<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1996
------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
--------------------- -----------------------
Commission file number 1-13840
--------------------------------------------------------
PUDGIE'S CHICKEN, INC.
- - -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 31-1369735
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
333 Earle Ovington Boulevard, Suite 604, Uniondale, New York 11553
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(516) 222-8833
- - -------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
As of May 14, 1996, the registrant had 4,416,836 shares of its Common Stock,
$.01 par value, issued and outstanding.
Page 1 of 61
The Exhibit Index is on Page 16
<PAGE>
PUDGIE'S CHICKEN, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
------
Item 1 - Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995. . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the three months ended
March 31, 1996 and March 31, 1995. . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and March 31, 1995. . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . 6-7
Item 2 - Management's Discussion and Analysis or Plan of Operation. . . 8-10
PART II. OTHER INFORMATION
Item 2 - Changes in Securities. . . . . . . . . . . . . . . . . . . . . 10
Item 5 - Other Information. . . . . . . . . . . . . . . . . . . . . . . 12
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 14
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(2)
<PAGE>
PUDGIE'S CHICKEN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
Assets 1995 1996
(unaudited) (unaudited)
<S> <C> <C>
Current assets
Cash $823,440 $87,740
Franchise and advertising royalties receivable,net 376,975 454,390
Inventories 123,670 116,490
-------------- --------------
Total current assets 1,324,085 658,620
Property and equipment, net 2,729,600 2,593,100
Intangible assets ,net 8,759,100 8,670,620
Other assets 418,575 487,520
-------------- --------------
Total assets $13,231,360 $12,409,860
-------------- --------------
-------------- --------------
Liabilities, Redeemable Preferred Stock
and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $830,137 $1,060,657
Deferred franchise fees 230,000 165,000
Sales tax payable 78,670 253,510
Interest payable --- 106,036
Other liabilities 135,823 93,930
-------------- --------------
Total current liabilities 1,274,630 1,679,133
Note payable to stockholder 3,606,837 3,606,837
-------------- --------------
Total liabilities 4,881,467 5,285,970
-------------- --------------
Redeemable Preferred Stock; $.01 par value;
10,000 shares authorized, issued and outstanding
(redemption and liquidation value of $1,069,000) 1,069,000 1,069,000
-------------- --------------
Stockholders' equity
Preferred stock, 250,000 shares authorized(including
10,000 shares of Redeemable Preferred Stock which are
issued and outstanding and 50,000 shares of $4 Cumulative
Preferred Stock, $.01 par value, which are issued and
outstanding), (liquidation value of $500,000) 500 500
Common stock, $.01 par value, 10,000,000 shares authorized;
4,506,972 and 4,416,836 shares, issued and outstanding,
respectively 45,070 44,890
Additional paid in capital 16,159,920 16,069,960
Accumulated deficit (8,699,235) (9,919,600)
Deferred Compensation (225,362) (140,860)
------------- -------------
Total stockholders' equity 7,280,893 6,054,890
Commitments and contingencies
Total liabilities, redeemable preferred stock -------------- --------------
and stockholders' equity $13,231,360 $12,409,860
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
(3)
<PAGE>
PUDGIE'S CHICKEN, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
(unaudited)
1995 1996
<S> <C> <C>
Revenue
Restaurant sales $1,949,455 $2,442,561
Franchise and advertising royalties 346,199 241,316
Franchise fees 60,000 ---
Interest income and other revenue 17,954 22,532
------------ ------------
2,373,608 2,706,409
------------ ------------
Costs and Expenses
Restaurant cost of sales 758,704 961,663
Restaurant operating expenses 1,053,968 1,468,109
Franchising costs 22,016 30,030
General and administrative 727,295 901,377
Advertising expenses 180,131 206,462
Depreciation and amortization 258,262 253,097
Interest expense 170,250 106,036
------------ ------------
3,170,626 3,926,774
------------ ------------
Net loss ($797,018) ($1,220,365)
------------ ------------
------------ ------------
Net loss per common share ($0.43) ($0.28)
------------ ------------
------------ ------------
Shares used in computation 1,837,132 4,416,836
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
(4)
<PAGE>
PUDGIE'S CHICKEN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
(unaudited)
1995 1996
<S> <C> <C>
Cash flows provided by (used in) operating activities
Net loss ($797,018) ($1,220,365)
Adjustments to reconcile net income
to net cash provided by operations
Deferred compensation expense ---- (5,633)
Depreciation and amortization 258,262 253,097
Bad debt expense 27,641 9,160
Changes in operating assets and liabilities
(Increase)decrease in operating assets
Franchise and advertising royalties receivable 57,314 (86,575)
Inventories (32,992) 7,180
Other assets 100,846 (68,945)
Increase(decrease)in operating liabilities
Accounts payable and accrued expenses 27,535 230,515
Deferred franchise fees (60,000) (65,000)
Sales tax payable 152,968 174,840
Interest payable 139,432 106,036
Other liabilities 238,464 (41,893)
------------ --------------
Net cash provided by (used in) operating activities 112,452 (707,583)
------------ --------------
Cash flows used in investing activities
Purchase of property and equipment (180,899) (28,117)
Acquisition of stores (524,486) ----
------------ --------------
Net cash (used in) investing activities (705,385) (28,117)
----------- --------------
Cash flows provided by financing activities
Additions to notes payable 129,561 ----
Repayments of borrowings ---- ----
Proceeds from issuance of
Preferred Stock, net of issuance costs 495,000 ----
------------ --------------
Net cash provided by financing activities 624,561 ----
------------ --------------
Net increase in cash 31,628 (735,700)
Cash at beginning of period 165,860 823,440
----------- --------------
Cash at end of period $197,488 $87,740
------------ --------------
------------ --------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
(5)
<PAGE>
PUDGIE'S CHICKEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
in accordance with instructions to Form 10-QSB and Item 310(b) of
Regulation S-B promulgated under the Securities Act of 1933, as amended,
and, therefore, do not include all information and footnotes normally
included in financial statements prepared in conformity with generally
accepted accounting principles.
The accompanying financial statements are unaudited and include all
adjustments (consisting of normal recurring adjustments and accruals) that
management considers necessary for a fair presentation of its financial
position and results of operations for the interim periods presented. The
results of operations for the interim periods are not necessarily
indicative of the results that may be expected for the entire year.
The accompanying financial statements should be read in conjunction
with the Company's December 31, 1995 Form 10-KSB.
2. CONTINGENCIES
On June 30, 1995, an area developer of the Company's franchised
restaurants commenced an action against the Company alleging common law
fraud and alleging violations of the Franchise Sales Act of the State of
New York regarding its area development agreement with the Company. The
Company believes that it has meritorious defenses to the action, has
asserted counterclaims alleging fraud in the inducement and breach of
contract by that area developer, and has commenced a separate action
against the principal of the area developer. The court proceedings have
been stayed pending the outcome of an arbitration instituted by the Company
against the area developer and its principal involving the subject matter
of the court actions. Claims against the Company exceed $1 million.
Hearings in the arbitration are expected to continue through May 1996.
Although a range of possible loss, if any, cannot be reasonably estimated
at this time, the Company believes that the ultimate resolution of this
matter will not have any material adverse effect on its financial position,
results of operations or liquidity.
6
<PAGE>
The Company is subject to various other legal proceedings and claims
which arose in the ordinary course of its business. In the opinion of
management and legal counsel, the amount of ultimate liability, if any,
which may arise as the result of these proceedings will not materially
affect the Company's financial position or results of operations.
3. SUBSEQUENT EVENTS
On May 3, 1996, the Company received gross proceeds of $2 million from
a private placement of 200 Units, each Unit consisting of one share of
Series A Convertible Preferred Stock and 500 Common Stock Purchase
Warrants. The Preferred Shares are convertible into the Company's Common
Stock beginning on July 29, 1996, have a redemption value of $12,200 per
share plus dividends, an annual dividend of $800 per share, contain a
provision which requires the Company to repurchase the Preferred Shares
upon the occurrence of certain events and at the election of the holder,
and convert automatically to Common Stock on April 30, 1998. The Company
is obligated to promptly file a registration statement to permit the public
sale of the Warrants and the Common Stock issuable upon the conversion of
the Preferred Shares and exercise of the Warrants.
7
<PAGE>
PUDGIE'S CHICKEN, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1995
Total revenue was approximately $2.7 million for the three months ended
March 31, 1996, an increase of approximately $333,000 or 14%, over revenue of
approximately $2.4 million for the three months ended March 31, 1995. This
increase was primarily due to the increase in the number of Company-owned
restaurants from 22 at March 31, 1995 to 26 at March 31, 1996. This increase
was partially offset by the decreased number of franchised restaurants operating
during that period from 42 at March 31, 1995 to 36 at March 31, 1996.
System-wide sales at all Company-owned and franchised restaurants were
approximately $5.3 million for the three months ended March 31, 1996 and
approximately $6.2 million for the comparable prior year period. The effect of
the lower average number of Pudgie's restaurants in operation for the three
months ended March 31, 1996 was the primary cause of the decrease in sales. The
Company also believes that revenues for the first quarter of 1996 were adversely
affected by severe weather conditions which reduced operating hours, impeded
deliveries and reduced customer transactions. Sales have subsequently returned
to expected levels.
Revenue from sales at Company-owned restaurants was approximately $2.4
million for the three months ended March 31, 1996, an increase of approximately
$493,000 or 25%, over sales at Company-owned restaurants of approximately $2.0
million for the three months ended March 31, 1995. This increase was due to the
increased number of Company-owned restaurants. Franchise royalty and
advertising fees paid by franchisees were approximately $241,000 for the three
months ended March 31, 1996, a decrease of approximately $105,000 or 30%, from
approximately $346,000 for the comparable prior year period. This decrease
resulted from the lower number of franchised restaurants in operation during the
three months ended March 31, 1996 compared to the three months ended March 31,
1995.
Also, due primarily to the increase in the number and proportion of
Company-owned restaurants, revenue from sales at Company-owned restaurants was
90% of total revenue for the three months ended March 31, 1996 as compared to
82% of total revenue for the comparable 1995 period. For the same reasons,
franchise and advertising royalties were 9% of total revenue for the three
months ended March 31, 1996, compared to 15% of total revenue in the comparable
1995 period.
With respect to Company-owned restaurants, costs of products sold and
restaurant operating expenses were approximately $2.4 million for the three
months ended March 31, 1996, an increase of approximately $617,000 or 34%, from
approximately $1.8 million for the three
8
<PAGE>
months ended March 31, 1995. This increase was due primarily to the
increased number of Company-owned restaurants in 1996. The increase in operating
costs was also due to increased utilities and supply costs. General and
administrative expenses were approximately $901,000 for the three months
ended March 31, 1996, an increase of approximately $174,000 or 24%, from
approximately $727,000 for the comparable period in 1995, primarily due to
increases in corporate overhead due to the expansion of the corporate
infrastructure in comparison to the prior year period, an increase in legal
expenses due to costs of approximately $86,000 for the ongoing arbitration
of a dispute with the Company's former area developer for Northern Virginia and
an increase in insurance costs of approximately $32,000 due to coverages added
after the completion of the Company's initial public offering in August 1995.
Restaurant cost of sales and restaurant operating expenses, as a percentage
of restaurant sales, were 99% in the three months ended March 31, 1996, compared
to 93% in the comparable 1995 period. The decreased margins resulted primarily
from increased operating and other costs and the impact on revenues of the
severe weather conditions during the three months ended March 31, 1996.
Advertising expenses increased approximately $26,000, or 15% to
approximately $206,000 for the three months ended March 31, 1996 from
approximately $180,000 for the comparable prior year period. This was despite
the lower number of restaurants open during the period. The level of
advertising expense was attributable to the need to maintain a high promotional
profile for franchising, to maintain a market presence and to mitigate the
effects of the severe weather.
Interest expense was approximately $106,000 for the three months ended
March 31, 1996, a decrease of approximately $64,000, or 38%, from approximately
$170,000 for the comparable period in 1995. This decrease resulted from the
payments by the Company in August 1995 to reduce outstanding promissory notes
from an aggregate of $3.9 million to $3.6 million and the repayment in full in
August 1995 of a separate promissory note held by Pudgie's founder, the
outstanding balance of which was then approximately $4.7 million.
The Company incurred a net loss of approximately $1,220,000 during the
three months ended March 31, 1996, an increase of approximately $423,000, or
53%, from the net loss of approximately $797,000 in the comparable 1995 period.
The increase in the loss was attributable principally to increased costs of
restaurant operating expenses, as a result of severe weather conditions
resulting in reduced operating hours and customer transactions and the increases
in general and administrative expenses.
No provision for income taxes was required in either the three months ended
March 31, 1996 or 1995 because of the net losses incurred by the Company for
federal and state income tax purposes.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996 the Company had a working capital deficit of
$1,021,956 as compared to a working capital deficit of $2,009,419 at March 31,
1995. This change in working capital is primarily attributable to the reduction
of accounts payable and accrued expenses of approximately $850,000.
Stockholders' equity was $6,054,890 at March 31, 1996.
Cash decreased from $823,440 at December 31, 1995 to $87,740 at March 31,
1996. The decrease of $735,700 is primarily due to cash spent as working
capital during the first quarter of 1996.
Cash used in operating activities of $707,583 for the three months ended
March 31, 1996 is primarily attributable to funding the Company's loss of
$1,220,365, offset by depreciation and amortization of $253,510, an increase in
various payables of $511,391 and decreases in deferred franchise fees of
$65,000.
Cash used in investing activities of $28,117 was for the purchase of
property and equipment primarily relating to upgrades of Company-owned
restaurants during the three months ended March 31, 1996.
The Company is seeking to privately place additional equity to raise
additional capital for general working capital purposes and to reduce debt. In
order to conserve cash for further development purposes, the Company is
currently seeking to reduce corporate overhead and operating expenses. A $3.6
million note payable matures in February 1997. The Company expects to seek a
refinancing or extention of this note.
SIGNIFICANT EVENTS
On May 3, 1996, the Company received gross proceeds of $2 million in
connection with a private placement of 200 Units at $10,000 per Unit, with each
Unit consisting of one share of Series A Convertible Preferred Stock and 500
Redeemable Common Stock Purchase Warrants. The proceeds will be used
principally for general working capital purposes. See, Part II, Item 5 hereof
for further details of the Private Placement.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) On May 3, 1996, the Company received gross proceeds of $2 million from
a private placement of 200 Units ("Private Placement"), each Unit consisting of
one share of Series A Convertible Preferred Stock ("Preferred Stock") and 500
Redeemable Common Stock Purchase Warrants ("Warrants"). The Company's
outstanding publicly traded Redeemable Common Stock
10
<PAGE>
Purchase Warrants contain anti-dilution provisions which have been triggered
as a result of the Company's issuance of the Units in the Private Placement.
As a result, the exercise price of the Company's publicly traded Warrants
(Nasdaq "PUDGW") as well as the Warrants issued in the Private Placement have
been adjusted from $5.50 per share to $5.01 per share.
(b) The issuance by the Company of the Units in the private placement has
triggered the anti-dilution provisions contained in other outstanding securities
which were privately issued by the Company. The effect of the anti-dilution
adjustment on the exercise prices and number of those securities is illustrated
below:
<TABLE>
<CAPTION>
Common Stock Common Stock
Issuable Upon Issuable upon Exercise Price Exercise Price
Exercise Prior Exercise After Prior to After
Security to Adjustment Adjustment Adjustment Adjustment
- - -------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Public Warrants (Nasdaq
"PUDGW") 1,150,000 1,261,930 $5.50 $5.01
IPO Underwriter's
Warrants--Common Stock 200,000 223,612 $8.25 $7.38
IPO Underwriter's
Warrants--IPO Warrants 100,000 109,733 $5.50 $5.01
May 1995 Bridge
Warrants 20,000 22,361 $8.25 $7.38
Turk Warrants 50,000 55,122 $6.00 $5.44
May 1995 Investor
Warrants 111,522 122,376 $5.50 $5.01
-------------- --------------
Total 1,631,522 1,795,134
-------------- --------------
-------------- --------------
</TABLE>
In connection with the Private Placement, the holder of 10,000 shares of
the Redeemable Preferred Stock, which constitutes all of the outstanding shares
of the Company's Redeemable Preferred Stock ("Redeemable Preferred Stock")
agreed to waive mandatory redemption by the Company of the Redeemable Preferred
Stock (which right was triggered as a result of the issuance of the Units in the
Private Placement). In addition, such holder agreed to waive any
11
<PAGE>
past or future rights to receive dividends with respect to the Redeemable
Preferred Shares. The holder agreed to the issuance of the Preferred Shares
in connection with the Private Placement and further agreed that to the extent
the powers, preferences and rights of his Redeemable Preferred Stock as set
forth in the Company's Restated Certificate of Incorporation are inconsistent
with the powers, preferences and rights of the Preferred Shares issued in the
Private Placement as set forth in the Certificate of Designation regarding
the Preferred Shares ("Certificate of Designation"), the provisions of the
Certificate of Designation shall control and the powers, preferences and
rights of the Redeemable Preferred Stock shall be deemed amended accordingly.
The Preferred Shares issued in the Private Placement rank senior to the
Company's outstanding $4 Cumulative Preferred Stock. Accordingly, the terms of
the $4 Cumulative Preferred Stock will not prohibit any payment of dividends
with respect to the Preferred Shares.
As a result of the termination of employment of one individual with the
Company, 18,028 unvested shares of the Company's Common Stock were forfeited and
are no longer outstanding.
ITEM 5. OTHER INFORMATION
On May 3, 1996, the Company received gross proceeds of $2 million in
connection with a Private Placement of 200 Units and issued in the aggregate 200
Preferred Shares and 100,000 Warrants. The holders of the Preferred Shares
issued in the Private Placement are entitled to the rights, preferences and
privileges set forth in the Company's Certificate of Designation as summarized
below.
CONVERSION. The Preferred Shares are convertible into shares of the
Company's Common Stock ("Conversion Shares") beginning on July 29, 1996. The
conversion price per share ("Conversion Price") will be equal to the lower of
(x) the average closing bid price of the Common Stock as calculated over the
five trading-day period ending on the last trading day prior to April 26, 1996
or ($4.47) and (y) eighty-two percent (82%) of the average closing bid price of
the Common Stock as calculated over the five trading-day period ending on the
trading day immediately preceding the date on which the Company receives notice
to convert the Preferred Shares to Common Stock; PROVIDED, HOWEVER, that in no
event will the Conversion Price calculated pursuant to the foregoing clause (y)
be less than $2.00. The Conversion Price is subject to adjustment upon the
occurrence of certain events.
DIVIDENDS. Holders of the Preferred Shares are entitled to receive an
annual dividend payment of $800 per Preferred Share (equal to eight percent (8%)
of the per Preferred Share purchase price). Dividends are payable only in
accordance with applicable law and only upon conversion of the Preferred Shares
and are payable either in shares of the Company's Common Stock ("Dividend
Shares") at the then current Conversion Price or in cash, at the option of the
Company.
12
<PAGE>
PURCHASE OPTION. If, at any time after May 3, 1996, the Conversion Price
on any 20 trading days during any 30 consecutive trading day period is less than
$2.00 (the "Purchase Option Trigger Event"), each holder of any Preferred Shares
will then, upon notice from the Company, be entitled to elect ("Purchase
Option") to have the Company purchase all, but not less than all of the
Preferred Shares then held by such holder for a cash purchase price of $10,800
per Preferred Share together with all accrued and unpaid dividends thereon
through the purchase date ("Purchase Amount"). If the Company fails to purchase
any Preferred Shares from the holders who exercise their Purchase Option, the
Company shall be obligated to pay to such holders monthly penalty payments in
cash in an amount each month equal to 1 1/2% of the Purchase Amount until such
time as the Preferred Shares are purchased by the Company in accordance with
the Purchase Option.
OPTIONAL REDEMPTION. The Preferred Shares are subject to redemption at the
option of the Company at a redemption price of $12,200 per Preferred Share plus
all dividends accrued and unpaid to the date fixed for redemption.
MATURITY. The Preferred Shares mature on April 30, 1998 and shall
automatically convert into Conversion Shares at the then current Conversion
Price on such date.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, the holders of Preferred Shares are entitled to
receive out of the assets of the Company available for distribution to
shareholders, subject to the rights of any senior stock and parity stock,
$12,200 per Preferred Share in cash plus accumulated and unpaid dividends, which
dividends in the case of liquidation, dissolution or winding up shall be payable
in cash.
WARRANTS. The Warrants issued in the Private Placement are identical to
the Company's outstanding publicly registered warrants, except as to (i) the
date of issuance and (ii) the Warrants will not be freely transferable until
registered under the Securities Act of 1933, as amended. The Warrants are
issued pursuant to the Warrant Agreement dated August 9, 1995, among the
Company, Rickel & Associates, Inc. and Continental Stock Transfer & Trust
Company, as supplemented on April 22, 1996.
Each Warrant on its face entitles the registered holder thereof to purchase
one share of Common Stock at an initial exercise price of $5.50 per share (the
"Warrant Price"). However, as a result of the issuance of the Preferred Shares,
the Warrant Price has been adjusted to $5.01 per share and is subject to further
adjustment in certain events, at any time during the period commencing on
September 9, 1996 and expiring on August 9, 2000. As a result of the reduction
in the Warrant Price to $5.01, the number of shares of Common Stock issuable
upon exercise of the Warrants has also been adjusted to such number of shares
per Warrant determined by dividing $5.50 by the adjusted Warrant Price. The
Warrants are subject to redemption by the Company at $.10 per Warrant at any
time commencing on October 9, 1996, on not less than 30 days' prior written
notice to the holders of the Warrants, provided the average closing bid
quotation of the Common Stock as reported on the Nasdaq Stock Market, has been
at least 150% of the then current exercise price of the Warrants ($7.52 per
share), for a period of 20 consecutive trading days ending on the third day
prior to the date on which the Company gives notice of redemption.
13
<PAGE>
Pursuant to the Registration Rights Agreement, between the Company and each
Preferred Shareholder dated as of April 30, 1996 ("Registration Rights
Agreement"), the Company has agreed to prepare and register with the Securities
and Exchange Commission ("Commission") a registration statement ("Registration
Statement"), as soon as possible, with respect to the resale of the Warrants,
the Common Stock underlying the Warrants and Preferred Shares, the Dividend
Shares and the Penalty Shares (as defined below), if any. If the Registration
Statement is not declared effective by the Commission, on or before July 29,
1996 ("Penalty Commencement Date"), the Company will have the obligation to pay
penalty payments ("Penalty Payments") at the rate of $200 per Preferred Share
per month following the Penalty Commencement Date until the Registration
Statement is declared effective. Provided that the holders of the Company's $4
Cumulative Preferred Stock shall have consented to the issuance of the Preferred
Shares, then, except as set forth below, the Company shall have the option to
pay the Penalty Payment either in cash or in shares of the Company's Common
Stock which shall be registered pursuant to the Registration Statement (such
shares of Common Stock, if any, are hereinafter called the "Penalty Shares").
Until the holders of the $4 Cumulative Preferred Stock shall have consented to
the issuance of the Preferred Shares, all penalties must be paid in cash. The
Company's obligations with respect to registering the Warrants, the Common Stock
underlying the Warrants and the Preferred Shares, Conversion Shares, Dividend
Shares and Penalty Shares, if any, are described in more detail in the
Registration Rights Agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Letter Agreement supplementing Warrant Agreement dated April 22, 1996.
4.2 Certificate of Designations, Voting Powers, Preferences and Rights of
Series A Convertible Preferred Stock of Pudgie's Chicken, Inc.
4.3 Registration Rights Agreement between Pudgie's Chicken, Inc. and each
Series A Preferred Stockholder dated as of April 30, 1996.
4.4 Form of Series A Preferred Stock Certificate.
10.1 Placement Agency Agreement between Strasbourger Pearson Tulcin Wolff
Incorporated and Pudgie's Chicken, Inc. dated as of March 18, 1996.
(b) No reports on Form 8-K were filed during the three months ended
March 31, 1996.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUDGIE'S CHICKEN, INC.
May 14, 1996 /s/ Steven Wasserman
- - -------------------------------- --------------------------------------------
Date Steven Wasserman
President/Chief Executive Officer
May 14, 1996 /s/ Helen Papa
- - -------------------------------- --------------------------------------------
Date Helen Papa
Vice President/Chief Financial
Officer/Secretary
(and principal accounting officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number
- - -------------- -------------
4.1 Letter Agreement Supplementing Warrant Agreement
dated April 22, 1996. . . . . . . . . . . . . . . . . 17
4.2 Certificate of Designations, Voting Powers,
Preferences and Rights of Series A Convertible
Preferred Stock of Pudgie's Chicken, Inc. . . . . . . 20
4.3 Registration Rights Agreement between Pudgie's
Chicken, Inc. and each Series A Preferred
Stockholder dated April 30, 1996. . . . . . . . . . . 43
4.4 Form of Series A Preferred Stock Certificate. . . . . 50
10.1 Placement Agency Agreement between Strasbourger,
Pearson, Tulcin, Wolff, Incorporated and Pudgie's
Chicken, Inc. dated as of March 18, 1996. . . . . . . 51
27 Financial Data Schedule . . . . . . . . . . . . . . . 61
16
<PAGE>
PUDGIE'S CHICKEN, INC.
April ---, 1996
Continental Stock Transfer
& Trust Company
2 Broadway
New York, New York 10004
Attention: William F. Seegraber, Vice President
Re: Pudgie's Chicken, Inc. ("Company")
1996 Private Placement
----------------------------------
Dear Mr. Seegraber:
We make reference to the Warrant Agreement ("Warrant Agreement"), dated
August 9, 1995, among Pudgie's Chicken, Inc., a Delaware corporation
("Company"), Rickel & Associates, Inc. ("Underwriter") and Continental Stock
Transfer & Trust Company, as warrant agent ("Warrant Agent"). In connection
with the Company's initial public offering ("IPO"), the Company issued to the
public pursuant to the Warrant Agreement, Common Stock Purchase Warrants
("Warrants") to purchase an aggregate of 1,150,000 shares of the Company's
Common Stock.
The Company currently intends to issue in a private placement ("Private
Placement") up to 550 Units, each Unit consisting of one share of Series A
Convertible Preferred Stock ("Preferred Shares") and 500 Warrants, and is
desirous of increasing the number of Warrants authorized to be issued under,
and subject to, the Warrant Agreement in order to provide for the issuance of
the additional Warrants contemplated to be issued in the Private Placement.
The issuance of the Units in the Private Placement will cause an adjustment
in the exercise price and number of shares of Common Stock issuable upon the
exercise of the outstanding Warrants pursuant to the provisions of Section 9
of the Warrant Agreement. Since a further adjustment to the detriment of the
holders of the Warrants may occur depending upon the price at which the
Preferred Shares are actually converted and the Company desires to avoid such
a subsequent adjustment, the Company believes it is desirable to fix the
anti-dilution adjustment at this time based upon the initial minimum
conversion price of the Preferred Stock.
Accordingly, in connection with the closing of the Private Placement, we
hereby authorize you to issue, and to serve as warrant agent with respect to,
up to 275,000 additional Warrants ("Additional Warrants") having the same
terms and conditions as the Warrants provided for in the Warrant Agreement.
Inasmuch as the Additional Warrants will be issued by the Company in an
offering exempt from registration under the Securities Act of 1933, as
amended ("Act") and exempt from registration or qualification under the
securities laws of the various states, we authorize and direct you to place
the following restrictive legend on the certificates representing the
Additional Warrants:
17
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF EITHER AN
EFFECTIVE REGISTRATION STATEMENT FOR THESE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF
COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
THESE SECURITIES ARE SUBJECT TO CERTAIN REGISTRATION RIGHTS
AS SET FORTH IN A REGISTRATION RIGHTS AGREEMENT, A COPY OF
WHICH MAY BE OBTAINED FROM THE CORPORATION.
Following the declaration of effectiveness by the Securities and
Exchange Commission of a registration statement under the Act registering the
resale of the Additional Warrants, at the request of a holder, and upon
presentment to you of the certificate representing Additional Warrants, we
authorize you to remove such legend and to imprint on the new certificates
representing such Additional Warrants, the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE SECURITIES MAY BE SOLD PURSUANT TO THE REGISTRATION
STATEMENT PROVIDED THAT THE HOLDER COMPLIES WITH THE
PROSPECTUS DELIVERY REQUIREMENTS UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND THE SALE IS IN COMPLIANCE WITH THE
PLAN OF DISTRIBUTION AS SET FORTH IN THE PROSPECTUS. THESE
SECURITIES ARE SUBJECT TO CERTAIN REGISTRATION RIGHTS AS SET
FORTH IN A REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH
MAY BE OBTAINED FROM THE CORPORATION.
The Company acknowledges that as a result of the issuance of Units in
the Private Placement an adjustment will occur in the exercise price of the
Warrants (including the Additional Warrants) and the number of shares of
Common Stock issuable upon exercise of the Warrants (including the Additional
Warrants) as a result of the anti-dilution provisions of Section 9(b) of the
Warrant Agreement. The Company agrees that such adjustment will be based
upon the initial Minimum Conversion Price of the Preferred Shares ($2.00 per
share). The Company agrees that notwithstanding the provisions of Section
9(b)(ii) or 9(b)(iii) of the Warrant Agreement, in the event that the
Preferred Shares are converted at an exercise price higher than $2.00 per
share, the Company will not seek to adjust upward the Exercise Price of the
Warrants (including the Additional Warrants) or to reduce the number of
shares of Common Stock issuable upon exercise of the Warrants (including the
Additional Warrants).
18
<PAGE>
Please be advised that copies of all future notices to the Company
pursuant to Section 18 of the Warrant Agreement shall be delivered to David
Alan Miller, Esq., Graubard Mollen & Miller, 600 Third Avenue, New York, New
York 10016, instead of to Russell S. Berman, Esq., Kronish, Lieb, Wiener &
Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036.
Except as otherwise provided for herein, the terms and provisions of the
Warrant Agreement shall remain in full force and effect.
PUDGIE'S CHICKEN, INC.
BY:---------------------------------
Steven Wasserman, President
Acknowledged and Agreed To
this ----- day of --------------, 1996.
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
BY:---------------------------
William F. Seegraber
Title: Vice President
19
<PAGE>
CERTIFICATE OF DESIGNATIONS, VOTING POWERS,
PREFERENCES AND RIGHTS
OF
THE SERIES OF PREFERRED STOCK
OF
PUDGIE'S CHICKEN, INC.
TO BE DESIGNATED
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151(g) of the Delaware General Corporation Law, I,
Steven Wasserman, President of Pudgie's Chicken, Inc., a Delaware corporation
(the "Corporation"), hereby certify that the following is a true and correct
copy of a resolution duly adopted by the Corporation's Board of Directors at a
meeting held on April 23 1996, at which a quorum was present and acting
throughout, and that said resolution has not been amended or rescinded and is in
full force and effect at the date hereof:
RESOLVED, that pursuant to the authority expressly granted and vested in
the Board of Directors of the Corporation by the Corporation's Restated
Certificate of Incorporation, as amended to date, the Board of Directors hereby
creates a series of Preferred Stock of the Corporation, par value $.01 per
share, to be designated "Series A Convertible Preferred Stock" and to consist of
five hundred fifty (550) shares, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other rights
and the qualifications, limitations or restrictions thereon, of the Series A
Preferred Stock, as follows:
1. VOTING RIGHTS. The holders of Series A Preferred Stock shall have the
right to vote, together with the holders of all the outstanding shares of
Common Stock and not by classes, except as otherwise required by Delaware
law, on all matters on which holders of Common Stock are entitled to vote.
Each holder of shares of Series A Preferred Stock shall have the right to
cast one vote for each whole share of Common Stock which would be issued to
such holder upon conversion of such holder's shares of Series A Preferred
Stock (including shares of Common Stock issuable as dividends thereon
pursuant to Section 4 hereof) assuming that such conversion were to occur
on the date immediately prior to the record date for the determination of
stockholders entitled to vote.
20
<PAGE>
2. LIQUIDATION OR DISSOLUTION. Subject to the prior rights of the
Corporation's creditors and holders of securities senior to the Series A
Preferred Stock in respect of distributions upon liquidation, dissolution
or winding-up of the Corporation, in the event of the voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
holders of Series A Preferred Stock shall be entitled to receive $12,200
per share (the "Liquidation Preference"), together with accrued and unpaid
dividends payable thereon to the date fixed for payment of such
distribution, if any, all of which shall be paid in cash, before any
distribution is made to holders of any Junior Stock. If, upon any such
liquidation, dissolution or winding-up of the Corporation, the assets
distributable among the holders of Series A Preferred Stock (and any series
of preferred stock ranking in parity with the Series A Preferred Stock in
respect of distributions upon liquidation, dissolution or winding-up of the
Corporation) shall be insufficient to permit the payment in full to such
holders of the preferential amount payable to such holders determined as
aforesaid, then the holders of Series A Preferred Stock will share ratably
in any distribution of the Corporation's assets in proportion to the
respective preferential amounts that would have been payable if such assets
were sufficient to permit payment in full of all such amounts. After
payment of the full amount of the liquidating distribution to which they
are entitled, the holders of Series A Preferred Stock will not be entitled
to any further participation in any distribution of assets by the
Corporation. Under this Section 2, a distribution of assets in any
dissolution, winding-up, liquidation or reorganization shall include (a)
any consolidation or merger of the Corporation with or into any other
corporation in which the Corporation is not the surviving corporation, (b)
a sale or other disposition of all or substantially all of the
Corporation's assets in consideration for cash and/or the issuance of
equity securities of another corporation, or (c) a Change of Control of the
Company. Under this Section 2, a distribution of assets in any
dissolution, winding-up, liquidation or reorganization shall not include
any dissolution, liquidation, winding-up or reorganization of the
Corporation immediately followed by reincorporation of a successor
corporation, provided that the dissolution, liquidation, winding-up or
reorganization does not amend, alter, or change the preferences or rights
of the Series A Preferred Stock or the qualifications, limitations or
restrictions thereof in a manner that adversely affects the Series A
Preferred Stock.
3. CONVERSION RIGHTS.
(a) CONVERSION OF SERIES A PREFERRED STOCK. The Series A Preferred Stock
shall be convertible at the option of the
21
<PAGE>
holder thereof into fully paid and non-assessable shares of Common
Stock from and after the 90th calendar day after the date of first
issuance of the Series A Preferred Stock (the "Issue Date"). Each
share of Series A Preferred Stock eligible for conversion pursuant
to the preceding sentence shall be converted at a conversion price
(the "Conversion Price") equal to the lower of (x) the Maximum
Conversion Price or (y) the Floating Conversion Price. The number
of shares of Common Stock (hereinafter "Conversion Shares") issuable
upon conversion of each share of Series A Preferred Stock shall be
determined by dividing $10,000.00 by the Conversion Price in effect
on the Conversion Date. An individual share of Series A Preferred
Stock may only be permitted to convert in its entirety. Partial
conversion of an individual share of Series A Preferred Stock is not
permitted.
(b) MECHANICS OF CONVERSION. The holder of any shares of Series A
Preferred Stock may exercise the conversion right as to any part
thereof by delivering to the Corporation during regular business
hours, at the office of the Corporation at 333 Earle Ovington
Boulevard, Suite 604, Uniondale, New York 11553 a conversion notice in
the form attached to the purchase agreements pursuant to which the
Series A Preferred Stock is issued (the "Conversion Notice"). The
Conversion Notice shall state (i) that the holder elects to convert
its shares, (ii) subject to applicable securities laws, the name(s) in
which the certificate(s) representing the Conversion Shares and
Dividend Shares to which such holder is entitled are to be issued, and
(iii) the telecopier number to which the Corporation shall telecopy
its confirmation described below. Notice given by telecopier to
telecopier number 516-222-8834 shall be deemed notice for purposes of
this paragraph and shall be deemed given when receipt is acknowledged
by transmit confirmation report. Immediately upon receipt of any
Conversion Notice, the Corporation shall, by telecopier, confirm
receipt thereof at the telecopier number included thereon, which
confirmation shall set forth the number of Conversion Shares and
Dividend Shares to be issued by the Corporation as a result of such
conversion. The Conversion Notice shall be deemed accepted by the
Corporation provided the holder surrenders, or causes any agent for
the holder to surrender, the certificate(s) for the Series A Preferred
Stock to be converted, duly endorsed or assigned in blank or to the
Corporation, at any location set forth above, within seven (7)
business days after delivery of the Conversion Notice. Provided that
the certificate(s) are delivered in accordance with the preceding
sentence, the conversion
22
<PAGE>
shall be deemed to have been effected on the date of delivery of the
Conversion Notice by telecopier, and such date is referred to herein
as the "Conversion Date." Within three (3) business days of receipt
by the Corporation of the certificate(s) representing the Series A
Preferred Stock, the Corporation shall issue to such holder a
certificate or certificates representing the number of full Conversion
Shares and Dividend Shares which such holder is entitled to receive
together with a check or cash in respect of any fractional interest in
a share of Common Stock as provided in Section 3(c) hereof. Unless
(i) such Conversion Shares and/or Dividend Shares have been held long
enough to satisfy the holding period set forth in Rule 144(k) (or any
successor provision) promulgated under the Securities Act, (ii) such
shares become freely tradeable pursuant to another exemption under the
Securities Act, or (iii) the converting holder purchased such shares
pursuant to a current prospectus under an effective registration
statement covering the purchase and sale of such shares, the
certificate(s) representing the Conversion Shares and the Dividend
Shares will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF EITHER AN
EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. THESE
SHARES ARE SUBJECT TO CERTAIN REGISTRATION RIGHTS AS SET
FORTH IN A REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH
MAY BE OBTAINED FROM THE CORPORATION.
If the Registration Statement as hereinafter defined shall have been
declared effective by the Securities and Exchange Commission, the
certificate(s) evidencing the Conversion Shares and the Dividend
Shares will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE SHARES MAY BE SOLD PURSUANT TO THE REGISTRATION
STATEMENT PROVIDED THAT THE HOLDER COMPLIES WITH THE
PROSPECTUS DELIVERY REQUIREMENTS UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND THE SALE IS IN COMPLIANCE WITH THE
PLAN OF DISTRIBUTION AS SET FORTH IN THE PROSPECTUS. THESE
SHARES ARE SUBJECT
23
<PAGE>
TO CERTAIN REGISTRATION RIGHTS AS SET FORTH IN A REGISTRATION
RIGHTS AGREEMENT, A COPY OF WHICH MAY BE OBTAINED FROM THE
CORPORATION.
Upon the sale by any holder of Conversion Shares and/or Dividend
Shares of such shares pursuant to and in accordance with an effective
registration statement with respect thereto pursuant to the Securities
Act and delivery to the Corporation of a certificate in the form of
Appendix IV to the Purchase Agreements pursuant to which the Series A
Preferred Stock was issued, the Corporation shall issue new
certificates representing such shares which certificate shall not bear
any legend regarding limitations on transferability of such shares.
The person in whose name the certificate(s) for the Conversion Shares
and Dividend Shares are to be issued shall be deemed to have become a
stockholder of record on the applicable Conversion Date unless the
transfer books of the Corporation are closed on that date, in which
event he or she shall be deemed to have become a stockholder of record
on the next succeeding date on which the transfer books are open, but
the Conversion Price shall be that in effect on the Conversion Date.
Upon conversion of only a portion of the number of whole shares
covered by a certificate representing shares of Series A Preferred
Stock surrendered for conversion, the Corporation shall issue and
deliver to or upon the written order of the holder of the certificate
so surrendered for conversion, at the expense of the Corporation, a
new certificate covering the number of shares of Series A Preferred
Stock representing the unconverted portion of the certificate so
surrendered, which new certificate shall entitle in all respects the
holder thereof to the rights of Series A Preferred Stock represented
thereby to the same extent as if the certificate theretofore covering
such unconverted shares had not been surrendered for conversion.
(c) FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
shall be issued upon conversion of shares of Series A Preferred Stock.
If more than one share of Series A Preferred Stock shall be
surrendered for conversion at any one time by the same holder, the
number of full shares of Common Stock issuable upon conversion thereof
shall be computed on the basis of the aggregate number of shares of
Series A Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series A Preferred Stock, the Corporation
shall pay a cash adjustment in respect of such fractional interest in
an
24
<PAGE>
amount determined on the basis of the then Current Market Price per
share of Common Stock. Fractional interests shall not be entitled to
dividends, and the holders thereof shall not be entitled to any rights
as stockholders of the Corporation in respect of such fractional
interests.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR CERTAIN EVENTS. The Conversion
Price shall be subject to adjustment from time to time as set forth in
this subsection (d).
(i) In case at any time, or from time to time, the Corporation shall:
(A) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other
distribution payable in shares of capital stock; (B) subdivide
its outstanding shares of Common Stock into a larger number of
shares; (C) combine its outstanding shares of Common Stock into a
smaller number of shares; or (D) issue by reclassification or
recapitalization of its Common Stock any other class or series of
shares of the Corporation (including any such reclassification or
recapitalization in connection with a consolidation or merger in
which the Corporation is the continuing corporation), the Maximum
Conversion Price and the Minimum Conversion Price in effect at
the time of the record date for such dividend or of the effective
date of such subdivision, combination, reclassification or
recapitalization shall be proportionately adjusted so that the
holder of any Series A Preferred Stock surrendered for conversion
after such time shall be entitled to receive the aggregate number
and kind of shares which, if such Series A Preferred Stock had
been converted immediately prior to such time, such holder would
have owned or have been entitled to receive. Such adjustment
shall be made successively whenever any event listed above shall
occur. In the event that such dividend or distribution is not so
made, the Maximum Conversion Price and the Minimum Conversion
price shall again be adjusted to be the Maximum Conversion Price
and the Minimum Conversion Price, respectively, which would then
be in effect if such record date has not been fixed.
(ii) In case at any time, or from time to time, the Corporation shall
(except as hereinafter provided) issue or sell any Additional
Shares of Common Stock for a consideration per share of Common
Stock less than the Current Market Price, then the Maximum
Conversion Price and the Minimum Conversion Price shall, on the
date specified below for determining the
25
<PAGE>
Current Market Price, be adjusted to that number determined by
multiplying the Maximum Conversion Price or Minimum Conversion
Price, as the case may be, in effect immediately prior to such
adjustment by a fraction the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior
to the issuance of the Additional Shares of Common Stock (on a
fully diluted basis to give effect to the conversion or exercise
of all securities then outstanding which are convertible into or
exercisable or exchangeable for shares of Common Stock) plus
the number of shares of Common Stock which the aggregate
consideration for the total number of such Additional Shares
of Common Stock so issued would purchase at the Current Market
Price, and the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to the issuance of
such Additional Shares of Common Stock (on a fully diluted basis
to give effect to the conversion or exercise of all securities
then outstanding which are convertible into or exercisable or
exchangeable for shares of Common Stock) plus the number of such
Additional Shares of Common Stock so issued (including shares
deemed to have been issued pursuant to subsection (d)(iii)
below). For the purposes of this subsection (d)(ii), the date as
of which the Current Market Price per share of Common Stock shall
be computed shall be the earlier of (x) the date on which the
Corporation shall enter into a legally binding contract for the
issuance or sale of such Additional Shares of Common Stock or
(y) the date of the actual issuance of such Additional Shares of
Common Stock. The provisions of this subsection (d)(ii) shall
not apply to any issuance of Additional Shares of Common Stock
for which an adjustment is provided under subsection (i) hereof.
No adjustment shall be made under this subsection (d)(ii) upon
the issuance of any Additional Shares of Common Stock which
are issued pursuant to the exercise of any warrants or other
subscription or purchase rights or pursuant to the exercise of
any conversion or exchange rights in any Convertible Securities,
if any such adjustment shall previously have been made upon the
issuance of such warrants or other rights or upon the issuance
of such Convertible Securities (or upon the issuance of any
warrant or other rights therefor) pursuant to subsection (d)(iii)
hereof. Adjustments shall be made successively whenever such an
issuance of Additional Shares of Common Stock shall occur. In the
event that such Additional Shares of Common Stock are not so
issued or
26
<PAGE>
sold, the Maximum Conversion Price and the Minimum Conversion
Price shall again be adjusted to be the Maximum Conversion
Price or the Minimum Conversion Price, as the case may be,
which would then be in effect if such issuance had not occurred.
(iii) In case at any time, or from time to time, the Corporation shall
take a record of the holders of the Common Stock for the purpose
of entitling them to receive a distribution of, or shall
otherwise issue, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible
Securities and the consideration per share for which Additional
Shares of Common Stock may at any time thereafter be issuable
pursuant to such warrants or other rights or pursuant to the
terms of such Convertible Securities shall be less than the
Current Market Price, then the Maximum Conversion Price and the
Minimum Conversion Price immediately thereafter shall be adjusted
as provided in subsection (d)(ii) hereof on the basis that
(a) the maximum number of Additional Shares of Common Stock
issuable pursuant to all such warrants or other rights or
necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued as of
the date for the determination of the Current Market Price per
share of Common Stock as hereinafter provided, and (b) the
aggregate consideration for such maximum number of Additional
Shares of Common Stock shall be deemed to be the minimum
consideration received and receivable by the Corporation for the
issuance of such Additional Shares of Common Stock pursuant to
such warrants or other rights or pursuant to the terms of such
Convertible Securities. For the purposes of this subsection
(d)(iii), the date as of which the Current Market Price per share
of Common Stock shall be computed shall be the earliest of
(i) the date on which the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive any such warrants or other rights, (ii) the date on which
the Corporation shall enter into a legally binding contract for
the issuance of such warrants or other rights or (iii) the date
of actual issuance of such warrants or other rights. Such
reduction shall be made successively whenever such a record date
is fixed. In the event that such rights or warrants are not so
issued or (if issued) to the extent not exercised, the Maximum
Conversion Price and the Minimum Conversion Price shall again be
adjusted
27
<PAGE>
to be the Maximum Conversion Price or the Minimum Conversion
Price, as the case may be, which would then be in effect if such
record date had not been fixed or such unexercised rights or
warrants had not been issued.
(iv) In case at any time, or from time to time, the Corporation shall
take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution, by dividend or
otherwise, of evidences of its indebtedness or assets (including
securities, but excluding (x) any dividend or distribution
referred to in subsection (d)(i) hereof and (y) any dividend or
distribution paid in cash out of funds legally available therefor
of the Corporation), then in each such case the Maximum
Conversion Price and the Minimum Conversion Price in effect after
such record date shall be determined by multiplying the Maximum
Conversion Price or the Minimum Conversion Price, as the case may
be, in effect immediately prior to such record date by a
fraction, of which the numerator shall be the total number of
outstanding shares of Common Stock multiplied by the Current
Market Price on such record date, less the fair market value (as
determined by the Board of Directors of the Corporation, whose
determination shall be conclusive) of the portion of the assets
or evidences of indebtedness so to be distributed, and of which
the denominator shall be the total number of outstanding shares
of Common Stock multiplied by such Current Market Price. Such
adjustment shall be made successively whenever such a record date
is fixed. In the event that such distribution is not so made,
the Maximum Conversion Price and the Minimum Conversion Price
shall again be adjusted to be the Maximum Conversion Price and
the Minimum Conversion Price, as the case may be, which would
then be in effect if such record date had not been fixed.
(v) No adjustment in either the Maximum Conversion Price or the
Minimum Conversion Price shall be required unless such adjustment
would require an increase or decrease of at least five percent
(5%) in such conversion price; PROVIDED, HOWEVER, that any
adjustment which by reason of this paragraph (vi) is not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this subsection
(d) shall be made
28
<PAGE>
to the nearest cent or to the nearest 1/100 of a share, as the
case may be.
(vi) Notwithstanding the foregoing provisions of subsections (ii),
(iii) or (iv) of this Section 3(d), no adjustment shall be
required to be made to the Minimum Conversion Price unless the
events that would otherwise give rise to such adjustment
independently give rise to an adjustment of the Warrant Price (as
that term is defined in that certain Warrant Agent Agreement
dated August 9, 1995 among the Corporation, Rickel & Associates,
Inc. and Continental Stock Transfer & Trust Company).
(e) AUTOMATIC CONVERSION. The Series A Preferred Stock shall mature two
years after the Closing Date (the "Maturity Date") and shall
automatically convert into Conversion Shares at the then current
Conversion Price on the Maturity Date.
(f) NO IMPAIRMENT. The Corporation will not, by amendment of its Restated
Certificate of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section
3 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders
of the Series A Preferred Stock against impairment.
(g) NOTICE PROVISIONS.
(i) Whenever any conversion price shall be adjusted pursuant to
subsection (d) hereof, the Corporation shall forthwith obtain a
certificate signed by the Corporation's chief financial officer,
setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment was calculated
(including a description of the basis on which the Corporation's
independent public accountants determined the fair value of any
evidences of indebtedness, shares of stock, other securities or
property or assets or warrants or other subscription or purchase
rights referred to in subsections (d)(ii) through (d)(v) hereof)
and specifying the new conversion prices and (if applicable)
describing the amount and kind of common stock, securities,
property
29
<PAGE>
or assets or cash which may be received upon conversion of the
Series A Preferred Stock, after giving effect to such
adjustment. The Corporation shall promptly cause a signed copy
of such certificate to be delivered to each holder of Series A
Preferred Stock.
(ii) In case the Corporation shall propose (a) to pay any dividend
payable in stock of any class to the holders of its Common Stock
or to make any other distribution to the holders of its Common
Stock, (b) to offer to the holders of its Common Stock rights to
subscribe for or to purchase any Convertible Securities or
Additional Shares of Common Stock or shares of stock of any class
or any other securities, rights or options, (c) to effect any
reclassification of its Common Stock (other than a
reclassification involving only the subdivision or combination of
outstanding shares of Common Stock), (d) to effect any capital
reorganization, (e) to effect any consolidation, merger or sale,
transfer or other distribution of all or substantially all its
property, assets or business, or (f) to effect the liquidation,
dissolution or winding-up of the Corporation, then in each such
case, the Corporation shall give to each holder of Series A
Preferred Stock a notice of such proposed action, which shall
specify the date on which a record is to be taken for the
purposes of such stock dividend, distribution or rights, or the
date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, disposition, liquidation,
dissolution or winding-up is to take place and the date of
participation therein by the holders of Common Stock, if any such
date is to be fixed, and shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the
effect of such action on the Common Stock and the conversion
prices after giving effect to any adjustment which will be
required as a result of such action. Such notice shall be so
given in the case of any action covered by (a) or (b) above at
least 20 days prior to the record date for determining holders of
the Common Stock for purposes of such action and, in the case of
any other such action, at least 20 days prior to the date of the
taking of such proposed action or the date of participation
therein by the holders of Common Stock, whichever shall be the
earlier.
(h) TREASURY STOCK. The sale or other disposition of any issued shares of
Common Stock owned or held by or for the
30
<PAGE>
account of the Corporation shall be deemed an issuance thereof for
purposes of subsection (d) hereof, but until so issued such shares
shall not be deemed to be outstanding.
(i) COMPUTATION OF CONSIDERATION. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants
or other rights to subscribe for or purchase any Additional Shares of
Common Stock or any Convertible Securities shall be issued for a cash
consideration, the consideration received by the Corporation therefor
shall be deemed to be the amount of the cash received by the
Corporation therefor, or, if such Additional Shares of Common Stock or
Convertible Securities are offered by the Corporation for
subscription, the subscription price, or, if such Additional Shares of
Common Stock or Convertible Securities are sold to underwriters or
dealers for public offering without a subscription offering, the
initial public offering price, in any such case excluding any amounts
paid or receivable for accrued interest or accrued dividends and
without deduction of any compensation, discounts or expenses paid or
incurred by the Corporation for and in the underwriting of, or
otherwise in connection with, the issue thereof. To the extent that
such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined by the Board
of Directors of the Corporation. The consideration for any Additional
Shares of Common Stock issuable pursuant to any warrants or other
rights to subscribe for or purchase the same shall be the
consideration received by the Corporation for issuing such warrants or
other rights, plus the additional consideration payable to the
Corporation upon the exercise of such warrants or other rights. The
consideration for any Additional Shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be the
consideration received by the Corporation for issuing any warrants or
other rights to subscribe for or purchase such Convertible Securities,
plus the consideration paid or payable to the Corporation in respect
of the subscription for or purchase of such Convertible Securities,
plus the additional consideration, if any, payable to the Corporation
upon the exercise of the right of conversion or exchange in such
Convertible Securities. In case of the issuance at any time of any
Additional Shares of Common Stock or Convertible Securities in payment
or satisfaction of any dividend upon any class of stock other than
Common Stock or in payment of any debt, the Corporation shall be
deemed to have received for such Additional Shares of
31
<PAGE>
Common Stock or Convertible Securities a consideration equal to the
amount of such dividend or debt so paid or satisfied.
(j) FRACTIONAL INTERESTS. In computing adjustments under this Section 3,
fractional interests in Common Stock shall be taken into account to
the nearest one-hundredth of a share.
(k) ANTIDILUTION PROVISIONS. No adjustment shall be made as a result of
any increase in the number of Additional Shares of Common Stock
issuable or any decrease in the consideration payable upon any
issuance of Additional Shares of Common Stock, pursuant to any
provisions intended solely to avoid dilution contained in any
warrants, rights or Convertible Securities.
(l) WHEN ADJUSTMENT NOT REQUIRED.
(i) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the
taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
(ii) If the Corporation declares or makes any dividend or distribution
with respect to Common Stock, other than regular cash dividends
(as defined in Section __ hereof) or dividends payable solely in
shares of Common Stock, and each holder of Series A Preferred
Stock concurrently receives dividends or distributions equal in
amount and in the same kind of property (whether cash, securities
or other property) as such holder would be entitled to receive if
all of the outstanding Series A Preferred Stock were converted
into Common Stock as of the record date of such dividend or
distribution with respect to Common Stock, then thereafter no
adjustment shall be required with respect to such dividend or
distribution.
(m) OTHER ACTION AFFECTING COMMON STOCK. If a state of facts shall occur
which, without being specifically controlled by the other provisions
of this Section 3, would not fairly protect the conversion rights of
the Series A Preferred Stock in accordance with the essential intent
and
32
<PAGE>
principles of such provisions, then the Board of Directors of the
Corporation shall in good faith make an adjustment in the application
of such provisions, in accordance with such essential intent and
principles, so as to protect such conversion rights.
(n) NECESSARY CORPORATE ACTION. Before taking any action which would
result in an adjustment in the Conversion Price, the Corporation shall
obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies
having jurisdiction thereof.
(o) TAXES UPON CONVERSION. The Corporation shall pay all documentary,
stamp or other transaction taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of
Series A Preferred Stock.
(p) RESERVATION OF COMMON STOCK. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the conversion of
shares of Series A Preferred Stock, the full number of whole shares of
Common Stock then deliverable upon the conversion of all shares of
Series A Preferred Stock at the time outstanding (including Dividend
Shares). All shares of Common Stock which shall be so issuable shall,
when issued upon conversion of all or any portion of the Series A
Preferred Stock, be duly and validly issued and fully paid and non-
assessable and free from all taxes, liens and charges with respect to
the issuance thereof. Upon conversion of Series A Preferred Stock,
the shares of Series A Preferred Stock so converted shall have the
status of authorized and unissued Preferred Stock, and the number of
shares of Series A Preferred Stock which the Corporation shall have
authority to issue shall be decreased by any such conversion.
(q) DIVIDENDS CONSTITUTE CORPORATE DEBT. All dividends accrued and unpaid
on Series A Preferred Stock to and including the date of conversion,
whether or not declared by the Board of Directors, shall constitute a
debt of the Corporation payable without interest to the converting
holders and shall be paid by the Corporation on the Conversion Date,
in its option, either in cash or by the issuance of Dividend Shares as
provided in Section 4 hereof.
4. DIVIDENDS.
(a) DIVIDENDS. Each holder of shares of Series A Preferred Stock shall be
entitled to receive, in preference to the
33
<PAGE>
holders of Common Stock or any other Junior Stock, a cumulative annual
dividend payment of $800 for each share of Series A Preferred Stock
held. Dividends are payable only upon conversion of the shares of
Series A Preferred Stock pursuant to Section 3 hereof and are payable
either (i) in shares of Common Stock ("Dividend Shares"), with the
number thereof to be determined by dividing the accrued dividend
payable by the Conversion Price in effect on the Conversion Date, or
(ii) in cash, at the option of the Corporation. Dividends on the
shares of Series A Preferred Stock shall accumulate from the date of
issuance through the date of conversion or redemption, as the case
may be, on the basis of a calendar year consisting of twelve (12)
months each consisting of thirty (30) days. Dividends shall be
payable in cash only out of the assets of the Corporation legally
available for the payment thereof.
(b) RESTRICTIONS ON DIVIDENDS, ETC. As long as any shares of Series A
Preferred Stock shall be outstanding, the Corporation shall not
declare, pay or set aside for payment any dividend or declare or make
any distributions upon or purchase, redeem or otherwise acquire Common
Stock or any other series or class of capital stock; PROVIDED,
HOWEVER, that the Corporation shall be permitted to (i) pay the
required dividend payments on its presently outstanding shares of $4
Cumulative Preferred Stock and (ii) redeem the Corporation's presently
outstanding shares of Redeemable Preferred Stock in accordance with
its terms.
5. OPTIONAL REDEMPTION.
(a) REDEMPTION RIGHT. The Corporation shall have the right to redeem the
outstanding Series A Preferred Stock, in whole or in part, at any time
and from time to time, after the Issue Date by paying to the holders
thereof in cash the redemption price per share of $12,200, together
with cash in the amount of all accrued and unpaid dividends thereon
through the Redemption Date (as defined in subsection (b) herein);
PROVIDED, HOWEVER, that the Corporation may not redeem any shares of
Series A Preferred Stock for which it
34
<PAGE>
has received on or prior to the Redemption Date, a Conversion Notice.
(b) NOTICE OF REDEMPTION. If any shares of Series A Preferred Stock are
to be redeemed pursuant to subsection (a) hereof, notice thereof (the
"Redemption Notice") shall be sent not later than the fifth business
day prior to the date fixed for redemption (the "Redemption Date") to
each holder of record whose Series A Preferred Stock is to be
redeemed, for overnight delivery by nationally recognized overnight
express courier service, to such holder at such holder's address as
the same shall appear on the books of the Corporation. The Redemption
Notice shall state (a) the shares of Preferred Stock will be redeemed
at the close of business on the Redemption Date, (b) the redemption
price, (c) the place at which certificates for shares of Series A
Preferred Stock called for redemption must be surrendered to collect
the redemption price, (d) that dividends on shares of Series A
Preferred Stock called for redemption cease to accrue at the close of
the last day of business prior to the Redemption Date, (e) the Section
of this Certificate of Designation, Voting Powers, Preferences and
Rights pursuant to which they are to be redeemed and (f) that shares
of Series A Preferred Stock may be converted at any time prior to the
close of business on the Redemption Date by delivery of a Conversion
Notice by facsimile to the Company pursuant to Section 3(b) hereof.
(c) PARTIAL REDEMPTION. If less than all of the outstanding shares of
Series A Preferred Stock are to be redeemed, the shares to be redeemed
shall be determined PRO RATA or by lot in a manner fixed by the Board
of Directors. On or after the Redemption Date, each holder of shares
of Series A Preferred Stock that were called for redemption shall
present and surrender the certificate or certificates for such shares
to the Corporation at the place designated in the Redemption Notice
and thereupon the redemption price of such shares shall be paid to, or
to the order of, the person whose name appears on such certificate or
certificates as the owner thereof. From and after the Redemption
Date, unless the Corporation shall default in the payment of
redemption price pursuant to the Redemption Notice, all dividends on
the Series A Preferred Stock shall cease to accrue and all rights of
the holders thereof as stockholders of the Corporation, except the
right to receive the redemption price (but without interest thereon),
shall cease and terminate. Any and all shares of Series A Preferred
Stock redeemed, purchased or otherwise acquired by the Corporation
thereafter shall be canceled
35
<PAGE>
and returned to the status of authorized and unissued Preferred Stock.
(d) TRANSFER BOOKS. To facilitate the redemption of any shares of Series
A Preferred Stock, the Board of Directors is authorized to cause the
transfer books for such Series A Preferred Stock to be closed as to
the shares to be redeemed, unless the rules of any national securities
exchange or automated quotation system on which the Series A Preferred
Stock may be listed or quoted prohibit the closing of such transfer
books.
6. PURCHASE OPTION.
(a) PURCHASE OPTION. If, at any time when any shares of Series A
Preferred Stock shall remain outstanding, the average Conversion Price
(which for purposes of this Section 6(a) shall be calculated without
giving effect to the proviso to the definition of "Floating Conversion
Price" set forth in Section 9(k) hereof) for any 20 Trading Days
during any 30 consecutive Trading Day period shall be less than the
Minimum Conversion Price (the "Purchase Option Trigger Event"), then
each holder of any shares of Series A Preferred Stock then outstanding
shall, upon notice from the Corporation in accordance with Section
6(b) hereof, be entitled to elect (the "Purchase Option") to have the
Corporation purchase all, but not less than all, of the shares of
Series A Preferred Stock then held by such holder for a purchase price
payable in cash of $10,800 per shares of Series A Preferred Stock
together with all accrued and unpaid dividends thereon through the
Purchase Date (as defined in Section 6(b) hereof) (the "Redemption
Amount"). Nothing contained in this Section 6 shall require the
Company to purchase any shares of Series A Preferred Stock if such
purchase is prohibited by applicable law.
(b) NOTICE. If the Purchase Option Trigger Event shall occur, then the
Corporation shall, within three (3) calendar days after the occurrence
of the Purchase Option Trigger Event, give written notice (the
"Purchase Option Notice") thereof to each holder of record of shares
of Series A Preferred Stock. The Purchase Option Notice shall be sent
by a nationally recognized overnight express courier service for
overnight delivery to each holder of record of shares of Series A
Preferred Stock at such holders' address as the same shall appear on
the books of the Corporation. The Purchase Option Notice shall state
that: (i) the Corporation will purchase on the Purchase Date all
shares of Series A Preferred Stock held by any holder who, prior to
the close of business on the 10th calendar day after the
36
<PAGE>
date of the occurrence of the Purchase Option Trigger Event,
sends written notice (a "Purchase Option Exercise Notice") to
the Corporation delivered by telecopier in the same manner as a
Conversion Notice (which Purchase Option Exercise Notice shall state
(A) that such holder elects to exercise its Purchase Option as set
forth herein and (B) the name in which the check in payment of the
Purchase Amount shall be issued and the address to which it shall
be delivered, if different from the registered name and address of
such holder); (ii) the Redemption Amount per share of Series A
Preferred Stock; (iii) the place at which certificates for shares of
Series A Preferred Stock which any holder wishes to sell to the
Corporation pursuant to the Purchase Option must be surrendered to
collect the Purchase Price; and (iv) that the "Purchase Date" shall
be the 40th calendar day after the date of the occurrence of the
Purchase Option Trigger Event.
(c) PENALTY PAYMENTS. If for any reason the Corporation shall fail to
purchase any share or shares of Series A Preferred Stock for which
it has received a Purchase Option Exercise Notice in accordance with
Section 6(b) hereof, then (i) the Corporation shall be obligated to
pay to each holder of any such shares a monthly penalty payment in
cash in an amount each month equal to 1 1/2% of the Payment Amount
that was payable by the Corporation to such holder on the Payment
Date and (ii) dividends shall continue to accrue on such shares, in
each case until such date (the "Actual Purchase Date") as the
Corporation shall purchase such share or shares from such holder in
accordance with the provisions of this Section 6 at a Purchase Amount
which shall include not only the amount specified in Section 6(a)
hereof but also (x) all dividends accrued and unpaid from the original
Purchase Date to the Actual Purchase Date and (y) all penalty payments
required pursuant to this Section 6(c) accrued and, notwithstanding
the immediately succeeding sentence, unpaid from the original Purchase
Date to the Actual Purchase Date. The first such penalty payment shall
be due and payable on the Purchase Date, and each subsequent penalty
payment shall be due and payable on each monthly anniversary of the
Purchase Date. Penalty payments shall be pro rated for any partial
monthly period ending on the Actual Payment Date.
(d) ONLY ONE PURCHASE OPTION TRIGGER EVENT. If a Purchase Option Trigger
Event shall occur and if the Corporation shall pursuant to this
Section 6 purchase the shares of Series A Preferred Stock held by
those holders who properly execute and deliver to the Corporation a
Purchase Option Exercise Notice, then from and after the date on which
such
37
<PAGE>
purchase shall occur, this Section 6 shall be of no further force
or effect such that if another Purchase Option Trigger Event shall
thereafter occur, the Corporation shall not be obligated to purchase
any shares of Series A Preferred Stock then remaining outstanding.
(e) STATUS OF PURCHASED SHARES. Any and all shares of Series A Preferred
Stock purchased pursuant to this Section 6 shall be canceled and
returned to the status of authorized and unissued Preferred Stock.
7. NO PREEMPTIVE RIGHTS. No holder of Series A Preferred Stock shall have any
preemptive or preferential right of subscription to any shares of stock of
the Corporation, or to options, warrants or other interests therein or
therefor, or to any obligations convertible into stock of the Corporation,
issued or sold, or any right of subscription to any thereof other than
such, if any, as the Board of Directors, in its discretion, from time to
time may determine and at such price or prices as the Board of Directors
from time to time may fix pursuant to the authority conferred by the
Corporation's Certificate of Incorporation.
8. CERTAIN RESTRICTIONS. So long as any Series A Preferred Stock is
outstanding, the Corporation shall not, without the consent of holders of a
majority of the outstanding shares of Series A Preferred Stock, (i)
purchase, redeem or otherwise acquire any shares of any class of the
Corporation's outstanding capital stock (except as otherwise provided in
Section 4(b) hereof), (ii) issue any class or series of any class of
capital stock which ranks prior to or PARI PASSU with the Series A
Preferred Stock with respect to dividend rights or rights on liquidation,
winding-up or dissolution of the Corporation or (iii) amend, alter or
change the preferences or rights of any series or class of capital stock of
the Corporation (including the Series A Preferred Stock) or the
qualifications, limitations or restrictions thereof if such amendment,
alteration or change adversely affects the Series A Preferred Stock.
9. DEFINITIONS.
(a) "Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Corporation after May __, 1996 [date of Closing to
be inserted], except Common Stock which may be issued pursuant to: (i)
the conversion of the Series A Preferred Stock; (ii) the exercise by
the holders thereof of the Corporation's outstanding redeemable common
stock purchase warrants expiring August 9, 2000 ("Public Warrants"),
whether issued in connection with the Company's initial public
offering or the Company's sale of the Series
38
<PAGE>
A Preferred Stock; (iii) the exercise by the holders thereof of
warrants to purchase an aggregate of 181,522 shares of Common Stock
outstanding on the Issue Date; (iv) the exercise by the holders
thereof of warrants to purchase 200,000 shares of Common Stock at an
exercise price of $8.25 per share expiring August 9, 2000; (v) the
exercise by the holders thereof of warrants to purchase 100,000
Public Warrants at an exercise price of $0.165 per Public Warrant
the and exercise of such Public Warrants; and (vi) the exercise by
the holders thereof of any options which may be granted pursuant to
the Corporation's 1995 Stock Option Plan and (vii) the exercise by
employees of the Corporation or any of its subsidiaries of options
granted pursuant to any stock option plan which may hereafter be
adopted by the Corporation where the exercise price of such options
is not less than the fair market value of a share of Common Stock on
the date of grant thereof.
(b) "Change in Control" shall mean a merger or consolidation of the
Corporation with any other corporation, other than a merger or
consolidation which would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent
(50%) of the total of the voting power represented by the voting
securities of the Corporation or such surviving entity outstanding
immediately after such merger or consolidation or, except as provided
under Section 2 hereof, the closing of a sale or disposition by the
Corporation of all or substantially all of the Corporation's assets
(other than to a subsidiary or subsidiaries of the Corporation).
(c) "Common Stock" shall mean the shares of common stock of the
Corporation, par value $.01 per share, and any stock into which such
Common Stock may hereinafter be changed.
(d) "Conversion Date" shall have the meaning such term is given in Section
3(b) hereof.
(e) "Conversion Notice" shall have the meaning such term is given in
Section 3(b) hereof.
(f) "Conversion Price" shall have the meaning such term is given in
Section 3(a) hereof.
(g) "Conversion Shares" shall have the meaning such term is given in
Section 3(a) hereof.
39
<PAGE>
(h) "Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exercisable
or exchangeable for, with or without payment of additional
consideration in cash or property, for Additional Shares of Common
Stock, either immediately or upon the arrival of a specified date or
the happening of a specified event.
(i) "Current Market Price" per share of Common Stock at any date herein
specified shall mean the average of the daily market prices for 5
consecutive Trading Days ending on the last trading day prior to such
date, except that for purposes of Section 3(c) hereof, the "Current
Market Price" per share of Common Stock shall mean the market prices
on the Trading Day therein specified. The market price for each such
Trading Day shall be (i) if the Common Stock is quoted on the Nasdaq
National Market or Nasdaq Small Cap Market, the reported last sales
price, or (ii) if the Common Stock is listed or admitted to trading on
a national securities exchange, the last reported sales prices regular
way, or (iii) if the Common Stock is quoted on the NASD OTC Bulletin
Board, the average of the closing bid and asked prices regular way, or
(iv) if the Common Stock is not so quoted, as reasonably determined by
the Board of Directors of the Corporation.
(j) "Dividend Shares" shall have the meaning such term is given in Section
4 hereof.
(k) "Floating Conversion Price" shall mean the dollar amount determined by
multiplying 0.82 by the average closing bid price of the Common Stock
as calculated over the five (5) Trading Day period ending on the date
prior to the Conversion Date; PROVIDED, HOWEVER, that in no event
shall the Floating Conversion Price be less than the Minimum
Conversion Price.
(l) "Issue Date" shall have the meaning such term is given in Section 3(a)
hereof.
(m) "Junior Stock" shall mean the Common Stock or any other class or
series of capital stock of the Corporation which at the time of
issuance is not declared to be senior to or on a parity with the
Series A Preferred Stock as to dividends or rights upon liquidation
and shall not include the Corporation's outstanding Redeemable
Preferred Stock or $4 Cumulative Preferred Stock (other than for
purposes of Section 2 hereof). Solely for the purposes of Section 2
hereof, the Series A Preferred Stock shall be deemed to rank senior to
the $4 Cumulative Preferred Stock.
40
<PAGE>
(n) "Liquidation Preference" shall have the meaning such term is given in
Section 2 hereof.
(o) "Maturity Date" shall have the meaning such term is given in Section
3(e) hereof.
(p) "Maximum Conversion Price" shall initially mean $_________ per share
[the average closing bid price of the Common Stock as calculated over
the five trading-day period ending on the date prior to the
Subscription Date]. The Maximum Conversion Price shall be subject to
adjustment as provided in Section 3 hereof, but should never be
adjusted below the Minimum Conversion Price.
(q) "Minimum Conversion Price" shall initially mean $2.00 per share. The
Minimum Conversion Price shall be subject to adjustment as provided in
Section 3 hereof.
(r) "Person" shall mean any individual, corporation, association, company,
business trust, partnership, joint venture, joint-stock company,
trust, unincorporated organization or association or government or any
agency or political subdivision thereof.
(s) "Redemption Date" shall have the meaning such term is given in Section
5(b) hereof.
(t) "Redemption Notice" shall have the meaning such term is given in
Section 5(b) hereof.
(u) "Securities Act" shall mean the Securities Act of 1933, as amended.
(v) "Trading Day" shall mean any day on which trading takes place (a) in
the over-the-counter-market and prices reflecting such trading are
published by the National Association of Securities Dealers Automated
Quotation System or (b) if the Common Stock is then listed or admitted
to trading on a national securities exchange, on the principal
national securities exchange on which the Common Stock is then listed
or admitted to trading.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 30
day of April, 1996.
By: /s/ Steven Wasserman
--------------------------------------
Name: Steven Wasserman
Title: President
41
<PAGE>
ATTEST:
By: /s/ Helen Papa
---------------------------------
Helen Papa, Secretary
42
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into the ____ day of ________, 1996, by and between Pudgie's Chicken, Inc., a
Delaware corporation (the "Company"), and the purchaser whose name and address
is set forth on the signature page hereof (the "Purchaser").
This Agreement is made pursuant to the Purchase Agreement, dated as of the
date hereof, between the Company and the Purchaser (the "Purchase Agreement").
In order to induce the Purchaser to enter into the Purchase Agreement, the
Company has agreed to provide for the benefit of the Purchaser and the Other
Purchasers (as defined below) of the Units (as defined below), and any
subsequent holders of Registrable Securities (as defined below), the
registration rights set forth in this Agreement. The execution of this
Agreement is a condition to the closing under the Purchase Agreement.
The Company proposes to enter into substantially this same form of
registration rights agreement with certain other investors (the "Other
Purchasers") and expects to complete sales of Units to them. The Purchaser and
the Other Purchasers are hereinafter sometimes collectively referred to as the
"Purchasers," and this Agreement and the registration rights agreements executed
by the Company and the Other Purchasers are hereinafter sometimes collectively
referred to as the "Agreements." The term "Placement Agent" shall mean
Strasbourger Pearson Tulcin Wolff Incorporated.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
CERTIFICATE OF DESIGNATIONS: Means the Certificate of Designations,
Rights, Preferences and Privileges of the Series A Convertible Stock, attached
as Exhibit C to the Confidential Private Placement Memorandum.
CLOSING DATE: Has the meaning such term is given in the Purchase
Agreement.
COMMON STOCK: The shares of common stock, par value $.01 per share of
the Company.
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM: The Confidential Private
Placement Memorandum dated April 23, 1996 prepared by the Company in connection
with the private placement of the Units, as the same may be amended or
supplemented from time to time.
CONVERSION NOTICE: Has the meaning such term is given in the
Certificate of Designations.
CONVERSION PRICE: The Conversion Price has the meaning such term is
given in the Certificate of Designations.
CONVERSION SHARES: Shares of Common Stock issuable upon the
conversion of the Preferred Shares. Each Preferred Share will be convertible
into the number of Conversion Shares determined by dividing the subscription
price of $10,000 per Preferred Share by the Conversion Price.
DIVIDEND SHARES: Shares of Common Stock issuable to holders of
Preferred Shares as a dividend payment equal to $800 per annum per Preferred
Share, payable upon conversion by each holder of the Preferred Shares, at the
then current Conversion Price.
EFFECTIVE DATE: The date that the Registration Statement is declared
effective by the SEC.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended from
time to time.
$4 STOCK: The shares of $4 Cumulative Preferred Stock, $.01 par
value, of the Company.
HOLDER: Each beneficial holder from time to time of Registrable
Securities.
INDEMNIFIED HOLDER: See Section 6(a).
NASD: National Association of Securities Dealers, Inc.
PENALTY COMMENCEMENT DATE: The date which is the 90th calendar day
after the Closing Date.
PENALTY SHARES: See Section 3.
PENALTY PAYMENT: See Section 3.
PERSON: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
PREFERRED SHARES: The shares of Series A Convertible Preferred Stock
of the Company, par value $.01 per share, issued pursuant to the Certificate of
Designations and pursuant to the Purchase Agreements with the Purchaser and the
Other Purchasers.
PROSPECTUS: The prospectus included in any Registration Statement, as
supplemented by any prospectus supplement and as amended by all amendments,
including post-effective amendments and all material incorporated by reference
in such prospectus.
REGISTRABLE SECURITIES: The Warrants and the Underlying Common
Shares; provided that a Warrant or Underlying Common Share ceases to be a
Registrable Security when it (i) has been effectively registered under Section 5
of the Securities Act and disposed of in accordance with any Registration
Statement, (ii) has been distributed to the public pursuant to Rule 144 under
the Securities Act ("Rule 144") (or any similar provisions then in force) or
(iii) is eligible for distribution to the public by the Holder pursuant to Rule
144(k) (or any similar provisions then in force).
REGISTRATION EXPENSES: See Section 5.
REGISTRATION STATEMENT: Any registration statement of the Company
which, in accordance with Section 3 hereof, covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus,
43
<PAGE>
amendments and supplements to such Registration Statement, including
post-effective amendments, and all exhibits and all material incorporated by
reference in such Registration Statement.
SECURITIES ACT: The Securities Act of 1933, as amended from time to
time.
SEC: The Securities and Exchange Commission.
SUBSCRIPTION DATE: April 26, 1996 or such other date agreed upon by
the Company and the Placement Agent.
UNDERLYING COMMON SHARES: The Conversion Shares, the Dividend Shares,
the Penalty Shares and the Warrant Shares.
WARRANT AGREEMENT: The Warrant Agent Agreement dated August 9, 1995
among the Company, Rickel & Associates, Inc. and Continental Stock Transfer &
Trust Company, as warrant agent, and included as Exhibit I to the Confidential
Private Placement Memorandum, as supplemented as contemplated by the Purchase
Agreement.
WARRANT PRICE: Has the meaning such term is given in the Warrant
Agreement.
WARRANTS: The redeemable Common Stock Purchase Warrants issued
pursuant to the Warrant Agreement and pursuant to the Purchase Agreements with
the Purchaser and the other Purchasers.
WARRANT SHARES: The shares of Common Stock issuable upon exercise of
the Warrants.
2. SECURITIES SUBJECT TO THIS AGREEMENT
Each holder from time to time of Registrable Securities shall be entitled
to the benefits of this Agreement. A Person is deemed to be a Holder of
Registrable Securities whenever such Person is the beneficial owner of
Registrable Securities. The Company is entitled to treat the record holder of
Registrable Securities as beneficial owner of Registrable Securities unless
otherwise notified by such holder.
3. REGISTRATION STATEMENT: TIMING OF FILING, EFFECTIVENESS AND PERIOD OF
USABILITY
Subject to the provisions of Section 4 hereof, the Company shall, as soon
as possible after the Closing Date, prepare and file with the SEC a Registration
Statement on Form SB-2 (or any other form of registration statement on which it
may file for registration under the Securities Act) registering resales of the
Warrants and the Underlying Common Shares by the Holders from time to time
through the automated quotation system of the Nasdaq Small Cap Market or the
facilities of any national securities exchange or the Nasdaq National Market if
the Common Stock is then listed or quoted thereon or in privately-negotiated
transactions. The Registration Statement shall register (i) all of the
Warrants, (ii) all of the Underlying Common Shares and (iii) such number of
additional shares of Common Stock as may become issuable as Underlying Common
Shares as a result of the anti-dilution provisions of the Preferred Shares or
the Warrants. The Company will use its best efforts to cause the initial
Registration Statement to be declared effective by the SEC as soon as possible
after the Closing Date. The Company hereby agrees that it shall (i) prepare and
file such post-amendments to the initial Registration Statement and/or such
additional Registration Statements as may be necessary to ensure that at all
times there shall be registered with the SEC for resale by the Holders from time
to time as provided in this Section 3 all of the Warrants and sufficient shares
of Common Stock to account for all Underlying Common Shares which become
issuable from time to time with respect to the Preferred Shares and/or Warrants
(as a result of changes in the Conversion Price and/or Warrant Price and/or
issuances of Penalty Shares), and (ii) cause such post-effective amendments to
the initial Registration Statement and/or such additional Registration
Statements to be declared effective by the SEC prior to the issuance of any
shares of Common Stock covered thereby.
If the Registration Statement is not declared effective by the Commission
on or before the Penalty Commencement Date, the Company will have the obligation
to pay penalty payments (the "Penalty Payments") at the rate of $200 per
Preferred Shares per month following the Penalty Commencement Date until the
Registration Statement is declared effective. The first Penalty Payment shall
be payable on the earlier to occur of the 30th calendar day following the
Penalty Commencement Date or the date the Registration Statement is declared
effective. Subsequent Penalty Payments shall be payable on each 30-day
anniversary on the Penalty Commencement Date, except if the Registration
Statement shall be declared effective prior thereto in which case the subsequent
Penalty Payment shall be made concurrently with such effectiveness. Any date on
which a Penalty Payment is required to be paid is referred to herein as a
"Penalty Payment Date." Penalty Payments shall be paid to the holders of record
of the Preferred Shares on each Penalty Payment Date. With respect to Preferred
Shares which have been converted into Conversion Shares and Dividend Shares
prior to a Penalty Payment Date, the Penalty Payment with respect to such
converted Preferred Shares shall be paid to the holders on such Penalty Payment
Date of the Conversion Shares and Dividend Shares issued upon conversion of such
Preferred Shares, and the payments made thereto shall be made in proportion to
the number of Conversion Shares and Dividend Shares issued upon conversion of
such Preferred Shares. Provided that the holders of the Company's $4 Stock
shall have consented to the issuance of the Preferred Shares, then, except as
set forth below, the Company shall have the option to pay the Penalty Payment
either in cash or in shares of Common Stock which shall be registered pursuant
to the Registration Statement (the "Penalty Shares") together with the
Conversion Shares and the Dividend Shares. Until the holders of the $4 Stock
shall have consented in writing to the issuance of the Preferred Shares, all
Penalty Payments shall be paid in cash. The Penalty Payment shall accrue and be
prorated for partial months, assuming a 360-day year of twelve 30-day months.
If the Registration Statement has not been declared effective by the Commission
on or before the 240th calendar day after the Closing Date, then (i) each person
entitled to receive Penalty Payments on or after such date will have the right
to elect that all of its Penalty Payments payable on or after such date be made
in cash, and (ii) each person who has previously received Penalty Payments in
the form of Penalty Shares shall have the right to elect to return such Penalty
Shares to the Company and to require the Company to pay all such prior Penalty
Payments immediately in cash. The number of Penalty Shares to be issued in
payment of any Penalty Payment shall be determined by dividing the amount of
such Penalty Payment by the Conversion Price in effect on the applicable Penalty
Payment Date.
The Company agrees to use diligent efforts to keep the Registration
Statement(s) continuously effective and usable for resale of Registrable
Securities until three years (the "Effectiveness Period") from the Closing Date
or such shorter period which will terminate when all Warrants and Underlying
Common Shares have ceased to be Registrable Securities.
4. REGISTRATION PROCEDURES
In connection with the Company's obligation to file Registration Statements
as provided in Section 3 hereof, the Company will as expeditiously as possible:
(a) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement, and such supplements to the
Prospectus, as may be required by the rules, regulations or instructions
applicable to the registration form utilized by the Company or by the
Securities Act or rules and regulations thereunder for shelf registration
or otherwise necessary to keep the Registration Statement effective for the
applicable period and cause the Prospectus as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the
44
<PAGE>
applicable period in accordance with the methods of disposition by the
sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(b) notify Purchaser and the Holders of Registrable Securities
promptly, and confirm such advice in writing,
(1) when the Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same
has become effective,
(2) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose, and
(3) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(c) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the
earliest possible moment;
(d) furnish, without charge, to Purchaser and, upon request, each
Holder of Registrable Securities, at least one conformed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(e) deliver to Purchaser and each Holder of Registrable Securities
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each Purchaser and
each Holder of Registrable Securities in connection with the offering and
sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(f) use its reasonable efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by
such governmental agencies or authorities as may be necessary to enable the
Holders thereof to consummate the disposition of such Registrable
Securities in such jurisdictions as the Holders may reasonably specify in
response to inquiries to be made by the Company, provided that the Company
will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action which
would subject it to general service of process in any such jurisdiction
where it is not then so subject;
(g) if any event shall occur as a result of which it is necessary, in
the opinion of counsel for the Company, to amend or supplement the
Prospectus in order to make the Prospectus not misleading in the light of
the circumstances existing at the time it is delivered by a Holder, prepare
a supplement or post-effective amendment to the Registration Statement or
the related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
Holders of the Registrable Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(h) obtain a CUSIP number for all Registrable Securities (unless
already obtained), not later than the Effective Date;
(i) make available for inspection during normal business hours by a
representative of the Holders of a majority of the Registrable Securities
and any attorney or accountant retained by such representative, all
financial and other records, pertinent corporate documents and properties
of the Company, and cause the Company's officers, directors and employees
to supply all information reasonably requested by such Holders or any such
attorney or accountant in connection with the Registration Statement;
provided that all such records, information or documents shall be kept
confidential by such Persons unless disclosure of such records, information
or documents is required by court or administrative order or is generally
available to the public other than as a result of disclosure in violation
of this paragraph (i);
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make generally available to its
security holders an earnings statement satisfying the provisions of Section
11(a) of the Securities Act (in accordance with Rule 158 thereunder or
otherwise), no later than 45 days after the end of the 12-month period (or
90 days, if such period is a fiscal year) beginning with the first month of
the Company's first fiscal quarter commencing after the Effective Date,
which statements shall cover said 12-month period;
(k) if at any time an event of the kind described in Section 4(g)
shall occur, notify Purchaser and the Holders of Registrable Securities
that the use of the Prospectus must be discontinued (the Company will not
declare any such "black-out" periods in excess of twenty business days
during any twelve month period, unless otherwise required); and
(l) on or prior to the date the Registration Statement is declared
effective by the SEC, cause all of the Warrants and all of the Underlying
Common Shares to be listed for trading on the Nasdaq Small Cap Market and
the Boston Stock Exchange (or on any other national securities exchange or
the Nasdaq National Market) on which the Company's Warrants and shares of
Common Stock are then listed.
Each Holder of Registrable Securities as to which any registration is
being effected agrees, as a condition to the registration obligations with
respect to such Holder provided herein, to furnish to the Company such
information regarding the distribution of such Registrable Securities as
the Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company
described in this paragraph 4(k), such Holder will forthwith discontinue
disposition of Registrable Securities until such Holder's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section
4(g) hereof, or until it is advised in writing by the Company (which notice
the Company shall give as promptly as possible), that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the Prospectus,
and, if so directed by the Company, such Holder will deliver to the Company
(at the Company's expense) all copies, other than
45
<PAGE>
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of
such notice.
5. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation:
(1) all registration, filing and listing fees;
(2) fees and expenses of Graubard, Mollen & Miller (or other counsel
acceptable to the holders of a majority in principal amount of the
Registrable Securities) for compliance with securities or blue sky laws;
(3) the Company's printing, messenger, telephone and delivery
expenses;
(4) fees and disbursements of counsel for the Company;
(5) fees and disbursements of all independent certified public
accountants of the Company (including the expenses of any special audit
necessary to satisfy the requirements of the Securities Act); and
(6) fees and expenses associated with any NASD filing required to be
made in connection with the Registration Statement.
(all such expenses being herein called "Registration Expenses") will be borne by
the Company, regardless of whether the Registration Statement becomes effective.
The Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on a securities exchange or the Nasdaq National Market.
6. INDEMNIFICATION AND CONTRIBUTION
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless each Holder of Registrable Securities, its officers, directors,
employees and agents and each Person who controls such Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
(each such person being sometimes hereinafter referred to as an "Indemnified
Holder") from and against all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation and legal expenses) arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement or Prospectus or in any amendment
or supplement thereto or in any preliminary prospectus, or arising out of or
based upon any 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 will not be liable in any such
case to the extent that any such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or alleged untrue
statement or omission or alleged omission thereof based upon information
furnished in writing to the Company by such Holder or its agent expressly for
use therein; PROVIDED FURTHER, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission in the Prospectus, if such untrue statement or
alleged untrue statement, omission or alleged omission was completely corrected
in an amendment or supplement to the Prospectus and if, having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such Holder thereafter fails to deliver such Prospectus
as so amended or supplemented, prior to or concurrently with the sale of a
Registrable Security to the person asserting such loss, claim, damage, liability
or expense who purchased such Registrable Security which is the subject thereof
from such Holder. This indemnity will be in addition to any liability which the
Company may otherwise have.
If any action or proceeding (including any governmental investigation or
inquiry) shall be brought or asserted against any Indemnified Holder in respect
of which indemnity may be sought from the Company, such Indemnified Holder shall
promptly notify the Company in writing (but the omission to so notify the
Company shall not relieve it of any liability that it may have against any
Indemnified Holder otherwise than under this subsection), and the Company shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Holder and the payment of all expenses.
Indemnified Holders shall have the right, collectively, to employ their own
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be the expense of the Indemnified
Holders unless (a) the Company has agreed to pay such fees and expenses or (b)
the Company shall have failed to assume the defense of such action or proceeding
and have failed to employ counsel reasonably satisfactory to the Indemnified
Holders in any such action or proceeding or (c) the named parties to any such
action or proceeding (including any impleaded parties) include the Indemnified
Holders and the Company, and the Indemnified Holders shall have been advised by
counsel that there may be one or more legal defenses available to the
Indemnified Holders which are different from or additional to those available to
the Company (in which case, if the Indemnified Holders notify the Company in
writing that they elect to employ their own counsel at the expense of the
Company, the Company shall not have the right to assume the defense of such
action or proceeding on behalf of the Indemnified Holders, it being understood,
however, that the Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for the Indemnified Holders which firm shall be designated in writing by
the Indemnified Holders representing at least a majority of the aggregate
principal amount of the outstanding Registrable Securities). Any such fees and
expenses payable by the Company shall be paid to the Indemnified Holders
entitled thereto as incurred by the Indemnified Holders. The Company shall not
be liable for any settlement of any such action or proceeding effected without
its written consent, but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action or proceeding, the Company
agrees to indemnify and hold harmless the Indemnified Holders from and against
any loss or liability by reason of such settlement or judgment.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. Each Holder of
Registrable Securities agrees to indemnify and hold harmless the Company, its
respective directors and officers and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to such Holder, but only with respect to information relating to such
Holder furnished in writing by such Holder expressly for use in any Registration
Statement or Prospectus, or any amendment or supplement thereto, or any
preliminary prospectus. In case any action or proceeding shall be brought
against the Company or its respective directors or officers or any such
controlling person, in respect of which indemnity may be sought against a Holder
of Registrable Securities, such Holder shall have the rights and duties given
the Company, and the Company or its respective directors or officers or such
controlling person shall have the rights and duties given to each holder by the
preceding paragraph. In no event shall the liability of any Holder of
Registrable Securities hereunder be greater in amount than the dollar amount
46
<PAGE>
of the proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) CONTRIBUTION. If the indemnification provided for in this Section 6
is unavailable to an indemnified party under Section 6(a) or Section 6(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses, (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company from the sale of the Preferred Shares to Purchaser pursuant to the
Purchase Agreement on the one hand and each Holder of Registrable Securities
from the offering of the Registrable Securities by such Holder, on the other
hand, or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and each Holder of Registrable Securities on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, or liabilities, as well as the other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and each Holder of Registrable Securities on the other shall be deemed to be in
the same proportion as the aggregate amount paid by Purchaser to the Company
pursuant to the Purchase Agreement for the Registrable Securities purchased by
such Holder that were sold pursuant to the Registration Statement bears to the
difference (the "Difference") between the amount such Holder paid for the
Registrable Securities that were sold pursuant to the Registration Statement and
the amount received by such Holder from such sale. 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 or the particular
Holder and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
Company and the Holders of Registrable Securities agree that it would not be
just and equitable if contributions pursuant to this subsection (c) were to be
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable consideration referred to in the first
sentence of this subsection (c). The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (c) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation or defending against any action or claim that is the subject of
this subsection (c). Notwithstanding the provisions of this subsection (c),
each Holder of Registrable Securities shall not be required to contribute any
amount in excess of the amount by which the Difference exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. 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.
7. RULE 144 AND RULE 144A
For so long as the Company is subject to the reporting requirements of
Section 13 or 15 of the Exchange Act, the Company covenants that it will file
the reports required to be filed by it under the Securities Act and Section
13(a) or 15(d) of the Exchange Act and the rules and regulations adopted by the
SEC thereunder. If the Company is not subject to the reporting requirements of
Section 13 or 15 of the Exchange Act, the Company also covenants that it will
provide the information required pursuant to Rule 144A(d)(4) under the
Securities Act upon the request of any Holder of Registrable Securities which
continue to be "restricted securities" within the meaning of Rule 144(a)(3)
under the Securities Act and it will take such further action as any holder of
such Registrable Securities may reasonably request, all to the extent required
from time to time to enable such holder to sell its Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, so long as such provision does not require the
public filing of information relating to the Company which the Company is not
otherwise required to file, (b) Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or (c) any similar rule or regulation
hereafter adopted by the SEC that does not require the public filing of
information relating to the Company. Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
8. MISCELLANEOUS
(a) NO INCONSISTENT AGREEMENTS. The Company will not on or after the date
of this Agreement enter into any agreement with respect to their securities
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders of Registrable Securities hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any such agreements.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will not
take any action, or permit any change to occur, with respect to the Registrable
Securities which would adversely affect the ability of the Holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of Holders of a
majority of the Registrable Securities.
(d) NOTICES. All notices, requests, consents and other communications
hereunder shall be by telecopier, with a copy being mailed by a nationally
recognized overnight express courier, and shall be deemed given when receipt is
acknowledged by transmit confirmation report, and shall be delivered as
addressed as follows:
(1) if to the Purchaser, at the most current address given by the
Purchaser to the Company in accordance with the provisions of this Section
8(d), which address initially is as set forth on the signature page hereto;
(2) if to a Holder of Registrable Securities, at its address of
record as indicated on the books of the transfer agent and registrar for
the Registrable Securities; and
(3) if to the Company, initially at its address set forth in Section
10 of the Purchase Agreement and thereafter at such other addresses, notice
of which is given in accordance with the provisions of this Section 8(d).
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Registrable Securities.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
47
<PAGE>
(g) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO ITS
RULES AS TO CONFLICTS OF LAW) AND THE FEDERAL LAW OF THE UNITED STATES OF
AMERICA.
(i) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) CALCULATION OF MAJORITY. For purposes of determining whether the
Holders of a majority of the Registrable Securities have taken action pursuant
thereto, any Preferred Shares and Warrants then outstanding shall be deemed to
have been converted into Underlying Common Shares, which shares shall be treated
as outstanding for purposes hereof.
48
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PUDGIE'S CHICKEN, INC.
By:
---------------------------------------
Name: Steven Wasserman
Title: President
Print or Type:
Name of Purchaser
(Individual or Institution):
-------------------------------------------
Name of Individual representing
Purchaser (if an Institution):
-------------------------------------------
Title of Individual representing
Purchaser (if an Institution):
-------------------------------------------
Signature by:
Individual Purchaser or Individual
representing Purchaser:
-------------------------------------------
Address: ----------------------------------
Telephone: --------------------------------
Telecopier: -------------------------------
49
<PAGE>
SERIES A CONVERTIBLE PREFERRED STOCK
PUDGIE'S CHICKEN, INC.
Incorporated Under The Laws Of The State Of Delaware
See Reverse Side For Certain Definitions
TOTAL AUTHORIZED ISSUE 550 SHARES
250,000 SHARES PAR VALUE $.01 EACH PREFERRED STOCK
550 SHARES DESIGNATED AS SERIES A CONVERTIBLE PREFERRED STOCK
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF EITHER AN
EFFECTIVE REGISTRATION STATEMENT FOR THESE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION
OF COUNSEL SATISFACTORY TO PUDGIE'S CHICKEN, INC. TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR SUCH STATE SECURITIES LAWS.
THESE SECURITIES ARE SUBJECT TO A CERTAIN REGISTRATION RIGHTS AGREEMENT, A
COPY OF WHICH MAY BE OBTAINED FROM THE CORPORATION.
SPECIMEN
This is to Certify that ------------------------------------- is the owner of
- - -----------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK OF
PUDGIE'S CHICKEN, INC. (the "Corporation")
TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF, IN PERSON
OR BY DULY AUTHORIZED ATTORNEY, UPON SURRENDER OF THIS CERTIFICATE, PROPERLY
ENDORSED.
The Corporation will furnish without charge to each stockholder who so
requests, the powers, designations, preferences and relative, participating,
optional, or other special rights of the shares of Series A Convertible
Preferred Stock and the qualifications, limitations or restrictions of such
preferences and/or rights.
IN WITNESS WHEREOF, THE SEAL OF THE CORPORATION AND THE SIGNATURES OF ITS
DULY AUTHORIZED OFFICERS.
Dated: April 30, 1996
SPECIMEN SPECIMEN
- - ----------------------------- CORPORATE --------------------------
Steven Wasserman, PRESIDENT SEAL Helen Papa, SECRETARY
50
<PAGE>
PUDGIE'S CHICKEN, INC.
550 Units
Each Unit Consisting of
One Share of Series A Convertible Preferred Stock
and
500 Redeemable Common Stock Purchase Warrants
AMENDED AND RESTATED
PLACEMENT AGENCY AGREEMENT
As of March 18, 1996
Strasbourger Pearson Tulcin Wolff
Incorporated
c/o Stroock & Stroock & Lavan
Seven Hanover Square
New York, NY 10004
Ladies and Gentlemen:
This letter confirms our agreement (this "Agreement") to retain
Strasbourger Pearson Tulcin Wolff Incorporated as our exclusive agent (the
"Placement Agent") from the date hereof through the tenth (10th) day following
the date on which all Offering Materials (as defined herein) have been approved
by the Company and the Placement Agent pursuant hereto (the "Engagement Period")
to introduce Pudgie's Chicken, Inc. (the "Company") to certain investors
(collectively, the "Investors") as prospective purchasers in a private placement
of at least 200 and no more than 550 units (the "Units"). Each Unit will
consist of (i) one (1) share of the Company's Series A Convertible Preferred
Stock, par value $.01 per share (the "Preferred Shares"), convertible into
shares of the Company's common stock, par value $.01 per share ("Common Stock"),
and (ii) 500 redeemable Common Stock purchase warrants (the "Warrants"),
exercisable for shares of Common Stock as hereinafter provided. The shares of
Common Stock issuable upon conversion of the Preferred Shares are hereinafter
called the "Conversion Shares"; the shares of Common Stock issuable in payment
of dividends on the Preferred Shares are hereinafter called the "Dividend
Shares"; the shares of Common Stock issuable in payment of certain penalty
payments relating to the registration of the Conversion Shares and the Dividend
Shares are hereinafter called the "Penalty Shares"; and the Shares of Common
Stock issuable upon exercise of the Warrants are hereinafter called the "Warrant
Shares." The Conversion Shares, the Dividend Shares, the Penalty Shares and the
Warrant Shares are hereinafter collectively called the "Underlying Common
Shares."
The above-described private placement (the "Placement") are more fully
described in the confidential disclosure documents prepared by the Company and
provided to the Placement Agent and dated the date hereof for use in connection
with the proposed Placement (said disclosure documents, as amended and
supplemented from time to time and including all Exhibits thereto, being
hereinafter collectively referred to as the "Offering Circular"). The Placement
Agent will have no obligation to purchase any of the Units offered by the
Company in the Placement. During the Engagement Period, the Placement Agent
shall have the exclusive right to arrange for all sales of securities by the
Company, including the exclusive right to identify buyers for the Units.
The Placement is intended to be exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
Regulation D ("Regulation D") of the rules and regulations of the Securities and
Exchange Commission (the "SEC") promulgated under the Securities Act (the "Rules
and Regulations").
Each Investor who purchases Units shall be required to enter into a
purchase agreement with the Company in the form included as an exhibit to the
Offering Circular (collectively, the "Purchase Agreements") and a registration
rights agreement with the Company in the form included as an exhibit to the
Offering Circular (collectively, the "Registration Rights Agreements"). In
order to effectuate the Closing (as defined in Section 1 hereof), the Company,
the Placement Agent and LaSalle National Trust, N.A. shall enter into an escrow
agreement (the "Escrow Agreement"). The Preferred Shares will be issued by the
Company pursuant to an amendment to its certificate of incorporation in the form
of the Certificate of Designations in the form included as an exhibit to the
Offering Circular (the "Certificate of Designations"). The Warrants will be
issued by the Company pursuant to that certain Warrant Agent Agreement dated
August 9, 1995 by and among the Company, Rickel & Associates, Inc. ("Rickel")
and Continental Stock Transfer & Trust Company, as warrant agent (the "Warrant
Agent") which is included as an exhibit to the Offering Circular (the "Warrant
Agreement" and, collectively with the Purchase Agreements, the Registration
Rights Agreements and the Escrow Agreement, the "Offering Agreements"). The
Offering Circular, the Offering Agreements and the Certificate of Designations
are hereinafter collectively called the "Offering Materials."
The engagement described herein shall be in accordance with applicable laws
and pursuant to the following procedures and terms and conditions:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to, and agrees with, the Placement Agent, as of the date
hereof (except with respect to matters which are expressly contemplated by
Sections 2(e) and 6 hereof to occur after the date hereof) and as of the date
(the "Closing Date") of the consummation of the sale of the Preferred Shares
(the "Closing"), that:
(a) The Offering Circular (excluding Exhibit H thereto, as to which
no representation or warranty is made) does not and will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has not
distributed any offering material in connection with the offering or sale of the
Units other than the Offering Circular.
(b) No order asserting that any of the transactions contemplated by
this Agreement or the Offering Circular are subject to the registration
requirements of the Securities Act has been issued. There has been no
notification with respect to the suspension of the qualification of the
Preferred Shares, the Warrants or the Underlying Common Shares for sale in any
jurisdiction or initiation or, to the knowledge of the Company, threat of any
proceeding for such purpose.
51
<PAGE>
(c) The consolidated financial statements and related notes included
in the Offering Circular present fairly the consolidated financial position of
the Company as at the dates indicated and the consolidated results of its
operations for the periods specified; and said financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout all periods presented. The Company has
not been advised by Price Waterhouse L.L.P. (the "Accountants"), nor is it
otherwise aware of, any material weakness involving the Company's internal
control structure or their operation. The Accountants, who certified the
financial statements included in the Offering Circular, are independent public
auditors as required by the Securities Act and the Rules and Regulations. The
Company maintains a system of internal accounting control sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain accountability for assets, (iii) access to assets is
permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(d) Since the date as of which information is given in the Offering
Circular, (i) there has been no material adverse change in the business,
properties, prospects, condition (financial or otherwise), net worth or results
of operations of the Company and its subsidiaries, taken as a whole, whether or
not arising in the ordinary course of business, other than continuing losses
from operations and the corresponding decrease in net worth resulting therefrom,
(ii) there have been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which are
material with respect to the Company and its subsidiaries, taken as a whole,
other than an investment the Company has made in a public company which has been
identified to the Placement Agent by the Company, (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company on
any class of its securities, and (iv) neither the Company nor any of its
subsidiaries has incurred any liabilities or obligations, either direct or
contingent, other than in the ordinary course of business.
(e) The Company and each of its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of the
state of its incorporation with full power and authority to own and lease its
properties and to conduct its business as described in the Offering Circular;
and the Company and each of its subsidiaries is duly qualified to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify
would not, singly or in the aggregate, have a material adverse effect on the
business, properties, prospects, condition (financial or otherwise), net worth
or results of operations of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect"). The Company does not own directly or indirectly,
any shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint venture,
association or other entity other than (i) its wholly-owned subsidiaries listed
in Appendix I hereto and (ii) an investment the Company has made in a public
company which has been identified to the Placement Agent by the Company.
Complete and correct copies of the articles of incorporation and the bylaws of
the Company and each of its subsidiaries and all amendments thereto have been
delivered to the Placement Agent, and no changes therein will be made subsequent
to the date hereof and prior to the Closing Date, except for the filing of the
Certificate of Designations with the Secretary of State of the State of
Delaware, which filing shall be made on or prior to the Closing Date.
(f) The Company and its subsidiaries have filed all federal, state,
local and foreign tax returns that are required to be filed or have requested
extensions thereof and have paid all taxes and all assessments to the extent
that the same have become due. No tax assessment or deficiency has been made or
proposed against the Company or any of its subsidiaries nor has the Company or
any of its subsidiaries received any notice of any proposed assessment or
deficiency. The charges, accruals and reserves shown as the financial
statements included in the Offering Circular, in respect of taxes for all fiscal
periods to date are adequate based on current law. There is no material unpaid
assessment or proposal by any taxing authority for additional taxes for which
the Company or a consolidated basis does not have adequate reserves for any
fiscal year.
(g) The authorized, issued and outstanding capitalization of the
Company is as set forth in the Offering Circular under "Capitalization;" the
issued and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable and are not,
and at the Closing will not be, subject to any preemptive or other similar
rights. Except as disclosed in the Offering Circular, there are no outstanding
rights, warrants or options to acquire, or instruments convertible into or
exchangeable for, shares of Common Stock or agreements or understandings with
respect to the sale or issuance of, any of the foregoing. The Preferred Shares
to be issued and sold by the Company will be, upon issuance and payment
therefor, duly authorized, validly issued, fully paid and non-assessable and
will not be subject to any preemptive or similar rights. The Warrants to be
issued and sold by the Company will be, upon issuance and payment therefor, duly
authorized, validly issued, fully paid and non-assessable and will be entitled
to the benefits of the Warrant Agreement. The description of the securities of
the Company in the Offering Circular is complete and accurate in all material
respects.
(h) The Conversion Shares have been duly and validly authorized and
reserved for issuance upon conversion of the Preferred Shares and, when issued
and delivered upon such conversion, will be duly and validly issued and
outstanding, fully paid and non-assessable and will not have been issued in
violation of or subject to any preemptive rights or other similar rights. The
Dividend Shares have been duly and validly authorized and reserved for issuance
upon payment of the dividends on the Preferred Shares and, when issued and
delivered upon such payment, will be duly and validly issued and outstanding,
fully paid and non-assessable and will not have been issued in violation of or
subject to any preemptive rights or other similar rights. The Penalty Shares
have been duly and validly authorized and reserved for issuance upon payment of
such penalties and, when issued and delivered upon such payment, will be duly
and validly issued and outstanding, fully paid and non-assessable and will not
have been issued in violation of or subject to any preemptive rights or other
similar rights. The Warrant Shares have been duly and validly authorized and
reserved for issuance upon exercise of the Warrants and, when issued and
delivered upon such exercise and upon receipt of the exercise price therefor,
will be duly and validly issued and outstanding, fully paid and non-assessable
and will not have been issued in violation of or subject to any preemptive or
other similar rights.
(i) Neither the Company nor any of its subsidiaries is in violation
of its organizational documents or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note or other instrument or agreement to
which the Company or any of its subsidiaries is a party or by which any of them
may be bound, or to which any of the property or assets of the Company or any of
its subsidiaries is subject, except where such violation or default would not,
singly or in the aggregate, have a Material Adverse Effect; and assuming the
application of the net proceeds from the placement as described in the Offering
Circular and the compliance by the Placement Agent with its obligations
hereunder, the execution, delivery and performance of this Agreement and the
Offering Agreements and the consummation of the transactions contemplated herein
and therein have been duly authorized by all necessary corporate action and
(i) will not conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to, any
contract, indenture, mortgage, loan agreement, note or other instrument or other
agreement (a "contract or other agreement") to which the Company or any of its
subsidiaries is a party or by which any of them may be bound, or to which any of
the property or assets of the Company or any of its subsidiaries is subject, nor
(ii) will such action result in any violation of (A) the provisions of the
organizational documents of the Company or any of its subsidiaries or (B) any
statute, rule, regulation, order, judgment, ruling or decree of any court or any
governmental, regulatory or administrative body applicable to any of them,
except
52
<PAGE>
in the case of clause (i), where such breach, default or violation would
not, singly or in the aggregate, have a Material Adverse Effect.
(j) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(k) Except as disclosed in the Offering Circular, there is no action,
suit or proceeding before or by any court or governmental agency or body,
domestic or foreign, now pending, threatened or, to the knowledge of the
Company, contemplated against or affecting the Company or any of its
subsidiaries which is reasonably likely, singly or in the aggregate, to have a
Material Adverse Effect, or which might materially and adversely affect the
consummation of the transactions contemplated by this Agreement; all pending
legal or governmental proceedings to which the Company or any of its
subsidiaries is a party or of which their property or assets is the subject
which are not described in the Offering Circular, including ordinary routine
litigation incidental to the business, are, considered in the aggregate, not
material.
(l) There are no (i) hazardous substances, hazardous materials, toxic
substances or waste materials (collectively, "Hazardous Materials"), the
existence of which is in violation of any environmental law or regulation, on
any of the properties owned or leased by the Company or any of its subsidiaries,
or (ii) spills, releases, discharges or disposal of Hazardous Materials that
have occurred or are presently occurring from such properties. Except as
described in the Offering Circular, the Company and its subsidiaries are in
compliance with all applicable local, state and federal environmental laws,
regulations, ordinances and administrative and judicial orders relating to the
generation, recycling, reuse, sale, storage, handling, transport and disposal of
any Hazardous Materials.
(m) The business, operations and facilities of the Company and its
subsidiaries have been and are being conducted in compliance in all respects
with all applicable laws, ordinances, rules, regulations, licenses, permits,
approvals, plans, authorizations or requirements relating to occupational safety
and health, pollution, or protection of public health or the environment
(including, without limitation, those relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants or hazardous or
toxic substances, materials or wastes into ambient air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of chemical substances,
pollutants, contaminants or Hazardous Materials), of any governmental
department, commission, board, bureau, agency or instrumentality of the United
States, any state or political subdivision thereof, or any foreign jurisdiction,
and all applicable judicial or administrative agencies or regulatory decrees,
awards, judgments and orders relating thereto; and the Company has not received
any notice from any governmental instrumentality or any third party alleging any
violation thereof or liability thereunder (including, without limitation,
liability for costs of investigating or remediating sites containing hazardous
substances and/or damages to natural resources).
(n) The Company and its subsidiaries possess such certificates,
licenses, authorizations or permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct the business now
conducted by them, and the Company and its subsidiaries have not received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect.
(o) Except as set forth in the Offering Circular, the Company and its
subsidiaries have fee simple title to all real property owned by them, in each
case free and clear of all liens, encumbrances and defects except such as are
described in the Offering Circular or such as do not adversely affect the value
of such property or interests and do not interfere with the use made and
proposed to be made of such property or interests by them; and any real property
and buildings held under lease by the Company or any of its subsidiaries or
leased by the Company or any of its subsidiaries to a third party are held or
leased by the Company or any of its subsidiaries under valid, binding and
enforceable leases conforming to the description thereof set forth in the
Offering Circular, with such exceptions as do not interfere with the use made
and proposed to be made of such property and buildings by the Company or its
subsidiaries or such third party.
(p) Except as described in the Offering Circular, the Company and its
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary
in the businesses in which they are engaged; neither the Company nor any of its
subsidiaries have been refused any insurance coverage for which they have
applied; and the Company has no reason to believe that it and its subsidiaries
will not be able to renew their existing insurance coverage as such coverage
expires, or to obtain similar coverage from similar insurers as may be necessary
to continue their respective businesses at a cost that would not have a Material
Adverse Affect.
(q) No authorization, approval or consent of any court or
governmental authority or agency is necessary in connection with the sale or
issuance of the Preferred Shares, Warrants or Underlying Common Shares
hereunder, except such as have previously been obtained, or as have been
obtained under state securities laws.
(r) The Company has full power and authority to enter into this
Agreement and each Offering Agreement. This Agreement has been, and each
Offering Agreement and the Warrants will be, duly authorized, executed and
delivered by the Company and this Agreement constitutes, and each Offering
Agreement and the Warrants will constitute, a valid and binding agreement of the
Company enforceable against the Company in accordance with the terms hereof and
thereof, subject (a) to limitations imposed by bankruptcy, insolvency,
moratorium, fraudulent conveyance and similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto, and
without regard to the application of equitable principles in any proceeding,
whether at law or in equity and (b) to limitations of public policy under
applicable securities laws as to rights of indemnity and contribution
thereunder. Subject to the Placement Agent's conformity to its obligations set
forth herein, the performance of this Agreement, the Warrants and each Offering
Agreement and the consummation of the transactions contemplated hereby and
thereby will not result in the creation or imposition of any lien, charge or
encumbrance upon any of the assets of the Company or any of its subsidiaries
pursuant to the terms or provisions of, or result in a breach or violation of or
conflict with any of the terms or provisions of, or constitute a default under,
or give any other party a right to terminate any of its obligations under, or
result in the acceleration of any obligation under, (i) the organizational and
governing documents of the Company or any of its subsidiaries; (ii) any contract
or other agreement to which the Company or any of its subsidiaries is a party or
by which the Company or any of its properties is bound or affected, which is
material to the Company or any of its subsidiaries (other than with respect to
any requirements of the Nasdaq Stock Market or The Boston Stock Exchange with
respect to prior notification thereof of this Agreement and transactions
contemplated hereby and as to the listing of the Warrants and the Underlying
Common Shares prior to the Closing Date); or (iii) any judgment, ruling, decree,
order, statute, rule or regulation of any court or other governmental agency or
body applicable to the business or properties of the Company or any of its
subsidiaries.
(s) Any certificate signed by any officer of the Company and
delivered to the Placement Agent, or to counsel for the Placement Agent, shall
be deemed a representation and warranty by the Company to the Placement Agent as
to the matters covered thereby.
53
<PAGE>
(t) Subject to the Placement Agent's conformity to its obligations
set forth herein and in reliance upon the representations and warranties of each
Investor to be set forth in their respective Purchase Agreements, the sale and
issuance of the Units and the Underlying Common Shares as contemplated herein
and in the Offering Circular is exempt from the registration and prospectus
delivery requirements of the Securities Act pursuant to Section 4(2) and/or
3(b). With respect to each offer or sale of the Units and the Underlying Common
Shares, neither the Company nor any of its representatives (which, for purposes
of this Section 1(t), shall not include the Placement Agent) has engaged in any
form of general solicitation or general advertising, including, but not limited
to, advertisements, articles, notices or other communication published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. No Common Stock and no securities of the
same class as the Preferred Shares and the Warrants have been issued and sold by
the Company within the six-month period immediately prior to the date hereof.
(u) Neither the Company nor, to the Company's knowledge, any employee
or agent of the Company has made any payment of funds of the Company or received
or retained any funds in violation of any law, rule or regulation of a character
necessary to be disclosed in the Offering Circular.
(v) Neither the Company nor any of its subsidiaries is involved in
any material labor dispute nor, to the knowledge of the Company, is any such
dispute threatened.
(w) The Company and its subsidiaries own, or are licensed or
otherwise has the full exclusive right to use, all material copyrights, patents,
trademarks and trade names which are used in or necessary for the conduct of
their respective businesses as described in the Offering Circular, except where
the failure to own or be licensed with respect to any such intellectual property
would not, singly or in the aggregate, have a Material Adverse Effect. To the
Company's knowledge, no claims have been asserted by any person to the use of
any such copyrights, patents, trademarks or trade names or challenging or
questioning the validity or effectiveness of any such copyright, patent,
trademark or trade name. The use of such copyrights, patents, trademarks and
trade names in connection with the business and operations of the Company and
its subsidiaries does not infringe on the rights of any person.
(x) Each holder of securities of the Company which has rights to the
registration of any securities of the Company as a result of the filing of the
registration statement contemplated by the Offering Circular and the
Registration Rights Agreement with respect to the Warrants and the Underlying
Common Shares has waived such rights.
2. COVENANTS OF THE COMPANY.
(a) The Company will apply the net proceeds from the sale of the
Units in accordance with the description set forth in the Offering Circular
under the heading "Use of Proceeds."
(b) If at any time following the date of the Offering Circular
through the Closing Date, any event occurs as a result of which the Offering
Circular, as then amended or supplemented, would, in the opinion of the
Placement Agent, include any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if for
any other reason, in the opinion of the Placement Agent, it is necessary at any
time to amend or supplement the Offering Circular, the Company will promptly
notify the Placement Agent thereof and will prepare and deliver to the Placement
Agent, at the Company's expense, an amendment to the Offering Circular that
corrects such statement or omission or effects such compliance.
(c) The Company will not amend or supplement the Offering Circular
unless a copy thereof shall first have been submitted to the Placement Agent
within a reasonable period of time prior to the use thereof and the Placement
Agent shall not have objected thereto in good faith.
(d) Neither the Company nor any affiliate (as defined in Rule 501(b)
of Regulation D under the Securities Act) will sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
the Securities Act) which will be integrated with the sale of the Preferred
Shares, the Warrants or the Underlying Common Shares in a manner which would
require the registration under the Securities Act of the Preferred Shares, the
Warrants or the Underlying Common Shares.
(e) In accordance with the Registration Rights Agreement, the Company
will cause the Warrants and the Underlying Common Shares to be listed on the
Nasdaq Stock Market and The Boston Stock Exchange no later than the time the
Preferred Shares become convertible.
3. COVENANTS OF THE PLACEMENT AGENT. The Placement Agent covenants and
agrees that it will take no action, nor fail to take any action, if such action
or failure to take such action would have the effect that the offer or sale of
the Units would not be exempt from the registration requirements of the
Securities Act or the registration or qualification requirements of any state or
political subdivision of the United States in which the Units are to be offered
or sold. The Placement Agent shall only offer the Units to persons for which
the Placement Agent has a reasonable belief that such persons are "accredited
investors" as such term is defined in Rule 501 under the Securities Act.
4. COMPENSATION OF THE PLACEMENT AGENT. The Company agrees to reimburse
the Placement Agent for all of the Placement Agent's actual out-of-pocket
expenses incurred in connection with this transaction, regardless of whether the
sales contemplated hereby are consummated, including but not limited to fees and
disbursements of its counsel and of the escrow agent, up to One Hundred Thousand
Dollars ($100,000), said reimbursement to be made by the Company directly from
the gross proceeds to it from the Placement hereunder. The Company will pay all
of its expenses incurred in connection with these transactions. The Company
will pay the Placement Agent, directly from the escrowed funds, a fee of 7.0% of
the gross proceeds to it from the Placement hereunder the ("Placement Fee").
5. CLOSING. The Closing may be held at such place or places as shall be
specified by the Placement Agent. Certificates in the names of the respective
Investors and in the respective denominations aggregating the full number of
Preferred Shares and Warrants sold at the Closing shall be delivered by the
Company to the Escrow Agent contemplated by the Offering Circular.
6. CONDITIONS TO CLOSING. The Company and the Placement Agent agree that
the issuance and sale of the Preferred Shares and the Warrants and all
obligations of the Placement Agent provided herein shall be subject to the
truthfulness and accuracy of the representations and warranties contained herein
as of the date hereof and as at the Closing, to the truthfulness and accuracy of
the statements of officers and directors of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder to be performed at or prior to the Closing and to the following
further conditions:
54
<PAGE>
(a) The Placement Agent shall have received from Graubard Mollen &
Miller, counsel to the Company, a legal opinion addressed to the Placement
Agent, which will be in the form required to be delivered pursuant to Section
4.8 of the Purchase Agreement.
(b) The Placement Agent and its counsel shall have been furnished
such other documents and opinions as they reasonably may require for the purpose
of enabling them to assess the accuracy, completeness or satisfaction of the
representations, warranties or conditions herein contained.
(c) As of the Closing: (i) in the sole opinion of the Placement
Agent, there shall have been no material adverse change in the affairs of the
Company and its subsidiaries, taken as a whole, financial or otherwise, from and
as of the latest dates as of which such condition is set forth in the Offering
Circular, except as referred to therein; (ii) there shall have been no material
transaction entered into by the Company or any subsidiary of the Company from
the latest date as of which the financial condition of the Company is set forth
in the Offering Circular other than transactions referred to or contemplated
therein, other than an investment the Company has made in a public company which
has been identified to the Placement Agent; (iii) neither the Company nor any of
its subsidiaries shall be in material default (nor shall an event have occurred
which, with notice or lapse of time or both, would constitute a material
default) under any provision of any contract or other agreement to which the
Company or any of its subsidiaries is a party or by which any of their
respective properties are subject or bound; and (iv) except as set forth in the
Offering Circular, no action, suit or proceeding at law or in equity or before
or by any federal or state commission, board or other administrative agency,
shall be pending, threatened or, to the best knowledge of the Company,
contemplated against the Company or any subsidiary of the Company or affecting
any of their respective properties wherein an unfavorable decision, ruling or
finding would have a Material Adverse Effect.
(d) The Placement Agent shall have received a certificate of the
Chief Executive Officer and the Chief Financial Officer of the Company, dated as
of the Closing Date, to the effect that each of the conditions set forth in this
Section 6 has been satisfied.
(e) The representations and warranties of the Company contained
herein shall be true and correct at the Closing Date, as if made on such date,
and all covenants and agreements herein contained to be performed on the part of
the Company and the Placement Agent and all conditions herein contained to be
fulfilled or complied with by the Company at or prior to the Closing shall have
been duly performed, fulfilled or complied with.
(f) The Company shall have furnished to the Placement Agent such
certificates, in addition to those specifically mentioned herein, as the
Placement Agent may have reasonably requested as to the accuracy and
completeness at the Closing of any statement in the Offering Circular as to the
accuracy at the Closing of the representations and warranties of the Company as
to the performance by the Company of its obligations hereunder, or as to the
fulfillment of the conditions concurrent and precedent to the obligations
hereunder of the Placement Agent.
(g) Rickel shall have waived its lock-up with respect to issuances of
equity securities by the Company (as more fully described in the Company's
Prospectus dated August 9, 1995 under the caption "Underwriting") insofar as
such lock-up relates to the Private Placement.
(h) George Sanders shall have entered into an agreement with the
Company pursuant to which he shall agree (i) not to exercise his right to cause
the Company to use the proceeds of the Placement to redeem the shares of
Redeemable Preferred Stock owned by him and (ii) consented to the issuance of
the Preferred Shares on a PARI PASSU basis with the Redeemable Preferred Stock.
(i) Herbert Turk shall have (A) entered into an agreement with the
Company pursuant to which he shall have agreed, provided that at least 400 Units
are sold, not to require the Company to apply more than $1.0 million of the
proceeds of the Placement to the redemption of the notes payable to him issued
by the Company between February 18, 1994 and December 1, 1994, (B) entered into
an agreement with the Company pursuant to which he shall have agreed to
relinquish any and all security interests which secure such notes and (C)
delivered to the Company an executed financing statement release on Form UCC-3
to effectuate the foregoing clause (B).
(j) The Company and the Warrant Agent shall have entered into an
amendment to the Warrant Agreement pursuant to which (i) the Warrant Agreement
will be amended to permit the issuance thereunder of the Warrants and (ii) the
Warrant Agent shall consent to the issuance of the Warrants and shall agree
that, as a result of the issuance of the Warrants and the Preferred Shares, the
Public Warrants shall only be subject to one adjustment in the exercise price
thereof based on the Minimum Conversion Price (as defined in the Certificate of
Designations) as a result of the issuance of the Preferred Shares and the
Warrants.
(k) Each director and executive officer of the Company and each of
Messrs. Turk and Sanders shall have executed and delivered to the Placement
Agent, in the form set forth as Appendix II hereto, an agreement to the effect
that he or she will not, prior to February 9, 1996, without the prior written
consent of the Placement Agent, offer to sell, sell, contract to sell, grant any
option to purchase or otherwise dispose (or announce any offer, sale, grant of
any option to purchase or other disposition) of any shares of capital stock of
the Company or securities convertible into, or exchangeable or exercisable for,
shares of capital stock of the Company.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to the Placement Agent and counsel for the Placement
Agent. Any certificates signed by an officer of the Company and delivered to
the Placement Agent or to counsel for the Placement Agent shall be deemed a
representation and warranty by the Company to the Placement Agent as to the
statements made therein. If any condition to the Placement Agent's obligations
hereunder to be fulfilled prior to or at the Closing is not so fulfilled, the
Placement Agent may terminate this Agreement or, if the Placement Agent so
elects, may waive any such conditions which have not been fulfilled or may
extend the time of their fulfillment.
7. INDEMNIFICATION.
(a) The Company will indemnify and hold harmless the Placement Agent
and each of its partners, directors, officers, associates, affiliates,
subsidiaries, employees, consultants, attorneys and agents, and each person, if
any, controlling either the Placement Agent or any of its affiliates within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all losses, claims, damages, liabilities, costs or expenses (and
any legal or other expenses incurred by the Placement Agent in investigating or
defending the same or in giving testimony or furnishing documents in response to
a request of any government agency or to a subpoena) in any way relating to or
in any way arising out of (i) the activities of the Placement Agent contemplated
by this Agreement, or in connection with the placement of securities as
contemplated hereunder, (ii) the inaccuracy of any representation or warranty,
or the breach of any covenant, contained herein, or (iii) any claim by Rickel
against the Placement Agent, and will
55
<PAGE>
reimburse, as incurred, the Placement Agent and each such controlling or other
person for any legal or other expenses reasonably incurred by the Placement
Agent or such controlling or other person in connection with investigating,
defending or appearing as a third-party witness in connection with any such
loss, claim, damage, liability or action. Such indemnity shall not, however,
cover any such loss, claim, damage, liability, cost or expense to the extent
that it arises out of or is based upon (i) any failure by the Placement Agent's
affiliate, Strasbourger Pearson Tulcin & Wolff Inc., to be registered and in
good standing as a broker-dealer in any jurisdiction in which Units are sold or
to be properly licensed to sell securities in any such jurisdiction, (ii) any
breach by the Placement Agent of its obligations in Section 3 hereof or (iii)
any written misrepresentation made to a subscriber by the Placement Agent or
its agents not also included in the Offering Circular and made by means other
than the mere delivery of the Offering Circular to a subscriber (collectively,
"Non-Indemnity Events").
(b) The Placement Agent will indemnify and hold harmless the Company
and each person, if any, controlling the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same
extent set forth in subsection (a) above, but only to the extent that any loss,
claim, damage, liability, cost or expense arises out of or is based upon a Non-
Indemnity Event.
(c) If any action, proceeding or investigation is commenced by a
third party as to which the indemnified party hereunder proposes to demand
indemnification under this letter Agreement, it will notify the indemnifying
party with reasonable promptness. The indemnified party shall have the right to
retain counsel of its own choice (which choice shall be reasonably satisfactory
to the indemnifying party) to represent it and such counsel shall, to the extent
consistent with its professional responsibilities, cooperate with the
indemnifying party and any counsel designated by the indemnifying party. The
Indemnifying Party will not be liable under this letter agreement for any
settlement of any claim against the indemnifying party made without the
indemnifying party's written consent, which shall not be unreasonably withheld.
Notwithstanding anything to the contrary contained in the foregoing paragraph
(b) or the following paragraph (d), the Placement Agent shall not be obligated
to pay any amount in respect of its obligation to indemnify or contribute
greater than the Placement Fee.
(d) In order to provide for just and equitable contribution, if a
claim for indemnification pursuant to this Section 7 is made but it is found in
a final judgment by a court of competent jurisdiction (not subject to further
appeal) that such indemnification may not be enforced in such case, even though
the express provisions hereof provided for indemnification in such case, then
the Company, on the one hand, and the Placement Agent, on the other hand, shall
contribute to the losses, claims, damages, liabilities or costs to which the
indemnified persons may be subject in accordance with the relative benefits
received from the Placement of the Units and the securities underlying the Units
by the Company, on the one hand, and the Placement Agent, on the other hand, and
also the relative fault of the Company, on the one hand, and the Placement
Agent, on the other hand, in connection with the statements, acts or omissions
which resulted in such losses, claims, damages, liabilities or costs, and the
relevant equitable considerations shall also be considered. No person found
liable for a fraudulent misrepresentation shall be entitled to contribution from
any person who is not also found liable for such fraudulent misrepresentation.
8. NON-CIRCUMVENTION; RIGHT OF FIRST REFUSAL. The Company hereby agrees
that, whether or not this Agreement is terminated and/or whether or not the
Placement is consummated, until the first anniversary of the expiration of the
Engagement Period, the Company will not enter into any agreement, transaction,
or arrangement with any prospective investor who has either tendered an executed
Purchase Agreement to the Placement Agent or who has otherwise communicated with
the Company regarding the Placement (regardless of whether a transaction is
consummated with such investor) as a result of an introduction by the Placement
Agent, unless such agreement, transaction or arrangement is entered into with
the written consent of the Placement Agent. If the Company consummates the
Placement of at least 400 Units, the Company agrees not to sell any equity
securities of the Company or securities convertible into or exchangeable or
exercisable for any equity securities of the Company pursuant to a Regulation S
or Regulation D transaction for 90 days after the Closing Date. Notwithstanding
the foregoing sentence, if the Company wishes to make any such sales within that
90-day period, it will offer the Placement Agent the right to find buyers for
the Preferred Shares and/or Warrants upon terms that are reasonably acceptable
to the Company and the Placement Agent. The Placement Agent will then have five
business days from the date of the offer to accept or reject it. If accepted,
the Placement Agent will have an additional ten business days from acceptance to
obtain firm commitments from buyers to purchase the securities offered on the
terms proposed by the Company and five additional business days thereafter to
close such sales, or the Company will then be free to engage others to assist it
in offering such securities.
9. SURVIVAL. The respective indemnities of the Company and the Placement
Agent and the representations, warranties and agreements of the Company set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of the Placement Agent, the Company or any
person referred to in Section 7 hereof, and shall survive any termination of
this Agreement and/or issuance of the Preferred Shares and the Warrants, and any
successor or assign of the Placement Agent and/or its designee(s), the Company,
or any such person or any legal representative of such person shall be entitled
to the benefit of the respective indemnities, agreements, warranties and
representations.
10. TERMINATION. The Placement Agent shall have the right to terminate
this Agreement at any time prior to the Closing, by written notice to the
Company, if any condition set forth in Section 6 hereof shall not have been
satisfied on or prior to the Closing Date or if: (i) any domestic or
international event or act or occurrence has, in the Placement Agent's sole
opinion, materially disrupted, or will, in the Placement Agent's sole opinion,
in the immediate future materially disrupt, securities markets; (ii) the United
States shall have become involved in a war or major hostilities; (iii) a banking
moratorium has been declared by any governmental authority; (iv) a moratorium in
foreign exchange trading by major international banks or persons has been
declared; (v) the Company or any subsidiary of the Company shall have sustained
a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage
or other calamity or malicious act which, in the Placement Agent's sole opinion,
will make it inadvisable to proceed with the Placement of the Preferred Shares
and the Warrants; or (vi) there shall have been such material adverse change in
the condition or prospects of the Company and its Subsidiaries, taken as a
whole, or the market for its securities as in the Placement Agent's sole opinion
would make it inadvisable to proceed with the Placement of the Preferred Shares
and the Warrants.
Anything herein to the contrary notwithstanding, the liability of the
Company to the Placement Agent will be as set forth in Sections 4, 7 and 9
hereof, and upon demand the Company will pay the Placement Agent the full amount
so owing.
11. OFFERING MATERIALS. The Company hereby acknowledges that it has
received drafts of all of the Offering Materials, and each party hereto agrees
to use all reasonable efforts to agree on the final forms thereof as promptly as
practicable after the date hereof.
12. GENERAL PROVISIONS.
(a) PARTIES. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Placement Agent, the Company, the controlling and
other persons referred to in Section 7 hereof, and their respective successors,
56
<PAGE>
legal representatives, heirs, designees and assigns, and no other person shall
have or be construed to have any legal or equitable right, remedy or claim under
or in respect of or by virtue of this Agreement or any provision herein
contained.
(b) AMENDMENT. No amendment or modification hereto, or waiver of the
terms hereof, shall be valid unless in a writing executed by each of the parties
hereto or by the party or parties to be bound.
(c) NOTICES. All notices, requests and other communications under
this Agreement shall be in writing and shall be deemed to have been delivered 48
hours after having been mailed in a general or branch post office and enclosed
in a registered or certified postpaid envelope; 24 hours after having been sent
by overnight courier; when delivered to a telegraph company or when scanned
graphically or otherwise by telegraphic communications equipment of the sending
party and accompanied by a substantially contemporaneous telephone call; and, in
each case, addressed to the respective parties at the addresses stated below or
to such other changed addresses as the parties may have fixed by notice;
PROVIDED, HOWEVER, that any notice of change of address shall be effective only
upon receipt.
To the Placement
Agent: Strasbourger Pearson Tulcin Wolff Incorporated
c/o Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
Attention: James R. Tanenbaum, Esq.
Telephone: (212) 806-5400
Facsimile: (212) 806-6006
To the Company: Pudgie's Chicken, Inc.
333 Earle Ovington Blvd.
Suite 604
Uniondale, New York 11553
Attention: Steven M. Wasserman
Telephone: (516) 222-8833
Facsimile: (516) 222-8834
with a copy to: Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attention: David Alan Miller, Esq.
Telephone: (212) 818-8800
Facsimile: (212) 687-6989
(d) SEVERABILITY. If any provision herein, or the application
thereof to any circumstance, is found to be unenforceable, invalid or illegal,
such provision shall be deemed deleted from this Agreement or not applicable to
such circumstance, as the case may be, and the remainder of this Agreement shall
not be affected or impaired thereby.
(e) ATTORNEYS' FEES. If any action, including, without limitation,
arbitration, should arise among the parties hereto to enforce or interpret the
provisions of this Agreement, the prevailing party in such action shall be
reimbursed for all reasonable expenses incurred in connection with such action,
including reasonable attorneys' fees.
(f) INTEGRATION. This Agreement expresses the entire agreement and
understanding of the parties hereto with respect to the matters set forth herein
and supersedes all prior agreements, arrangements and understandings among the
parties hereto with respect to the matters set forth herein.
(g) GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York without regard to the
principles of conflicts of laws.
(h) CAPTIONS. The section headings contained herein are inserted
only for convenience and shall not affect the construction or meaning of any of
the terms hereof.
(i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same agreement.
(j) WAIVERS. No waiver of any term, provision or condition of this
Agreement, in any one or more instances, shall be deemed to be or construed as a
further waiver of any such term, provision or condition or as a waiver of any
other term, provision or condition.
(k) PRONOUNS AND NUMBER. When the context so requires, the masculine
shall include the feminine and neuter, the singular shall include the plural and
conversely.
(l) CERTAIN TERMS. As used herein, the term "person" means any
individual or natural person, or any corporation, trust, business trust,
governmental agency or body or any other legal entity, whether acting for
himself, herself or itself or in a fiduciary or other capacity; the terms
"hereof," "herein," "hereby" and "hereunder" refer to this Agreement in its
entirety (and not solely to the particular provisions in which they may appear)
and to the documents incorporated herein by reference.
(m) FURTHER ASSURANCES. The parties hereto agree to execute any and
all such further agreements, instruments or documents, and to take any and all
such further action, as may be necessary or desirable to carry into effect the
purpose and intent of this Agreement.
57
<PAGE>
If the foregoing correctly sets forth the understandings among the
Placement Agent and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among us.
Very truly yours,
PUDGIE'S CHICKEN, INC.
By:
------------------------------------
Name: Steven Wasserman
Title: President
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST WRITTEN ABOVE:
STRASBOURGER PEARSON TULCIN WOLFF INCORPORATED
By:
--------------------------------
Name: Phillip L. Neiman
Title:
------------------
58
<PAGE>
APPENDIX I
SUBSIDIARIES
1. Pudgie's Famous Chicken, Ltd.
2. Pudgie's of L.R., Inc.
3. Pudgie's of Bell., Inc.
4. Pudgie's of E.M., Inc.
5. Pudgie's of Islandia
6. Pudgie's of Mass., Inc.
7. German Del Inc.
8. Edison Lease Corp.
9. Pudgie's G.C., Inc.
10. AGD Inc.
11. Pudgie's of Hunt., Inc.
12. Pudgie's of Patch., Inc.
13. Pudgie's of Epatch., Inc.
14. Pudgie's of L.N., Inc.
15. Pudgie's of F.H., Inc.
16. Pudgie's of D.P., Inc.
17. Pudgie's of Secnyc., Inc.
18. Pudgie's Properties Inc.
19. PFC of Port Washington
20. Pudgie's Dev. of NY, Inc.
21. Pudgie's of Maspeth
22. H&H Industries
23. U.A.A. Pudgie's of Allentown Inc.
24. Pudgie's of Woodbridge
25. Sander's Industries
26. Pudgie's of Bay Ridge, Inc.
27. Pudgie's of Flatbush, Inc.
28. Pudgie's of Northport, Inc.
29. Pudgie's of Long Beach, Inc.
30. Pudgie's Asset Corp.
31. Pudgie's Equipment Corp.
59
<PAGE>
APPENDIX II
March [ ], 1996
---
ROCHON CAPITAL GROUP
1000 Fourth Street, Suite 775
San Rafael, California 94901
Ladies and Gentlemen:
In order to induce you to act as placement agent for a private placement
(the "Placement") of (i) shares of Series A Convertible Preferred Stock (the
"Preferred Shares") of Pudgie's Chicken, Inc., a Delaware corporation (the
"Company"), and (ii) redeemable warrants to purchase shares of Common Stock of
the Company (the "Warrants"), the undersigned hereby agrees that the undersigned
will not, directly or indirectly, prior to February 9, 1997, without your prior
written consent, offer to sell, sell, contract to sell, grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of any option
to purchase or other disposition) of any shares of capital stock of the Company
or any securities convertible into, or exercisable or exchangeable for, shares
of capital stock of the Company.
This letter shall have no further force or effect if the Placement Agent
Agreement dated March __, 1996 by and between the Company and you shall be
terminated prior to the closing date provided for therein.
Very truly yours,
By:
-------------------------
[Signature]
-----------------------------------
[Name--Please Print]
60
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 87,740
<SECURITIES> 0
<RECEIVABLES> 454,390
<ALLOWANCES> 0
<INVENTORY> 116,490
<CURRENT-ASSETS> 658,620
<PP&E> 11,263,720
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,409,860
<CURRENT-LIABILITIES> 1,679,133
<BONDS> 0
1,069,000
500
<COMMON> 44,890
<OTHER-SE> 6,009,500
<TOTAL-LIABILITY-AND-EQUITY> 12,409,860
<SALES> 2,442,561
<TOTAL-REVENUES> 2,706,409
<CGS> 2,429,772
<TOTAL-COSTS> 3,926,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,036
<INCOME-PRETAX> (1,220,365)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,220,365)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,220,365)
<EPS-PRIMARY> ($.28)
<EPS-DILUTED> ($.28)
</TABLE>
