000 shares that are not outstanding, but are issuable upon
exercise of options held by Stanley L. Swanson that are currently
exercisable.
(2) Includes 200,000 shares that are not outstanding, but are issuable upon
exercise of options held by Curtis A. Swanson that are currently
exercisable.
(3) Includes an aggregate of 53,572 shares that are not outstanding, but
are issuable upon exercise of two options held by Robert Lilly ("Mr.
Lilly) that are currently exercisable.
15
<PAGE> 18
MANAGEMENT
The directors and executive officers of the Company are set forth
below.
<TABLE>
<CAPTION>
IN OFFICE
NAME AGE POSITION SINCE
- ------------------------------------------ ----- -------------------------------------------- ---------
<S> <C> <C> <C>
Stanley L. Swanson ....................... 53 Chief Executive Officer, Chairman of the 1990
Board of Directors, and President
Curtis A. Swanson ........................ 30 Director, Treasurer, Chief Financial Officer 1990
Jean Hedges .............................. 38 Controller 1993
Carole A. Swanson ........................ 55 Secretary 1990
Edward Dmytryk ........................... 50 Director 1992
Robert (Bob) Lilly ....................... 57 Director 1995
Henry Leonard ............................ 49 Director, President and Chief Operating 1997
Officer
</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
("Mr. Stan Swanson") and Carole A. Swanson ("Ms. Carole Swanson") are husband
and wife. Curtis A. Swanson ("Mr. Curtis Swanson") is the son of Mr. Stan and
Ms. Carole 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.
Curtis A. Swanson has been Chief Financial Officer, Executive Vice
President, and Treasurer of the Company since its inception in May, 1990.
Jean M. Hedges ("Ms. Hedges") has been Corporate Controller for the
Company since September 1993. 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 the Company, Ms. Hedges was the controller of
Stainback Casting, a manufacturer based out of Tyler, Texas, from 1992 to 1993.
Carole A. Swanson, a co-founder of Fresh'n Lite, Inc., has served as
Secretary of the Company since its inception in May, 1990.
Edward C. Dmytryk ("Mr. 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. From 1988 until January, 1995, Mr. Dmytryk was the chief operating
officer for Bollinger Industries International, located in Irving, Texas.
Henry Leonard ("Mr. Leonard") has been President and Chief Operating
Officer of the Company since December 1997. 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.
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.
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<PAGE> 19
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information
regarding the Company's Chief Executive Officer. No officer of the Company
received compensation during the most recent fiscal year in an amount exceeding
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
------------ ---------------------
SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY OPTIONS/SARS(#)
- ---------------------------------------------------- ----------- ------------ ---------------------
<S> <C> <C> <C>
Mr. Stan Swanson, Chief Executive Officer .......... 1997 $24,700 100,000
1996 $24,700 -0-
1995 $24,700 -0-
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
- --------------------------- ------------ ------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Mr. Stan Swanson .......... 100,000 18.4% $2.50 December 31, 2001
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS AT FY-END ($)
SHARES ACQUIRED VALUE FY-END (#) EXERCISABLE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE
- -------------------------- ----------------- -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Mr. Stan Swanson.......... -0- -0- 100,000 $50,000(1)
</TABLE>
(1) Calculated based on a December 31, 1997, fair market value of $3.00 per
share, less the exercise price of $2.50 per share.
POTENTIAL EMPLOYMENT AGREEMENT
Upon the hiring of Mr. Leonard as President and Chief Operating Officer
of the Company, the Company began negotiating an employment agreement with Mr.
Leonard. The Company is currently in the process of finalizing a five-year
employment agreement with Mr. Leonard. Mr. Leonard is to receive 25,000 shares
of Common Stock as a signing bonus. The employment agreement provides Mr.
Leonard with an annual salary of $75,000 per year with $25,000 a year increases
for the five-year term of the employment agreement. The employment agreement
also provides, as part of Mr. Leonard's base compensation, an option to purchase
250,000 shares of Common Stock exercisable over a five-year period in increments
of 50,000 per year with the first exercise date set at December 15, 1998.
Finally, pursuant to the employment agreement, Mr. Leonard may receive
additional incentive compensation based on the Company's achievement of
projected net cash flow. The incentive would allow Mr. Leonard to purchase
20,000 shares of Common Stock per year and up to a 50% cash bonus as a percent
of his base salary each year. The employment agreement also provides other
typical employment benefits and a two-year non-compete restriction upon
termination.
17
<PAGE> 20
DIRECTOR COMPENSATION
No remuneration is paid to the Board of Directors for their service in
that office, except that Mr. Lilly is paid $500 for each meeting, plus expenses,
and he has been granted an option to acquire 50,000 shares. However, in the
future the directors may receive a nominal director's fee for their attendance
at meetings of the Company's Board of Directors, and reimbursement for actual
expenses incurred in attending such meetings.
On December 1, 1995, the Company entered into an agreement with a
director, Mr. Lilly, whereby Mr. Lilly receives $1,500 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 3,752 shares of Common Stock at $.10 per share.
Pursuant to the superseded agreement, 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.
STOCK OPTION PLAN
On March 1, 1997, the Board of Directors of the Company adopted the
Plan pursuant to which 300,000 shares of the Company's stock have been 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. The Plan was
approved by the shareholders on May 23, 1997.
Under the Plan, an option for 50,000 shares has been granted to Mr.
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 Plan,
Roland R. Jehl and Douglas K. Tabor, who served as directors for one-year terms
expiring during 1997, 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.
The Company applies APB Opinion 25 and related interpretations in
accounting for the Plan. 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 Plan. 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
F'NL INVESTMENTS, LLC
In 1995, Mr. Curtis Swanson, a director, treasurer, and chief financial
officer, and Mr. 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
18
<PAGE> 21
franchise restaurant was to be located at 900 Six Flags Dr. in Arlington. F'NL
Investments, LLC paid a $50,000 franchise fee to the Company and agreed to pay
the Company royalties of 5% of gross revenues. The directors have elected to
allow F'NL Investments, LLC to convert this restaurant to a pizza restaurant
because of demographics and to open the franchise restaurant in Arlington at a
location to be determined in the future. F'NL Investments, LLC will not be
required to pay additional franchise fees when the new franchise site is
selected.
At December 31, 1996, the Company held a note receivable from F'NL
Investments, LLC. The note was in the amount of $31,345 plus interest at a rate
of 9%. The entire principal amount, along with interest, was repaid prior to the
maturity date of April 30, 1996. The note was for salary payments made on behalf
of F'NL Investments, LLC by the Company in connection with payroll services it
was providing F'NL Investments, LLC in paying employees of F'NL Investments,
LLC.
At December 31, 1997, the Company held a note receivable from Mr.
Curtis Swanson, an officer, director and shareholder of the Company, in the
amount of $124,500. The note related to operating expenses of the Arlington
franchise location. The note bears interest at 5% and is payable in two
semiannual installments of $77,845, together with interest beginning on June 30,
1998.
FOUR SEASONS MARINE & CYCLE, INC.
In December 1997, the Company bought its corporate headquarters for
$1,250,000 from Four Seasons Marine & Cycle, Inc. ("Four Seasons"). Messrs.
Curtis Swanson and Stan Swanson, directors and officers of the Company, each
owns 43% of Four Seasons. The purchase price was based on the appraised value of
the facility. In addition, the transaction was approved by the Board of
Directors of both Four Seasons and the Company.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock
by the Selling Shareholders.
19
<PAGE> 22
SELLING SHAREHOLDERS
This Prospectus covers offers and sales from time to time by each
Selling Shareholder (after such person becomes a holder of Common Stock) of the
Common Stock to be owned by such person. The Selling Shareholders will hold
shares of Common Stock issued or issuable upon the conversion of the Debentures
and the exercise of the Warrants. Pursuant to Rule 416 of the Securities Act,
the Selling Shareholders may also offer and sell shares of Common Stock issued
as a result of, among other events, stock splits, stock dividends and
anti-dilution adjustment provisions (including by reason of any change in the
conversion price mechanism of the Debentures or exercise price of the Warrants).
In addition, the Selling Shareholders may also offer and sell shares of Common
Stock issued as payment of liquidated damages upon certain events of default.
The registration of the shares of Common Stock offered for resale hereby is
pursuant to a Registration Rights Agreement dated May 29, 1998, entered into in
connection with the original issuance of the Debentures (the "Registration
Rights Agreement").
The A Debentures were issued to the Investor Selling Shareholders
pursuant to a 6% Convertible Debenture Subscription Agreement dated May 29, 1998
among the Company and the Investor Selling Shareholders (the "A Subscription
Agreement"). In exchange for aggregate cash consideration of $1,500,000, the
Company issued an aggregate of $1,500,000 of the A Debentures to the Investor
Selling Shareholders and Warrants to purchase an aggregate of 125,000 shares of
Common Stock to the Selling Shareholders, including a Warrant to purchase 50,000
shares of Common Stock issued to the Placement Selling Shareholder in payment
for services rendered as placement agent for the Company.
The B Debentures were issued to two of the Investor Selling
Shareholders pursuant to a 6% Convertible B Debenture Subscription Agreement
dated June 30, 1998 among the Company and two of the Investor Selling
Shareholders (the "B Subscription Agreement"). In exchange for aggregate cash
consideration of $1,500,000, the Company issued an aggregate of $1,500,000 of B
Debentures to two of the Investor Selling Shareholders.
The following table lists the name of each Selling Shareholder, the
number of shares of Common Stock owned by each Selling Shareholder before this
Offering, the number of shares of Common Stock that may be offered by each
Selling Shareholder pursuant to this Prospectus and the number of shares of
Common Stock to be owned by each Selling Shareholder upon completion of the
Offering if all shares registered hereby are sold. None of the Selling
Shareholders has held any position or office or had any other material
relationship with the Company or any of its predecessors or affiliates in the
last three years. The information below is as of the date of this Prospectus and
has been furnished by the respective Selling Shareholders. Under the terms of
the Registration Rights Agreement the Company is required to register for resale
at least 200% of the number of shares issuable upon conversion of the Debentures
and exercise of the Warrants. The number of shares covered by this Prospectus
represents 200% of the shares currently issuable.
20
<PAGE> 23
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF SHARES SHARES BEING SHARES OWNED
OWNED BEFORE REGISTERED AFTER
NAME OF SELLING SHAREHOLDERS THIS OFFERING (1) FOR RESALE (1) THIS OFFERING (2)
- --------------------------------------------------- ----------------- -------------- -----------------
<S> <C> <C> <C>
Dominion Capital Fund, L.P.......................... 568,722 568,722 0
Canadian Advantage Limited Partnership.............. 63,192 63,192 0
Sovereign Partners Limited Partnership.............. 315,958 315,958 0
Corporate Capital Management........................ 100,000 100,000 0
----------- ----------- -----------
TOTAL: 1,047,872 1,047,872 0
=========== =========== ===========
</TABLE>
(1) Represents 200% of the shares currently issuable to such holder upon
conversion of the Debentures plus the shares underlying the Warrants held
by such holder.
(2) Assumes all shares held by such Selling Shareholder acquired upon
conversion of the Debentures and exercise of the Warrants held by such
holder and registered hereby will be offered and sold.
The Company agreed to register for sale under the Securities Act the
shares of Common Stock acquired by the Selling Shareholders pursuant to the
acquisition of the Debentures and the Warrants in the private placement. The
Company and the Selling Shareholders also agreed to indemnify each other against
certain civil liabilities under the Securities Act. See "Description of
Securities --Registration Rights" for a more complete description of the
foregoing registration rights.
21
<PAGE> 24
DESCRIPTION OF SECURITIES
The following summary of the Company's Common Stock is qualified in its
entirety by reference to the Company's Articles of Incorporation, its Bylaws and
the Texas Business Corporation Act, as amended (the "TBCA").
COMMON STOCK
The Company has only one class of capital stock consisting of Common
Stock, of which it is authorized to issue 50,000,000 shares. No share of Common
Stock is entitled to preference over any other share, and each share is equal to
every other share in all respects. Holders are entitled to receive dividends as
may be declared by the Board of Directors out of funds legally available
therefor though the Company has never declared a dividend on its Common Stock;
and are entitled to share pro rata in the distribution of assets available for
such purpose in the event of liquidation. No preemptive rights attach to
ownership of shares of Common Stock. No restrictions exist on the Company's
ability to pay dividends on its common stock in the future. As of June 29, 1998,
the Company had issued and outstanding 6,356,852 shares of Common Stock. As of
such date, there were approximately 204 holders of record of the outstanding
shares of Common Stock. All of the outstanding shares of Common Stock are duly
and validly authorized and issued, fully paid and non-assessable.
Holders of Common Stock are entitled to one vote per share of Common
Stock held of record on all such matters submitted to a vote of the
shareholders. With respect to any act or action required of or by the holders of
the Common Stock, the affirmative vote of a majority of the shares of Common
Stock present in person or represented by proxy at a meeting and entitled to
vote thereon is sufficient to authorize, affirm, ratify or consent to such act
or actions, except as otherwise provided by law or in the Articles of
Incorporation. The TBCA requires the approval of the holders of two-thirds of
the outstanding stock entitled to vote for certain extraordinary corporate
transactions, such as a merger, sale of substantially all assets, dissolution or
amendment of the Articles of Incorporation. Holders of the shares of Common
Stock do not have cumulative voting rights. As a result, the holders of a
majority of the outstanding shares of Common Stock voting for the election of
directors can elect all the directors, and, in such event, the holders of the
remaining shares of Common Stock will not be able to elect any persons to the
Board of Directors.
A total of 300,000 shares of Common Stock have been reserved for
issuance under the Company's Plan of which, as of June 29, 1998, 300,000 shares
remain available for grants of options. A total of 2,095,744 shares of Common
Stock have been reserved for issuance under the A Subscription Agreement and the
B Subscription Agreement.
TEXAS LAW AND CERTAIN CORPORATE PROVISIONS
The Company is subject to the provisions of Article 13 of the TBCA. In
general, this statute prohibits a publicly-held Texas corporation from engaging,
under certain circumstances, in a "business combination" with an "affiliated
shareholder" for a period of three years after the date of the transaction in
which the person becomes an affiliated shareholder, unless either (i) prior to
the date at which the shareholder became an affiliated shareholder the Board of
Directors approved either the business combination or the transaction in which
the person becomes an affiliated shareholder, or (ii) the business combination
is approved by the Board of Directors and by two-thirds of the outstanding
voting stock of the corporation (excluding shares held by the affiliated
shareholder) at a meeting of the shareholders (and not by written consent) held
not earlier than six months after the date on which the person became an
"affiliated shareholder" of the business combination. An "affiliated
shareholder" is a person who, together with or through affiliates and
associates, beneficially owns or within the preceding three-year period was the
beneficial owner of 20% or more of the corporation's outstanding voting stock.
Article 13 defines a "business combination" to include any merger, share
exchange, conversion and asset based transactions and other transactions
resulting in a financial benefit to the affiliated shareholder or an associate
or affiliate of the affiliated shareholder.
22
<PAGE> 25
LIMITATIONS ON LIABILITY
As authorized by Article 1301-7.06 of the Texas Miscellaneous
Corporation Laws Act (the "TMCLA"), the Articles of Incorporation provide that
to the fullest extent, now or hereafter permitted by Texas law, The Company's
directors will have no personal liability to the Company or its shareholders for
monetary damages for breach or alleged breach of the directors' duty of care.
This provision in the Articles of Incorporation will not eliminate directors'
liability resulting from suits by third parties, and does not affect the Company
or its shareholders' ability to obtain equitable remedies such as an injunction
or a rescission of an agreement or transaction deemed improper. Furthermore,
each director will continue to be subject to liability for (i) a breach of a
director's duty of loyalty to the Company or its shareholders, (ii) an act or
omission not in good faith or that involves intentional misconduct or a knowing
violation of the law, (iii) a transaction from which a director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office, (iv) an act or omission for which the
liability of a director is expressly provided for by statute, or (v) an act
related to an unlawful share repurchase or payment of a dividend.
REGISTRATION RIGHTS
In connection with the private placement of the Debentures, the Company
entered into the Registration Rights Agreement with the Investors. Pursuant to
the Registration Rights Agreement, these holders have registration rights with
respect to shares of Common Stock requiring the Company to file a registration
statement with the Commission. The registration rights cease to apply to shares
of Common Stock when such shares (i) have been effectively registered under the
Securities Act and sold or distributed pursuant to an effective registration
statement or (ii) have become eligible to be sold or distributed pursuant to
Rule 144 (within the then-applicable volume limitation pursuant to Rule 144(e))
or Rule 144(k).
OTHER MATTERS
Securities Transfer Corporation is the transfer agent and registrar for
the Common Stock.
MARKET INFORMATION AND HOLDINGS
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 bid prices of the Company's Common Stock as
reported by the Nat'l Daily Quotation Services, Inc. The prices reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not represent actual transactions.
<TABLE>
<CAPTION>
1997 HIGH LOW
- ----------------------------------------------------- -------- ---------
<S> <C> <C>
First Quarter........................................ N/A N/A
Second Quarter....................................... $3.000 $2.500
Third Quarter........................................ $3.750 $2.500
Fourth Quarter....................................... $3.625 $2.125
</TABLE>
<TABLE>
<CAPTION>
1998 HIGH LOW
- ----------------------------------------------------- -------- ---------
<S> <C> <C>
First Quarter ....................................... $3.000 $1.649
Second Quarter....................................... $4.0625 $1.656
</TABLE>
The Company has applied for listing of the Common Stock on the Nasdaq
SmallCap Market. No assurances can be given that such listing will be granted.
23
<PAGE> 26
PLAN OF DISTRIBUTION
The shares of Common Stock covered hereby may be offered and sold from
time to time by the Selling Shareholders. The Selling Shareholders will act
independently of the Company in making decisions with respect to the timing,
manner and size of each sale. Such sales may be made in the over-the-counter
market or otherwise, at market prices prevailing at the time of the sale, at
prices related to the then prevailing market price or in negotiated
transactions, including pursuant to an underwritten offering or pursuant to one
or more of the following methods: (i) purchases by a broker-dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(ii) ordinary brokerage transactions and transactions in which a broker solicits
purchasers; and (iii) block trades in which a broker-dealer so engaged will
attempt to sell the shares as agent but may take a position and resell a portion
of the block as principal to facilitate the transaction. In effecting sales,
broker-dealers engaged by the Selling Shareholders may arrange for other
broker-dealers to participate. Broker-dealers may receive commissions or
discounts from the Selling Shareholders in amounts to be negotiated immediately
prior to the sale.
In connection with the sale of shares of Common Stock covered hereby,
underwriters or agents may receive compensation from the Selling Shareholders or
from purchasers of the shares of Common Stock covered hereby for whom they may
act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell shares of Common Stock to or through dealers and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they act as agents. Underwriters, dealers and agents that participate in
the distribution of shares of Common Stock covered hereby may be deemed to be
underwriters, and any discounts or commissions received by them from the Selling
Shareholders and any profit on the resale of shares of Common Stock by them may
be deemed to be underwriting discounts and commissions under the Securities Act.
Neither the Company nor any Selling Shareholder can presently estimate the
amount of such compensation. The Company knows of no existing arrangements
between any Selling Shareholder, any other shareholder, broker, dealer,
underwriter or agent relating to the sale or distribution of the shares.
To the extent required, the Company will file, during any period in
which offers or sales are being made, a supplement to this Prospectus which sets
forth, with respect to a particular offering, the specific number of shares to
be sold, the name of the Selling Shareholder, the sales price, the name of any
participating broker, dealer, underwriter or agent, any applicable commission or
discount and any other material information with respect to the plan of
distribution not previously disclosed.
The Registration Rights Agreement provides that the Company will pay
substantially all of the expenses incident to the registration, offering and
sale of the shares to the public other than underwriting discounts, commissions
and expenses of counsel to each Selling Shareholder. The Registration Rights
Agreement also provides that the Company will indemnify the Selling Shareholders
against certain liabilities, including liabilities under the Securities Act.
In order to comply with certain states' securities laws, if applicable,
the shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the Common Stock may
not be sold unless the Common Stock has been registered or qualified for sale in
such state or an exemption from registration or qualification is available and
is satisfied.
This Offering will terminate on the earlier of (i) the date that all of
the shares of Common Stock have been sold pursuant to the Registration
Statement, (ii) the date the Selling Shareholders receive an opinion of counsel
that all of the shares of Common Stock registered herein may be sold under the
provisions of Rule 144, or (iii) two years after May 29, 1998.
24
<PAGE> 27
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Pursuant to the Registration Rights Agreement between the Company and
the Selling Shareholders, the Company has agreed to indemnify each Selling
Shareholder and its officers, directors, employees, agents and representatives
and any person who controls such Selling Shareholder against any losses, claims,
damages, liabilities, joint and several, including all costs of defense and
investigation and all reasonable attorneys' fees to which the Selling
Shareholder may become subject under the Securities Act or otherwise insofar as
such arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto or (ii) arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company (1) will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Selling Shareholder or Shareholders, specifically for use
in the preparation thereof, or (2) cannot pay any amounts paid in settlement of
any loss, claim, damage or liability if such settlement is effected without the
consent of the Company, which consent shall not be unreasonably withheld. In
addition, each Selling Shareholder, acting severally and not jointly, under the
Registration Rights Agreement has agreed to indemnify the Company and its
officers, directors, employees, agents and representatives and any person who
controls the Company against any losses, claims, damages, liabilities, joint or
several, including all costs of defense and investigation and all reasonable
attorneys' fees to which the Company may become subject under the Securities Act
or otherwise insofar as such arising out of or based upon and in conformity with
written information furnished by such Selling Shareholder expressly for use in
the Registration Statement or an amendment or supplement thereto. However, the
foregoing indemnity shall not apply to amounts paid in settlement of any such
liability if the settlement is effected without the consent of such Selling
Shareholder.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Haynes and Boone, LLP.
EXPERTS
The balance sheet of the Company as of December 31, 1997, and the
related statements of income, changes in shareholders' equity and cash flows for
the year ended December 31, 1997 included in this Prospectus and incorporated in
this Prospectus by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, have been audited by T.G. Prothro & Company,
PLLC, independent auditors, as stated in their report included and incorporated
by reference herein and are included in reliance upon such report given the
authority of such firm as experts in accounting and auditing.
25
<PAGE> 28
FRESH'N LITE, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements:
Independent Auditors Report...........................................................................F-2
Balance Sheets........................................................................................F-3
Statements of Income..................................................................................F-5
Statements of Changes in Shareholders' Equity.........................................................F-6
Statements of Cash Flows..............................................................................F-7
Notes to Financial Statements.........................................................................F-8
Interim Financial Statements:
Balance Sheets.......................................................................................F-22
Income Statement.....................................................................................F-25
Statements of Cash Flow..............................................................................F-26
Notes to Interim Financial Statements................................................................F-27
</TABLE>
F-1
<PAGE> 29
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.
/s/ T. G. PROTHRO & COMPANY, PLLC
Certified Public Accountants
Tyler, Texas
March 3, 1998
MEMBERS, AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS, TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
F-2
<PAGE> 30
FRESH'N LITE, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
ASSETS
CURRENT ASSETS
Cash .................................................. $ 20,393
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
-----------
</TABLE>
F-3
<PAGE> 31
FRESH'N LITE, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
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 ............................................ 8,808
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 ............... 2,313,713
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 Shareholders' Equity ................................. 3,631,921
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $ 8,145,537
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 32
FRESH'N LITE, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <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:
Current ............................... 8,800 -- --
Deferred .............................. 47,200 94,000 --
----------- ----------- -----------
NET INCOME ............................ $ 110,862 $ 223,101 $ 144,324
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 33
FRESH'N LITE, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID IN EARNINGS TREASURY SHAREHOLDERS'
STOCK CAPITAL (DEFICITS) STOCK EQUITY
------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1995 ... $49,279 $ 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 -- 144,324
------- ----------- --------- ----------- ----------
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,
291,734 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.
F-6
<PAGE> 34
FRESH'N LITE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
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 ...................................... 223,881 162,793 122,633
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)
No 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.
F-7
<PAGE> 35
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 Company merged from a
Delaware corporation into F'NL, Inc., a Texas corporation. Immediately, the
Company 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:
<TABLE>
<CAPTION>
LOCATION DATE OPENED/STATUS
- ----------------------------------------------------- ------------------
<S> <C>
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
</TABLE>
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.
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.
F-8
<PAGE> 36
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-9
<PAGE> 37
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-10
<PAGE> 38
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-11
<PAGE> 39
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 2 - INVENTORY
A summary of inventory, by restaurant location, is as follows:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
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
=======
</TABLE>
NOTE 3 - CORPORATE ORGANIZATIONAL COSTS
Corporate Organizational Costs consist of the following:
<TABLE>
<CAPTION>
ACCUMULATED
COSTS AMORTIZATION
--------------- ---------------
<S> <C> <C>
Balances, January 1, 1997 ......... $ 42,695 $ 41,542
Additions ................ -- 1,153
Balances, December 31, 1997 ....... $ 42,695 $ 42,695
=============== ===============
</TABLE>
Other costs included with Corporate Organizational Costs in the balance sheet
aggregated $32,651 as of December 31, 1997.
NOTE 4 - INCOME TAXES
<TABLE>
<CAPTION>
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.
F-12
<PAGE> 40
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 4 - INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <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 $ --
========= ========= =========
</TABLE>
NOTE 5 - NOTE PAYABLE-SHORT TERM
Note payable-short term at DECEMBER 31, 1997 consisted of the following:
<TABLE>
<S> <C>
AFCO Credit 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>
F-13
<PAGE> 41
Fresh'n Lite, Inc.
Notes to Financial Statements
December 31, 1997
NOTE 6 - NOTES PAYABLE-LONG TERM
Notes payable-long term at DECEMBER 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
East Texas National Bank, dated June 30, 1997, due June 20, 2000, interest rate at 9.50%, payable
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, Nacogdo,
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
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 a Company automobile ................................. 21,850
Infinity Financial Services, dated March 13, 1997, due March 27, 2002, interest rate at 9.99%
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%, pay
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
(465,015)
-----------
Less Current Portion
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.
F-14
<PAGE> 42
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6 - NOTES PAYABLE-LONG TERM (CONTINUED)
Notes Payable-Long Term are expected to mature over the next five years as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998 .................. $ 465,015
1999 .................. 59,061
2000 .................. 341,940
2001 .................. 49,742
2002 .................. 40,818
Later Years ........... 609,876
----------
Total $1,566,452
==========
</TABLE>
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.
F-15
<PAGE> 43
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.
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
=======
F-16
<PAGE> 44
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 7 - LEASES (CONTINUED)
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.
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:
<TABLE>
<CAPTION>
<S> <C>
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
===========
</TABLE>
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.
F-17
<PAGE> 45
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 8 - SUMMARY OF NONCASH TRANSACTIONS
Following is a summary of noncash investing and financing activities for the
years ended December 31:
<TABLE>
<CAPTION>
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 Company 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.
F-18
<PAGE> 46
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 the 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. The 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,
F-19
<PAGE> 47
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 11 - STOCK OPTIONS (CONTINUED)
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.
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.
1995
<TABLE>
<CAPTION>
# SHARES OF WEIGHTED
UNDERLYING AVERAGE
OPTIONS EXERCISE PRICES
----------- ---------------
<S> <C> <C>
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 $ --
</TABLE>
F-20
<PAGE> 48
FRESH'N LITE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 11 - STOCK OPTIONS (CONTINUED)
1996
<TABLE>
<CAPTION>
# SHARES OF WEIGHTED
UNDERLYING AVERAGE
OPTIONS EXERCISE PRICES
----------- ---------------
<S> <C> <C>
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
</TABLE>
1997
<TABLE>
<CAPTION>
# SHARES OF WEIGHTED
UNDERLYING AVERAGE
OPTIONS EXERCISE PRICES
----------- ---------------
<S> <C> <C>
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.
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ------------------------------
NUMBER WEIGHTED AVG. NUMBER
RANGE OF OUTSTANDING AT REMAINING WEIGHTED AVG. EXERCISABLE AT WEIGHTED AVG.
EXERCISE PRICES 12/31/97 CONTR. LIFE EXERCISE PRICE 12/31/97 EXERCISE PRICE
- ----------------- -------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ .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>
F-21
<PAGE> 49
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:
<TABLE>
<CAPTION>
ACCUMULATED
COSTS AMORTIZATION
--------- ------------
<S> <C> <C>
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 ............ $ -- $ --
========= =========
</TABLE>
F-22
<PAGE> 50
FRESH'N LITE, INC.
BALANCE SHEET
FOR THE THREE MONTH PERIOD ENDING
MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1998
--------------
(unaudited)
CURRENT ASSETS
<S> <C>
Cash ....................................................... $ 201,163
Inventory .................................................. 26,468
-----------
Total Current Assets .................................. 227,631
PROPERTY AND EQUIPMENT (Pledged)
Buildings .................................................. 4,545,522
Land ....................................................... 135,000
Capitalized Land Leases .................................... 2,175,000
Leasehold Improvements ..................................... 30,113
Vehicles and Equipment ..................................... 1,398,060
-----------
Total Property and Equipment - Net .................... 8,283,695
Accumulated Depreciation ................................... (466,475)
-----------
Property and Equipment - Net of Depreciation .......... 7,817,220
OTHER ASSETS
Assets Held for Sale, Net of Accumulated Depreciation ...... 441,373
Franchise System ........................................... 51,333
Restaurant Preopening / Remodel Costs and Other Assets,
Net of Accumulated Amortization .......................... 30,683
Notes Receivable - Related Parties ......................... 146,005
-----------
TOTAL OTHER ASSETS .................................... 669,394
TOTAL ASSETS .......................................... 8,714,256
===========
</TABLE>
F-23
<PAGE> 51
FRESH'N LITE, INC.
BALANCE SHEET
FOR THE THREE MONTH PERIOD ENDING
MARCH 31, 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS EQUITY MARCH 31, 1998
--------------
CURRENT LIABILITIES (unaudited)
<S> <C>
Accrued Expenses ................................................ $ 320,854
Accounts Payable ................................................ 62,357
Current Portion of Capital Lease Obligations .................... 32,139
Current Portion of Notes Payable - Long Term .................... 215,020
-----------
TOTAL CURRENT LIABILITIES .................................. 630,370
OTHER LIABILITIES
Capital Lease Obligations, Net of Current Portion ............... 2,313,173
Notes Payable - Long Term, Net of Current Portion ............... 1,484,590
Deferred Income Tax Liability ................................... 141,200
-----------
TOTAL LIABILITIES .......................................... 3,938,963
SHAREHOLDERS EQUITY
Common Stock, $.01 Par Value; 50,000,000 Shares Authorized;
6,356,852 Shares Issued and Outstanding ....................... 63,568
Additional Paid In Capital ...................................... 3,574,071
Retained Earnings - Prior ....................................... 293,087
Retained Earnings - Current ..................................... 215,436
-----------
Less Treasury Stock, at Cost .................................... (1,250)
TOTAL SHAREHOLDERS EQUITY .................................. 4,144,912
-----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY .................. 8,714,245
===========
</TABLE>
F-24
<PAGE> 52
FRESH'N LITE, INC.
INCOME STATEMENT
FOR THE THREE MONTH PERIODS ENDING
MARCH 31, 1997 AND MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1998
-------------- --------------
(unaudited)
<S> <C> <C>
SALES .................................. $ 712,352 $ 798,219
COST OF SALES .......................... (204,967) (205,156)
--------- ---------
GROSS PROFITS ..................... 507,385 593,063
EXPENSES
Salaries and Contract Labor ............ 208,836 228,022
Payroll and other Taxes ................ 32,024 39,882
Professional Fees ...................... 53,892 8,428
Advertising and Promotional ............ 18,568 15,258
Rent ................................... 35,644 50,579
Insurance .............................. 13,804 17,121
Telephone .............................. 7,858 5,309
Travel ................................. 3,750 3,231
Utilities .............................. 25,045 23,592
Depreciation ........................... 38,464 36,150
Amortization ........................... 192,294 14,850
Interest ............................... 19,744 33,846
Linen and Laundry ...................... 5,284 11,575
Repairs and Maintenance ................ 17,718 20,129
Supplies ............................... 6,518 9,307
Miscellaneous .......................... 2,500 0
--------- ---------
TOTAL EXPENSES .................... 681,943 517,306
--------- ---------
OPERATING INCOME (LOSS) ........... (174,558) 75,757
Profit / (Loss) on sale of Assets ...... -- 111,593
Rental Income .......................... -- 28,086
Income Tax (Expense) Benefit:
Current ........................... -- --
Deferred .......................... -- --
========= =========
NET INCOME ........................ (174,558) 215,436
</TABLE>
F-25
<PAGE> 53
FRESH'N LITE, INC.
STATEMENT OF CASH FLOW
FOR THE THREE MONTH PERIODS ENDING
MARCH 31, 1997 AND MARCH 31, 1998
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) ..................................... $(174,558) $ 215,436
Adjustments to Reconcile Net Income to
Net Cash provided by Operating Activities:
Depreciation ..................................... 38,464 36,150
Amortization ..................................... 192,294 14,850
Net Change in Assets and Liabilities:
Decrease / (Increase) in Inventory ............... (27,768) 103
(Decrease) / Increase in Accounts Payable ........ (18,070) (57,660)
(Decrease) / Increase in Accrued Expenses ........ (40,018) (19,781)
--------- ---------
Total Adjustments ................................ 144,902 (26,338)
--------- ---------
Net Cash Provided by Operating Activities ........ (29,656) 189,098
Cash Flows from Investing Activities:
Capital Expenditures ............................. (239,804) (919,139)
Expenditures for Preopening/Remodel Costs
and Other Assets ............................... (24,020) 0
(Increase) / Decrease in Notes Receivable ........ (19,221) 18,538
Increase in Deferred Franchise System Costs ...... (39,969) 0
Net Proceeds from Sale of Assets ................. 0 461,580
--------- ---------
Net Cash Used in Investing Activities ........ (323,014) (439,021)
Cash Flows from Financing Activities:
Sale of Common Stock ............................. 698,000 297,555
Borrowing on Notes Payable ....................... 385,000 633,158
Principal Payments on Notes Payable .............. (556,727) (500,000)
--------- ---------
Net Cash Provided By Financing Activities .... 526,273 430,713
NET INCREASE / (DECREASE) IN CASH ................ 173,603 180,790
CASH AT BEGINNING OF YEAR ............................. 19,640 20,373
--------- ---------
CASH AT END OF PERIOD ................................. 193,243 201,163
</TABLE>
F-26
<PAGE> 54
FRESH'N LITE, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDING
MARCH 31, 1998
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements of Fresh'n Lite, Inc as of March
31, 1997 and March 31, 1998 have been prepared by the Company, pursuant to the
rules and regulations of the Securities and Exchange Commission. The Company
owns and operates 4 restaurants under the names of "Fresh'n Lite Cafe & Grill"
and "Street Talk Cafe".
The information furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments) which are, in the opinion of management,
necessary to fairly state the operating results for the respective periods.
However, these operating results are not necessarily indicative of the results
expected for the full fiscal year. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principals have been omitted pursuant to such
rules and regulations. The notes to the condensed consolidated financial
statements should be read in conjunction with the notes to the consolidated
financial statements contained in the May 1, 1997 Form 10-KSB. Company
management believes that the disclosures are sufficient for interim financial
reporting purposes.
NOTE 2 - SALE OF RESTAURANT FACILITY
On March 17, 1998 the Company sold its facility in Nacogdoches, Texas. The
Company realized a gain of $111,593 on the sale of this facility which was
previously classified as "assets held for sale."
NOTE 3 - SUBSEQUENT EVENT
On April 3, 1998 the Board of Directors approved a plan to repurchase up to
100,000 shares of the Company's Common Stock. Repurchases will be made from time
to time in open market transactions. All repurchases will be made in accordance
with applicable securities regulations, and the timing of the repurchases will
be dependent upon market conditions, share price, and other factors. The
repurchased Common Stock may be used by the Company to meet the needs of its
various stock option plans, or for other corporate purposes.
On April 8, 1997 the Board of Directors approved an increase in the previously
approved stock repurchase plan from 100,000 to 150,000 shares.
F-27
<PAGE> 55
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THIS OFFERING COVERED BY THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY AGENT OR UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY OR COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information .............................................. 2
Incorporation of Certain Documents by
Reference ........................................................ 2
Forward-looking Statements ......................................... 3
Risk Factors ....................................................... 4
The Company ........................................................ 10
Business Strategy .................................................. 11
Management's Discussion and Analysis of
Operations ....................................................... 12
Description of Property ............................................ 14
Security Ownership of Certain Beneficial
Owners and Management ............................................ 15
Management ......................................................... 16
Executive Compensation ............................................. 17
Certain Relationships and Related
Transactions ..................................................... 19
Use of Proceeds .................................................... 19
Selling Shareholders ............................................... 20
Description of Securities .......................................... 22
Plan of Distribution ............................................... 24
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ................... 25
Legal Matters ...................................................... 25
Experts ............................................................ 25
Fresh'n Lite, Inc. Financial Statements ............................ F-1
</TABLE>
================================================================================
================================================================================
2,095,744 SHARES
[Logo]
FRESH'N LITE, INC.
1,595,744 SHARES OF COMMON STOCK
UNDERLYING 6% CONVERTIBLE
SERIES A AND B DEBENTURES AND
500,000 SHARES OF COMMON STOCK
UNDERLYING COMMON STOCK
PURCHASE WARRANTS
----------------------
PROSPECTUS
----------------------
================================================================================
<PAGE> 56
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has authority under Articles 2.02(A)(16) and 2.02-1 of the
TBCA to indemnify its officers and directors to the extent provided for in such
statute. Article IV of the Company's Bylaws provides indemnification of the
Company's officers and directors to the extent provided for in the TBCA and
allows the Board of Directors to advance legal expenses to the Company's
officers and directors to the extent permitted under the law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted pursuant to the foregoing, the Company has been informed
that in the opinion of Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee ......................... 2,423
Printing Expenses ........................................................... 3,000
Accounting Fees and Expenses ................................................ 2,500
Legal Fees and Expenses ..................................................... 10,000
Blue Sky Fees and Expenses .................................................. 500
327
Miscellaneous Expenses ...................................................... --
Total ......... 18,750
======
</TABLE>
All of the above expenses except the Commission registration fee are
estimated. All of such expenses will be borne by the Company.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
SALES OF UNITS
During 1997, the Company sold 198,450 units for an aggregate offering
price of $10.00 per unit. Each unit consisted of four shares of Common Stock and
two warrants to purchase shares of Common Stock. Each warrant entitles the
holder to purchase one share of Common Stock per warrant, for $3.00 per share,
on or before June 25, 2001. The total amount raised through the sale of such
units was $1,984,500, of which $56,600 was paid in underwriting commissions.
In connection with the sale of the units, the Company had entered into
an underwriting agreement with Dillon-Gage Securities, Inc. ("Dillon-Gage").
After 56,600 units were sold, the underwriting agreement was terminated and
Dillon-Gage refunded $10,000 of expenses previously advanced. Dillon-Gage
retained a 10% commission of $56,600. The Company then completed the sale of
units.
The Company is registered as an issuer broker dealer with the Texas
Securities Board. The offering of the units was made only to residents of the
State of Texas. The Company relied on the Section 3(a)(11) intrastate offering
exemption of the Securities Act for the sale of these securities. The sale of
units concluded on December 12, 1997.
II-1
<PAGE> 57
SALE OF 6% CONVERTIBLE DEBENTURES
On May 29,1998, the Company issued $1,500,000 of the A Debentures to
the Investors. The private placement yielded $1,335,000 in net proceeds to the
Company (after deduction for the payment of the placement agent's fees and fees
of counsel for the Investors). In connection with the private placement, the
Company also issued to the Investors, Warrants to purchase up to an aggregate of
75,000 shares of the Company's Common Stock. The Company issued to the Placement
Selling Shareholder a Warrant to purchase up to 50,000 shares of the Company's
Common Stock. The exercise price for the Warrants is $4.43, which is equal to
110% of the average closing bid prices of the Company's Common Stock for the
five trading days immediately preceding May 29, 1998.
The A Debentures can be converted into shares of the Company's Common
Stock. The number of shares of Common Stock to be issued upon any such
conversion will be determined based upon the lesser of (a) $4.00 per share (the
closing bid price of the Common Stock on May 28, 1998), or (b) the average
closing bid prices of the Company's Common Stock for the five trading day period
ending on the trading day immediately preceding the date on which such A
Debenture is converted, multiplied by a discount ranging from 25% to 17.5%. The
Company granted to the Investors and the Placement Selling Shareholder certain
registration rights with respect to the shares of Common Stock underlying the A
Debentures and the Warrants.
On June 30, 1998, the Company issued $1,500,000 of the B Debentures to
two of the Investors. The private placement yielded $1,335,000 in net proceeds
to the Company (after deduction for the payment of the placement agent's fees
and fees of counsel for two of the Investors). In connection with the private
placement, the Company also issued to two of the Investors, Warrants to purchase
up to an aggregate of 75,000 shares of the Company's Common Stock. The Company
issued to the placement agent a Warrant to purchase up to 50,000 shares of the
Company's Common Stock. The exercise price for the Warrants is $4.43, which is
equal to 110% of the average closing bid prices of the Company's Common Stock
for the five trading days immediately preceding May 29, 1998.
The B Debentures can be converted into shares of the Company's Common
Stock. The number of shares of Common Stock to be issued upon any such
conversion will be determined based upon the lesser of (a) $4.00 per share (the
closing bid price of the Common Stock on May 28, 1998), or (b) the average
closing bid prices of the Company's Common Stock for the five trading day period
ending on the trading day immediately preceding the date on which such B
Debenture is converted, multiplied by a discount ranging from 25% to 17.5%. The
Company granted to two of the Investors and the Placement Selling Shareholder
certain registration rights with respect to the shares of Common Stock
underlying the B Debentures and the Warrants.
The Debentures were sold in an exempt private placement pursuant to
Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
3.1 Articles of Incorporation filed as exhibit 2.1 to the
Company's Form 10-SB/A (File No. 001-13559) filed with the
Securities and Exchange Commission on November 10, 1997
3.2 Amendment to Articles of Incorporation filed as exhibit 2.2 to
the Company's Form 10-SB/A (File No. 001-13559) filed with the
Securities and Exchange Commission on November 10, 1997
3.3 By-Laws filed as exhibit 2.3 to the Company's Form 10-SB/A
(File No. 001-13559) filed with the Securities and Exchange
Commission on November 10, 1997
4.1 Form of Warrant Agreement filed as an exhibit to the Company's
Form 10-KSB dated February 28, 1997 and incorporated by
reference
4.2* Form of Convertible A Debenture due May 29, 2000
II-2
<PAGE> 58
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
4.3* Form of Convertible B Debenture due June 30, 2000
4.4* 6% Convertible Debenture Subscription Agreement dated as of
May 29, 1998 between Fresh'n Lite, Inc. on the one hand and
Dominion Capital Fund, Ltd., Canadian Advantage Limited
Partnership and Sovereign Partners Limited Partnership on the
other
4.5* Modification Agreement dated as of June 30, 1998 between
Fresh'n Lite, Inc. on the one hand and Dominion Capital Fund,
Ltd., Canadian Advantage Limited Partnership and Sovereign
Partners Limited Partnership on the other
4.6* Registration Rights Agreement dated as of May 29, 1998 by and
between Fresh'n Lite, Inc. on the one hand and Dominion
Capital Fund, Ltd., Canadian Advantage Limited Partnership and
Sovereign Limited Partnership on the other
5.1 Opinion of Haynes and Boone, LLP (including the consent of
such firm) regarding the legality of securities being offered
to be filed by amendment
10.1 Primary Distribution Agreement dated as of February 17, 1995,
by and between Consolidated Companies, Inc. on the one hand
and Fresh'n Lite, Inc. on the other filed as exhibit 6.1 to
the Company's Form 10-SB/A2 dated June 24, 1998 and
incorporated by reference
10.2 Lease with Option to Purchase dated as of January 6, 1992 by
and between Gibson Properties, Inc. on the one hand and
Bosko's, Inc. on the other filed as exhibit 6.2 to the
Company's Form 10-SB/A2 dated June 24, 1998 and incorporated
by reference
10.3 Restaurant Lease dated as of September 15, 1997 by and between
USRP (Midon), LLC on the one hand and Fresh'n Lite, Inc. on
the other filed as exhibit 6.3 to the Company's Form 10-SB/A2
dated June 24, 1998 and incorporated by reference
10.4 Ground Lease dated as of February 21, 1995 by and between
Peter D. Fonberg Investments on the one hand and Fresh'n Lite,
Inc. on the other filed as exhibit 6.4 to the Company's Form
10-SB/A2 dated June 24, 1998 and incorporated by reference
10.5 Ground Lease dated as of July 15, 1996 by and between
MacArthur Partners, Ltd. on the one hand and Fresh'n Lite,
Inc. on the other filed as exhibit 6.5 to the Company's Form
10-SB/A2 dated June 24, 1998 and incorporated by reference
10.6 Ground Lease Agreement dated as of April 11, 1997 by and
between Robert M. Farrell Development, Ltd. on the one hand
and Fresh'n Lite, Inc. on the other filed as exhibit 6.6 to
the Company's Form 10-SB/A2 dated June 24, 1998 and
incorporated by reference
10.7 Lease Agreement dated as of November 7, 1990 by and between
Harold Wilder on the one hand and Bosko's, Inc. on the other
filed as exhibit 6.7 to the Company's Form 10-SB/A2 dated June
24, 1998 and incorporated by reference
10.8 1997 Stock Option Plan filed as exhibit 6.8 to the Company's
Form 10-SB/A2 dated June 24, 1998 and incorporated by
reference
10.9 Franchise Agreement dated as of October 1, 1995 by and between
Fresh'n Lite, Inc. on the one hand and F'NL Investments, LLC
on the other filed as exhibit 6.9 to the Company's Form
10-SB/A2 dated June 24, 1998 and incorporated by reference
10.10 Lease with Option to Purchase dated as of October 15, 1993 by
and between Connor Patman and Steve and Ann M. Raffaelli on
the one hand and Fresh'n Lite, Inc. on the other filed as
exhibit 6.10 to the Company's Form 10-SB/A2 dated June 24,
1998 and incorporated by reference
10.11 Sublease Agreement dated as of May 25, 1998 by and between
Jason Sukiennik, Jennifer Sukiennik and Pete Sukiennik on the
one hand and Fresh'n Lite, Inc. on the other filed as exhibit
6.11 to the Company's Form 10-SB/A2 dated June 24, 1998 and
incorporated by reference
13.1 Annual Report and Quarterly Report (To be filed by
amendment)
23.1 Consent of Haynes and Boone, LLP (included as part of its
opinion filed as Exhibit 5.1)
23.2* Consent of T.G. Prothro and Company, PLLC, independent
auditors
24.1* Power of Attorney of officers and directors of the Company
24.2* Certified resolution of the Board of Directors regarding Power
of Attorney
27.1* Financial Data Schedule
27.2* Financial Data Schedule
- ----------------------------
* Filed herewith.
II-3
<PAGE> 59
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in this Registration Statement.
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 60
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 61
SIGNATURES
In accordance with the requirements of the Securities Act, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned in the City of Longview,
State of Texas, on June 29, 1998.
FRESH'N LITE, INC.
By: /s/ STANLEY L. SWANSON
------------------------------
Stanley L. Swanson,
Chief Executive Officer
In accordance with the requirements of the Securities Act, this
registration was signed by the following persons in the capacities indicated on
June 29, 1998
<TABLE>
<CAPTION>
Signatures Title
- ---------- -----
<S> <C>
/s/ STANLEY L. SWANSON Chief Executive Officer, Chairman of the Board
- --------------------------------- and President
Stanley L. Swanson
/s/ CURTIS A SWANSON Director, Chief Financial Officer and Treasurer
- ---------------------------------
Curtis A. Swanson
/s/ JEAN HEDGES Controller
- ---------------------------------
Jean Hedges
/s/ EDWARD DMYTRYK* Director
- ---------------------------------
Edward Dmytryk
/s/ ROBERT LILLY* Director
- ---------------------------------
Robert Lilly
/s/ HENRY LEONARD* Director
- ---------------------------------
Henry Leonard
</TABLE>
*By: /s/ STANLEY L. SWANSON
--------------------------
Stanley L. Swanson, Attorney-in-Fact
II-6
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ------------------------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation filed as exhibit 2.1 to the Company's Form
10-SB/A (File No. 001-13559) filed with the Securities and Exchange
Commission on November 10, 1997
3.2 Amendment to Articles of Incorporation filed as exhibit 2.2 to the
Company's Form 10-SB/A (File No. 001-13559) filed with the Securities
and Exchange Commission on November 10, 1997
3.3 By-Laws filed as exhibit 2.3 to the Company's Form 10-SB/A (File No.
001-13559) filed with the Securities and Exchange Commission on
November 10, 1997
4.1 Form of Warrant Agreement filed as an exhibit to the Company's Form
10-KSB dated February 28, 1997 and incorporated by reference
4.2* Form of Convertible A Debenture due May 29, 2000
4.3* Form of Convertible B Debenture due June 30, 2000
4.4* 6% Convertible Debenture Subscription Agreement dated as of May 29,
1998 between Fresh'n Lite, Inc. on the one hand and Dominion Capital
Fund, Ltd., Canadian Advantage Limited Partnership and Sovereign
Partners Limited Partnership on the other
4.5* Modification Agreement dated as of June 30, 1998 between Fresh'n Lite,
Inc. on the one hand and Dominion Capital Fund, Ltd., Canadian
Advantage Limited Partnership and Sovereign Partners Limited
Partnership on the other
4.6* Registration Rights Agreement dated as of May 29, 1998 by and between
Fresh'n Lite, Inc. on the one hand and Dominion Capital Fund, Ltd.,
Canadian Advantage Limited Partnership and Sovereign Limited
Partnership on the other
5.1 Opinion of Haynes and Boone, LLP (including the consent of such firm)
regarding the legality of securities being offered to be filed by
amendment
10.1 Primary Distribution Agreement dated as of February 17, 1995, by and
between Consolidated Companies, Inc. on the one hand and Fresh'n Lite,
Inc. on the other filed as exhibit 6.1 to the Company's Form 10-SB/A2
dated June 24, 1998 and incorporated by reference
10.2 Lease with Option to Purchase dated as of January 6, 1992 by and
between Gibson Properties, Inc. on the one hand and Bosko's, Inc. on
the other filed as exhibit 6.2 to the Company's Form 10-SB/A2 dated
June 24, 1998 and incorporated by reference
10.3 Restaurant Lease dated as of September 15, 1997 by and between USRP
(Midon), LLC on the one hand and Fresh'n Lite, Inc. on the other filed
as exhibit 6.3 to the Company's Form 10-SB/A2 dated June 24, 1998 and
incorporated by reference
10.4 Ground Lease dated as of February 21, 1995 by and between Peter D.
Fonberg Investments on the one hand and Fresh'n Lite, Inc. on the other
filed as exhibit 6.4 to the Company's Form 10-SB/A2 dated June 24, 1998
and incorporated by reference
10.5 Ground Lease dated as of July 15, 1996 by and between MacArthur
Partners, Ltd. on the one hand and Fresh'n Lite, Inc. on the other
filed as exhibit 6.5 to the Company's Form 10-SB/A2 dated June 24, 1998
and incorporated by reference
10.6 Ground Lease Agreement dated as of April 11, 1997 by and between Robert
M. Farrell Development, Ltd. on the one hand and Fresh'n Lite, Inc. on
the other filed as exhibit 6.6 to the Company's Form 10-SB/A2 dated
June 24, 1998 and incorporated by reference
10.7 Lease Agreement dated as of November 7, 1990 by and between Harold
Wilder on the one hand and Bosko's, Inc. on the other filed as exhibit
6.7 to the Company's Form 10-SB/A2 dated June 24, 1998 and incorporated
by reference
10.8 1997 Stock Option Plan filed as exhibit 6.8 to the Company's Form
10-SB/A2 dated June 24, 1998 and incorporated by reference
10.9 Franchise Agreement dated as of October 1, 1995 by and between Fresh'n
Lite, Inc. on the one hand and F'NL Investments, LLC on the other filed
as exhibit 6.9 to the Company's Form 10-SB/A2 dated June 24, 1998 and
incorporated by reference
10.10 Lease with Option to Purchase dated as of October 15, 1993 by and
between Connor Patman and Steve and Ann M. Raffaelli on the one hand
and Fresh'n Lite, Inc. on the other filed as exhibit 6.10 to the
Company's Form 10-SB/A2 dated June 24, 1998 and incorporated by
reference
10.11 Sublease Agreement dated as of May 25, 1998 by and between Jason
Sukiennik, Jennifer Sukiennik and Pete Sukiennik on the one hand and
Fresh'n Lite, Inc. on the other filed as exhibit 6.11 to the Company's
Form 10-SB/A2 dated June 24, 1998 and incorporated by reference
13.1 Annual Report and Quarterly Report (To be filed by Amendment.)
</TABLE>
II-7
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ------------------------------------------------------------------------------
<S> <C>
23.1 Consent of Haynes and Boone, LLP (included as part of its opinion filed
as Exhibit 5.1)
23.2* Consent of T.G. Prothro and Company, PLLC, independent auditors
24.1* Power of Attorney of officers and directors of the Company
24.2* Certified resolution of the Board of Directors regarding Power of
Attorney
27.1* Financial Data Schedule
27.2* Financial Data Schedule
</TABLE>
- ---------------------------
* Filed herewith.
II-8
<PAGE> 1
EXHIBIT 4.2
No. $ USD
--- ---------
FRESH'N LITE, INC.
CONVERTIBLE A DEBENTURE DUE MAY 29, 2000
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS DEBENTURE SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE DEBENTURE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS DEBENTURE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
THIS CONVERTIBLE A DEBENTURE is one of a duly authorized issue
of Convertible A Debentures of Fresh'n Lite, Inc., a corporation duly organized
and existing under the laws of the State of Texas (the "ISSUER"), issued on May
29, 1998 (the "Issuance Date"), and designated as its Convertible A Debenture
due May 29, 2000, in an aggregate face amount not exceeding One Million Five
Hundred Thousand (USD$1,500,000) Dollars.
This Debenture has been issued under the terms and provisions
of the 6% Convertible Debenture Subscription Agreement dated as of May 29, 1998
between the ISSUER and HOLDER (the "Agreement") and shall be subject to all of
the terms and conditions and entitled to all of the benefits thereof.
FOR VALUE RECEIVED, the ISSUER promises to pay to
the registered holder hereof or its registered assigns, if any (the "HOLDER"),
the principal sum of:
United States Dollars,
<PAGE> 2
on May 29, 2000 (the "Maturity Date"), and to pay interest, as outlined below,
at the rate of six (6%) percent per annum on the principal sum outstanding for
the term of this Debenture. Accrual of interest shall commence on the date
hereof. Interest shall be payable by the ISSUER, at its option, in cash or in
that number of shares of Common Stock (at a price per share calculated pursuant
to the conversion formula contained below) upon conversion by the HOLDER, or
redemption by the ISSUER, or upon the Maturity Date if not previously fully
converted and/or fully redeemed; provided, however, that any shares of Common
Stock so delivered must be either (i) registered at such time for resale under
the Securities Act, or (ii) otherwise resalable under the Securities Act
without restriction to volume limitations under Rule 144. The interest so
payable will be paid to the person in whose name this Debenture (or one or more
predecessor Debentures) is registered on the records of the ISSUER regarding
registration and transfers of the Debenture (the "Debenture Register"),
provided, however, that the ISSUER'S obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions contained in the Agreement. The
principal of this Debenture is payable as provided below in shares of Common
Stock at any time prior to the Maturity Date upon the HOLDER exercising its
conversion rights set forth below. In the event this Debenture is outstanding
on the Maturity Date it shall automatically be converted into freely tradable
shares of Common Stock (as set forth above) as if the HOLDER voluntarily
elected such conversion in accordance with the procedures, terms and conditions
set forth in this Debenture, provided, that (i) the Common Stock is listed on
the OTC Bulletin Board or Nasdaq Small Cap Stock Market, (ii) the Bid Price is
greater than One ($1.00) Dollar for the ten (10) Trading Days immediately
preceding the Maturity Date, (iii) there has not been any suspension in the
trading of the Common Stock on the OTC Bulletin Board or the Nasdaq Small Cap
Stock Market during the thirty (30) Trading Days immediately preceding the
Maturity Date, and the (iv) the ISSUER has been in compliance in all material
respects with the terms and conditions of this Debenture and the Agreement. In
the event all of the aforementioned conditions are not satisfied, or the ISSUER
is not able to issue freely tradable shares of Common Stock as set forth above,
the ISSUER agrees to pay to the HOLDER, in cash, within three (3) Trading Days
of the Maturity Date, the dollar value of the number of shares of Common Stock
issuable to the HOLDER as if the HOLDER had exercised its conversion rights on
the Maturity Date, multiplied by the closing bid price of the Common Stock on
the Maturity Date. Principal and interest are payable at the address last
appearing on the Debenture Register as designated in writing by the HOLDER
hereof from time to time.
The Debenture is subject to the following additional provisions:
1. The Debenture is exchangeable for like Debentures in
equal aggregate principal amount of authorized denominations, as requested by
the HOLDER surrendering the same. No service charge will be made for such
registration or transfer or exchange, although the HOLDER shall be responsible
for its own expenses associated with complying with the restrictions on
transfer of the Debenture in the Agreement.
<PAGE> 3
2. The ISSUER shall be entitled to withhold from all
payments of principal of this Debenture any amounts required to be withheld
under the applicable provisions of the U.S. Internal Revenue Code of 1986, as
amended, or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment
representations of the original HOLDER hereof and may be transferred or
exchanged in the United States only in compliance with the Securities Act and
applicable state securities laws and in compliance with the restrictions on
transfer provided in the Agreement. Prior to the due presentment for such
transfer of this Debenture, the ISSUER and any agent of the ISSUER may treat
the person in whose name this Debenture is duly registered on the Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and all other purposes, whether or not this Debenture is overdue, and
neither the ISSUER nor any such agent shall be affected by notice to the
contrary. The transferee shall be bound, as the original HOLDER by the same
representations and terms described herein and under the Agreement.
4. The HOLDER is entitled, at its option, at any time
after the Issuance Date, to convert this Debenture, in whole or in part, in
accordance with the following terms and conditions:
(a) The HOLDER may exercise its right to convert
the Debenture by telecopying an executed and completed notice of
conversion (the "Notice of Conversion") to the ISSUER and delivering
the original Notice of Conversion and the original Debenture to the
ISSUER by express courier. Each business date on which a Notice of
Conversion is telecopied to and received by the ISSUER in accordance
with the provisions hereof shall be deemed a "Conversion Date". The
ISSUER will transmit the certificates representing shares of Common
Stock issuable upon conversion of the Debenture (together with the
certificates representing the Debenture not so converted) to the
HOLDER via express courier, by electronic transfer (if applicable) or
otherwise within three business days after the Conversion Date if the
ISSUER has received the original Notice of Conversion and Debenture
being so converted by such date. In addition to any other remedies
which may be available to the HOLDER, in the event that the ISSUER
fails to effect delivery of such shares of Common Stock within such
three business day period, the HOLDER will be entitled to revoke the
Notice of Conversion by delivering a notice to such effect to the
ISSUER whereupon the ISSUER and the HOLDER shall each be restored to
their respective positions immediately prior to delivery of the Notice
of Conversion. The Notice of Conversion and Debenture representing
the portion of the Debenture converted shall be delivered as follows:
To the ISSUER: Fresh'n Lite, Inc.
1705 East Whaley
Longview, Texas 75601
Attention: Curtis Swanson
Facsimile: (903) 758-2811
Telephone: (903) 758-1666
3
<PAGE> 4
In the event that the Common Stock issuable upon conversion of
the Debenture is not delivered, within three (3) business days of
receipt by the ISSUER of a valid Notice of Conversion and the
Debenture to be converted, the ISSUER shall pay to the HOLDER, in
immediately available funds, upon demand, as liquidated damages for
such failure and not as a penalty, for each $100,000 principal amount
of Debenture sought to be converted, $500 for each of the first ten
(10) days and $1,000 per day thereafter that the shares of Common
Stock are not delivered, which liquidated damages shall run from the
fourth business day after the Conversion Date up until the time that
either the Conversion Notice is revoked or the Common Stock is
delivered, at which time such liquidated damages shall cease. Any and
all payments required pursuant to this paragraph shall be payable only
in cash immediately.
(b) Each Debenture shall be convertible, at the
sole option of the HOLDER, into that number of shares of fully paid
and nonassessable shares of Common Stock which is to be derived from
dividing the Conversion Amount by the Conversion Price. For purposes
of this Debenture, the Conversion Amount shall mean the principal
dollar amount of the Debenture being converted. The Conversion Price
shall be equal to the lesser of: (i) one hundred (100%) percent of the
closing bid price of the Common Stock on the trading day immediately
preceding the Issuance Date, or (ii) the average closing bid prices of
the Common Stock for the five day trading period ending on the trading
day immediately preceding the Conversion Date (the "Average Price")
multiplied by the "Applicable Discount", where the Applicable Discount
is calculated as follows: (a) from the first (1st) to the thirtieth
(30th) day after the first Conversion Date the HOLDER may convert up
to thirty three (33%) percent of the remaining principal amount of the
Debenture at an Applicable Discount equal to eighty two and one half
(82.5%) percent; (b) from the thirty first (31st) day to the sixtieth
(60th) after the first Conversion Date the HOLDER may convert up to
sixty six (66%) percent of the remaining principal amount of the
Debenture at an Applicable Discount equal to seventy nine (79%)
percent; and (c) after the sixty first (61st) day after the first
Conversion Date the HOLDER may convert any remaining principal amount
of the Debenture at an Applicable Discount equal to seventy five (75%)
percent. Notwithstanding the foregoing, the HOLDER may exercise its
conversion rights at any time after the Issuance Date at a Conversion
Price equal to (i) above, or at an Applicable Discount of eighty two
and one-half (82.5%) percent. The closing bid price shall be deemed
to be the reported last bid price regular way as reported by Bloomberg
LP or if unavailable, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national
securities exchange, the closing bid price as reported by NASDAQ or
such other system then in use, or, if the Common Stock is not quoted
by any such organization, the closing bid price in the
over-the-counter market as furnished by the principal national
securities exchange on which the Common Stock is traded.
4
<PAGE> 5
(c) The number of shares of Common Stock issuable
upon the conversion of this Debenture and the Conversion Price shall
be subject to adjustment as follows:
(i) In case the ISSUER shall (A) pay a
dividend on Common Stock in Common Stock or securities
convertible into, exchangeable for or otherwise entitling a
holder thereof to receive Common Stock, (B) declare a dividend
payable in cash on its Common Stock and at substantially the
same time offer its shareholder a right to purchase new Common
Stock (or securities convertible into, exchangeable for or
otherwise entitling a holder thereof to receive Common Stock)
from proceeds of such dividend (all Common Stock so issued
shall be deemed to have been issued as a stock dividend), (C)
subdivide its outstanding shares of Common Stock into a
greater number of shares of Common Stock, (D) combine its
outstanding shares of Common Stock into a smaller number of
shares of Common Stock, or (E) issue by reclassification of
its Common Stock any shares of Common Stock of the ISSUER, the
Conversion Price shall be adjusted so that the holders of this
Debenture shall be entitled to receive after the happening of
any of the events described above that number and kind of
shares of Common Stock as the holders would have received had
such Debenture been converted immediately prior to the
happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this subdivision
shall become effective immediately after the close of business
on the record date in the case of a stock dividend and shall
become effective immediately after the close of business on
the record date in the case of a stock split, subdivision,
combination or reclassification.
(ii) Any adjustment required to be made
by this paragraph 4(c) will not have to be made if such
adjustment would not require an increase or decrease in one
(1%) percent or more in the number of shares of Common Stock
issuable upon conversion of this Debenture.
(iii) Whenever the Conversion Price of
this Debenture is adjusted, as herein provided, such
adjustment shall be effected (to the nearest cent) by
multiplying such Conversion Price immediately prior to such
adjustment by a fraction of which the numerator shall be the
number of shares of Common Stock issuable upon the exercise of
each share of Debenture immediately prior to such adjustment,
and of which the denominator shall be the number of shares of
Common Stock issuable immediately thereafter.
(d) In the case of any (i) consolidation or
merger of the ISSUER into any entity (other than a consolidation or
merger that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the
ISSUER), (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the ISSUER as an entirety or
substantially as an entirety, or (iii) reclassification, capital
reorganization or change of the Common Stock (other than solely
5
<PAGE> 6
a change in par value, or from par value to no par value), in each
case as a result of which shares of Common Stock shall be converted
into the right to receive stock, securities or other property
(including cash or any combination thereof), each holder of a
Debenture then outstanding shall have the right thereafter to convert
such share only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale, transfer,
capital reorganization or reclassification by a holder of the number
of shares of Common Stock of the ISSUER into which such Debenture
would have been converted immediately prior to such consolidation,
merger, sale, transfer, capital reorganization or reclassification,
assuming such holder of Common Stock of the ISSUER (A) is not an
entity with which the ISSUER consolidated or into which such sale or
transfer was made, as the case may be ("constituent entity"), or an
affiliate of the constituent entity, and (B) failed to exercise his or
her rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such
consolidation, merger, sale or transfer (provided that if the kind or
amount of securities, cash or other property receivable upon such
consolidation, merger, sale or transfer is not the same for each share
of Common Stock of the ISSUER held immediately prior to such
consolidation, merger, sale or transfer by other than a constituent
entity or an affiliate thereof and in respect of which the ISSUER
merged into the ISSUER or to which such rights or election shall not
have been exercised ("non-electing share"), then for the purpose of
this paragraph (4)(d) the kind and amount of securities, cash or other
property receivable upon such consolidation, merger, sale or transfer
by each non-electing share shall be deemed to be the kind and amount
so receivable per share by a majority of the non-electing shares). If
necessary, appropriate adjustment shall be made in the application of
the provision set forth herein with respect to the rights and interest
thereafter of theHOLDERS, to the end that the provisions set forth
herein shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other
securities or property thereafter deliverable on the conversion of
this Debenture. The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers, capital
reorganizations and reclassifications. The ISSUER shall not effect
any such consolidation, merger, sale or transfer unless prior to or
simultaneously with the consummation thereof the successor issuer or
entity (if other than the ISSUER) resulting from such consolidation,
merger, sale or transfer shall assume, by written instrument, the
obligation to deliver to theHOLDER such shares of Common Stock,
securities or assets as, in accordance with the foregoing provisions,
such HOLDER may be entitled to receive under this paragraph.
(e) The ISSUER will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, 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 to be observed or performed hereunder by the ISSUER, but
will at all times in good faith assist in the carrying out of all the
provisions of this paragraph and in taking of all such action as may
be necessary or appropriate in order to protect the conversion rights
of the HOLDERS against impairment.
6
<PAGE> 7
5. No provision of this Debenture shall alter or impair
the obligation of the ISSUER, which is absolute and unconditional, upon an
Event of Default (as defined below), to pay the principal of, and interest on
this Debenture at the place, time, and rate, and in the coin or currency herein
prescribed.
6. The ISSUER hereby expressly waives demand and
presentment for payment, notice on nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, and
diligence in taking any action to collect amounts called for hereunder and
shall be directly and primarily liable for the payment of all sums owing and to
be owing hereon, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.
7. If one or more of the following described "Events of
Default" shall occur,
(a) Any of the representations or warranties made
by the ISSUER herein, or in the Agreement (including all Exhibits
annexed thereto) shall have been incorrect when made in any material
respect; or
(b) The ISSUER shall fail to perform or observe
in any material respect any covenant, term, provision, condition,
agreement or obligation of the ISSUER under this Debenture, the
Registration Rights Agreement and the Agreement, between the parties
of even date herewith; or
(c) A trustee, liquidator or receiver shall be
appointed for the ISSUER or for a substantial part of its property or
business without its consent and shall not be discharged within thirty
(30) days after such appointment; or
(d) Any governmental agency or any court of
competent jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any substantial
portion of the properties or assets of the ISSUER and shall not be
dismissed within thirty (30) calendar days thereafter; or
(e) Bankruptcy reorganization, insolvency or
liquidation proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the ISSUER and, if instituted against the
ISSUER, ISSUER shall by any action or answer approve of, consent to or
acquiesce in any such proceedings or admit the material allegations
of, or default in answering a petition filed in any such proceeding or
such proceedings shall not be dismissed within thirty (30) days
thereafter; or
7
<PAGE> 8
(f) The Common Stock is delisted from trading on
the OTC Bulletin Board or, if applicable, the NASDAQ Small Cap Stock
Market, or the Company has received notice of final action concerning
delisting from the OTC Bulletin Board or, if applicable, the NASDAQ
Small Cap Stock Market. However, the foregoing will not be considered
an Event of Default if the Company has thereafter become relisted, or
received written confirmation that it has satisfied the notice of
final action (and no threat of delisting exists) within twenty (20)
days after the happening of either of the foregoing events; or
(g) The effectiveness of the Registration
Statement including the shares of Common Stock underlying this
Debenture has been suspended for a period of ten (10) business days.
Then, or at any time thereafter, and in each and every such
case, unless such Event of Default shall have been waived in writing by the
HOLDER (which waiver shall not be deemed to be a waiver of any subsequent
default), at the option of the HOLDER, and in the HOLDER'S sole discretion, the
HOLDER may consider this Debenture immediately due and payable in cash, at the
equivalent dollar value of the number of shares of Common Stock issuable upon
conversion (assuming a Conversion Date as of the date of such notice from the
HOLDER) multiplied by the Bid Price on the Trading Day immediately preceding
such notice from the HOLDER, without presentment, demand protest or notice of
any kind, all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and HOLDER
may immediately, and without expiration of any period of grace, enforce any and
all of the HOLDER'S rights and remedies provided herein or any other rights or
remedies afforded by law. It is agreed that in the event of such action, such
HOLDER shall be entitled to receive all reasonable fees, costs and expenses
incurred, including without limitation such reasonable fees and expenses of
attorneys (if litigation is commenced).
8. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
9. In addition to the terms of the Registration Rights
Agreement of even date herewith, and to the extent the Registrable Securities
are not previously registered pursuant to the Registration Rights Agreement,
the HOLDER shall have the right to include all of the shares of Common Stock
underlying this Debenture (the "Registrable Securities") as part of any
registration of securities filed by the ISSUER(other than in connection with a
transaction contemplated by Rule 145(a) promulgated under the Act or pursuant
to Form S-8) and must be notified in writing of such filing; provided, however,
that the HOLDER agrees it shall not have any piggy-back registration rights
pursuant to this Debenture if the shares of Common Stock underlying this
Debenture may be sold in the United States pursuant to the provisions of Rule
144 without limitation. HOLDER shall have five (5) business days after receipt
of the aforementioned notice from the ISSUER, to notify the ISSUER in writing
as to whether the ISSUER is to include HOLDER or not include HOLDER as part of
the registration; provided,
8
<PAGE> 9
however, that if any registration pursuant to this paragraph shall be
underwritten, in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this paragraph be included in
the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters. If in the good faith judgment of the
underwriter evidenced in writing of such offering only a limited number of
Registrable Securities should be included in such offering, or no such shares
should be included, the HOLDER, and all other selling stockholders, shall be
limited to registering such proportion of their respective shares as shall
equal the proportion that the number of shares of selling stockholders
permitted to be registered by the underwriter in such offering bears to the
total number of all shares then held by all selling stockholders desiring to
participate in such offering. Those Registrable Securities which are excluded
from an underwritten offering pursuant to the foregoing provisions of this
paragraph (and all other Registrable Securities held by the selling
stockholders) shall be withheld from the market by the HOLDERS thereof for a
period, not to exceed one hundred eighty (180) days, which the underwriter may
reasonably determine is necessary in order to effect such underwritten
offering. The ISSUER shall have the right to terminate or withdraw any
registration initiated by it under this Debenture prior to the effectiveness of
such registration whether or not any HOLDER elected to include securities in
such registration. All registration expenses incurred by the ISSUER in
complying with this Debenture shall be paid by the ISSUER, exclusive of
underwriting discounts, commissions and legal fees and expenses for counsel to
the HOLDERS of this Debenture.
10. This Debenture and the Agreement (along with all
exhibits attached thereto) constitute the full and entire understanding and
agreement between the ISSUER and HOLDER with respect hereto. Neither this
Debenture nor any terms hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the ISSUER and the HOLDER. Any
capitalized terms shall have the same meaning as given in the Agreement. In
the event of any inconsistencies between this Debenture and the Agreement, the
Agreement shall control.
11. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York.
12. The convertibility of this Debenture shall be
restricted such that that portion of the Debenture which, if otherwise
converted, would result in HOLDER being deemed the beneficial owner, in
accordance with the provisions of Rule 13d-3 of the 1934 Act, of 4.99% or more
of the then issued and outstanding Common Stock, shall not be convertible until
the HOLDER is not deemed a beneficial owner of 4.99% or more of the then issued
and outstanding Common Stock.
9
<PAGE> 10
13. This Debenture, together with all documents
referenced herein, embody the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or agreement
of any kind not expressly set forth in this Debenture or the Agreement
(including all Exhibits annexed thereto) shall affect, or be used to interpret,
change or restrict, the express terms and provisions of this Debenture.
14. The ISSUER shall have the right to redeem this
Debenture, in whole or in part, in cash at the Redemption Price (as defined
below) at any time by thereafter providing seven (7) business days prior
written notice (the "Redemption Notice") to the HOLDER. The ISSUER shall wire
transfer the appropriate amount of funds into an escrow account to complete the
redemption which shall be on the seventh business day after the Redemption
Notice was served upon the HOLDER (the "Redemption Date"). On the Redemption
Date, the HOLDER'S right to convert the Debentures shall terminate and be
canceled immediately. In the event the ISSUER does not wire transfer the
appropriate amount of funds into the escrow account on or before the Redemption
Date, or shall otherwise fail to comply with the redemption provisions set
forth herein, then it shall have waived its right to redeem this Debenture at
any time.
The Redemption Notice shall set forth (i) the Redemption Date,
(ii) the redemption price, which shall be equal to the cash value of the number
of shares of Common Stock issuable upon conversion of the outstanding principal
amount of this Debenture being redeemed (assuming a Conversion Date as of the
Trading Day immediately preceding the day the ISSUER served the Redemption
Notice upon the HOLDER) multiplied by the closing bid price of the Common Stock
on the Trading Day immediately preceding the day the ISSUER served the
Redemption Notice upon the HOLDER, plus all accrued and unpaid interest (the
"Redemption Price"), (iii) a statement that interest on the Debenture being
redeemed will cease to accrue on such Redemption Date, and (iv) a statement of
or reference to the conversion right set forth in this Debenture (including
that the right to give a notice of conversion in respect of any shares to be
redeemed shall terminate on the Redemption Date). The Redemption Notice shall
be irrevocable, and it shall be mailed, postage prepaid, at least seven (7)
business days prior to the Redemption Date to the HOLDER at their address as
the same shall appear on the books of the Company. If fewer than all of the
principal amount of the Debentures owned by the HOLDER are then to be redeemed,
the notice shall specify the amount thereof that is to be redeemed and, if
practicable, the numbers of the certificates representing such Debenture.
At any time up to the date immediately prior to the Redemption
Date, the HOLDER shall have the right to convert this Debenture into Common
Stock as more fully provided hereof. Unless so converted, at the close of
business on the Redemption Date, subject to the conditions described herein,
the portion of this Debenture being redeemed shall be automatically canceled
and converted into a right to receive the Redemption Price, and all rights of
the Debentures, including the right to conversion shall cease without further
action. Immediately following the Redemption Date, the HOLDER shall surrender
their original Debenture at the office of the ISSUER, and the ISSUER shall
issue to the HOLDER a new Debenture Certificate for the principal amount that
remains outstanding, if any.
10
<PAGE> 11
The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price under the terms hereof in the event of any
stock dividend, stock split, combination of shares or similar event.
The ISSUER shall not be entitled to send any Redemption Notice
and begin the redemption procedure hereunder unless it has:
(i) the full amount of the Redemption Price in
cash, available in a demand or other immediately available account in
a bank or similar financial institution;
(ii) immediately available credit facilities, in
the full amount of the Redemption Price with a bank or similar
financial institution; or
(iii) a combination of the items set forth in (a)
and (b) above, aggregating the full amount of the Redemption Price.
Upon delivery of the Redemption Notice, the ISSUER and the
HOLDER shall agree on reasonable arrangements for a closing of the redemption
of this Debenture.
[Remainder of page intentionally left blank]
11
<PAGE> 12
IN WITNESS WHEREOF, the ISSUER has caused this Convertible A
Debenture to be duly executed by an officer thereunto duly authorized.
FRESH'N LITE, INC.
By
------------------------------
Name:
Title:
Date: May , 1998
12
<PAGE> 1
EXHIBIT 4.3
No. __ $_________ USD
FRESH'N LITE, INC.
CONVERTIBLE B DEBENTURE DUE
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS
AND HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE
SECURITIES ACT. THIS DEBENTURE SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A
SOLICITATION OF AN OFFER TO BUY THE DEBENTURE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS DEBENTURE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT
FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
THIS CONVERTIBLE A DEBENTURE is one of a duly authorized issue
of Convertible B Debentures of Fresh'n Lite, Inc., a corporation duly organized
and existing under the laws of the State of Texas (the "ISSUER"), issued on
______ (the "Issuance Date"), and designated as its Convertible B Debenture due
__________, in an aggregate face amount not exceeding One Million Five Hundred
Thousand (USD$1,500,000) Dollars.
This Debenture has been issued under the terms and provisions
of the 6% Convertible Debenture Subscription Agreement dated as of May ,
1998 between the ISSUER and HOLDER (the "Agreement") and shall be subject to
all of the terms and conditions and entitled to all of the benefits thereof.
FOR VALUE RECEIVED, the ISSUER promises to pay to
the registered holder hereof or its registered assigns, if any (the "HOLDER"),
the principal sum of:
United States Dollars,
on _______ (the "Maturity Date"), and to pay interest, as outlined below, at
the rate of six (6%) percent per annum on the principal sum outstanding for the
term of this Debenture. Accrual of
<PAGE> 2
interest shall commence on the date hereof. Interest shall be payable by the
ISSUER, at its option, in cash or in that number of shares of Common Stock (at
a price per share calculated pursuant to the conversion formula contained
below) upon conversion by the HOLDER, redemption by the ISSUER, or upon the
Maturity Date if not previously fully converted and/or fully redeemed;
provided, however, that any shares of Common Stock so delivered must be either
(i) registered at such time for resale under the Securities Act, or (ii)
otherwise resalable under the Securities Act without restriction to volume
limitations under Rule 144. The interest so payable will be paid to the person
in whose name this Debenture (or one or more predecessor Debentures) is
registered on the records of the ISSUER regarding registration and transfers of
the Debenture (the "Debenture Register"), provided, however, that the ISSUER'S
obligation to a transferee of this Debenture arises only if such transfer, sale
or other disposition is made in accordance with the terms and conditions
contained in the Agreement. The principal of this Debenture is payable as
provided below in shares of Common Stock at any time prior to the Maturity Date
upon the HOLDER exercising its conversion rights set forth below. In the event
this Debenture is outstanding on the Maturity Date it shall automatically be
converted into freely tradable shares of Common Stock (as set forth above) as
if the HOLDER voluntarily elected such conversion in accordance with the
procedures, terms and conditions set forth in this Debenture, provided, that
(i) the Common Stock is listed on the OTC Bulletin Board or Nasdaq Small Cap
Stock Market, (ii) the Bid Price is greater than One ($1.00) Dollar for the ten
(10) Trading Days immediately preceding the Maturity Date, (iii) there has not
been any suspension in the trading of the Common Stock on the OTC Bulletin
Board or the Nasdaq Small Cap Stock Market during the thirty (30) Trading Days
immediately preceding the Maturity Date, and the (iv) the ISSUER has been in
compliance in all material respects with the terms and conditions of this
Debenture and the Agreement. In the event all of the aforementioned conditions
are not satisfied, or the ISSUER is not able to issue freely tradable shares of
Common Stock as described above, the ISSUER agrees to pay to the HOLDER, in
cash, within three (3) Trading Days of the Maturity Date, the dollar value of
the number of shares of Common Stock issuable to the HOLDER as if the HOLDER
had exercised its conversion rights on the Maturity Date, multiplied by the
closing bid price of the Common Stock on the Maturity Date. Principal and
interest are payable at the address last appearing on the Debenture Register as
designated in writing by the HOLDER hereof from time to time.
The Debenture is subject to the following additional provisions:
1. The Debenture is exchangeable for like Debentures in
equal aggregate principal amount of authorized denominations, as requested by
the HOLDER surrendering the same. No service charge will be made for such
registration or transfer or exchange, although the HOLDER shall be responsible
for its own expenses associated with complying with the restrictions on
transfer of the Debenture in the Agreement.
2
<PAGE> 3
2. The ISSUER shall be entitled to withhold from all
payments of principal of this Debenture any amounts required to be withheld
under the applicable provisions of the U.S. Internal Revenue Code of 1986, as
amended, or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment
representations of the original HOLDER hereof and may be transferred or
exchanged in the United States only in compliance with the Securities Act and
applicable state securities laws and in compliance with the restrictions on
transfer provided in the Agreement. Prior to the due presentment for such
transfer of this Debenture, the ISSUER and any agent of the ISSUER may treat
the person in whose name this Debenture is duly registered on the Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and all other purposes, whether or not this Debenture is overdue, and
neither the ISSUER nor any such agent shall be affected by notice to the
contrary. The transferee shall be bound, as the original HOLDER by the same
representations and terms described herein and under the Agreement.
4. The HOLDER is entitled, at its option, at any time
after the Issuance Date, to convert this Debenture, in whole or in part, in
accordance with the following terms and conditions:
(a) The HOLDER may exercise its right to convert
the Debenture by telecopying an executed and completed notice of
conversion (the "Notice of Conversion") to the ISSUER and delivering
the original Notice of Conversion and the original Debenture to the
ISSUER by express courier. Each business date on which a Notice of
Conversion is telecopied to and received by the ISSUER in accordance
with the provisions hereof shall be deemed a "Conversion Date". The
ISSUER will transmit the certificates representing shares of Common
Stock issuable upon conversion of the Debenture (together with the
certificates representing the Debenture not so converted) to the
HOLDER via express courier, by electronic transfer (if applicable) or
otherwise within three business days after the Conversion Date if the
ISSUER has received the original Notice of Conversion and Debenture
being so converted by such date. In addition to any other remedies
which may be available to the HOLDER, in the event that the ISSUER
fails to effect delivery of such shares of Common Stock within such
three business day period, the HOLDER will be entitled to revoke the
Notice of Conversion by delivering a notice to such effect to the
ISSUER whereupon the ISSUER and the HOLDER shall each be restored to
their respective positions immediately prior to delivery of the Notice
of Conversion. The Notice of Conversion and Debenture representing
the portion of the Debenture converted shall be delivered as follows:
To the ISSUER: Fresh'n Lite, Inc.
1705 East Whaley
Longview, Texas 75601
Attention: Curtis Swanson
Facsimile: (903) 758-2811
Telephone: (903) 758-1666
3
<PAGE> 4
In the event that the Common Stock issuable upon conversion of
the Debenture is not delivered, within three (3) business days of
receipt by the ISSUER of a valid Notice of Conversion and the
Debenture to be converted, the ISSUER shall pay to the HOLDER, in
immediately available funds, upon demand, as liquidated damages for
such failure and not as a penalty, for each $100,000 principal amount
of Debenture sought to be converted, $500 for each of the first ten
(10) days and $1,000 per day thereafter that the shares of Common
Stock are not delivered, which liquidated damages shall run from the
fourth business day after the Conversion Date up until the time that
either the Conversion Notice is revoked or the Common Stock is
delivered, at which time such liquidated damages shall cease. Any and
all payments required pursuant to this paragraph shall be payable only
in cash immediately.
(b) Each Debenture shall be convertible, at the
sole option of the HOLDER, into that number of shares of fully paid
and nonassessable shares of Common Stock which is to be derived from
dividing the Conversion Amount by the Conversion Price. For purposes
of this Debenture, the Conversion Amount shall mean the principal
dollar amount of the Debenture being converted. The Conversion Price
shall be equal to the lesser of: (i) one hundred (100%) percent of the
closing bid price of the Common Stock on the trading day immediately
preceding the Issuance Date, or (ii) the average closing bid prices of
the Common Stock for the five day trading period ending on the trading
day immediately preceding the Conversion Date (the "Average Price")
multiplied by the "Applicable Discount", where the Applicable Discount
is calculated as follows: (a) from the first (1st) to the thirtieth
(30th) day after the first Conversion Date the HOLDER may convert up
to thirty three (33%) percent of the remaining principal amount of the
Debenture at an Applicable Discount equal to eighty two and one half
(82.5%) percent; (b) from the thirty first (31st) day to the sixtieth
(60th) after the first Conversion Date the HOLDER may convert up to
sixty six (66%) percent of the remaining principal amount of the
Debenture at an Applicable Discount equal to seventy nine (79%)
percent; and (c) after the sixty first (61st) day after the first
Conversion Date the HOLDER may convert any remaining principal amount
of the Debenture at an Applicable Discount equal to seventy five (75%)
percent. Notwithstanding the foregoing, the HOLDER may exercise its
conversion rights at any time after the Issuance Date at a Conversion
Price equal to (i) above, or at an Applicable Discount of eighty two
and one-half (82.5%) percent. The closing bid price shall be deemed
to be the reported last bid price regular way as reported by Bloomberg
LP or if unavailable, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or if the
Common Stock is not listed or admitted to trading on any national
securities exchange, the closing bid price as reported by NASDAQ or
such other system then in use, or, if the Common Stock is not quoted
by any such organization, the closing bid price in the
over-the-counter market as furnished by the principal national
securities exchange on which the Common Stock is traded.
4
<PAGE> 5
(c) The number of shares of Common Stock issuable
upon the conversion of this Debenture and the Conversion Price shall
be subject to adjustment as follows:
(i) In case the ISSUER shall (A) pay a
dividend on Common Stock in Common Stock or securities
convertible into, exchangeable for or otherwise entitling a
holder thereof to receive Common Stock, (B) declare a dividend
payable in cash on its Common Stock and at substantially the
same time offer its shareholder a right to purchase new Common
Stock (or securities convertible into, exchangeable for or
otherwise entitling a holder thereof to receive Common Stock)
from proceeds of such dividend (all Common Stock so issued
shall be deemed to have been issued as a stock dividend), (C)
subdivide its outstanding shares of Common Stock into a
greater number of shares of Common Stock, (D) combine its
outstanding shares of Common Stock into a smaller number of
shares of Common Stock, or (E) issue by reclassification of
its Common Stock any shares of Common Stock of the ISSUER, the
Conversion Price shall be adjusted so that the holders of this
Debenture shall be entitled to receive after the happening of
any of the events described above that number and kind of
shares as the holders would have received had such Debenture
been converted immediately prior to the happening of such
event or any record date with respect thereto. Any adjustment
made pursuant to this subdivision shall become effective
immediately after the close of business on the record date in
the case of a stock dividend and shall become effective
immediately after the close of business on the record date in
the case of a stock split, subdivision, combination or
reclassification.
(ii) Any adjustment required to be made
by this paragraph 4(c) will not have to be made if such
adjustment would not require an increase or decrease in one
(1%) percent or more in the number of shares of Common Stock
issuable upon conversion of this Debenture.
(iii) Whenever the Conversion Price of
this Debenture is adjusted, as herein provided, such
adjustment shall be effected (to the nearest cent) by
multiplying such Conversion Price immediately prior to such
adjustment by a fraction of which the numerator shall be the
number of shares of Common Stock issuable upon the exercise of
each share of Debenture immediately prior to such adjustment,
and of which the denominator shall be the number of shares of
Common Stock issuable immediately thereafter.
(d) In the case of any (i) consolidation or
merger of the ISSUER into any entity (other than a consolidation or
merger that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the
ISSUER), (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the ISSUER as an entirety or
substantially as an entirety, or (iii) reclassification, capital
reorganization or change of the Common Stock (other than solely
5
<PAGE> 6
a change in par value, or from par value to no par value), in each
case as a result of which shares of Common Stock shall be converted
into the right to receive stock, securities or other property
(including cash or any combination thereof), each holder of a
Debenture then outstanding shall have the right thereafter to convert
such share only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale, transfer,
capital reorganization or reclassification by a holder of the number
of shares of Common Stock of the ISSUER into which such Debenture
would have been converted immediately prior to such consolidation,
merger, sale, transfer, capital reorganization or reclassification,
assuming such holder of Common Stock of the ISSUER (A) is not an
entity with which the ISSUER consolidated or into which such sale or
transfer was made, as the case may be ("constituent entity"), or an
affiliate of the constituent entity, and (B) failed to exercise his or
her rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such
consolidation, merger, sale or transfer (provided that if the kind or
amount of securities, cash or other property receivable upon such
consolidation, merger, sale or transfer is not the same for each share
of Common Stock of the ISSUER held immediately prior to such
consolidation, merger, sale or transfer by other than a constituent
entity or an affiliate thereof and in respect of which the ISSUER
merged into the ISSUER or to which such rights or election shall not
have been exercised ("non-electing share"), then for the purpose of
this paragraph (4)(d) the kind and amount of securities, cash or other
property receivable upon such consolidation, merger, sale or transfer
by each non-electing share shall be deemed to be the kind and amount
so receivable per share by a majority of the non-electing shares). If
necessary, appropriate adjustment shall be made in the application of
the provision set forth herein with respect to the rights and interest
thereafter of the HOLDERS, to the end that the provisions set forth
herein shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other
securities or property thereafter deliverable on the conversion of
this Debenture. The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers, capital
reorganizations and reclassifications. The ISSUER shall not effect
any such consolidation, merger, sale or transfer unless prior to or
simultaneously with the consummation thereof the successor issuer or
entity (if other than the ISSUER) resulting from such consolidation,
merger, sale or transfer shall assume, by written instrument, the
obligation to deliver to the HOLDER such shares of Common Stock,
securities or assets as, in accordance with the foregoing provisions,
such HOLDER may be entitled to receive under this paragraph.
(e) The ISSUER will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, 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 to be observed or performed hereunder by the ISSUER, but
will at all times in good faith assist in the carrying out of all the
provisions of this paragraph and in taking of all such action as may
be necessary or appropriate in order to protect the conversion rights
of the HOLDERS against impairment.
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<PAGE> 7
5. No provision of this Debenture shall alter or impair
the obligation of the ISSUER, which is absolute and unconditional, upon an
Event of Default (as defined below), to pay the principal of, and interest on
this Debenture at the place, time, and rate, and in the coin or currency herein
prescribed.
6. The ISSUER hereby expressly waives demand and
presentment for payment, notice on nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, and
diligence in taking any action to collect amounts called for hereunder and
shall be directly and primarily liable for the payment of all sums owing and to
be owing hereon, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.
7. If one or more of the following described "Events of
Default" shall occur,
(a) Any of the representations or warranties made
by the ISSUER herein, or in the Agreement (including all Exhibits
annexed thereto) shall have been incorrect when made in any material
respect; or
(b) The ISSUER shall fail to perform or observe
in any material respect any covenant, term, provision, condition,
agreement or obligation of the ISSUER under this Debenture, the
Registration Rights Agreement and the Agreement, between the parties
of even date herewith; or
(c) A trustee, liquidator or receiver shall be
appointed for the ISSUER or for a substantial part of its property or
business without its consent and shall not be discharged within thirty
(30) days after such appointment; or
(d) Any governmental agency or any court of
competent jurisdiction at the instance of any governmental agency
shall assume custody or control of the whole or any substantial
portion of the properties or assets of the ISSUER and shall not be
dismissed within thirty (30) calendar days thereafter; or
(e) Bankruptcy reorganization, insolvency or
liquidation proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the ISSUER and, if instituted against the
ISSUER, ISSUER shall by any action or answer approve of, consent to or
acquiesce in any such proceedings or admit the material allegations
of, or default in answering a petition filed in any such proceeding or
such proceedings shall not be dismissed within thirty (30) days
thereafter; or
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<PAGE> 8
(f) The Common Stock is delisted from trading on
the OTC Bulletin Board or, if applicable, the NASDAQ Small Cap Stock
Market, or the Company has received notice of final action concerning
delisting from the OTC Bulletin Board or, if applicable, the NASDAQ
Small Cap Stock Market. However, the foregoing will not be considered
an Event of Default if the Company has thereafter become relisted, or
received written confirmation that it has satisfied the notice of
final action (and no threat of delisting exists) within twenty (20)
days after the happening of either of the foregoing events;
(g) The effectiveness of the Registration
Statement including the shares of Common Stock underlying this
Debenture has been suspended for a period of ten (10) business days.
Then, or at any time thereafter, and in each and every such
case, unless such Event of Default shall have been waived in writing by the
HOLDER (which waiver shall not be deemed to be a waiver of any subsequent
default), at the option of the HOLDER, and in the HOLDER'S sole discretion, the
HOLDER may consider this Debenture immediately due and payable in cash, (at the
equivalent dollar value of the number of shares of Common Stock issuable upon
conversion (assuming a Conversion Date as of the date of such notice from the
HOLDER) multiplied by the Bid Price on the Trading Day immediately preceding
such notice from the HOLDER, without presentment, demand protest or notice of
any kind, all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and HOLDER
may immediately, and without expiration of any period of grace, enforce any and
all of the HOLDER'S rights and remedies provided herein or any other rights or
remedies afforded by law. It is agreed that in the event of such action, such
HOLDER shall be entitled to receive all reasonable fees, costs and expenses
incurred, including without limitation such reasonable fees and expenses of
attorneys (if litigation is commenced).
8. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
9. In addition to the terms of the Registration Rights
Agreement of even date herewith, and to the extent the Registrable Securities
are not previously registered pursuant to the Registration Rights Agreement,
the HOLDER shall have the right to include all of the shares of Common Stock
underlying this Debenture (the "Registrable Securities") as part of any
registration of securities filed by the ISSUER(other than in connection with a
transaction contemplated by Rule 145(a) promulgated under the Act or pursuant
to Form S-8) and must be notified in writing of such filing; provided, however,
that the HOLDER agrees it shall not have any piggy-back registration rights
pursuant to this Debenture if the shares of Common Stock underlying this
Debenture may be sold in the United States pursuant to the provisions of Rule
144 without limitation. HOLDER shall have five (5) business days after receipt
of the aforementioned notice from the ISSUER, to notify the ISSUER in writing
as to whether the
8
<PAGE> 9
ISSUER is to include HOLDER or not include HOLDER as part of the registration;
provided, however, that if any registration pursuant to this paragraph shall be
underwritten, in whole or in part, the Company may require that the Registrable
Securities requested for inclusion pursuant to this paragraph be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If in the good faith judgment of the underwriter
evidenced in writing of such offering only a limited number of Registrable
Securities should be included in such offering, or no such shares should be
included, the HOLDER, and all other selling stockholders, shall be limited to
registering such proportion of their respective shares as shall equal the
proportion that the number of shares of selling stockholders permitted to be
registered by the underwriter in such offering bears to the total number of all
shares then held by all selling stockholders desiring to participate in such
offering. Those Registrable Securities which are excluded from an underwritten
offering pursuant to the foregoing provisions of this paragraph (and all other
Registrable Securities held by the selling stockholders) shall be withheld from
the market by the HOLDERS thereof for a period, not to exceed one hundred eighty
(180) days, which the underwriter may reasonably determine is necessary in order
to effect such underwritten offering. The ISSUER shall have the right to
terminate or withdraw any registration initiated by it under this Debenture
prior to the effectiveness of such registration whether or not any HOLDER
elected to include securities in such registration. All registration expenses
incurred by the ISSUER in complying with this Debenture shall be paid by the
ISSUER, exclusive of underwriting discounts, commissions and legal fees and
expenses for counsel to the HOLDERS of this Debenture.
10. This Debenture and the Agreement (along with all
exhibits attached thereto) constitute the full and entire understanding and
agreement between the ISSUER and HOLDER with respect hereto. Neither this
Debenture nor any terms hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the ISSUER and the HOLDER. Any
capitalized terms shall have the same meaning as given in the Agreement. In
the event of any inconsistencies between this Debenture and the Agreement, the
Agreement shall control.
11. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York.
12. The convertibility of this Debenture shall be
restricted such that that portion of the Debenture which, if otherwise
converted, would result in HOLDER being deemed the beneficial owner, in
accordance with the provisions of Rule 13d-3 of the 1934 Act, of 4.99% or more
of the then issued and outstanding Common Stock, shall not be convertible,
until the HOLDER is not deemed a beneficial owner of 4.99% or more of the then
issued and outstanding Common Stock.
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<PAGE> 10
13. This Debenture, together with all documents
referenced herein, embody the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or agreement
of any kind not expressly set forth in this Debenture or the Agreement
(including all Exhibits annexed thereto) shall affect, or be used to interpret,
change or restrict, the express terms and provisions of this Debenture.
14. The ISSUER shall have the right to redeem this
Debenture, in whole or in part, in cash at the Redemption Price (as defined
below) at any time by thereafter providing seven (7) business days prior
written notice (the "Redemption Notice") to the HOLDER. The ISSUER shall wire
transfer the appropriate amount of funds into an escrow account to complete the
redemption which shall be on the seventh business day after the Redemption
Notice was served upon the HOLDER (the "Redemption Date"). On the Redemption
Date, the HOLDER'S right to convert the Debentures shall terminate and be
canceled immediately. In the event the ISSUER does not wire transfer the
appropriate amount of funds into the escrow account on or before the Redemption
Date, or shall otherwise fail to comply with the redemption provisions set
forth herein, then it shall have waived its right to redeem this Debenture at
any time.
The Redemption Notice shall set forth (i) the Redemption Date,
(ii) the redemption price, which shall be equal to the cash value of the number
of shares of Common Stock issuable upon conversion of the principal amount of
this Debenture being redeemed (assuming a Conversion Date as of the Trading Day
immediately preceding the day the ISSUER served the Redemption Notice upon the
HOLDER) multiplied by the closing bid price of the Common Stock on the Trading
Day immediately preceding the day the ISSUER served the Redemption Notice upon
the HOLDER plus all accrued but unpaid interest (the "Redemption Price"), (iii)
a statement that interest on the Debenture being redeemed will cease to accrue
on such Redemption Date, and (iv) a statement of or reference to the conversion
right set forth in this Debenture (including that the right to give a notice of
conversion in respect of any shares to be redeemed shall terminate on the
Redemption Date). The Redemption Notice shall be irrevocable, and it shall be
mailed, postage prepaid, at least seven (7) business days prior to the
Redemption Date to the HOLDER at their address as the same shall appear on the
books of the Company. If fewer than all of the principal amount of the
Debentures owned by the HOLDER are then to be redeemed, the notice shall
specify the amount thereof that is to be redeemed and, if practicable, the
numbers of the certificates representing such Debenture.
At any time up to the date immediately prior to the Redemption
Date, the HOLDER shall have the right to convert this Debenture into Common
Stock as more fully provided hereof. Unless so converted, at the close of
business on the Redemption Date, subject to the conditions described herein,
the portion of this Debenture being redeemed shall be automatically canceled
and converted into a right to receive the Redemption Price, and all rights of
the Debentures, including the right to conversion shall cease without further
action. Immediately following the Redemption Date, the HOLDER shall surrender
their original Debenture at the office of the ISSUER, and the ISSUER shall
issue to the HOLDER a new Debenture Certificate for the principal amount that
remains outstanding, if any.
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<PAGE> 11
The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price under the terms hereof in the event of any
stock dividend, stock split, combination of shares or similar event.
The ISSUER shall not be entitled to send any Redemption Notice
and begin the redemption procedure hereunder unless it has:
(i) the full amount of the Redemption Price in
cash, available in a demand or other immediately available account in
a bank or similar financial institution;
(ii) immediately available credit facilities, in
the full amount of the Redemption Price with a bank or similar
financial institution; or
(iii) a combination of the items set forth in (a)
and (b) above, aggregating the full amount of the Redemption Price.
Upon delivery of the Redemption Notice, the ISSUER and the
HOLDER shall agree on reasonable arrangements for a closing of the redemption
of this Debenture.
[Remainder of page intentionally left blank]
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<PAGE> 12
IN WITNESS WHEREOF, the ISSUER has caused this Convertible B
Debenture to be duly executed by an officer thereunto duly authorized.
FRESH'N LITE, INC.
By
-------------------------------
Name:
Title:
Date:
<PAGE> 1
EXHIBIT 4.4
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY
STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT CONSTITUTE
AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS.
6% CONVERTIBLE DEBENTURE
SUBSCRIPTION AGREEMENT
FRESH'N LITE, INC.
THIS AGREEMENT is executed in reliance upon the transaction
exemption afforded by Regulation D as promulgated by the Securities and
Exchange Commission ("SEC"), under the Securities Act of 1933, as amended (the
"Act").
This Agreement has been executed by the undersigned in connection with
the private placement of the 6% Convertible A Debenture (the "A Debentures"),
and the 6% Convertible B Debenture (hereinafter referred to as the "B
Debentures", and together with the A Debentures referred to as the
"Debentures") of FRESH'N LITE, INC. (OTC Bulletin Board symbol "FLTT"), located
at 1705 East Whaley, Longview, Texas, a corporation organized under the laws of
the State of Texas, USA (hereinafter referred to as the "Company"). The terms
on which the Debentures may be converted into common stock of the Company, $
0.01 par value per share, (the "Common Stock") and the other terms of the
Debentures are set forth in the A Debenture due May 29, 2000 annexed hereto as
Exhibit A, and the B Debenture annexed hereto as Exhibit B. In addition, the
Company will sell to the entities listed on Schedule A annexed hereto (the
"Subscribers" or "Purchasers"), warrants (the "Warrants") to purchase Seventy
Five Thousand (75,000) shares of Common Stock of the Company per One Million
Five Hundred Thousand ($1,500,000) Dollars funded to the Company by the
Subscribers pursuant to this Agreement (such number of shares of Common Stock
underlying the Warrants shall be pro rated for each subscription amount) which
shall be exercisable for a period of five (5) years from the Closing Date (as
defined herein), as per the terms of a separate Common Stock Purchase Warrant
(Exhibit C annexed hereto). This Subscription and, if accepted by the Company,
the offer and sale of the Debentures, Warrants, and the Common Stock underlying
the Warrants and Debentures (collectively the "Securities"), are being made in
reliance upon the provisions of
<PAGE> 2
Regulation D under the Act. The Closing Dates shall be determined in
accordance with Sections 1.1, 15, and 16 herein.
Each of the Subscribers hereby represents and warrants to, and
agrees with the Company as follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closings.
(i) First Tranche Closing. The Company will sell
and the Subscribers will buy, in reliance upon the representations and
warranties contained in this Agreement and the A Debentures, and upon
the terms and satisfaction of each of the conditions set forth in
Section 16 below, and in the A Debentures, that principal amount of A
Debentures set forth next to their names on Schedule A for an
aggregate purchase price of One Million Five Hundred Thousand
($1,500,000) U.S. Dollars (the "First Tranche Purchase Price").
(ii) Second Tranche Closing. The Company will
sell and the Subscribers will buy, in reliance upon the
representations and warranties contained in this Agreement and the B
Debentures, and upon the terms and satisfaction of each of the
conditions set forth in Section 16 below, and in the B Debentures,
that principal amount of B Debentures set forth next to their names on
Schedule A for an aggregate purchase price of One Million Five Hundred
Thousand ($1,500,000) U.S. Dollars (the "Second Tranche Purchase
Price").
1.2 Form of Payment. The respective Subscribers shall
pay the applicable Purchase Price by delivering good funds in United States
Dollars by wire transfer to Goldstein, Goldstein & Reis, LLP, the Escrow Agent,
against delivery of the original Debentures, and Warrants as per a separate
Escrow Agreement, annexed hereto as Exhibit D, as payment in full for their
respective portion of the Securities.
1.3 Wire Instructions. Wire instructions for Goldstein,
Goldstein & Reis, LLP are as follows:
Chase Manhattan Bank, N.A.
ABA No. 021000021
For the Account of:
United States Trust Company of New York
Account No. 920-1-073195
In favor of:
Goldstein, Goldstein & Reis, LLP Attorney Escrow Account
Account No. 59-01383
2
<PAGE> 3
Section 2. Representations and Warranties of the Subscribers.
Subscribers each acknowledge, represent, warrant and agree as follows:
2.1 Organization and Authorization. Each of the
Subscribers is duly incorporated or organized and validly existing in the state
or country of its incorporation or organization and has all requisite power and
authority to purchase and hold the Securities. The decision to invest and the
execution and delivery of this Agreement by the Subscribers, the performance by
the Subscribers of their obligations hereunder and the consummation by the
Subscribers of the transactions contemplated hereby have been duly authorized
and requires no other proceedings on the part of the Subscribers. The
undersigned signatories have all right, power and authority to execute and
deliver this Agreement on behalf of the Subscribers. This Agreement has been
duly executed and delivered by the Subscribers and, assuming the execution and
delivery hereof and acceptance thereof by the Company, will constitute the
legal, valid and binding obligations of the Subscribers, enforceable against
the Subscribers in accordance with its terms.
2.2 Evaluation of Risks. Each of the Subscribers has
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of, and bearing the economic risks
entailed by, an investment in the Company and of protecting its interests in
connection with this transaction. Each Subscriber recognizes that its
investment in the Company involves a high degree of risk and each Subscriber
can afford the complete loss of its investment.
2.3 Independent Counsel. Each of the Subscribers
acknowledges that it has been advised to consult with its own attorney
regarding legal matters concerning the Company and to consult with its tax
advisor regarding the tax consequences of acquiring the Securities.
2.4 Disclosure Documentation. Each of the Subscribers
has received and reviewed copies of the Company's reports filed under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the Act,
including the Company's 10-KSBs, 10-QSBs, and registration statements, filed by
the Company since April 15, 1997 (collectively, the "Reports"). Except for the
Reports, the Subscribers are not relying on any other information relating to
the offer and sale of the Securities. Subscribers acknowledge that the Company
has offered to make available any additional public information that the
Subscribers may reasonably request, including technical information, and other
material information about the Company and Subscribers have been offered the
Company's full and unconditional cooperation in making such information
available to the Subscribers and acknowledge that the Company has recommended
that the Subscribers request and review such information prior to making an
investment decision. No oral or written representations have been made, or
oral or written information furnished to the undersigned or its advisors, if
any, in connection with the offering of the Securities which were or are in any
way inconsistent with the Reports.
3
<PAGE> 4
2.5 Opportunity to Ask Questions. Each of the
Subscribers has had a reasonable opportunity to ask questions of and receive
answers from the Company concerning the Company and the offering, and all such
questions, if any, have been answered to the full satisfaction of each of the
Subscribers.
2.6 Reports Constitute Sole Representations. Except as
set forth in the Reports, no representations or warranties have been made to
the Subscribers by (a) the Company or any agent, employee or affiliate of the
Company or (b) any other person, and in entering into this transaction
Subscribers are not relying upon any information, other than that contained in
the Reports and the results of independent investigation by the Subscribers.
2.7 Each of the Subscribers is Accredited Investor. Each
of the Subscribers is an "Accredited Investor" as defined in Rule 501(a) under
Regulation D and included within one or more of the following categories of
"Accredited Investors."
Any bank as defined in Section 3(a)(2) of the Act, or
any savings and loan associated or other institution as defined in
Section 3(a)(5)A of the Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to
Section 15 of the 1934 Act; any insurance company as defined in
Section 2(13) of the Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that Act; any Small Business Investment
Company licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Act of 1958; any plan
established and maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its political
subdivisions, for the benefits of its employees, if such plan has
total assets in excess of $5,000,000; and employee benefit plan within
the meaning of the Employee Retirement Income Security Act of 1974 if
the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment advisor, or
if the employee benefit plan has total assets in excess of $5,000,000
or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
Any private business development company as defined
in Section 202(a)(22) of the Investment Advisers Act of 1940;
Any organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000;
(iv) Any director, executive officer, or general
partner of the issuer of the securities being offered or sold, or any
director, executive officer, or general partner of a general partner
of that issuer;
(v) Any natural person whose individual net
worth, or joint net worth with that person's spouse, at the time of
his purchase exceeds $1,000,000;
4
<PAGE> 5
(vi) Any natural person who had an individual
income in excess of $200,000 in each of the two (2) most recent years
or joint income with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation of reaching that
same income level in the current year;
(vii) Any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a sophisticated
person as described in Section 230.506(b)(2)(ii) of Regulation D under
the Act;
(viii) Any entity in which all of the equity owners
are accredited investors; and
(ix) Any self-directed employee benefit plan with
investment decisions made solely by persons that are accredited
investors within the meaning of Rule 501 of Regulation D promulgated
under the Act.
2.8 No Registration, Review or Approval. Each of the
Subscribers acknowledges and understands that the limited private offering and
sale of Securities pursuant to this Agreement has not been reviewed or approved
by the SEC or by any state securities commission, authority or agency, and is
not registered under the Act or under the securities or "blue sky" laws, rules
or regulations of any state. Each of the Subscribers acknowledges, understands
and agrees that the Securities are being offered and sold hereunder pursuant to
(i) a private placement exemption to the registration provisions of the Act
pursuant to Section 3(b) or Section 4(2) of such Act and Regulation D
promulgated under such Act, and (ii) a similar exemption to the registration
provisions of applicable state securities laws. Each of the Subscribers
understands that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Subscribers set forth herein in order to determine the applicability of
such exemptions and the suitability of the Subscribers to acquire the
Securities.
2.9 Investment Intent. Without limiting their ability to
resell the Securities pursuant to an effective registration statement or
pursuant to an exemption from registration, each of the Subscribers is
acquiring the Securities solely for their own account and not with a view to
the distribution, assignment or resale to others. Each of the Subscribers
understands and agrees that it may bear the economic risk of its investment in
the Securities for an indefinite period of time.
2.10 No Advertisements. The Subscribers are not
subscribing for the Securities as a result of or subsequent to any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio, or
presented at any seminar or meeting.
2.11 Registration Rights. The parties have entered into a
Registration Rights Agreement (Exhibit E).
5
<PAGE> 6
Section 3. Representations and Warranties of the Company. The
Company acknowledges, represents, warrants and agrees as follows:
3.1 Organization/Qualification. The Company is a
corporation duly organized and validly existing under the laws of the State of
Texas and is in good standing under such laws. The Company has all requisite
corporate power and authority to own, lease and operate its properties and
assets, and to carry on its business as presently conducted. The Company
currently conducts its business only in the State of Texas. In the event the
Company conducts business in a jurisdiction outside the State of Texas, it will
become qualified to do business as a foreign corporation in such jurisdiction
if the ownership of its property or the nature of its business requires such
qualification, except where failure to so qualify would not have a material
adverse effect on the Company.
3.2 Accuracy of Reports and Information. The Company is
in compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the 1934 Act. The Company has
registered its Common Stock pursuant to Section 12 of the 1934 Act and the
Common Stock is listed and trades on the OTC Bulletin Board and the Company has
applied for listing of the Common Stock on the Nasdaq Small Cap Stock Market.
The Company has complied in all material respects and to the extent applicable
with all reporting obligations, under either Section 13(a) or 15(d) of the 1934
Act for a period of at least twelve (12) months immediately preceding the offer
and sale of the Securities (or for such shorter period that the Company has
been required to file such material). Notwithstanding the foregoing, the
Company represents that it filed it Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997 more than ninety (90) days after the end of the
Company's fiscal year and the Company filed its Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1998 more than forty five (45) days after the
end of the Company's fiscal quarter
3.3 SEC Filings/Full Disclosure. None of the Reports
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
in light of the circumstances under which they were made, not misleading. The
Company has timely filed all requisite forms, reports and exhibits thereto with
the Securities and Exchange Commission, except as disclosed in Section 3.2
above. There is no fact known to the Company (other than general economic
conditions known to the public generally) that has not been publicly disclosed
by the Company or disclosed in writing to each of the Subscribers which (i)
could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or on earnings, business affairs, properties or assets
of the Company, or (ii) could reasonably be expected to materially and
adversely affect the ability of the Company to perform its obligations pursuant
to this Agreement.
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3.4 Authorization. The Company has all requisite
corporate right, power and authority to execute and deliver this Agreement (and
all Exhibits annexed hereto) and to consummate the transactions contemplated
hereby. All corporate action on the part of the Company, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of this Agreement by the Company (to the extent performance will
occur on or before the Closing Date), the authorization, sale, issuance and
delivery of the Securities and the performance of the Company's obligations
hereunder (to the extent performance will occur on or before the Closing Date)
has been taken. This Agreement has been duly authorized, validly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company enforceable in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy as they may apply
to the indemnification provisions set forth in this Agreement. Upon their
issuance and delivery pursuant to this Agreement, the Securities will be
validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances; provided, however, that the Securities are subject to
restrictions on transfer under state and/or federal securities laws. The
issuance and sale of the Securities will not give rise to any preemptive right
or right of first refusal or right of participation on behalf of any person.
3.5 No Conflict. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any material obligation or to a
loss of a material benefit, under, any provision of the Certificate of
Incorporation, and any amendments thereto, Bylaws, Stockholders Agreements and
any amendments thereto of the Company or any material mortgage, indenture,
lease or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would have a material
adverse effect on the Company's business and financial condition.
3.6 No Undisclosed Liabilities or Events. The Company
has no liabilities or obligations other than those disclosed in the Reports,
this Agreement or those incurred in the ordinary course of the Company's
business since April 15, 1997, and which individually or in the aggregate (i)
would reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or on prospects, operations, earnings, business
affairs, properties or assets of the Company, or (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement.. No event or circumstances
has occurred or exists with respect to the Company or its earnings, properties,
assets, business, condition (financial or otherwise), operations or prospects,
which, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed.
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3.7 No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its
property is bound, and neither the execution, nor the delivery by the Company,
nor the performance by the Company of its obligations under this Agreement or
the Exhibits annexed hereto, including the conversion or exercise provision of
the Securities, will conflict with or result in the breach or violation of any
of the terms or provisions of, or constitute a default or result in the
creation or imposition of any lien or charge on any assets or properties of the
Company under, any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or instrument to which the Company
is a party or by which it is bound or any statute or the Certificate of
Incorporation or by-laws of the Company, or any decree, judgment, order, rule
or regulation of any court or governmental agency or body having jurisdiction
over the Company or its properties, which individually or in the aggregate (i)
would reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), or on prospects, operations, earnings, business
affairs, properties or assets of the Company, or (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement.
3.8 Absence of Events of Default. Except as set forth in
the Reports and this Agreement (including all Exhibits annexed hereto), no
default, as defined in the respective agreement to which the Company is a
party, and no event which, with the giving of notice or the passage of time or
both, would become a default, has occurred and is continuing, which
individually or in the aggregate (i) could reasonably be expected to have a
material adverse effect on the condition (financial or otherwise), or on
prospects, operations, earnings, business affairs, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement.
3.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement (including all Exhibits annexed
hereto), or the offer, sale or issuance of the Securities, or the consummation
of any other transaction contemplated hereby, except as may be required by
applicable securities laws.
3.10 Intellectual Property Rights. Except as disclosed in
the Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
Reports. Except as disclosed in the Reports, to the Company's actual knowledge
its products do not infringe any trademark, trade name, patent right,
copyright, license, trade secret or other similar right of others currently in
existence; and there is no claim being made against the Company regarding any
trademark, trade name, patent, copyright, license, trade secret or other
intellectual property right which individually or in the aggregate (i) could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), or on the prospects, operations, earnings, business
affairs, properties or assets of the Company, or (ii) could reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement.
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3.11 Material Contracts. Except as set forth in the
Reports, the agreements to which the Company is a party described in the
Reports are valid agreements, in full force and effect, and the Company is not
in material breach or material default under any of such agreements which
individually or in the aggregate (i) could reasonably be expected to have a
material adverse effect on the condition (financial or otherwise), or on the
prospects, operations, earnings, business affairs, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement..
3.12 Litigation. Except as disclosed in the Reports,
there is no action, proceeding or investigation pending, or to the Company's
knowledge threatened, against the Company which individually or in the
aggregate (i) could reasonably be expected to have a material adverse effect on
the condition (financial or otherwise), or on the prospects, operations,
earnings, business affairs, properties or assets of the Company, or (ii) could
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement. The Company is
not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality which
could have a material adverse effect on the properties, business, condition
(financial or otherwise), operations or prospects of the Company.
3.13 Title to Assets. Except as set forth in Reports, the
Company has good and marketable title to all properties and material assets
described in the Reports as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interests other than such of
the foregoing as are customary or are not material to the business of the
Company.
3.14 Subsidiaries. Except as disclosed in the Reports,
the Company does not presently own or control, directly or indirectly, any
interest in any other corporation, partnership, association or other business
entity.
3.15 Required Governmental Permits. The Company is in
possession of and operating in material compliance with all authorizations,
licenses, certificates, consents, orders and permits from state, federal and
other regulatory authorities which are material to the conduct of its business,
all of which are valid and in full force and effect.
3.16 Other Outstanding Securities/Financing Restrictions.
Except as disclosed in the Reports, the Company has no outstanding restricted
shares, or shares of Common Stock sold under Regulation S, Regulation D or
outstanding under any other exemption from registration, which are available
for sale as unrestricted ("free trading") stock.
3.17 Capitalization. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock, $0.01 par value per
share, of which 6,356,852 are outstanding. There are no shares of Preferred
Stock currently outstanding. All issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable.
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3.18 Dilution. The Company is aware and acknowledges that
conversion of the Debentures, and/or exercise of the Warrants, may cause
dilution to existing stockholders and may significantly increase the
outstanding number of shares of Common Stock.
3.19 Employee Relations. The Company is not involved in
any labor dispute, nor, to the knowledge of the Company, is any such dispute
threatened. None of the Company's employees is a member of a union and the
Company believes that its relations with its employees are good.
3.20 Environmental Laws. The Company is (i) in compliance
with any and all foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants and which
the Company know is applicable to them ("Environmental Laws"), (ii) has
received all permits, licenses or other approvals required under applicable
Environmental Laws to conduct its business, and (iii) is in compliance with all
terms and conditions of any such permit, license or approval.
3.21 Insurance. The Company is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in
the businesses in which the Company is engaged. The Company has no reason to
believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires, or obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
materially and adversely affect the condition, financial or otherwise, or the
earnings, business or operation, of the Company.
Section 4. Further Representations and Warranties of the
Company. For so long as any Securities held by any of the Subscribers remain
outstanding, the Company acknowledges, represents, warrants and agrees as
follows:
(i) It will reserve from its authorized but
unissued shares of Common Stock a sufficient number of shares of
Common Stock to permit the conversion in full of such outstanding
Securities.
(ii) It will permit the Subscribers to exercise
their right to convert the Debentures and/or exercise the Warrants by
telecopying an executed and completed Notice of Conversion and/or
Notice of Exercise to the Company and delivering the original Notice
of Conversion and/or original Notice of Exercise and the certificate
representing the Debenture and/or the original Warrant to the Company
by express courier. Each business date on which a Notice of
Conversion and/or Notice of Exercise is telecopied to and received by
the Company in accordance with the provisions hereof shall be deemed a
"Conversion Date" and/or "Exercise Date". The Company will transmit
the certificates representing shares of Common Stock issuable upon
conversion of any Debenture and/or exercise of any Warrants (together
with the certificates representing the Debenture not so converted
and/or Warrants not so exercised) to the Subscriber via express
courier, by electronic transfer or otherwise, within three business
days after the Conversion Date and/or Exercise Date if the Company has
received the
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original Notice of Conversion and Debenture certificate being so
converted and/or the original Notice of Exercise and Warrant being
exercised. In addition to any other remedies which may be available
to the Subscribers, in the event that the Company fails to effect
delivery of such shares of Common Stock within such three business day
period, the Subscribers will be entitled to revoke the relevant Notice
of Conversion and/or Notice of Exercise by delivering a notice to such
effect to the Company whereupon the Company and the Subscribers shall
each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion and/or Notice of Exercise. The
Notice of Conversion and Debenture and/or the Notice of Exercise and
Warrant representing the portion of the Debenture converted and/or
Warrant exercised shall be delivered as follows:
To the Company:
Fresh'n Lite, Inc.
1705 East Whaley
Longview, Texas
Fax: (903) 758-1666
Attention: Curtis Swanson
In the event that the Common Stock is not delivered by the
Company (or its transfer agent) within three (3) business days after
the Conversion Date and/or Exercise Date, and the Company has received
the original Notice of Conversion and Debenture, the Company shall pay
to the Subscriber(s), in immediately available funds, upon demand, as
liquidated damages for such failure and not as a penalty, for each
$100,000 of Debenture sought to be converted, $500 for each of the
first ten (10) days and $1,000 per day thereafter that the shares of
Common Stock issuable upon conversion of the Debentures are not
delivered, and for each thousand (1,000) shares of Common Stock sought
to be exercised under the Warrant, $7.50 for each of the first ten
(10) days and $15 per day thereafter that the shares of Common Stock
underlying the Warrant are not delivered, which liquidated damages
shall run from the fourth business day after the Conversion Date
and/or Exercise Date. Any and all payments required pursuant to this
paragraph shall be payable only in cash.
(iii) The Company will use commercially reasonable efforts
to maintain the listing of its Common Stock on the OTC Bulletin Board
(or, if applicable, the Nasdaq Small Cap Stock Market), the successors
thereto, or other organized United States market or quotation system.
The Company has not received any notice, oral or written, affecting
its continued listing, the Company will take no action which would
impact their continued listing or eligibility of the Company for such
listing (except for inclusion on the Nasdaq Small Cap Stock Market),
and the Company is in full compliance with the listing requirements of
the OTC Bulletin Board.
(iv) The Company covenants and agrees that for so long as
any of the Common Stock issuable upon conversion of the Debentures or
exercise of the Warrants, remain outstanding and continue to be
"restricted securities" within the meaning of Rule
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144 under the Act, the Company shall cooperate in order to permit
resales of the underlying Common Stock pursuant to Rule 144 under the
Act. The Company and the Subscribers shall provide the Company's
Transfer Agent any and all papers requested by the Company's Transfer
Agent necessary to complete the transfer under Rule 144, including,
but not limited to, opinions of counsel to the Transfer Agent.
Section 5. Opinion of Counsel. The Subscribers shall, upon
the Closing, receive an opinion from counsel to the Company as set forth in
Exhibit F.
Section 6. Opinion of Counsel Upon Conversion. The Company
will obtain for each Subscriber, at the Company's expense, any and all opinions
of counsel which may be reasonably required in order to convert the Debentures,
subject only to receipt of a Notice of Conversion in the form of Exhibit G and
receipt by Counsel of such representations, warranties, and documents as are
determined to be necessary to comply with applicable securities laws, duly
executed by the Subscriber which shall be satisfactory to the Transfer Agent,
directing the Transfer Agent to remove the legend from the Common Stock
certificate if the Registration Statement has been declared effective by the
SEC or if another exemption is available for resale.
Section 7. Rule 144 Reporting. With a view to making
available the benefits of certain rules and regulations of the SEC which may at
any time permit the sale of the Securities to the public without registration,
the Company agrees, for so long as the Securities are held by the Subscribers,
and such action is necessary to:
(i) make and keep public information available,
as those terms are understood and defined in Rule 144 under the Act,
at all times after the effective date on which the Company becomes
subject to the reporting requirements of the Act or the 1934 Act;
(ii) file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and
the 1934 Act;
(iii) furnish to each Subscriber forthwith, upon
request, a written statement by the Company as to its compliance with
the reporting requirements of said Rule 144, and of the Act and the
1934 Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the
Company as each Subscriber may reasonably request in availing itself
of any rule or regulation of the SEC allowing any Subscriber to sell
any such Securities without registration.
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Section 8. Representations and Warranties of the Company and
Subscribers. Each of the Subscribers, and the Company represent, warrant,
covenant, and agree to the other the following with respect to itself:
8.1 Approvals. Neither the Company, nor any Subscriber,
is aware of any authorization, approval or consent of any governmental body
which is legally required for the Company's issuance and sale of the Securities
to the Subscribers.
8.2 Indemnification. The Company and each of the
Subscribers agrees to indemnify the other, and to hold the other harmless, from
and against any and all losses, damages, liabilities, costs and expenses
(including reasonable attorneys' fees) which the other may sustain or incur in
connection with the breach by the indemnifying party of any representation,
warranty or covenant made by it in this Agreement.
Section 9. Restrictions on Conversion of Debenture. Each
Subscriber or any subsequent holder of the Debenture (the "Holder") shall be
prohibited from converting any portion of the Debenture which would result in
any Subscriber or Holder being deemed the beneficial owner, in accordance with
the provisions of Rule 13d-3 of the 1934 Act, as amended, of 4.99% or more of
the then issued and outstanding Common Stock of the Company.
Section 10. 20% Rule Limitation. In the event the rules of
the OTC Bulletin Board require, or if the Company's Common Stock becomes listed
on the NASDAQ Small Cap Stock Market, the Company agrees that it will call a
stockholders' meeting for the purpose of approving below market price issuances
of Common Stock to the Subscribers in excess of twenty percent (20%) of the
number of shares of Common Stock outstanding as of First Tranche Closing Date.
In the event that the aforementioned proposal is not ratified by the
stockholders, the Company agrees that it shall seek a waiver from the OTC
Bulletin Board (if available) or Nasdaq Stock Market (if then listed on the
Nasdaq Small Cap Stock Market) for such issuance if necessary. In the event
the Company does not get such a waiver within ten (10) days after the
stockholder meeting, the Company agrees that it will pay to the Subscribers the
"Economic Benefit" of that number of shares of Common Stock issuable to the
Subscribers above said twenty (20%) percent. The "Economic Benefit" is defined
as the number of shares of Common Stock issuable to the Subscribers upon
conversion pursuant to the terms hereunder and in the Debentures in excess of
twenty (20%) percent of the outstanding Common Stock as of the applicable
Closing Date multiplied by the Bid Price on the tenth (10th) Trading Day after
the aforementioned stockholder meeting.
Section 11. Registration or Exemption Requirements. Each of
the Subscribers acknowledges and understands that the Securities may not be
resold or otherwise transferred except in a transaction registered under the
Act and any applicable state securities laws or unless an exemption from such
registration is available. Each of the Subscribers understands that the
Securities will be imprinted with a legend that prohibits the transfer of the
Securities unless (i) they are registered or such registration is not required,
and (ii) if the transfer is pursuant to an exemption from registration other
than Rule 144 under the Act and, if the Company shall so
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request in writing, an opinion of counsel reasonably satisfactory to the
Company is obtained to the effect that the transaction is so exempt.
Section 12. Legend. The certificates representing the
Securities, which are issued prior to registration or if no exemption to
registration is available, shall be subject to a legend restricting transfer
under the Act, such legend to be substantially as follows:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). SUCH SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN
THE UNITED STATES OR TO U.S. PERSONS IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT."
The certificates representing these Securities, and each
certificate issued in transfer thereof, will also bear any legend required
under any applicable state securities law.
Section 13. Stock Delivery Instructions. The Debenture
Certificates shall be delivered to each of the Subscribers on a delivery versus
payment basis as set forth in the Escrow Agreement.
Section 14. Closing Dates. The "First Tranche Closing Date"
shall be the date the Escrow Agent (i) receives the A Debentures and the First
Tranche Purchase Price, and (ii) each of the conditions set forth in Sections
15 and 16, and the terms and conditions of the Escrow Agreement (Exhibit D)
herein are satisfied or waived. The "Second Tranche Closing Date" shall be the
date the Escrow Agent (i) receives the B Debentures and the Second Tranche
Purchase Price, and (ii) each of the conditions set forth in Sections 15 and
16, and the terms and conditions of the Escrow Agreement (Exhibit D) herein are
satisfied or waived
Section 15. Conditions to the Company's Obligation to Sell.
Each of the Subscribers understands that the Company's obligation to sell the
Debentures and Warrants is conditioned upon:
(i) The receipt and acceptance by the Company of
this Subscription Agreement and all Exhibits duly executed by all
other parties thereto;
(ii) Delivery into escrow by each of the
Subscribers of good cleared funds as payment in full for the purchase
of the Securities;
(iii) All representations and warranties of each of
the Subscribers contained herein shall remain true and correct in all
material respects as of the Closing Date; and
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(iv) The Company shall have obtained all permits
and qualifications required by any state for the offer and sale of the
Debentures and Warrants, or shall have the availability of exemptions
therefrom. At the applicable Closing Date, the sale and issuance of
the Debentures, Warrants, and the proposed issuance of the Common
Stock underlying the Debentures and Warrants shall be legally
permitted by all laws and regulations to which each of the
Subscribers and the Company are subject.
Section 16. Conditions to Subscriber's Obligation to
Purchase Debentures. The Company agrees to sell and the Investors agree to
purchase up to an aggregate principal amount of Three Million ($3,000,000)
Dollars principal amount of Debentures in two separate tranches (of One Million
Five Hundred Thousand ($1,500,000) Dollars principal amount each) as set forth
in (a) and (b) below. The number of shares of Common Stock issuable upon
conversion of the Debentures shall be determined by dividing $1,500,000 by the
conversion formula contained in the applicable Debenture Certificate.
(a) First Tranche. The Subscribers shall purchase an
aggregate principal amount of One Million Five Hundred Thousand ($1,500,000)
Dollars principal amount of A Debentures (the dollar amount subscribed to for
each Subscriber is set forth on Schedule A annexed hereto) upon the
satisfaction of each of the following conditions:
(i) Acceptance by each of the Subscribers of a
satisfactory Subscription Agreement and due execution by all parties
of this Agreement and the Exhibits annexed hereto;
(ii) Delivery into escrow by the Company of an
aggregate principal amount of One Million Five Hundred Thousand
($1,500,000) Dollars of original A Debentures, as more fully set forth
in the Escrow Agreement attached hereto as Exhibit F;
(iii) All representations and warranties of the
Company contained herein shall remain true and correct in all material
respects as of the First Tranche Closing Date;
(iv) Each of the Subscribers shall have received
an opinion of counsel substantially in the form of Exhibit F annexed
hereto;
(v) The Company shall have obtained all permits
and qualifications required by any state for the offer and sale of the
A Debentures, and Warrants, or shall have the availability of
exemptions therefrom. At the Closing Date, the sale and issuance of
the A Debentures and Warrants shall be legally permitted by all laws
and regulations to which the Company and each of the Subscribers are
subject.
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(vi) The Investors shall have received
certification that the Company has obtained shareholder approval for
the Company's issuance of more than twenty (20%) percent of its Common
Stock in connection with the transactions contemplated hereby, if
required pursuant to the listing requirements of the OTC Bulletin
Board or Nasdaq Small Cap Stock Market, to the extent the Common Stock
is then so listed; and
(vii) Payment of fees as set forth in Section 17.6
below.
(b) Second Tranche. The Subscribers shall purchase an
aggregate principal amount of One Million Five Hundred Thousand ($1,500,000)
Dollars principal amount of B Debentures (the dollar amount subscribed to for
each Subscriber is set forth on Schedule A annexed hereto), on the ninetieth
(90th) day following the Effective Date upon the satisfaction of the following
conditions:
(i) The Subscribers shall have received certification
that the Company has obtained shareholder approval for the Company's
issuance of more than twenty (20%) percent of its Common Stock in
connection with the transactions contemplated hereby, if required
pursuant to the listing requirements of the OTC Bulletin Board or
Nasdaq Small Cap Stock Market, to the extent the Common Stock is then
so listed;
(ii) Delivery into escrow by the Company of an aggregate
principal amount of One Million Five Hundred Thousand ($1,500,000)
Dollars of original B Debentures, as more fully set forth in the
Escrow Agreement attached hereto as Exhibit F;
(iii) The Subscribers shall have received an opinion of
counsel of the Company as set forth in Exhibit F annexed to this
Agreement, dated on the Second Tranche Closing Date;
(iv) The Subscribers shall have received written proof
that the Registration Statement (which includes all shares of Common
Stock underlying the Debentures and Warrants) has previously become
effective and remains effective during the ten (10) Trading Days
immediately prior to the Second Tranche Closing Date, and (A) neither
the Company nor any of the Subscribers shall have received notice that
the SEC has issued or intends to issue a stop order with respect to
the Registration Statement or that the SEC otherwise has suspended or
withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so
(unless the SEC's concerns have been addressed and the Investors are
reasonably satisfied that the SEC no longer is considering or intends
to take such action), and (B) no other suspension of the use or
withdrawal of the effectiveness of the Registration Statement or
related prospectus shall exist;
(v) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the B
Debentures, or shall have the availability of exemptions therefrom.
The sale and issuance of the B Debentures shall be legally permitted
by all laws and regulations to which the Company is subject;
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(vi) The Subscribers shall have received written
certification that the representations and warranties of the Company
contained in this Agreement and all Exhibits annexed hereto are true
and correct in all material respects as of the Second Tranche Closing
Date as though made at each such time (except for representations and
warranties specifically made as of a particular date) with respect to
all periods, and as to all events and circumstances occurring or
existing to and including the Second Tranche Closing Date;
(vii) The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement, the B Debentures, the Escrow
Agreement, the Registration Rights Agreement and the Warrants, to be
performed, satisfied or complied with by the Company at or prior to
the Second Tranche Closing Date;
(viii) No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction that prohibits or directly and adversely
affects any of the transactions contemplated by this Agreement or the
Exhibits annexed hereto, and no proceeding shall have been commenced
that may have the effect of prohibiting or adversely affecting any of
the transactions contemplated by this Agreement or the Exhibits
annexed hereto;
(ix) Since the date of filing of the Company's most recent
SEC Document, no event that had or is reasonably likely to have a
material adverse effect on the properties, business, condition
(financial or otherwise), operations or prospects of the Company has
occurred;
(x) The trading of the Common Stock is not suspended by
the SEC or the OTC Bulletin Board, or the Nasdaq Small Cap Stock
Market (if applicable), and the Common Stock shall not have been
delisted from the OTC Bulletin Board or the Nasdaq Small Cap Stock
Market, if applicable. The issuance of shares of Common Stock with
respect to the conversion of the B Debentures shall not violate the
shareholder approval requirements of the Nasdaq Small Cap Stock Market
(if applicable). The Company shall not have been contacted by the
NASD concerning the delisting of the Common Stock on the OTC Bulletin
Board, or the Nasdaq Small Cap Stock Market (if applicable), and the
Company currently meets all applicable listing requirements; and
(xii) Payment of fees as set forth in Section 17.6 below.
Notwithstanding the foregoing, the Subscribers will not be obligated
to purchase the B Debenture in the event the Registration Statement has not
been declared effective by the SEC prior to the first anniversary of the First
Tranche Closing Date.
17
<PAGE> 18
Section 17. Miscellaneous.
17.1 Governing Law/Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the
jurisdiction of the Southern District of the State of New York or the state
courts of the City of New York in connection with any dispute arising under
this Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any state or country having jurisdiction over
the party against whom such judgment was obtained, and each party hereby waives
any defenses available to it under local law and agrees to the enforcement of
such a judgment. Each party to this Agreement irrevocably consents to the
service of process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address set
forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
17.2 Confidentiality. The Company and each of the
Subscribers agrees to keep confidential and not to disclose to or use for the
benefit of any third party the terms of this Agreement (including the names of
the Subscribers) or any other information which at any time is communicated by
the other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required
to be disclosed by law. If for any reason the transactions contemplated by
this Agreement are not consummated, each of the parties hereto shall keep
confidential any information obtained from any other party, including the names
of the Subscribers (except information publicly available or in such party's
domain prior to the date hereof, and except as required by court order) and
shall promptly return to the other parties, or destroy (if the other party so
requests), all schedules, documents, instruments, work papers or other written
information, without retaining copies thereof, previously furnished by it as a
result of this Agreement or in connection herewith.
17.3 Facsimile/Counterparts/Entire Agreement. Except as
otherwise stated herein, in lieu of the original, a facsimile transmission or
copy of the original (except the Securities) shall be as effective and
enforceable as the original. This Agreement may be executed in counterparts
which shall be considered an original document and which together shall be
considered a complete document. This Agreement and the Exhibits annexed hereto
constitute the entire agreement between the Subscribers and the Company with
respect to the subject matter hereof. This Agreement may be amended only by a
writing executed by all parties.
18
<PAGE> 19
17.4 Severability. In the event that any provision of
this Agreement becomes or is declared by a court of competent jurisdiction to
be illegal, unenforceable or void, this Agreement shall continue in full force
and effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to
any party.
17.5 Reliance by Company. Each of the Subscribers
represents to the Company that the representations and warranties of each
Subscriber contained herein are complete and accurate and may be relied upon by
the Company in determining the availability of an exemption from registration
under federal and state securities laws in connection with a private offering
of securities.
17.6 Fees and Expenses. Each of the parties shall pay its
own fees and expenses (including the fees of any accountants, appraisers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby except that the Company agrees to pay: (a) on
the First Tranche Closing Date, (i) to Corporate Capital Management, (A) that
dollar amount in cash equal to ten (10%) percent of the First Tranche Purchase
Price, and (B) a Warrant to purchase fifty thousand (50,000) shares of Common
Stock; and (ii) to Goldstein, Goldstein, & Reis, LLP fifteen thousand ($15,000)
dollars for legal and escrow fees; and (b) on the Second Tranche Closing Date,
(i) to Corporate Capital Management that dollar amount in cash equal to ten
(10%) percent of the Second Tranche Purchase Price, and (ii) to Goldstein,
Goldstein, & Reis, LLP seven thousand five hundred ($7,500) dollars for legal
and escrow fees.
17.7 Authorization. Each of the parties hereto represents
that the individual executing this Agreement on its behalf has been duly and
appropriately authorized to execute the Agreement.
17.8 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by reputable courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
19
<PAGE> 20
(i) If to the Company:
Fresh'n Lite, Inc.
1705 Whaley
Longview, Texas
Attention: Curtis Swanson
Telephone: (903) 758-2811
Facsimile: (903) 758-1666
(ii) If to the Subscribers, at the addresses and numbers
listed on Schedule A annexed hereto.
Any party hereto may from time to time change its address or facsimile
number for notices under this Section by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
20
<PAGE> 21
IN WITNESS WHEREOF, this 6% Convertible Debenture Subscription
Agreement was duly executed on the date first written below.
Agreed to and Accepted on
this day of May 1998
----
FRESH'N LITE, INC.
By
--------------------------
Name:
Title:
DOMINION CAPITAL FUND, LTD.
By
------------------------------
Mark Valentine, Agent
Executed this day of May, 1998
---
CANADIAN ADVANTAGE LIMITED
PARTNERSHIP
By
------------------------------
Mark Valentine, General Partner
Executed this day of May, 1998
---
SOVEREIGN PARTNERS LIMITED
PARTNERSHIP
By
------------------------------
Mark Valentine, Agent
Executed this day of May, 1998
---
<PAGE> 22
SCHEDULE A
LIST OF PURCHASERS
1. DOMINION CAPITAL FUND, LTD.
365 Bay Street, 10th Fl.
Toronto, Ontario M5H 2V2
Attention: Mark Valentine
Facsimile: (416) 367-8055
Telephone: (416) 860-6130
Initial Investment Amount: $800,000.
2. CANADIAN ADVANTAGE LIMITED PARTNERSHIP
365 Bay Street, 10th Fl.
Toronto, Ontario M5H 2V2
Attention: Mark Valentine
Facsimile: (416) 367-8055
Telephone: (416) 860-6130
Initial Investment Amount: $200,000.
3. SOVEREIGN PARTNERS LIMITED PARTNERSHIP
365 Bay Street, 10th Fl.
Toronto, Ontario M5H 2V2
Attention: Mark Valentine
Facsimile: (416) 367-8055
Telephone: (416) 860-6130
Initial Investment Amount: $500,000.
2
<PAGE> 1
EXHIBIT 4.5
MODIFICATION AGREEMENT
Agreement of Modification made as of June 30, 1998, by and among
Fresh'n Lite, Inc., a Texas corporation (the "Company"), Dominion Capital Fund,
Ltd. and Sovereign Partners Limited Partnership (collectively, the "Investors").
(Capitalized terms used herein and not otherwise defined herein shall
have the meaning given to them in the 6% Convertible Debenture Subscription
Agreement dated as of May 29, 1998, by and among the Company and the Investors)
Witnesseth:
WHEREAS, the Company and the Investors executed the Subscription
Agreement pursuant to which the Investors agreed, among other things, to
purchase an aggregate principal amount of One Million Five Hundred Thousand
($1,500,000) Dollars principal amount of B Debentures (the dollar amount
subscribed to for each Subscriber is set forth on Schedule A annexed to the
Subscription Agreement), on the ninetieth (90th) day following the Effective
Date upon the satisfaction of several conditions;
WHEREAS, pursuant to the Subscription Agreement the Investors
purchased an aggregate principal amount of One Million Five Hundred Thousand
($1,500,000) Dollars principal amount of A Debentures;
WHEREAS, notwithstanding the limitations on the completion of the
Second Tranche set forth in Section 16 (b) of the Subscription Agreement, the
Investors hereby agree to purchase an aggregate principal amount of One Million
Five Hundred Thousand ($1,500,000) Dollars principal amount of B Debentures
(the dollar amount subscribed to for each Subscriber is set forth on Schedule A
annexed hereto), and Warrants to purchase an aggregate of seventy five thousand
(75,000) shares of Common Stock; and
WHEREAS, the Company and the Investors desire to modify certain terms
of the Subscription Agreement.
Now, therefore, in consideration of the mutual covenants, conditions
and promises contained herein, the parties agree as follows:
1. Section 16 (b) of the Subscription Agreement is hereby
modified to reflect that the Investors waive the requirement pertaining to the
funding of the Second Tranche on the ninetieth (90th) day following the
Effective Date, and agree to purchase an aggregate principal amount of One
Million Five Hundred Thousand ($1,500,000) Dollars principal amount of B
Debentures
<PAGE> 2
upon the execution of, and completion of the conditions contained in, this
Modification Agreement.
2. The Company hereby certifies that all of the representations
and warranties contained in the Subscription Agreement remain true and correct
in all material respects as of the date hereof.
3. The Company hereby certifies that as of the date hereof it has
satisfied each of the conditions contained in the Subscription Agreement,
including but not limited to, those contained in Section 16(b) thereof, except
subsections (i) and (iv) which have been modified pursuant to the terms herein.
4. The Investors agree to waive the conditions set forth in
subsections 16(b)(i) and (iv). However, the Investors do not waive the
requirements contained in Section 10 of the Subscription Agreement to the
extent applicable from time to time. The Company agrees to comply with Section
10 of the Agreement, and to file a Registration Statement, as required pursuant
to the terms of the Registration Rights Agreement entered into between the
Company and the Investors on or about May 29, 1998 (the "Registration Rights
Agreement"), within twenty four hours after the execution and delivery of this
Modification Agreement and the funding of the Second Tranche as contemplated
herein.
5. Curtis Swanson, the chief financial officer of the Company,
hereby certifies that the Company has applied for listing of its Common Stock
on the Nasdaq Small Cap Stock Market and has been orally informed by the
Company's Nasdaq representative that the issuances of Securities pursuant to
this Modification Agreement and the Subscription Agreement will not violate any
Nasdaq Marketplace Rules. In the event the Common Stock becomes listed on the
Nasdaq Small Cap Stock Market it agrees to comply with all Nasdaq Marketplace
rules and maintain its listing thereon.
6. The Investors agree that notwithstanding the terms of Sections
3 (a) and (e) of the Registration Rights Agreement, the Company's time to file
the Registration Statement is hereby extended to July 1, 1998.
7. The Investors hereby state that all of the representations and
warranties contained in the Subscription Agreement remain true and correct in
all material respects as of the date hereof.
8. This Modification Agreement may be executed in counterparts,
all of which shall be deemed to be duplicate originals.
9. Except for the terms of this Modification Agreement, all of
the terms, conditions and covenants contained in the Subscription Agreement
shall remain in full force and effect.
[Remainder of page intentionally left blank]
2
<PAGE> 3
IN WITNESS WHERETO, the parties hereto have executed this Modification
Agreement as of the date first set forth above.
FRESH'N LITE, INC.
By
----------------------------
Name:
Title:
DOMINION CAPITAL FUND, LTD.
By
----------------------------------
Mark Valentine, Agent
SOVEREIGN PARTNERS LIMITED
PARTNERSHIP
By
----------------------------------
Mark Valentine, Agent
3
<PAGE> 1
EXHIBIT 4.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of the 29th day
of May, 1998, among the entities listed on Schedule A (collectively referred to
as the "Holders"), and FRESH'N LITE, INC., a corporation
incorporated under the laws of the State of Texas, and having its principle
place of business at 1705 East Whaley, Longview, Texas 75601 (the "Company").
WHEREAS, the Holders are purchasing from the Company, pursuant
to a 6% Convertible Debenture Subscription Agreement dated the date hereof (the
"Subscription Agreement"), an aggregate of up to Three Million ($3,000,000)
Dollars principal amount of the Company's Convertible Debenture (each a
"Debenture") in two separate tranches, and a warrant (the "Warrant")to purchase
one hundred fifty thousand (150,000) shares of the Company's common stock, par
value $0.01 per share (each a share of "Common Stock"); and
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the shares of Common Stock
underlying the Debentures and Warrants (such shares of Common Stock
collectively hereinafter referred to as the "Stock" or "Securities" of the
Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the
term "Registrable Security" means the Securities; provided, however, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (i) it has been
effectively registered under the Securities Act of 1933, as amended (the
"Securities Act") and sold, transferred or otherwise disposed of pursuant
thereto, (ii) registration under the Securities Act is no longer required for
the immediate public distribution of all of such security as a result of the
provisions of Rule 144 promulgated under the Securities Act, or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or
all of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable
Security" as is appropriate in order to prevent any dilution or enlargement of
the rights granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holders acknowledge
and understand that prior to the registration of the Securities as provided
herein, the Securities are "restricted securities" as defined in Rule 144
promulgated under the Securities Act and may be "control securities" as defined
in Rule 144 promulgated under the Securities Act. The Holders understand that
no disposition or transfer of the Securities may be made by the Holders in the
absence of (i) an opinion of counsel to the Holders that such transfer may be
made without registration under the Securities Act or (ii) such registration.
<PAGE> 2
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and
file with the Securities and Exchange Commission ("Commission"), within thirty
(30) days after the First Tranche Closing Date, a registration statement (on
Form S-1, SB-1 or SB-2, or other applicable registration statement) under the
Securities Act (the "Registration Statement"), at the sole expense of the
Company (except as provided in Section 3(c) hereof), in respect of the Holders
for resales under the Securities Act of the shares of Common Stock underlying
both the Debentures and the Warrants. The Company shall use its best efforts
to cause the Registration Statement to become effective within one hundred
twenty (120) days from the First Tranche Closing Date. The number of shares of
Common Stock designated in the Registration Statement to be registered shall be
two hundred (200%) percent of the number of shares of Common Stock that would
be required if all the Debentures and Warrants were converted or exercised on
the day before the filing of the Registration Statement.
(b) The Company will use commercially reasonable
efforts to maintain the effectiveness the Registration Statement or
post-effective amendment filed under this Section 3 hereof under the Securities
Act until the earlier of (i) the date that all of the Registrable Securities
have been sold pursuant to the Registration Statement, (ii) the date the
holders thereof receive an opinion of counsel that all of the Registrable
Securities may be sold under the provisions of Rule 144 or (iii) two years
after the First Tranche Closing Date.
(c) All fees, disbursements and out-of-pocket
expenses and costs incurred by the Company in connection with the preparation
and filing of the Registration Statement under subparagraph 3(a) and in
complying with applicable securities and Blue Sky laws (including, without
limitation, all attorneys' fees) shall be borne by the Company. Each Holder
shall bear the cost of underwriting discounts and commissions, if any,
applicable to the respective Registrable Securities being registered for resale
by such Holder, and the fees and expenses of such Holder's counsel.
(d) The Company shall not be required by this
Section 3 to include a Holder's Registrable Securities in any Registration
Statement which is to be filed if, in the opinion of counsel for all of the
Holders, and the Company (or, should they not agree, in the opinion of another
counsel experienced in securities law matters acceptable to counsel for the
Holders and the Company), the proposed offering or other transfer as to which
such registration is requested is exempt from applicable federal and state
securities laws and would result in all Investors or transferees obtaining
securities which are not "restricted securities", as defined in Rule 144 under
the Securities Act.
(e) In the event the Registration Statement to be
filed by the Company pursuant to Section 3(a) above is not filed with the
Commission within thirty (30) days after the First Tranche Closing Date and/or
the Registration Statement is not declared effective by the Commission within
one hundred twenty (120) days from the First Tranche Closing Date, and
provided that such non-filing or non-effectiveness is not due in part, or in
whole, to any Holder's failure to comply with Section 4 hereof, then the
Company will pay to the Holders (pro rated on a daily basis), as liquidated
damages for such failure and not as a penalty, two (2%) percent of
2
<PAGE> 3
the principal amount of the then outstanding Debentures for every thirty (30)
day period until the Registration Statement has been filed and/or declared
effective. Such payment of the liquidated damages shall be made to the Holders
in cash, immediately upon written demand, provided, however, that the payment
of such liquidated damages shall not relieve the Company from its obligations
to register the Securities pursuant to this Section and registration shall not
relieve the Company from any obligation to pay liquidated damages, to the
extent any such obligation arose prior to the effective date of such
Registration Statement. The aforementioned liquidated damages shall cease to
accrue two years after the First Tranche Closing Date or on such earlier date
as that the Holders may rely on Rule 144 for the resale, without volume
limitation, of all of the Securities then held by the Holders.
If the Company does not remit the damages to the
Holders as set forth above, the Company will pay the Holders' reasonable costs
of collection, including reasonable attorney's fees, in addition to the
liquidated damages. The registration of the Securities pursuant to this
provision shall not affect or limit Holders' other rights or remedies as set
forth in this Agreement.
(f) No provision contained herein shall preclude
the Company from selling securities pursuant to any Registration Statement
relating to Registrable Securities pursuant to this Section 3.
(g) If at any time or from time to time after the
effective date of the Registration Statement, the Company notifies the Holders
in writing of the existence of a Potential Material Event (as defined in
Section 3(h) below), the Holders shall not offer or sell any Registrable
Securities or engage in any other transaction involving or relating to
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until such Holder receives written notice from the
Company that such Potential Material Event either has been disclosed to the
public or no longer constitutes a Potential Material Event; provided, however,
that the Company may not so suspend the right to such holders of Securities for
more than one (1) thirty (30) day period in the aggregate during any twelve
month period, during the period in which the Registration Statement is
required to be in effect. If a Potential Material Event shall occur prior to
the date the Registration Statement is filed, then the Company's obligation to
file the Registration Statement shall be delayed without penalty for not more
than thirty (30) days. The Company must give each Holder notice in writing at
least two (2) business days prior to the first day of the blackout period
relating to any Potential Material Event.
(h) "Potential Material Event" means any of the
following: (a) the possession by the Company of material information not ripe
for disclosure in a registration statement; or (b) any material engagement or
activity by the Company which would be adversely affected by disclosure in a
registration statement at such time, provided that in the absence of disclosure
of such material engagement or activity in the Registration Statement, such
Registration Statement reasonably could be deemed to be materially misleading
absent the inclusion of such information.
Section 4. Cooperation with Company. Each Holder will
cooperate with the Company in all respects in connection with this Agreement,
including timely supplying all
3
<PAGE> 4
information reasonably requested by the Company and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Registrable Securities.
Section 5. Registration Procedures. If and whenever the
Company is required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Securities Act, the
Company shall (except as otherwise provided in this Agreement), as
expeditiously as possible:
(a) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all Securities covered by such
Registration Statement whenever the Holder of such Securities shall desire to
sell or otherwise dispose of the same (including prospectus supplements with
respect to the sales of securities from time to time in connection with a
Registration Statement pursuant to Rule 415 promulgated under the Securities
Act);
(b) furnish to each Holder such numbers of copies
of the Registration Statement (and any amendments thereto), a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Securities Act, and such other documents, as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Securities owned by such Holder;
(c) register and qualify the Securities covered
by the Registration Statement under such other securities or blue sky laws of
such jurisdictions as the Holders shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable each Holder
to consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, or to file therein any general
consent to service of process, or to qualify any of the securities for sale in
any state which will require an escrow or other restriction relating to the
Company and/or sellers;
(d) list such Securities on the OTC Bulletin
Board or NASDAQ Small Cap Stock Market or other national securities exchange on
which any securities of the Company are then listed, if the listing of such
Securities is then permitted under the rules of such exchange or NASDAQ;
(e) notify each Holder of Registrable Securities
covered by the Registration Statement, at any time when a prospectus relating
thereto covered by the Registration Statement is required to be delivered under
the Securities Act, of the happening of any event of which the executive
officers of the Company have knowledge, as a result of which the prospectus
included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
4
<PAGE> 5
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold
harmless the Holders, and each officer, director or person, if any, who
controls each Holder within the meaning of the Securities Act ("Distributing
Holder") against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all reasonable attorneys' fees),
to which the Distributing Holder may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the Company (i) will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by the Distributing Holder, specifically
for use in the preparation thereof, or (ii) cannot pay any amounts paid in
settlement of any loss, claim, damage or liability if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld. This Section 6(a) shall not inure to the benefit of any
Distributing Holder with respect to any person asserting such loss, claim,
damage or liability who purchased the Registrable Securities which are the
subject thereof if the Distributing Holder failed to send or give (in violation
of the Securities Act or the rules and regulations promulgated thereunder) a
copy of the prospectus contained in such Registration Statement to such person
at or prior to the written confirmation of such person of the sale of such
Registrable Securities, where the Distributing Holder was obligated to do so
under the Securities Act or the rules and regulations promulgated thereunder.
This indemnity provision will be in addition to any liability which the Company
may otherwise have.
(b) Each Distributing Holder agrees that it will
indemnify and hold harmless the Company, each officer, director, or person, if
any, who controls the Company within the meaning of the Securities Act (each a
"Company Indemnitee"), and each other Distributing Holder, against any losses,
claims, damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees) to which any Company
Indemnitee or other Distributing Holder may become subject under the
Securities Act or otherwise, insofar as such losses claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, or any related preliminary prospectus, final
prospectus, offering circular, notification or amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary
5
<PAGE> 6
to make the statements therein not misleading, but in each case only to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company by such Distributing Holder, specifically
for use in the preparation thereof. This indemnity provision will be in
addition to any liability which the Distributing Holder may otherwise have.
(c) Promptly after receipt by an indemnified
party under this Section 6 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 6, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than as to the particular item as to which
indemnification is then being sought solely pursuant to this Section 6. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 6 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall not be at
the expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is the Distributing Holder, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the
indemnifying party and the Distributing Holder shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Holder (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf
of the Distributing Holder, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable only for the
reasonable fees and expenses of one separate firm of attorneys for the
Distributing Holder, which firm shall be designated in writing by the
Distributing Holder). No settlement of any action against an indemnified party
shall be made without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld.
Section 7. Contribution. In order to provide for just
and equitable contribution under the Securities Act in any case in which (i)
the indemnified party makes a claim for indemnification pursuant to Section 6
hereof but is judicially determined (by the entry
6
<PAGE> 7
of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 6 hereof provide for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of any indemnified party, then the Company and the applicable Distributing
Holder shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the applicable Distributing Holder
on the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Distributing Holder agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in this Section 7. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above in this Section 7 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 8. Notices. All notices, demands, requests,
consents, approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall be (i)
personally served, (ii) deposited in the mail, registered or certified, return
receipt requested, postage prepaid, (iii) delivered by reputable air courier
service with charges prepaid, or (iv) transmitted by hand delivery, telegram,
or facsimile, addressed as set forth below or to such other address as such
party shall have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by reputable courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to Fresh'n Lite, Inc.:
Fresh'n Lite, Inc.
1705 East Whaley
Longview, Texas 75601
Attention: Curtis Swanson Facsimile: (903) 758-2811
Telephone: (903) 758-1666
7
<PAGE> 8
If to the Holders at the addresses set forth on Schedule A attached
hereto.
Any party hereto may from time to time change its address or facsimile
number for notices under this Section by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 9. Assignment. This Agreement is binding upon
and inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. In the event of a transfer of the rights
granted under this Agreement, the Holder agrees that the Company may require
that the transferee comply with reasonable conditions as determined in the
discretion of the Company.
Section 10. Counterparts; Facsimile; Amendments. This
Agreement may be executed in multiple counterparts, each of which may be
executed by less than all of the parties and shall be deemed to be an original
instrument which shall be enforceable against the parties actually executing
such counterparts and all of which together shall constitute one and the same
instrument. Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the original. This Agreement may be amended
only by a writing executed by all parties.
Section 11. Termination of Registration Rights. This
Agreement shall terminate as to each Holder (and permitted transferees or
assignees) upon the occurrence of any of the following:
(a) all Holder's Securities subject to this Agreement
have been registered;
(b) all of such Holder's Securities subject to this
Agreement may be sold without such registration pursuant to Rule 144
promulgated by the Commission pursuant to the Securities Act; and
(c) all of such Holder's Securities subject to this
Agreement can be sold pursuant to Rule 144(k) without limitation.
Section 12. Headings. The headings in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 13. Governing Law: Venue; Jurisdiction. This
Agreement will be construed and enforced in accordance with and governed by the
laws of the State of New York, except for matters arising under the Securities
Act, without reference to principles of conflicts of law. Each of the parties
consents to the jurisdiction of the U.S. District Court sitting in the
Southern District of the State of New York or the state courts of the State of
New York sitting in Manhattan in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. Each party hereby
8
<PAGE> 9
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any country having jurisdiction over the
party against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such
a judgment. Each party to this Agreement irrevocably consents to the service
of process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address set
forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
Section 14. Severability. If any provision of this
Agreement shall for any reason be held invalid or unenforceable, such
invalidity or unenforceablity shall not affect any other provision hereof and
this Agreement shall be construed as if such invalid or unenforceable provision
had never been contained herein. Terms not otherwise defined herein shall be
defined in accordance with the Agreement.
Section 15. Capitalized Terms. All capitalized terms not
otherwise defined herein shall have the meaning assigned to them in the
Subscription Agreement.
Section 16. Entire Agreement. This Agreement, together
with all documents referenced herein, embody the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement of any kind not expressly set forth in this Agreement
shall affect, or be used to interpret, change or restrict, the express terms
and provisions of this Agreement.
[Remainder of page intentionally left blank]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
FRESH'N LITE, INC.
By
---------------------------
Name:
Title:
DOMINION CAPITAL FUND, LTD.
By
--------------------------------
Mark Valentine, Agent
CANADIAN ADVANTAGE LIMITED
PARTNERSHIP
By
--------------------------------
Mark Valentine, General Partner
SOVEREIGN PARTNERS LIMITED
PARTNERSHIP
By
--------------------------------
Mark Valentine, Agent
10
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report in the Registration Statement (Form SB-2) and related
Prospectus of Fresh'n Lite, Inc. for the registration of 2,095,744 shares of
its common stock to be filed with the Securities and Exchange Commission on
June 30, 1998, and to the incorporation by reference therein of our report
dated March 3, 1998 with respect to the financial statements of Fresh'n Lite,
Inc. in its Annual Report (Form 10-K) for the year ended December 31, 1997
filed with the Securities and Exchange Commission.
/s/ T. G. PROTHRO AND COMPANY, PLLC
-----------------------------------
T. G. Prothro and Company, PLLC
Tyler, Texas
June 29, 1998
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitute and appoints Stanley L. Swanson, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, acting
alone, to sign, execute and file with the Securities and Exchange Commission
and any state securities regulatory board or commission any documents relating
to the proposed issuance and registration of the securities offered pursuant to
the Registration Statement of Fresh'n Lite, Inc. on Form SB-2 under the
Securities Act of 1933, including any amendment or amendments relating thereto,
with all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority, granting unto said attorney-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully to all intents and purposes
as he might or could do if personally present, hereby ratifying and confirming
all that said attorney-in-fact and agents, or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done.
SIGNATURE TITLE DATE
/s/ EDWARD DMYTRYK
- --------------------------- Director June 29, 1998
Edward Dmytryk
/s/ ROBERT LILLY
- --------------------------- Director June 29, 1998
Robert Lilly
/s/ HENRY LEONARD
- --------------------------- Director June 29, 1998
Henry Leonard
<PAGE> 1
EXHIBIT 24.2
FRESH'N LITE, INC.
CERTIFIED RESOLUTION OF POWER OF ATTORNEY
The following resolution was duly adopted on June 30, 1998 by unanimous
written consent of the Board of Directors of Fresh'n Lite, Inc., a Texas
corporation (the "Company"), pursuant to the provisions of Article 9.10 of the
Texas Business Corporation Act, and pursuant to the Bylaws of the Company,
which shall have the same force and effect as if duly adopted at a meeting
called for the purposes of action thereon, of the Board of Directors of the
Company:
WHEREAS, the Board of Directors has approved the filing of a registration
statement on an appropriate form (the "Registration Statement") with the
Securities and Exchange Commission on behalf of the Company for the purpose of
registering the resale, pursuant to the Securities Act of 1933, as amended, of
any or all of the shares of common stock of the Company issued upon conversion
of certain debentures or exercise of certain warrants; now, therefore, be it
RESOLVED, that each director who may be required to sign and execute
the Registration Statement or any amendment thereto or documents in
connection therewith or in connection with the offering contemplated
thereby (whether on behalf of the Company, as an officer or director of
the Company or otherwise) and who is not required to sign in person
pursuant to the Securities Act of 1933 be, and each of them hereby is,
authorized to execute a power of attorney appointing Stanley L. Swanson as
his true and lawful attorney-in-fact and agent, with full power of
substitution and full power to each to act alone to sign in his name,
place and stead in any such capacity, such Registration Statement and all
amendments thereto and documents in connection therewith; that the actions
of the officers and directors in executing the power of attorney in the
form contained in the Registration Statement are hereby authorized,
confirmed and approved; and that said attorney-in-fact and agent is hereby
authorized to sign such Registration Statement, amendments and documents in
the name, place and stead of each such officer and director who shall have
executed such power of attorney (whether acting on behalf of the Company,
as an officer or director of the Company, or otherwise).
The undersigned, Curtis A. Swanson, as Assistant Secretary of the Company,
hereby certifies that the resolution hereto is a full, true, and correct copy
of the resolution duly adopted by the Company's Board of Directors by unanimous
written consent of the Company's Board of Directors effective as of June 30,
1998.
IN WITNESS WHEREOF, I have hereunto signed my name.
Dated: June 30, 1998
/s/ CURTIS A. SWANSON
--------------------------------------
Curtis A. Swanson, Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1997 AUDITED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
SB-2.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 20,393
<SECURITIES> 0
<RECEIVABLES> 164,543
<ALLOWANCES> 0
<INVENTORY> 26,571
<CURRENT-ASSETS> 211,507
<PP&E> 8,364,375
<DEPRECIATION> (430,325)
<TOTAL-ASSETS> 8,145,537
<CURRENT-LIABILITIES> 957,806
<BONDS> 3,355,810
0
0
<COMMON> 61,585
<OTHER-SE> 3,570,336
<TOTAL-LIABILITY-AND-EQUITY> 8,145,537
<SALES> 3,106,144
<TOTAL-REVENUES> 3,106,144
<CGS> 890,944
<TOTAL-COSTS> 1,736,727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 311,611
<INCOME-PRETAX> 166,862
<INCOME-TAX> 56,000
<INCOME-CONTINUING> 110,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,862
<EPS-PRIMARY> .018
<EPS-DILUTED> .016
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1ST QUARTER
1998 INTERIM FINANCIAL STATEMENTS (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM SB-2.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 201,163
<SECURITIES> 0
<RECEIVABLES> 146,005
<ALLOWANCES> 0
<INVENTORY> 26,468
<CURRENT-ASSETS> 373,636
<PP&E> 8,807,095
<DEPRECIATION> (466,475)
<TOTAL-ASSETS> 8,714,256
<CURRENT-LIABILITIES> 630,370
<BONDS> 3,938,963
0
0
<COMMON> 63,568
<OTHER-SE> 4,081,344
<TOTAL-LIABILITY-AND-EQUITY> 8,714,245
<SALES> 798,219
<TOTAL-REVENUES> 937,898
<CGS> 205,156
<TOTAL-COSTS> 468,610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,696
<INCOME-PRETAX> 215,436
<INCOME-TAX> 0
<INCOME-CONTINUING> 215,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 215,436
<EPS-PRIMARY> .034
<EPS-DILUTED> .031
</TABLE>
