Filed with the Securities and Exchange Commission on June 26, 1996
Registration No. 33-95796
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Amendment No. 6 to
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
CLUCKCORP INTERNATIONAL, INC.
(Exact Name of Small Business Issuer As Specified In Its Charter)
Texas 5812 76-0406417
(State or other (Primary Standard Industrial (I.R.S Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
1250 N.E. Loop 410, Suite 335
San Antonio, Texas 78209
(210) 824-2496
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
D.W. Gibbs, Chief Executive Officer
CluckCorp International, Inc.
1250 N.E. Loop 410, Suite 335
San Antonio, Texas 78209
(210) 824-2496
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications to:
Gary A Agron, Esq
Law Office of Gary A Agron
5445 DTC Parkway, Suite 520
Englewood, Colorado 80111
(303) 770-7254
(303) 770-7257 (fax)
Michael R. Koblenz, Esq.
Mound, Cotton & Wollan
One Battery Park Plaza
New York, New York 10004
(212) 804-4200
(212) 344-8066 (fax)
Approximate date of commencement of offering:
As soon as practicable after the effective date of the offering.
If any of the securities registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ X ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
Title of Proposed
Each Class Maximum Amount of
of Securities Amount To Be Price Per Registration
to be Registered Registered (1) Security Offering Price Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value (1) 1,150,000 Shares $5.50 $6,325,000 $2,181
Common Stock Purchase Warrants (1) 2,300,000 Warrants $ .125 $ 287,500 $ 99
Common Stock, $.01 par value, underlying Common
Stock Purchase Warrants(2) 2,300,000 Shares $ 4.00 $9,200,000 $3,172
Common Stock $.01 par value underlying
Representative's Warrants 115,000 Shares $ 6.60 $ 759,000 $ 262
Common Stock Purchase Warrants underlying
Representative's Warrants 200,000 Warrants $ .15 $ 30,000 $ 10
Common Stock, $.01 par value underlying Common Stock
Purchase Warrants issued to the Representative 200,000 Shares $ 4.00 $ 800,000 $ 276
Common Stock, $.01 par value held by Selling Stockholders 118,750 Shares $ 5.50 $ 653,125 $ 225
- ---------------------------------------------------------------------------------------------------------------------------------
TOTALS $6,225
=================================================================================================================================
<FN>
(1) Includes the overallotment option granted to the Representative of 150,000 shares of Common Stock and 300,000 Warrants.
(2) Pursuant to Rule 416 of the Securities Act of 1933, as amended, the number of shares issuable upon exercise of warrants is
subject to adjustment in accordance with anti-dilution provisions of such warrants.
</FN>
The Registrant hereby amends the Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section
</TABLE>
<PAGE>
CLUCKCORP INTERNATIONAL, INC.
Cross Reference Sheet
Item Caption Location or Caption in Prospectus
- ---- ------- ---------------------------------
1. Forepart of Registration Outside Front Cover Page
Statement and Outside
Front Cover Page of
Prospectus
2. Inside Front and Outside Inside Front and Outside
Back Cover Pages of Back Cover Pages
Prospectus
3. Summary Information and Prospectus Summary; Risk Factors
Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Risk Factors; Underwriting
Price
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Underwriting
9. Legal Proceedings Not Applicable
10. Directors, Executive Management;
Officers, Promoters Principal Stockholders
and Control Persons
11. Security Ownership of Principal Stockholders
Certain Beneficial
Owners and Management
12. Description of Securities Description of Securities
13. Interests of Named Not Applicable
Experts and Counsel
14. Disclosure of Commission Item 24; Undertakings
Position on Indemnification
for Securities
15. Organization Within Business--Introduction,
Last Five Years Certain Transactions
16. Description of Business; Risk Factors; Business
ii
<PAGE>
17. Management's Discussion Management's Discussion
and Analysis or Plan and Analysis of
of Operation Financial Condition and
Results of Operations
18. Description of Property Business--Properties
19. Certain Relationships Certain Transactions
and Related Transactions
20. Market for Common Equity Not Applicable
and Related Shareholder
Matters
21. Executive Compensation Management--Executive Compensation
22. Financial Statements Financial Statements
23 Changes In and Disagreements Not Applicable
with Accountants
on Accounting and
Financial Disclosure
iii
<PAGE>
Preliminary Prospectus dated June 26, 1996. Subject to Completion.
CLUCKCORP INTERNATIONAL, INC.
1,000,000 Shares of Common Stock,
2,000,000 Redeemable Common Stock Purchase Warrants and
118,750 Shares of Common Stock Offered by Selling Stockholders
CluckCorp International, Inc. (the "Company") is offering 1,000,000 shares
of $.01 par value Common Stock (the "Common Stock") and 2,000,000 Redeemable
Common Stock Purchase Warrants (the "Warrants"). Each Warrant entitles the
holder to purchase one share of Common Stock at $4.00 per share for a period of
five years from the date hereof, subject to adjustment in certain events. The
Common Stock and Warrants will be separately tradeable as of the date of this
Prospectus and the Warrants may be exercised after one year from the date
hereof. Investors may purchase either Common Stock, or Warrants or both
securities. This Prospectus also covers the sale of up to 118,750 shares which
may be sold from time to time in open market transactions at prevailing prices
by certain stockholders ("Selling Stockholders"), none of whom are officers,
directors or 10% or greater stockholders of the Company. See "Selling
Stockholders."
The Warrants may be redeemed by the Company for $.01 per Warrant upon 30
days' notice at any time after one year from the date hereof if the closing
price of the Company's Common Stock on the Nasdaq SmallCap Stock Market
("NASDAQ") averages at least $8.00 per share for a period of 20 consecutive
trading days. See "Description of Securities--Redeemable Common Stock Purchase
Warrants."
Prior to the offering, there has been no public market for the Common Stock
or Warrants and there can be no assurance that a public market will develop upon
completion of the offering. The offering price of the Common Stock and Warrants
and the exercise price of the Warrants were determined by negotiations between
the Company and Global Equities Group, Inc. as the lead managing underwriter and
the representative ("Representative") of the underwriters ("Underwriters")
herein named. See "Underwriting." The Company has applied to have the Common
Stock and Warrants listed on NASDAQ.
The offering involves a high degree of risk. See "Risk Factors."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1)(3) Company (2)(3)
- --------------------------------------------------------------------------------
Per Share $5.50 $.55 $4.95
Per Warrant $.125 $.0125 $.1125
- --------------------------------------------------------------------------------
Total $5,750,000 $575,000 $5,175,000
================================================================================
Footnotes are on the following page.
The Common Stock and Warrants are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders, in whole or in part. It is expected
that delivery of the securities will be made against payment therefor in New
York, New York on or about _ 1996.
GLOBAL EQUITIES GROUP, INC. PCM SECURITIES LIMITED, L.P.
The date of this Prospectus is , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[ Graphic of Cooked Chicken on Rotisserie omitted
on top half of page 2 ]
(1) Excludes (i) a nonaccountable expense allowance payable by the Company
to the Representative of 3% of the aggregate offering price of the
Common Stock and Warrants, and (ii) the issuance of warrants to the
Representative (the "Representative's Warrants") to purchase 100,000
shares of Common Stock and 200,000 Warrants. The Company has also agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting other offering expenses payable by the Company
estimated at $250,000 excluding the Representative's nonaccountable
expense allowance of $172,500. None of the offering expenses will be
paid by the Selling Stockholders.
(3) Assumes no exercise of the Representative's option, exercisable within
45 days from the date of this Prospectus, to purchase up to 150,000
shares of Common Stock and/or 300,000 Warrants on the same terms, solely
to cover overallotments (the "Overallotment Option"). If the
Overallotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$6,612,500, $661,250 and $5,951,250, respectively. See "Underwriting."
<PAGE>
AVAILABLE INFORMATION
Upon completion of the offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected at the public reference
facilities of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and copies of such material can be obtained at prescribed
rates from the Commission at this address. Such reports, proxy statements and
other information can also be inspected at the Commission's regional offices at
7 World Trade Center, Suite 1300, New York, New York 10048 and at Northwestern
Atrium Center, 500 West Madison, Chicago, Illinois 60621. The Company intends to
provide its security holders with annual reports containing audited financial
statements. Quarterly reports will be available to security holders upon
request.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ AND, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information contained herein
assumes no exercise of the Overallotment Option, the Warrants and the
Representative's Warrants but gives effect to a two shares for five shares
reverse stock split of the Company's Common Stock effective July 17, 1995.
The Company
Introduction
The Company intends to own, operate and franchise quick service restaurants
featuring marinated wood-roasted rotisserie chicken, oak roasted turkey breast,
roast ham, meatloaf and other fresh homestyle food items under the name "Harvest
Rotisserie." Harvest Rotisserie restaurants (sometimes referred to as the
"Restaurant(s)") emphasize rotisserie roasted chicken, turkey and fresh
homestyle side dishes consistent with what the Company believes to be (i) an
increased consumer demand for take-home prepared foods, (ii) an emphasis on
lower fat foods such as chicken and turkey, and (iii) the popularity of
homestyle cooking. The Company maintains strict quality standards in purchasing,
storing, preparing and serving its entrees, side dishes, desserts and other
products.
Harvest Rotisserie side dishes will include four fresh, cold side dishes
(coleslaw, pasta salad, garden salad and potato salad) and eleven hot side
dishes (baked beans, stuffing, sweet corn on the cob, parsley potatoes, white
rice, steamed fresh vegetables, mashed potatoes and gravy, black beans and rice,
creamed spinach, cheese rice and baked cinnamon apples).
To date, the Company has opened one restaurant in San Antonio, Texas
operated under the name "Cluckers" which it utilizes as both a training facility
and a public restaurant and which it intends to convert to a Harvest Rotisserie
restaurant. The Company has also executed leases for six additional Restaurants
in San Antonio and Houston, Texas, the development of which are dependent upon
completion of the offering. The Company has executed an area development
agreement with an affiliate to develop up to ten Restaurants in Singapore and
has also executed a nonbinding letter of intent to sell area development rights
to a third party pursuant to which the third party would have the right but not
the obligation to develop at its expense up to 50 Restaurants in the Baltimore,
Maryland area. The Company has not yet opened any Harvest Rotisserie
restaurants.
History
The Company was incorporated in Texas in June 1993 under the name Clucker's
Tex-Mex Venture, Inc. and changed its name to CluckCorp International, Inc. in
April 1995. Prior to November 1994, the Company was an area developer for
Cluckers Wood Roasted Chicken, Inc. ("CWRC"), the developer and franchisor of
the "Cluckers" restaurant concept. The Company acquired from WaterMarc Food
Management, Inc. ("WaterMarc"), formerly Billy Blues Food Corporation and an
affiliate of the Company, the Cluckers franchise development rights for Texas,
Mexico and certain Central American countries. After CWRC had opened ten
company-owned restaurants between 1991 and 1994 in Florida, Georgia and New York
and had sold franchises for an additional 165 restaurants, controlling interest
in CWRC was purchased by Kenny Rogers Roasters, Inc. ("Roasters") in November
1994. The Company then exchanged its Cluckers area development agreement with
CWRC for systems, franchising materials, signage and the exclusive right to use
the Cluckers name, trademark and service mark solely in Texas. The Company did
not acquire international rights to the Cluckers name because neither CWRC nor
anyone else had obtained any international rights, other than the Mexican and
Central American rights described above. However, the Company subsequently
registered the Cluckers name in Mexico and applied for trademarks to use the
Cluckers name and logos in the United Kingdom, Canada, Singapore and Malaysia.
The Company is licensed to use the Cluckers name only in Texas and
internationally, and is obligated to pay a license fee of 2% of gross sales
applicable only to its Cluckers restaurants in Texas for the first 10 years and
1% of gross sales thereafter. No such license fees are required for Restaurants
outside the United States. In February 1995 and July 1995, the Company formed
Cluckers Restaurants, Inc. and Harvest Restaurants, Inc., wholly-owned Texas
corporate subsidiaries, to act as franchisors for the Company's Cluckers and
Harvest Rotisserie restaurants.
3
<PAGE>
In February 1996, the Company decided to concentrate on the development,
operation and franchising of Harvest Rotisserie restaurants, which the Company
believes is a substantial improvement over the original Cluckers concept because
the Harvest Rotisserie concept offers an expanded menu which includes a number
of additional homestyle entrees offering lower fat foods. As a result of its
decision to concentrate on development of Harvest Rotisserie restaurants, the
Company (i) plans to convert its one operating Cluckers restaurant in San
Antonio to a Harvest Rotisserie restaurant, (ii) notified the landlords of its
six leased locations that it intended to develop Harvest Rotisserie rather than
Cluckers restaurants on the sites and (iii) changed its area development
agreement and area development letters of intent from Cluckers restaurants to
Harvest Rotisserie restaurants. The Company's principal executive offices are
located at 1250 N.E. Loop 410, Suite 335, San Antonio, Texas 78209 and its
telephone number is (210) 824-2496.
The Offering
Securities Offered (1) ............. 1,000,000 shares of Common Stock and
2,000,000 Warrants. The Common Stock and
Warrants are separately traceable as of
the date of this Prospectus.
Description of Warrants ............. The Warrants may be exercised for a
period of five years from the date
hereof (commencing one year from the
date hereof) at $4.00 per share of
Common Stock and are subject to
redemption at $.01 per Warrant after one
year from the date hereof or earlier
under certain circumstances. See
"Description of Securities -- Redeemable
Common Stock Purchase Warrants."
Common Stock Outstanding (2) ........ 1,108,750 shares at March 31, 1996.
Common Stock Outstanding
after the Offering (2) ............ 2,108,750 shares.
Estimated Net Proceeds (1) .......... Approximately $4,752,500 after deducting
commissions and expenses of
approximately $997,500 including the
Representative's nonaccountable expense
allowance.
Use of Proceeds ..................... Repayment of bridge loans, development
of Company-owned Restaurants,
investments in Restaurant joint
ventures, marketing of franchise program
and working capital. See "Use of
Proceeds."
Proposed NASDAQ Symbols ............. Common Stock ROTI
Warrants ROTIW
Risk Factors ........................ Investment in the securities involves a
high degree of risk, including but not
limited to such speculative factors as a
qualified accounting opinion and
deficits in working capital and
stockholders' equity; the Company's
limited operating history and prior
operating losses; intense competition in
the restaurant industry; risks
associated with the food service
industry and the Company's proposed
expansion; the Company's need for
additional capital; the importance of
attracting competent franchisees; the
adverse effect of government regulation;
the fact that the Company has only one
Restaurant in operation and certain
other risk factors more fully discussed
herein. See "Risk Factors."
(1) If the Overallotment Option is exercised in full, 150,000 additional
shares of Common Stock and 300,000 additional Warrants will be sold,
with net proceeds to the Company of $750,375 after deducting
commissions and expenses.
(2) Does not include an aggregate of 2,879,280 shares of Common Stock
issuable upon exercise of outstanding warrants and options
(collectively, the "Existing Options") comprised of (i) 2,300,000
shares issuable upon exercise of the Warrants and Representative's
Warrants offered hereunder, (ii) 329,280 shares issuable upon exercise
of other outstanding warrants and (iii) 250,000 shares issuable under
the Company's 1994 Stock Option Plan. See "Capitalization" and
"Description of Securities."
4
<PAGE>
<TABLE>
<CAPTION>
Summary Financial Data
The following summary financial data has been derived from the financial statements of the Company and should be read in
conjunction with such financial statements.
Three Months Ended June 18, 1993
March 31, Years Ended December 31, (Inception) to
-------------------- ------------------------ December 31,
1996 1995 1995 1994 1993 (1)
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 50,602 $ 118,665 $ 276,678 $ 243,988 $ -
Cost and Expenses:
Cost of food and paper 19,019 24,762 82,171 105,650
Restaurant salaries and benefits 19,811 31,924 127,400 146,677
Occupancy and related expenses 13,258 16,129 63,605 67,611
Operating expenses 14,645 21,738 86,641 106,647
General and administrative 107,853 65,456 567,605 197,641 49,883
Preopening expenses 9,192 11,850 59,363 25,783 42,514
Depreciation and amortization 23,590 14,769 73,879 58,940 20,271
--------- -------- ---------- --------- ---------
Total operating expenses 207,368 186,628 1,060,664 708,949 112,668
--------- -------- ---------- --------- ---------
Loss from operations (156,766) (67,963) (783,986) (464,961) (112,668)
Interest and debt discount expense 107,621 3,799 140,497 29,063 34,367
--------- -------- ---------- --------- ---------
Net loss $(264,387) $(71,762) $ (924,483) $(494,024) $(147,035)
========= ======== ========== ========= =========
Net loss per common share $ (0.21) $ (0.06) $ (0.75) $ (0.49) $ (0.21)
Pro forma net loss per common share (4) $ (0.31) $ (0.66)
Weighted average number of
common shares outstanding (2) 1,275,016 1,213,244 1,224,531 1,005,107 703,244
March 31, 1996
--------------
Historical As Adjusted (3)
---------- ---------------
Balance Sheet Data:
Working capital (deficit) $ (996,523) $3,424,135
Total assets 1,280,091 4,303,288
Total liabilities 1,700,411 302,950
Long-term debt - -
Stockholders equity (deficit) (826,022) 3,594,636
(1) From inception to December 31,1993, the Company's operations were limited to development of the Company's San Antonio
Cluckers restaurant and financing activities. The San Antonio Cluckers restaurant opened in January 1994, and therefore no
revenues were reported during the period ended December 31,1993.
(2) Weighted average number of common shares outstanding includes common equivalent shares issuable upon the exercise of
outstanding stock options and common stock purchase warrants with exercise prices less than the offering price of $5.50 per
share.
(3) Adjusted to reflect the sale of 1,000,000 shares of Common Stock and 2,000,000 Warrants offered hereby after deducting the
estimated expenses of the offering and the anticipated application of the net proceeds, including the repayment of
$1,684,500 of Bridge Notes. Also gives effect to the recognition of the unamortized portion of the costs of $331,842
associated with Bridge Notes which were issued through March 31,1996. See "Use of Proceeds."
(4) Pro forma net loss per common share is presented for the latest fiscal year and subsequent interim period assuming the
retirement of all Bridge Notes as of the beginning of the respective periods using proceeds from the offering.
5
</TABLE>
<PAGE>
RISK FACTORS
The securities offered hereby involve a high degree of risk and prospective
investors should consider carefully the following risks and speculative factors.
Qualified Opinion; Deficits in Working Capital and Stockholders' Equity.
The Company's Financial Statements (contained elsewhere herein) were prepared
assuming that the Company will continue as a going concern. The Company's
independent accountants, in their report regarding the Company's financial
statements, indicated that the Company has incurred losses since inception and
as of December 31, 1995 had a deficit in working capital of $876,097 and also
had a deficit in stockholders' equity of $365,817. The report indicated that
these factors raise substantial doubt as to the Company's ability to continue as
a going concern. At March 31,1996 the Company also had deficits in working
capital and stockholders' equity of $996,523 and $420,320, respectively. See
"Selected Financial Data", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Note B" to the Notes to Financial
Statements.
Limited Operating History; Negligible Revenues; Losses. The Company has a
limited operating history (commencing in June 1993) upon which potential
investors may base an evaluation of its performance. For the three months ended
March 31, 1996, and year ended December 31, 1995, the Company reported revenues
of $50,602 and $276,678 and net losses of $264,387 and $924,483, respectively.
There can be no assurance that the Company's operations will become profitable
or that revenues will increase. The likelihood of the Company's success must be
considered in light of the problems, experiences, difficulties, complications
and delays frequently encountered in connection with the operation and
development of new businesses. See "Business" and "Financial Statements."
One Restaurant in Operation; Operating Losses; Uncertainty of Market
Acceptance. The Company has only one Restaurant in operation which it utilizes
as both a training facility and a public restaurant. The Restaurant has operated
at a loss since opening in January 1994. The Company has not conducted any
formal market studies regarding its Harvest Rotisserie concept in Texas or any
other markets and has engaged in limited marketing activities. Achieving
consumer awareness and market acceptance for its Restaurants, particularly as
the Company seeks to penetrate new markets, will require substantial efforts and
expenditures by the Company. There can be no assurance that the Restaurants will
achieve market acceptance. See "Business."
Possible Contingent Liability. In connection with the sale of $1,187,500 of
Bridge Notes and the issuance of 118,750 shares of Common Stock to the bridge
lenders (who are the Selling Stockholders herein) between August 1995 and March
1996, the Company may not have established an adequate basis to claim the
private placement exemption by virtue of the fact that sales of these securities
were made after the filing of the Registration Statement. If the Company is
unable to establish such a basis, these transactions could be considered
integrated with the offering, subjecting the Company to potential liability for
sales of unregistered securities. If such an assertion were made and upheld, the
Company would otherwise be required to rescind the issuance of the Bridge Notes
and the Common Stock, return the principal amount of the Bridge Notes together
with interest and possibly other damages. However, under the terms of the Bridge
Notes the Company is required to repay the Bridge Notes plus accrued interest on
the closing of the offering. Nevertheless, the Company could be liable for a
claim by the bridge lenders in connection with the issuance of the 118,750
shares of Common Stock to them at the rate of $3.83 per share (or an aggregate
of $454,812), which is the per share value attributed to the Common Stock by the
Company in its financial statements for the year ended December 31, 1995 and for
the three months ended March 31, 1996. No bridge lender has asserted any claim
for rescission or damages, nor is the Company aware of any bridge lender who
intends to do so. See "Selling Stockholders" and "Certain Transactions" and
"Financial Statements."
Reliance Upon Public Offering Proceeds. The Company requires the proceeds
of the offering to finance the development of Company owned and joint venture
Restaurants. In the event the offering is not completed the Company will not
have the funds necessary to develop such Restaurants or to otherwise expand its
Restaurant operations. See "Use of Proceeds."
6
<PAGE>
Intense Competition. The food service industry is intensely competitive
with respect to food quality, concept, location, service and price. There are
many well-established food service competitors with substantially greater
financial and other resources than the Company and with substantially longer
operating histories. The Company competes with take-out food service companies,
fast-food restaurants, casual full-service dine-in restaurants, delicatessens,
cafeteria-style buffets and prepared food stores, as well as with supermarkets
and convenience stores. The number of rotisserie roasted chicken establishments
and the number of national restaurant chains, fast-food and grocery stores
offering rotisserie roasted chicken and other homestyle food products has
increased in the past few years, providing direct competition for customers. In
addition, other national restaurant chains could introduce a multi-unit chain of
food service restaurants similar to Harvest Rotisserie. See
"Business--Competition."
Risks Associated with the Food Service Industry. Food service businesses
are often affected by changes in consumer tastes, national, regional and local
economic conditions, demographic trends, traffic patterns and the type, number,
and location of competing restaurants. Multi-unit food service chains may also
be affected by publicity resulting from poor food quality, illness, injury, or
other health concerns or operating issues stemming from individual restaurants.
Dependence on frequent deliveries of fresh produce also subjects food service
businesses such as the Company to the risk that shortages or interruptions in
supply caused by adverse weather or other conditions could adversely affect the
availability, quality and cost of food ingredients. In addition, factors such as
inflation, increased food, labor and employee benefits costs, regional weather
conditions and the limited availability of experienced management and hourly
employees may also adversely affect the food service industry in general and the
Company's results of operations and financial condition in particular. See
"Business."
Risks Associated With Proposed Expansion. The Company intends to pursue a
strategy of aggressive growth and will seek to increase significantly the number
of its Company-owned, joint ventured and franchised Restaurants. Such proposed
growth will be dependent on, among other things, market acceptance for the
Company's Harvest Rotisserie concept, the availability of suitable Restaurant
sites, timely development and construction of the Restaurants, the hiring of
skilled management and other personnel, its general ability to successfully
manage growth (including monitoring Restaurants, controlling costs and
maintaining effective quality controls), the availability of adequate financing
and its ability to attract and retain qualified franchisees. In the case of
franchised restaurants, the Company will also be substantially dependent on the
management skills of its franchisees. A portion of the net proceeds of the
offering will be used to market the Company's franchise program but there can be
no assurance that the Company will be successful in marketing such franchise
program. The Company operates only one restaurant, and ongoing losses reported
by this restaurant or the failure of future Restaurants developed by the Company
would have an adverse effect upon the Company's financial condition and results
of operations. See "Use of Proceeds" and "Business--Proposed Expansion."
Need for Additional Capital. The Company anticipates that it will have a
continuing need for additional capital to expand. There can be no assurance that
the Company will be able to raise such capital when needed on satisfactory
terms. If the Company is not successful in generating sufficient cash flow from
the offering or from its present and planned operations, or if the proceeds from
the offering are insufficient, the Company will need to secure additional
financing to provide working capital for its business operations. The Company
may issue debt and/or equity securities and may use other financing vehicles to
meet its capital needs, although the Company has agreed not to issue any of its
equity securities for a period of one year from the date hereof without the
Representative's consent. The Company has no commitments or arrangements for any
such financing, and no assurances can be given that any such financing will be
available on terms satisfactory to the Company, if at all. See "Use of Proceeds"
and "Underwriting."
Importance of Attracting Competent Area Developers and Franchisees. The
Company's future success will be dependent upon its ability to attract and
retain Restaurant area developers and franchisees and the manner in which
Restaurant franchisees operate, develop and promote their Restaurants. There can
be no assurance that franchisees will have the business abilities or access to
financial resources necessary to open the Restaurants required by their
franchise agreements or that they will operate their Restaurants in a manner
consistent with the Company's concept and standards. The Company competes for
qualified franchisees with multinational fast food chains, national and regional
restaurant chains and other regional and local restaurant franchisors. Many
restaurant franchisors have greater market recognition and greater financial,
marketing and human resources than the Company. See "Business--Competition."
7
<PAGE>
Adverse Effect of Government Regulation. The restaurant industry is subject
to numerous federal, state and local government regulations, including those
relating to the preparation and sale of food and those relating to building and
zoning requirements. The Company and its franchisees are also subject to laws
relating to employees, including minimum wage requirements, overtime, working
and safety conditions and citizenship requirements. In addition, the Company is
subject to regulation by the Federal Trade Commission and must comply with many
state laws which govern the offer, sale and termination of franchises. The
failure to obtain or retain food licenses or approvals to sell franchises or an
increase in the minimum wage rate, employee benefits costs (including costs
associated with mandated health insurance coverage), or other costs associated
with employees, could adversely affect the operations of the Company and its
franchisees. See "Business--Regulation."
General Liability and Commercial Insurance; Product Liability Insurance.
Although the Company carries general liability, product liability and commercial
insurance of up to $2,000,000, there can be no assurance that its coverage will
be adequate to protect it against general, commercial or product liability
claims. Any general, commercial or product liability claim which is not covered
by such policy, or is in excess of the limits of liability of such policy, could
have a material adverse effect on the financial condition of the Company. There
can be no assurance that the Company will be able to maintain its insurance on
reasonable terms. See "Business--Insurance."
Limited Menu. The Company's Harvest Rotisserie restaurants will have
limited menus with chicken and turkey products accounting for substantially all
sales. A decline in consumer demand for poultry products or increased chicken or
turkey prices would have an adverse effect on the Company's operations. In
addition, the Company could be affected by health-related concerns, such as fear
of bacterial infection, relating to poultry. If the Company seeks to expand its
menu selections, there can be no assurance that new menu selections will achieve
market acceptance. See "Business-- Introduction."
Discount Pricing. A number of quick service restaurant companies have
recently experienced lower growth rates and declines in average sales per
restaurant, in response to which certain of these companies have adopted
discount pricing strategies. Such strategies could have the effect of drawing
customers away from companies which do not engage in discount pricing and could
negatively impact the operating margins of other competitors which do attempt to
match these discount prices.
No Assurance of Trademark and Service Mark Protection; Limited Exclusivity.
The Company believes that its Harvest Rotisserie and Cluckers names, trademarks
and service marks ("Marks") have value and are important to the marketing of its
Restaurants and products. There can be no assurance, however, that the Company's
Marks do not or will not violate the proprietary rights of others, that the
Company's Marks would be upheld if challenged or that the Company would not
otherwise be prevented from using its Marks. The Company has applied to the
United States Patent Office to register its Harvest Rotisserie name, trademark
and service mark. The Company's exclusive right to the Cluckers Marks is limited
in the United States to the State of Texas.There can be no assurance that the
Company will obtain sufficient protection for its Harvest Rotisserie or Cluckers
Marks or, if such protection is granted, that it will have the financial
resources to enforce or defend its Marks. See "Business--Trademarks and Service
Marks."
Dependence Upon Qualified Personnel and Executive Officers. The Company's
operations depend in part upon its ability to retain and hire qualified
personnel and the continued services of its executive officers. The loss of
services of any of the Company's executive officers, whether as a result of
death, disability or otherwise, could have a material adverse effect upon the
Company's operations. The Company has employment agreements with certain of its
executive officers but does not carry key person insurance on any of their
lives. See "Management."
No Dividends on Common Stock. The Company has not paid any dividends on its
Common Stock since its inception and does not anticipate paying any dividends in
the foreseeable future. The Company plans to retain earnings, if any, to finance
the development and expansion of its business. See "Dividend Policy."
Immediate Substantial Dilution. The amount by which the public offering
price per share of Common Stock exceeds the pro forma net tangible book value
per share of Common Stock after the offering constitutes the dilution to
investors in the offering. The offering involves an immediate and substantial
dilution to investors of $3.74 per share which represents approximately 68% of
the initial public offering price of $5.50 per share. The foregoing calculations
do not take into consideration the exercise of the Overallotment Option. See
"Dilution."
8
<PAGE>
Potential Adverse Effect of "In the Money" Warrants. The Common Stock is
offered at $5.50 per share and the Warrant exercise price is $4.00 per share.
Accordingly, the Warrantholders may purchase shares of Common Stock at a price
substantially below the offering price of the Common Stock. Moreover, the
exercise price of the Warrants may have a depressive effect on the market price
of the Common Stock because up to 2,000,000 additional shares of Common Stock
(compared to a total of 2,108,750 shares of Common Stock to be outstanding after
the offering) may be purchased at $4.00 per share upon exercise of the Warrants.
Potential Adverse Effect of Shares Issuable Upon Exercise of Stock Options
and Shares Eligible for Future Sale. The Company has reserved for issuance an
aggregate of 2,879,280 shares of Common Stock upon exercise of the Existing
Options, of which 2,000,000 shares underlying the Warrants have been registered
hereby and 300,000 shares issuable upon exercise of the Representative's
Warrants carry demand and piggyback registration rights. Additionally, 118,750
shares issued to the Selling Stockholders are also being registered hereby and
may be sold from time to time in open market transactions at prevailing market
prices upon completion of the offering. Exercise of the Existing Options could
dilute the Company's net tangible book value and/or prove to be a hindrance to
future financing. The holders of Existing Options may exercise them at a time
when the Company might otherwise be able to obtain additional equity capital on
terms more favorable to the Company. Exercise of registration rights and
maintenance of a current prospectus in connection with the Warrants and
Representative's Warrants could involve substantial expense to the Company at a
time when it could not afford such expenditures and may adversely affect the
terms upon which the Company could obtain additional financing. A total of
990,000 shares of the Company's Common Stock outstanding at March 31,1996 have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), are "restricted securities" and may be sold from time to time
under Rule 144 of the Securities Act, subject to the lock up agreements
described below, with 640,000 shares currently available for sale, 240,000
shares available for sale in June 1996 and the remaining 110,000 shares
available for sale in August 1996. Notwithstanding the above, all of the
Company's stockholders have entered into lock up agreements with the
Representative not to publicly offer their Common Stock for sale for a period of
13 months from the date hereof, except with the written consent of the
Representative. A question as to the ownership of 240,000 shares currently
registered in the name of JEB Investment Company may affect the lock up
agreement covering such shares, to the extent that such shares may be sold under
Rule 144 beginning in June 1996 rather than 13 months from the date hereof. See
"Selling Stockholders", "Certain Transactions", "Description of Securities" and
"Shares Eligible for Future Sale."
Representative's Lack of Underwriting Experience. The Representative was
recently organized and has not acted as a representative of the Underwriters in
any prior public offering although it has participated as a dealer in offerings
underwritten by others. This lack of underwriting experience may (i) adversely
affect the development or continuation of a trading market for the Common Stock
and Warrants, and (ii) limit the effectiveness of the Representative's due
diligence responsibilities to review and verify the information in the
Prospectus and to negotiate the offering price of the Common Stock and the
exercise price of the Warrants, and (iii) negatively influence the market price
of the Common Stock and Warrants following the offering. The Representative had
no material relationship with the Company or the promoters prior to this
offering. See "Underwriting."
Potential Adverse Effect due to Underwriters' Influence on the Market Price
of the Securities. A significant amount of the Common Stock and Warrants offered
hereby may be sold to customers of the Representative and the Underwriters. Such
customers subsequently may engage in transactions for the sale or purchase of
Common Stock or Warrants through or with the Underwriters. Should the
Representative make a market in the Common Stock and Warrants, this
market-making activity may terminate at any time. Accordingly, the
Representative may exert a dominating influence on the market, if one develops,
for the Common Stock and Warrants, and the price and liquidity of the Common
Stock and Warrants may be significantly affected by the degree, if any, of the
Underwriters' participation in such market.
Maintenance Criteria for Nasdaq Securities. The National Association of
Securities Dealers, Inc. ("the NASD"), which administers NASDAQ, recently made
changes in the criteria for continued NASDAQ eligibility. In order to continue
to be included in NASDAQ, a company must maintain $2 million in total assets, a
$200,000 market value of its public float and $1 million in total capital and
surplus. In addition, continued inclusion requires two market-makers, at least
300 holders of the Common Stock and a minimum bid price of $1 per share;
provided, however, that if a company falls below such minimum bid price, it will
remain eligible for continued inclusion in NASDAQ if the market value of the
public float is at least $1 million and the Company has $2 million in capital
and surplus. The Company's failure to meet these maintenance criteria in the
future may result in the discontinuance of the inclusion of its securities in
NASDAQ. In such event, trading, if any, in the securities may then continue to
be conducted in the non-NASDAQ over-the-counter market in what are commonly
referred to as the electronic bulletin board and the "pink sheets." As a result,
9
<PAGE>
an investor may find it more difficult to dispose of or to obtain accurate
quotations as to the market value of the securities. In addition, the Company
would be subject to a rule promulgated by the Securities and Exchange Commission
(the "Commission") that, if the Company fails to meet criteria set forth in such
rule, imposes various sales practice requirements on broker-dealers who sell
securities governed by the rule to persons other than established customers and
accredited investors. For these types of transactions, the broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transactions prior to sale. Consequently, the
rule may have an adverse effect on the ability of broker-dealers to sell the
securities, which may affect the ability of purchasers in the offering to sell
the securities in the secondary market.
Disclosure Related to Penny Stocks. The Commission has adopted rules that
define a "penny stock." In the event that any of the Company's securities are
characterized in the future as penny stock, broker-dealers dealing in the
securities will be subject to the disclosure rules for transactions involving
penny stocks which require the broker-dealer among other things to (i) determine
the suitability of purchasers of the securities, and obtain the written consent
of purchasers to purchase such securities and (ii) disclose the best (inside)
bid and offer prices for such securities and the price at which the
broker-dealer last purchased or sold the securities. The additional burdens
imposed upon broker-dealers may discourage them from affecting transactions in
penny stocks, which could reduce the liquidity of the securities offered hereby.
Redemption of Warrants. The Warrants may be redeemed by the Company at any
time after one year from the date of this Prospectus upon 30 days' written
notice to the Warrantholders at $.01 per Warrant if the closing price of the
Company's Common Stock on NASDAQ averages at least $8.00 per share for a period
of 20 consecutive trading days. In such event, the Warrants will only be
exercisable until the close of business on the date fixed for redemption in such
notice. Any Warrants not exercised by such time will cease to be exercisable,
and the holders will be entitled only to the redemption price. See "Description
of Securities--Redeemable Common Stock Purchase Warrants."
No Assurance of an Active Public Market; Offering Price Arbitrarily
Determined. There is presently no public market for the Common Stock and
Warrants and no assurance that an active market will develop or be maintained.
Accordingly, there can be no assurance that purchasers will be able to sell the
Common Stock and Warrants offered hereby in the future. The offering price of
the Common Stock and Warrants, and exercise price of the Warrants, were
arbitrarily determined through negotiations between the Representative and the
Company and do not necessarily bear any relationship to the Company's assets,
earnings or other investment criteria. See "Description of Securities" and
"Underwriting."
Prospectus Must Be Current to Exercise Warrants; Non-Registration in
Certain Jurisdictions of Shares of Common Stock Underlying the Warrants. The
Warrants are not convertible or exercisable unless, at the time of exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants and such shares of Common Stock have been
registered, qualified or deemed to be exempt under the securities laws of the
state of residence of the holders of such Warrants. There can be no assurance
that the Company will maintain a current prospectus or that the securities will
be qualified or registered under any state laws.
The Common Stock and Warrants are separately tradeable as of the date of
this Prospectus. Subsequently, purchasers may buy Warrants in the aftermarket or
may move to jurisdictions in which the shares of Common Stock underlying the
Warrants are not registered or qualified during the period that the Warrants are
exercisable. In this event, the Company would be unable to issue Common Stock to
those persons desiring to exercise their Warrants unless and until the shares
could be qualified for sale in jurisdictions in which the purchasers reside, or
an exemption from this qualification exists in such jurisdiction. Accordingly,
Warrantholders would have no choice but to attempt to sell the Warrants in a
jurisdiction where such sale is permissible or allow them to expire unexercised.
See "Description of Securities."
10
<PAGE>
Stockholder Approval Not Required for Issuance of Preferred Stock;
Prevention of Change in Control. The authorized capital stock of the Company
includes 5,000,000 shares of Preferred Stock (none of which are currently
outstanding), which may be issued from time to time in one or more series with
such designations, voting powers, if any, preferences and relative,
participating, optional or other special rights, and such qualifications,
limitations and restrictions thereof, as are determined by resolution of the
Board of Directors of the Company without approval of the Company's Common
stockholders. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by stockholders and could adversely affect the rights and powers,
including voting rights, of the holders of Common Stock. In certain
circumstances, the issuance of Preferred Stock could depress the market price of
the Common Stock. See "Description of Securities--Preferred Stock."
Limitation on Directors' Liability. The Company's Articles of Incorporation
provide for certain limitations on the liability of the Company's directors to
its stockholders for monetary damages. See "Description of Securities--
Directors' Liability."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock and Warrants after deducting underwriting commissions and expenses and
other expenses of the offering are expected to be $4,752,500. The Company
intends to apply the net proceeds generally over a 12-month period as follows:
Amount Percent
----------- -------
Repayment of bridge loans (1) $ 1,684,500 35.5$
Development of Company-owned Restaurants (2) 1,950,000 41.0%
Investments in Restaurant joint ventures (3) 750,000 15.8%
Marketing of franchise program 100,000 2.1%
Working capital 268,000 5.6%
---------- -----
TOTALS $4,752,500 100.0%
========== =====
(1) Between December 1994 and March 1996, the Company borrowed $1,684,500
for working capital from investors evidenced by unsecured promissory
notes (the "Bridge Notes") comprised of (i) $497,000 bearing interest
at 10% per annum due September 1996 (extended from November 1995),
(ii) $225,000 bearing interest at 10% per annum due September 1996
(extended from February 1996) (iii) $352,500 bearing interest at 10%
per annum due September 1996 (extended from May 1996) and (iv)
$610,000 bearing interest at 10% per annum due September 1996. All
Bridge Notes must be paid on the closing of the offering, if sooner
occurring than the indicated due dates. As additional consideration
for advancing $497,000 of the Bridge Notes, the Company issued to the
investors 198,800 common stock purchase warrants at the rate of one
warrant for each $2.50 loaned, with each warrant entitling the holder
to purchase one share of the Company's Common Stock at $2.50 per share
until December 31, 1997 extended from December 31, 1996. As additional
consideration for advancing the remaining $1,187,500 of Bridge Notes,
the Company issued to the investors an aggregate of 118,750 shares of
its Common Stock (at the rate of one share for each $10 loaned) which
are being registered hereby. See "Certain Transactions" and
"Description of Securities--Other Outstanding Common Stock Purchase
Warrants."
(2) Represents funds necessary to develop and open six Company-owned
Restaurants (all of which are currently the subject of lease
agreements) at an average cost of $325,000 per Restaurant. See
"Business--Proposed Expansion."
(3) Assumes the Company will contribute an average of $150,000 to the
joint venture development of five Restaurants over a 12-month period.
See "Business--Proposed Expansion."
11
<PAGE>
Management estimates that the proceeds of the offering, together with
anticipated operating revenues, will be sufficient to meet cash requirements for
at least 12 months following the offering. Pending application, the net proceeds
of the offering will be invested solely in interest bearing savings accounts,
certificates of deposit and money market accounts. Any additional proceeds
received upon the exercise of the Warrants, the Representative's Warrants or the
Representative's Overallotment Option will be added to working capital.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, and as adjusted to reflect the sale of the Common Stock and
Warrants offered hereby and the application of the net proceeds therefrom as
described in "Use of Proceeds."
March 31, 1996
--------------
Historical As Adjusted (1)
---------- ---------------
Bridge notes payable, net of unamortized
discount of $287,039 $1,397,461 $ -
Common stock subject to rescission,
118,750 shares 405,702 405,702
Stockholders' equity:
Preferred Stock, $ 1.00 par value,
5,000,000 shares authorized, no shares
issued and outstanding
Common Stock, $.01 par value, 990,000
shares authorized; 1,108,750 shares
issued and outstanding, 1,990,000
as adjusted (2) 9,900 19,900
Additional paid-in capital 994,007 5,736,507
Accumulated deficit (1,829,929) (2,161,771)
---------- ---------
Total stockholders' equity (deficit) (826,022) 3,594,636
---------- ---------
Total capitalization $ 977,141 $4,000,338
========== ==========
(1) To reflect the issuance of Common Stock and Warrants offered hereunder
and the application of a portion of the proceeds to repay $1,684,500
of Bridge Notes. Also gives effect to the recognition of the
unamortized portion of the costs of $331,842 associated with Bridge
Notes which were issued through March 31, 1996
(2) Gives effect to the two shares for five shares reverse split of the
Company's Common Stock, effective July 17, 1995. Does not include (i)
exercise of the Overallotment Option or (ii) the issuance of up to
2,879,280 shares of Common Stock upon exercise of the Existing
Options. See "Dilution," "Certain Transactions," "Description of
Securities" and "Underwriting."
DILUTION
At March 31,1996, the net tangible book value of the Company's outstanding
shares of Common Stock, was $(709,958), or $(.64) per share, based upon the
1,108,750 shares of Common Stock then issued and outstanding. "Net tangible book
value" per share represents the total amount of tangible assets of the Company,
less the total amount of liabilities of the Company, divided by the number of
shares of Common Stock outstanding. Without taking into account any changes in
net tangible book value after March 31,1996, other than to give effect to the
sale by the Company of the 1,000,000 shares of Common Stock and 2,000,000
Warrants offered hereby, less underwriting discounts and commissions and
estimated costs of the offering, the pro forma net tangible book value of the
Company at March 31, 1996, would have been $3,710,700, or approximately $1.76
per share. This represents an immediate increase in pro forma net tangible book
value of $2.40 per share of Common Stock to existing stockholders and an
immediate dilution of $3.74 per share to new stockholders. "Dilution" per share
represents the difference between the price to be paid by the new stockholders
of $5.50 per share (assuming no value to the Warrants) and the net tangible book
value per share of Common Stock immediately after the offering.
12
<PAGE>
The foregoing is illustrated in the following table:
Public offering price per share $5.50
Net tangible book value per share
before the offering $(.64)
Increase in net tangible book value
per share attributable
to new investors purchasing in
the offering $2.40
-----
Pro forma net tangible book value
per share after the offering $1.76
-----
Dilution of net tangible book value
per share to new investors $3.74
=====
Dilution as a percentage of the
public offering price 68%
The following table sets forth the number of shares of Common Stock
purchased, the total consideration paid and the average price per share paid by
existing stockholders as of March 31,1996, and new investors purchasing the
shares of Common Stock from the Company offered hereby:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
---------------- -------------------- Price Per
Number Percentage Amount Percentage Share
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
New investors 1,000,000 47.4% $5,500,000 79.6% $5.50
Existing stockholders 1,108,750 52.6% 1,409,609 20.4% $1.27
--------- ---- --------- ----
Totals 2,108,750 100.0% $6,909,609 100.0%
========= ===== ========== =====
</TABLE>
The preceding discussion and the accompanying tables give effect to the two
shares for five shares reverse split of the Company's Common Stock effective
July 17,1995, but do not include (i) exercise of the Overallotment Option (ii)
the issuance of up to 2,879,280 shares of Common Stock upon exercise of the
Existing Options including the Warrants and Representative's Warrants or (iii)
118,750 shares of Common Stock subject to rescission. See "Certain
Transactions," "Description of Securities" and "Underwriting."
The following table reflects information concerning the number of shares of
Common Stock to be purchased, the total consideration to be paid and the price
per share assuming the exercise of 2,000,000 Warrants by the Warrantholders:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
---------------- -------------------- Price Per
Number Percentage Amount Percentage Share
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
New investors 1,000,000 24.3% $ 5,500,000 36.9% $5.50
Existing stockholders 1,108,750 27.0% 1,409,609 9.4% $1.27
Exercising Warrantholders 2,000,000 48.7% 8,000,000 53.7% $4.00
--------- ---- --------- ----
Totals 4,108,750 100.0% $14,909,609 100.0%
========= ===== =========== =====
</TABLE>
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and intends
to retain earnings, if any, for use in the operation and expansion of its
business. The amount of future dividends, if any, will be determined by the
Board of Directors based upon the Company's earnings, financial condition,
capital requirements and other conditions.
13
<PAGE>
SELECTED FINANCIAL DATA
The selected financial information set forth below has been derived from
the Company's financial statements which appear elsewhere in the Prospectus. The
selected financial data is qualified in its entirety by, and should be read in
conjunction with, the financial statements and the notes thereto included
elsewhere herein. Interim data for the three months ended March 31,1996 and
1995, have been derived from unaudited financial statements which are also
included herein. The results of operations for the three months ended March
31,1996, are not necessarily indicative of the results to be expected for the
year ending December 31, 1996.
<TABLE>
<CAPTION>
Three Months Ended June 18, 1993
March 31, Years Ended December 31, (Inception) to
----------------------- ----------------------- December 31,
1996 1995 1995 1994 1993 (1)
---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Restaurant $ 50,602 $ 68,665 $ 226,678 $ 243,988 $ -
Area development fee, stockholder - 50,000 50,000 - -
-------- -------- --------- --------- -------
$ 50,602 $118,665 $ 276,678 $ 243,988 $ -
======== ======== ========= ========= ========
Cost and Expenses:
Cost of food and paper 19,019 24,762 82,171 105,650 -
Restaurant salaries and benefits 19,811 31,924 127,400 146,677 -
Occupancy and related expenses 13,258 16,129 63,605 67,611 -
Operating expenses 14,645 21,738 86,641 106,647 -
General and administrative 107,853 65,456 567,605 197,641 49,883
Preopening expenses 9,192 11,850 59,363 25,783 42,514
Depreciation and amortization 23,590 14,769 73,879 58,940 20,271
--------- --------- ---------- --------- ---------
Total operating expenses 207,368 186,628 1,060,664 708,949 112,668
--------- --------- ---------- --------- ---------
Loss from operations (156,766) (67,963) (783,986) (464,961 (112,668)
Interest and debt discount expense 107,621 3,799 140,497 29,063 34,367
--------- --------- ---------- --------- ---------
Net loss $(264,387) $ (71,762) $ (924,483) $(494,024) $(147,035)
========= ========= ========== ========= =========
Net loss per common share $ (0.21) $ (0.06) $ (0.75) $ (0.49) $ (0.21)
Pro forma net loss per common share (4) $ (0.31) $ (0.66)
Weighted average number of
common shares outstanding (2) 1,275,016 1,213,244 1,224,531 1,005,107 703,244
March 31, 1996
--------------
Historical As Adjusted (3)
---------- ---------------
Balance Sheet Data:
Working capital (deficit) $ (996,523) $3,424,135
Total assets 1,280,091 4,303,288
Total liabilities 1,700,411 302,950
Long-term debt - -
Stockholders' equity (deficit) (826,022) 3,594,636
(1) From inception to December 31, 1993, the Company's operations were
limited to development of the Company's San Antonio Cluckers
restaurant and financing activities. The San Antonio Cluckers
restaurant opened in January 1994, and therefore no revenues were
reported during the period ended December 31, 1993.
(2) Weighted average number of common shares outstanding includes common
equivalent shares issuable upon the exercise of outstanding stock
options and common stock purchase warrants with exercise prices less
than the offering price of $5.50 per share.
14
<PAGE>
(3) Adjusted to reflect the sale of 1,000,000 shares of Common Stock and
2,000,000 Warrants offered hereby after deducting the estimated
expenses of the offering and the anticipated application of the net
proceeds, including the repayment of $1,684,500 of Bridge Notes. Also
gives effect to the recognition of the unamortized portion of the
costs of $331,842 associated with Bridge Notes which were issued
through March 31, 1996. See "Use of Proceeds."
(4) Pro forma net loss per common share is presented for the latest fiscal
year and subsequent interim period assuming the retirement of all
Bridge Notes as of the beginning of the respective periods using
proceeds from the offering.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was organized in June 1993, and from inception to December 31,
1993, its operations were limited to activities related to obtaining financing
and the development of its San Antonio Cluckers restaurant which opened in
January 1994. Therefore, no restaurant operating results were reported for the
period ended December 31, 1993. The Company intends to convert its Cluckers
restaurant to a Harvest Rotisserie restaurant during 1996. The Company's
operating results, including its limited revenue and ongoing losses primarily
reflect the operations of its one Cluckers restaurant located in San Antonio,
Texas. During this period, the Company operated as an area developer for
Cluckers Wood Roasted Chicken, Inc. ("CWRC"), the developer and franchisor of
the Cluckers restaurant concept. Following the acquisition of a controlling
interest in CWRC by Kenny Rogers Roasters, Inc. in November 1994, the Company
exchanged its Cluckers area development agreement for systems, franchising
materials, signage and the exclusive right to use the Cluckers name, trademark
and service marks in Texas. During the fourth quarter of 1994, the Company
established its corporate offices and began the initial development of the
Cluckers franchising program. The Company completed development of the Cluckers
franchise program and began offering Cluckers franchises during the second
quarter of 1995. During the third quarter of 1995 the Company began refinements
to its Cluckers concept which evolved into the Harvest Rotisserie concept, and
the Company completed development of the Harvest Rotisserie franchise program
during this period. In February 1996 the Company elected to limit its activities
to the development of Harvest Rotisserie restaurants only. To date the Company
has not sold any Harvest Rotisserie or Cluckers franchises.
Results of Operations - Three months ended March 31, 1996 and 1995
Revenues. Revenues of $50,602 for the three months ended March 31, 1996
were derived solely from restaurant operations, while revenues for the three
months ended March 31, 1995 were comprised of $68,665 from restaurant operations
and $50,000 from the sale of an area development license to a stockholder of the
Company. Restaurant revenues for the three months ended March 31, 1996,
decreased 26.3% as compared to the same period in 1995. The decrease in revenues
was due in part to a reduction in the restaurant operating hours which was
implemented during the third quarter of 1995. The restaurant is currently open
five days each week from 11 a.m. to 7 p.m. and is being used as a training
facility. Restaurant revenues during the first three months of 1996 were
approximately 30% of capacity for the restaurant and below the restaurant's
operating costs during both periods. Management attributes the low sales volumes
to the lack of a drive-through window at the restaurant, which is located in a
shopping center. Management anticipates that the sales volumes for this
restaurant may improve marginally in future periods after conversion to a
Harvest Rotisserie and due to enhanced name recognition as the Company opens
additional Restaurants in the San Antonio area. It is the Company's plan that
most new Restaurants will be free-standing with drive-through windows.
Costs and Expenses. Cost of food and paper were to 37.6% of restaurant
revenues for the three months ended March 31, 1996 as compared to 36.1% for the
same period in 1995. The increase in food and paper costs resulted primarily
from food usage for recipe development for the expanded Harvest Rotisserie menu.
15
<PAGE>
Restaurant salaries, benefits, occupancy and related expenses, and operating
expenses include all other restaurant level operating expenses, the major
components of which are direct and indirect labor, payroll taxes and benefits,
operating supplies, rent, advertising, repairs and maintenance, utilities, and
other occupancy costs. The combined total of these expenses was $47,714, or
94.3% of restaurant revenues and $69,791 or 102% of restaurant revenues for the
three months ended March 31, 1996 and 1995, respectively. A substantial portion
of these costs are fixed or indirectly variable and therefore were
disproportionate to revenues for both periods. The decrease in these expenses as
a percentage of revenues was due primarily to lower payroll related costs as a
result of the reduction in store operating hours.
General and administrative expenses increased $42,397 or 64.8% for the
three months ended March 31, 1996 as compared to the same period in 1995
primarily due to the establishment of the Company's corporate offices and
expenses associated with the Company's financing, franchising and expansion
activities.
Preopening expenses of $9,192 and $11,850 for the three months ended March
31, 1996 and 1995, respectively, consisted primarily of lease costs for
maintaining a restaurant site for future development in Houston, Texas.
Interest and debt discount expense of $107,621 for the three months ended
March 31, 1996 relates to the issuance of $1,684,500 face amount of 10% Bridge
Notes, from December 1994 to March 1996, and included $80,114 of amortized issue
discount.
Net Loss. The Company incurred a net loss of $264,387 for the three months
ended March 31, 1996 as compared to a $71,762 for the same period in 1995. The
increase in net loss in 1996 was primarily the result of significantly higher
general and administrative expenses and interest expenses which were only
partially offset by slightly improved restaurant operating results for the
period. The three months ended in March 31, 1995 also included the $50,000 sale
of an area development license.
Results of Operations - Years Ended December 31, 1995 and 1994
Revenues. Revenues for the year ended December 31,1995, were comprised of
$226,678 from restaurant operations and $50,000 from the sale of an area
development license to a stockholder of the Company. Revenues from restaurant
operations were derived entirely from the San Antonio Cluckers restaurant which
opened in January 1994. Restaurant revenues for the year ended December 31,
1995, decreased 7.1% as compared to 1994, which only included eleven months of
restaurant operations. Annualized restaurant sales volumes for 1995 were 14.8%
below 1994 levels, and were approximately 45% of capacity for the restaurant and
below the restaurant's operating costs for both periods. The decrease in
revenues is due in part to a reduction in the restaurant operating hours which
was implemented during the third quarter of 1995. The restaurant is currently
open five days each week from 11 a.m. to 7 p.m. and is being used as a training
facility. Management attributes the low sales volumes to the lack of a
drive-through window at the restaurant, which is located in a shopping center.
Management anticipates that the sales volume for this restaurant may improve
marginally in future periods after conversion to a Harvest Rotisserie and due to
enhanced name recognition as the Company opens additional Restaurants in the San
Antonio area although there can be no such assurance. It is the Company's plan
that most new Restaurants will be in free-standing facilities with drive-through
windows.
Costs and Expenses. Cost of food and paper improved to 36.3% of restaurant
revenues for the year ended December 31, 1995, as compared to 43.3% for 1994.
The improvement in gross margins resulted primarily from efficiencies in food
preparation as the restaurant matured following the initial opening in January
1994.
Restaurant salaries, benefits, occupancy and related expenses, and
operating expenses include all other restaurant level operating expenses, the
major components of which are direct and indirect labor, payroll taxes and
benefits, operating supplies, rent, advertising, repairs and maintenance,
utilities and other occupancy costs. The combined total of these expenses was
$277,646, or 123 % of restaurant revenues and $320,935, or 132% of restaurant
revenues for 1995 and 1994, respectively. A substantial portion of these costs
are fixed or indirectly variable and therefore were disproportionate to
restaurant revenues for both periods. The decrease in these expenses as a
percentage of restaurant revenues was due to improved cost controls implemented
during the fourth quarter of 1994.
16
<PAGE>
General and administrative expenses increased $369,964, or 187% in 1995 as
compared to 1994 primarily due to the establishment of the Company's corporate
offices and expenses associated with the Company's financing, franchising and
expansion activities. In 1995, these expenses included salaries, benefits and
contract services (29%), professional fees and offering expenses (39%), travel
related expenses (15%), advertising and promotion (6%), and other general and
administrative expenses (11 %).
Preopening expenses of $59,363 in 1995 consisted primarily of lease costs
for maintaining a restaurant site for future development in Houston, Texas.
Preopening expenses of $25,783 in 1994 consisted of certain expenses incurred in
connection with the opening of the San Antonio restaurant.
Interest and debt discount expense of $140,497 for 1995, relates to the
issuance of $1,074,500 face amount of 10% Bridge Notes, from December 1994 to
November 1995, which included $87,659 of amortized issue discount. Interest
expense of $29,063 in 1994 relates to a note payable with an affiliate.
Net Loss. The Company incurred a net loss of $924,483 for 1995 as compared
to $494,024 for 1994. The increase in net loss in l995 was primarily the result
of significantly higher general and administrative expenses and interest
expense, which offset the sale of an area development license and slightly
improved restaurant operating results.
Results of Operations - For the Periods Ended December 31, 1994 and 1993
Revenues. Revenues for the year ended December 31, 1994, were $243,988,
which resulted entirely from the Company's San Antonio Cluckers restaurant which
opened in January 1994. No revenues were generated in 1993 as the San Antonio
restaurant had not yet opened. Monthly revenues remained relatively constant in
1994 but were below management expectations and insufficient to cover restaurant
operating costs during 1994. Management attributes the lower than expected sales
volumes to a lack of a drive-through window for the restaurant, which is located
in a shopping center. It is the Company's plan that most new restaurants will
have drive-through windows.
Costs and expenses. Cost of food and paper in 1994 were $105,650, or 43.3%
of revenues. Gross margins on food and paper continued to improve since the
initial opening period of the restaurant due to efficiencies in food
preparation.
Restaurant salaries, benefits, occupancy and related expenses, and
operating expenses include all other restaurant level operating expenses, the
major components of which are direct and indirect labor, payroll taxes and
benefits, operating supplies, rent, advertising, repairs and maintenance,
utilities and other occupancy costs. The combined total of these expenses was
$320,935 in 1994 or 132% of revenues. A substantial portion of these costs are
fixed or indirectly variable and exceeded revenues during the period.
General and administrative expenses were $197,641 and $49,883 for 1994 and
1993, respectively. These expenses increased significantly in 1994 as the
Company established its corporate offices and began its initial franchising
development during the fourth quarter of 1994. In 1994, these expenses included
salaries, benefits, and contract services (31 %), professional fees and offering
expenses (47%), travel related expenses (8%) and other general and
administrative expenses (14%).
Preopening expenses were $25,783 and $42,514 in 1994 and 1993,
respectively, and consisted of certain expenses incurred in connection with the
opening of the San Antonio restaurant and other site selection costs.
Net Loss. The Company incurred a net loss of $494,024 in 1994 and $147,035
in 1993. The increase in net loss for 1994 was due to operating losses incurred
by the San Antonio Cluckers restaurant and increased general and administrative
expenses as the Company began preparing for future expansion of its operations.
The Company expects to incur losses in future periods until it generates
sufficient revenues from expanded Restaurant operations or its franchising
activities to offset ongoing operating and expansion costs.
17
<PAGE>
Liquidity and Capital Resources
The Company has incurred losses from operations since inception and as of
March 31, 1996, has an accumulated deficit of $1,829,929 and a working capital
deficit of $996,523. The Company is not presently generating sufficient revenues
from operations to meet its funding needs. Management anticipates that the
Company will need to open five additional restaurants to generate a positive
cash flow and achieve profitability, although there can be no such assurance.
The Company estimates it will require approximately four months to develop and
open a restaurant. The ability of the Company to alleviate its working capital
deficit and fund costs associated with its operations and expansion plans is
dependent upon the successful completion of the offering or the Company's
ability to obtain additional capital through future debt or equity placements.
The Company requires capital principally for the expansion of its
restaurant operations and to fund costs associated with the promotion of its
franchise program. To date, the Company has funded its operations and capital
needs largely with funds provided by the sale of its securities and from bridge
financing. The Company does not have a working capital line of credit with a
financial institution, but intends to apply for such a line of credit upon
completion of the offering. There can be no assurance that the Company will be
able to obtain a line of credit or any other financing in the future.
During 1993, the Company received net proceeds of $300,000 from the sale of
240,000 shares of Common Stock. These proceeds were used to fund the costs
associated with the opening of the San Antonio Cluckers restaurant. During 1994,
the Company received additional net proceeds of $496,250 from the sale of
210,000 shares of Common Stock. These proceeds were used to repay $315,000 of
obligations to an affiliate and for working capital purposes. The Company also
obtained $497,000 of bridge financing (exclusive of $52,965 of offering costs)
which was completed in May 1995, $225,000 of bridge financing (exclusive of
$24,500 of offering costs) which was completed in August 1995, $352,500 of
bridge financing (exclusive of $35,250 of offering costs) which was completed in
November 1995, and $610,000 of bridge financing (exclusive of $61,000 of
offering costs) which was completed in March 1996. Proceeds from the bridge
financings were used for working capital purposes, development of its
franchising program and to pay certain costs associated with the offering. The
Company may also use approximately $325,000 of the proceeds from the bridge
financing completed in March 1996 to develop a Harvest Rotisserie restaurant.
The Company intends to open up to six Company-owned Restaurants (all of
which are currently the subject of lease agreements) and up to five joint
ventured Restaurants during the next 12 months. The Company estimates the total
development costs, which includes leasehold improvements, furniture, fixtures,
equipment and preopening costs, of opening a typical Restaurant will average
approximately $325,000 and that its investment in joint ventured restaurants
will average $150,000 for each Restaurant. The Company anticipates that all
Restaurants opened within the next 12 months will be in leased facilities. The
commencement of lease payments is anticipated to approximately coincide with the
opening dates of the Restaurants. Therefore, lease payments will be satisfied
out of revenue from Restaurant operations. Estimated aggregate lease payments
for the Company's corporate offices, its existing restaurant and the proposed
seven Restaurants for the year ending December 1996 will be approximately
$170,000.
The Company anticipates that approximately $100,000 will be required to
promote its Harvest Rotisserie franchise program. The Company expects to use
proceeds from the offering to fund such costs and to offer Harvest Rotisserie
franchises. The Company has executed an area development agreement with an
affiliate to develop up to ten Restaurants n Singapore and has executed a
nonbinding letter of intent to sell area development rights to a third party
pursuant to which the third party would have the right but not the obligation to
develop at its expense up to 50 Harvest Rotisserie restaurants in the Baltimore,
Maryland area. The Company has not yet operated any Harvest Rotisserie
restaurants nor opened any Harvest Rotisserie franchised Restaurants.
In connection with the sale of $1,187,500 of Bridge Notes and the issuance
of 118,750 shares of Common Stock to the bridge lenders (who are the Selling
Stockholders herein) between August 1995 and March 1996, the Company may not
have established an adequate basis to claim the private placement exemption by
virtue of the fact that sales of these securities were made after the filing of
the Registration Statement. If the Company is unable to establish such a basis,
these transactions could be considered integrated with the offering, subjecting
the Company to potential liability for sales of unregistered securities. If such
an assertion were made and upheld, the Company would otherwise be requried to
rescind the issuance of the Bridge Notes and the Common Stock, return the
principal amount of the Bridge Notes together with interest and possibly other
damages. However, under the terms of the Bridge Notes the Company is required to
repay the Bridge Notes plus accrued interest on the closing of the offering.
Nevertheless, the Company could be liable for a claim by the bridge lenders in
connection with the issuance of the 118,750 shares of Common Stock to them at
the rate of $3.83 per share (or an aggregate of $454,812), which is the per
share value attributed to the Common Stock by the Company in its financial
statements for the year ended December 31, 1995 and for the three months ended
March 31, 1996. No bridge lender has asserted any claim for rescission or
damages, nor is the Company aware of any bridge lender who intends to do so. See
"Selling Stockholders," "Certain Transactions and "Financial Statements."
18
<PAGE>
The Company's expansion plans are dependent upon the successful completion
of the offering. Internal sources of capital are limited to the Company
successfully achieving profitable operations in future periods or raising
additional capital from current stockholders and private investors. The Company
anticipates that its existing capital resources together with the proceeds of
the offering will enable it to maintain its current and planned operations for
at least the next 12 months without the need for additional capital.
BUSINESS
Introduction
The Company intends to own, operate and franchise quick service restaurants
featuring marinated wood-roasted rotisserie chicken, oak roasted turkey breast,
roast ham, meatloaf and other fresh homestyle food items under the name "Harvest
Rotisserie." Harvest Rotisserie restaurants (sometimes referred to as the
"Restaurant(s)") emphasize rotisserie roasted chicken, turkey and fresh
homestyle side dishes consistent with what the Company believes to be (i) an
increased consumer demand for take-home prepared foods, (ii) an emphasis on
lower fat foods such as chicken and turkey and (iii) the popularity of homestyle
cooking. The Company maintains strict quality standards in purchasing, storing,
preparing and serving its entrees, side dishes, desserts and other products.
Harvest Rotisserie side dishes will include four fresh, cold side dishes
(coleslaw, pasta salad, garden salad and potato salad) and eleven hot side
dishes (baked beans, stuffing, sweet corn on the cob, parsley potatoes, white
rice, steamed fresh vegetables, mashed potatoes and gravy, black beans and rice,
creamed spinach, cheese rice and baked cinnamon apples).
To date, the Company has opened one restaurant in San Antonio, Texas
operated under the Cluckers name which it utilizes as both a training facility
and a public restaurant and which it intends to convert to a Harvest Rotisserie
restaurant. The Company has also executed leases for six additional Restaurants
in San Antonio and Houston, Texas, the development of which is dependent upon
completion of the offering. The Company has executed an area development
agreement with an affiliate to develop up to ten Restaurants in Singapore and
has also executed a nonbinding letter of intent to sell area development rights
to a third party pursuant to which the third party would have the right but not
the obligation to develop at its expense up to 50 Restaurants in the Baltimore,
Maryland area. The Company has not yet opened any Harvest Rotisserie
restaurants.
History
The Company was incorporated in Texas in June 1993 under the name Clucker's
Tex-Mex Venture, Inc. and changed its name to CluckCorp International, Inc. in
April 1995. Prior to November 1994, the Company was an area developer for
Cluckers Wood Roasted Chicken, Inc. ("CWRC"), the developer and franchisor of
the "Cluckers" restaurant concept. The Company acquired from WaterMarc Food
Management, Inc. ("WaterMarc"), formerly Billy Blues Food Corporation and an
affiliate of the Company, the Cluckers franchise development rights for Texas,
Mexico and certain Central American countries. After CWRC had opened ten
company-owned restaurants between 1991 and 1994 in Florida, Georgia and New York
and had sold franchises for an additional 165 restaurants, controlling interest
in CWRC was purchased by Kenny Rogers Roasters, Inc. ("Roasters") in November
1994. The Company then exchanged its Cluckers area development agreement with
CWRC for systems, franchising materials, signage and the exclusive right to use
the Cluckers name, trademark and service mark solely in Texas. The Company did
not acquire international rights to the Cluckers name because neither CWRC nor
anyone else had obtained any international rights, other than the Mexican and
Central American rights described above. However, the Company subsequently
registered the Cluckers name in Mexico and applied for trademarks to use the
Cluckers name and logos in the United Kingdom, Canada, Singapore and Malaysia.
19
<PAGE>
In February 1996, the Company decided to concentrate solely on the
development, operation and franchising of Harvest Rotisserie restaurants, which
the Company believes is a substantial improvement over the original Cluckers
concept because the Harvest Rotisserie concept offers an expanded menu which
includes a number of additional homestyle entrees offering lower fat foods. As a
result of its decision to concentrate on development of Harvest Rotisserie
restaurant, the Company (i) plans to convert its one operating Cluckers
restaurant in San Antonio to a Harvest Rotisserie restaurant, (ii) notified the
landlords of its six leased locations that it intended to develop Harvest
Rotisserie rather than Cluckers restaurants on the sites and (iii) changed its
area development agreement and area development letters of intent from Cluckers
restaurants to Harvest Rotisserie restaurants.
Strategy
The Company seeks to participate in what it perceives as an emerging food
service category consisting of fresh, convenient, homestyle replacement meals.
This category combines the fresh, high quality and flavorful meals generally
associated with traditional home cooking with the convenience and value
associated with fast-food restaurants. In order to promote this category, the
Company will employ the following strategies in the development of its Harvest
Rotisserie restaurants both in Texas and throughout the United States.
Fresh, High Quality, Convenient Homestyle Meals. The Company will focus its
Restaurant menus on rotisserie roasted chicken, oak roasted turkey breast, roast
ham, meatloaf and a variety of freshly prepared side dishes by promoting (i)
take-home prepared foods, (ii) the expanding interest in low fat freshly
prepared meals, and (iii) the consumer's desire for homestyle, complete meals,
reminiscent of home cooking. Chicken, turkey and ham will be delivered to the
Company's Restaurants several times each week in order to allow for the fresh
preparation of food products. Cooked food items will be prepared with the use of
ovens and steamers, rather than the fryers, grills, and microwaves used by most
fast-food establishments. The Company will maintain strict quality standards in
purchasing, storing, preparing and serving its entrees, fresh side dishes,
desserts and other products. All visible fat will be removed from poultry and
ham prior to preparation. The chickens will be marinated for 24 hours in a blend
of citrus juices, fresh garlic and natural herbs and spices and roasted over
hardwood flames in a custom built rotisserie at temperatures as high as 1,200
degrees for ninety minutes. The self-basting characteristic of rotisserie
cooking is believed to reduce fat and result in moister meat and crispier skin.
Complete Meal Value. The Company will emphasize complete, reasonably-priced
meals rather than focusing on discounting individual items or an a la carte
pricing system. Restaurant meals will include a variety of entrees such as
rotisserie roasted chicken, oak roasted turkey, roast ham and meatloaf
customer-selected side dishes and desserts. Complete meals will begin at
approximately $3.29, and menu combinations will provide convenient multiple meal
selections for couples, families or larger groups. The Company's operating
philosophy will be to provide high quality, healthful, quick service food rather
than the food traditionally associated with the fast food industry. Restaurants
will provide generous food portions, lunch specials and entree combinations at
lower prices in order to create a competitive "price to value" concept.
Distinctive Appearance and Casual Atmosphere. The Company has established
what it considers to be an easily replicable prototype Restaurant, featuring an
efficient operating layout, standardized equipment and tasteful and distinctive
trade dress. The Company believes its store furnishings will create an
attractive and casual environment for both take-out and dine-in customers.
20
<PAGE>
Visible, High Traffic Store Locations. The Company will emphasize
free-standing pad sites or end-cap locations with drive-through windows, ample
parking and easy access to and from high traffic roads. Highly visible signage
consistent with trade dress and local requirements will be pursued.
Customer Service Commitment. The Company will seek friendly,
customer-oriented, and highly motivated employees at all levels and positions to
help ensure that its customers have a pleasant dining experience, including a
friendly greeting and individual attention to all aspects of their order.
Customers unfamiliar with particular side dishes will be encouraged to taste a
sample.
Current Operations
The following discussion describes the current operations of the Company's
San Antonio Cluckers restaurant which it intends to convert to a Harvest
Rotisserie restaurant as well as the proposed operations of future Harvest
Rotisserie restaurants.
All Restaurants the Company develops or franchises will prominently display
a rotisserie within customer view. The location of the rotisserie coupled with
the flames emanating from the hardwood will be a focal point for the
Restaurants. Chicken may be purchased whole, in half or in quarters, or in
combination, with a choice of side dishes. Most Restaurants will offer inside
seating and takeout service, will range in size from approximately 1,800 to
3,500 square feet and will have drive-through windows and seating capacities for
approximately 45 to 70 diners. The Company's San Antonio restaurant, consists of
2,400 square feet, seats approximately 60 diners and is located in an in-line
strip shopping center. Generally, restaurant hours will be from 11 A.M. to 11
P.M., seven days a week.
The Company considers the location of a Restaurant to be critical to its
long-term success and intends to devote significant efforts to the evaluation of
potential sites. The site selection process involves consideration of a variety
of factors including (i) demographics, such as target population density and
household income levels, (ii) specific site characteristics such as visibility,
accessibility and traffic volume, (iii) proximity to activity centers such as
prime urban office or retail shopping districts, suburban shopping areas and
hotel and office complexes, (iv) parking availability and (v) potential
competition in the area. The Company's executive officers will inspect and
approve Restaurant sites prior to the execution of a lease. The opening of new
Restaurants is contingent upon, among other things, locating satisfactory sites,
negotiating favorable leases or purchase agreements, completing construction and
securing appropriate government permits and approvals. Once a site is available
to the Company and necessary approvals and permits have been obtained
approximately 60 to 120 days are required to complete construction and open a
Restaurant.
The designs of the Restaurants are flexible and may be adapted to local
architectural styles and existing buildings with varying floor plans and
configurations. The Company intends to purchase most of its restaurant
equipment, such as rotisseries, furniture and fixtures from the same suppliers,
in order to promote uniformity of style and format and reduce costs. The
Restaurants will be operated under standards set forth in the Company's
operating manuals, including specifications relating to food quality and
preparation, design and decor and day-to-day operations. The standards will also
govern the administration, training and conduct of Restaurant personnel.
A typical Restaurant will employ between fifteen and twenty people daily,
generally on a staggered basis designed to match employee work hours to customer
traffic. Restaurant personnel will generally include a manager, assistant
manager, cooks, counter personnel and kitchen workers.
The Company believes that the training and development of Restaurant
management personnel is a critical component of its planned expansion. All
Restaurant management personnel will be trained by the Company for a 30-day
period. At the conclusion of the training program, each participant must
demonstrate the management skills required to operate a restaurant at levels
satisfactory to the Company. Restaurant managers will be responsible for
day-to-day operations, including food preparation, customer relations,
maintenance, cost control and personnel relations. In addition, Restaurant
managers will be responsible for selecting and training new employees who will
generally undergo an on-the-job training period under the supervision of an
experienced employee. Ongoing employee training will be the responsibility of
the Restaurant manager.
21
<PAGE>
Proposed Expansion
Using the proceeds of the offering, the Company anticipates opening up to
11 additional Harvest Rotisserie restaurants within the next 12 months including
six Company-owned Restaurants (all of which are currently the subject of lease
agreements) and five joint ventured Restaurants for which the Company's
ownership interests have not been determined. The Company began offering Harvest
Rotisserie franchises in the third quarter of 1995 and may use a portion of the
proceeds from the bridge financing completed in March 1996 to develop an
additional Harvest Rotisserie restaurant.
The Company intends to pursue a strategy of aggressive growth by opening as
many Restaurants as its capital will permit. The amount of capital required will
depend in part on whether the developed Restaurants are Company-owned, Company
majority-owned (under developer partner arrangements), joint ventured
restaurants or franchised restaurants. The number of Restaurants opened will
also depend upon, among other things, market acceptance of the Company's
Restaurant concept, the hiring of skilled management and other personnel, the
availability of suitable locations, the general ability to successfully manage
growth (including monitoring restaurants, controlling costs and maintaining
effective quality controls), the availability of adequate financing, the
approval of its franchise disclosure documents and its ability to attract and
retain qualified franchisees.
The Company estimates that the average cost of opening a Harvest Rotisserie
restaurant in a leased facility, including site selection costs, leasehold
improvements, acquisition of furniture, fixtures and equipment, opening
inventories and certain preopening expenses (including salaries, training,
travel, advertising and promotion), will range from $150,000 to $450,000 per
Restaurant (depending upon the size and location of the Restaurant and the
amount of leasehold improvements required, less any construction allowance
provided by the landlord) and will average approximately $325,000 per
Restaurant. If the land and building are purchased, the purchase price and
related acquisition expenses would be significantly higher. The Company has no
current plans to purchase any land or buildings due to these significantly
increased costs. In the future, assuming the Company has sufficient funds or
financing to purchase land or buildings, it may do so if it has a joint venture
partner willing to finance such a purchase or if it determines that the funds
for such a purchase would be less than comparable leasehold improvement and
rental expenses.
The Company will seek to enter into various joint venture agreements and
development arrangements to finance a majority of the development costs
necessary to open up to five additional Restaurants over the next 12 months. For
instance, under a proposed development arrangement for which the Company has
executed a nonbinding letter of intent, the Company has agreed to advance 20% of
the cost of developing a Restaurant and the Company's joint venture partner has
agreed to advance the remaining 80% of such cost. The joint venture partner
would (i) receive 22% of the gross profits of the Restaurant until its
investment is returned, (ii) retain ownership of the leasehold improvements,
(iii) receive annual rental payments from the Restaurant equal to 12% on the
amount invested by the joint venture partner in that Restaurant and (iv) receive
stock options to purchase Common Stock of the Company in amounts and at exercise
prices not yet determined. The Company would be responsible for management and
operations of the Restaurant for which it would receive 78% of the gross profits
and a management fee equal to 5% of gross Restaurant revenues. No definitive
joint venture agreements or development arrangements have been executed with
anyone and there can be no assurance that the Company will execute any such
agreements in the future.
The Company may also enter into joint venture agreements in which the joint
venture partner will have the exclusive right to open Harvest Rotisserie
restaurants at its own expense within a specified territory and pursuant to a
development schedule. The Company's contribution to the joint venture would be
limited to conveying Harvest Rotisserie license rights, trade names and
trademarks, providing management to develop and manage the Restaurants and
advancing certain preopening expenses. After the payment of a management fee to
the Company, profits would be divided between the Company and its joint venture
partner pursuant to a formula to be negotiated.
Franchise Agreements
The Company has completed a Uniform Franchise Offering Circular ("UFOC")
and related franchise documents for its Harvest Rotisserie restaurant. The
Harvest Rotisserie franchise agreement provides for (i) a $30,000 per Restaurant
franchise fee (except for take-out only stores which require a $15,000 franchise
fee), (ii) a 5% royalty on the Restaurant's gross revenue and (iii) a reserve
for a national and local advertising fund contribution aggregating up to 3% of
gross revenues per Restaurant. The franchise agreement also provides for a
limited area of exclusivity surrounding the franchised Restaurant, in which the
Company may neither develop nor grant to others the right to develop additional
Restaurants.
22
<PAGE>
The Company's franchise agreement requires that the Restaurant be operated
in accordance with the operating procedures and menus established by the
Company. The Company will conduct regular inspections of its Restaurants to
determine whether the Restaurants meet applicable quality, service and
cleanliness standards, will work with franchisees to improve substandard
performance or any items of non-compliance revealed in the course of its
inspection and may terminate any franchisee who does not comply with such
standards. The Company believes that maintaining superior food quality, a clean
and pleasing environment and excellent customer service is critical to the
reputation and success of its Restaurants and intends to act aggressively to
enforce applicable contractual requirements. Franchisees could contest such
defaults or terminations which would cause the Company to incur potentially
significant legal expenses.
Area Development Agreements
The Company's Harvest Rotisserie area development agreement requires the
development of a specified number of Restaurants within a delineated territory
in accordance with a development schedule. The development schedule will
generally cover three to six years and will have Restaurant operation benchmarks
for the number of Restaurants to be opened and in operation at certain yearly
intervals. It is anticipated that area developers will pay a nonrefundable fee
of $10,000 per Restaurant to be developed and a per Restaurant franchise fee as
each Restaurant is opened. Area development agreements will provide that the
area developer has the exclusive right to open Restaurants within the specified
territory during the term of the development schedule. Once an acceptable lease
for an approved Restaurant site has been fully executed and the Company has
approved design and construction specifications, the Company and the area
developer would enter into a franchise agreement under which the area developer
would become the franchisee for the specific Restaurant to be developed at the
site.
Failure to meet development schedules or other breaches of the area
development agreement would lead to termination of the limited exclusivity
provided by the agreements, renegotiation of development and franchise
provisions or termination of the right to build future Restaurants, although
such termination would not necessarily affect the area developer's existing
franchise agreements for developed locations.
In March 1995, prior to defining certain uniform area development agreement
terms, the Company entered into an area development agreement with a stockholder
and former director of the Company, providing for the development of up to ten
Cluckers restaurants in Singapore over a 20-year period. In February 1996,
consistent with the Company's plan to develop solely Harvest Rotisserie
restaurants, the agreement was modified to provide for the development of
Harvest Rotisserie restaurants. The fee under the area development agreement was
$50,000 of which the Company has received $20,000 in cash and a $30,000
non-interest bearing unsecured promissory note initially due March 30, 1996 and
subsequently extended to September 30, 1996. The developer is under no
obligation to develop any Restaurants in Singapore and the Company has no
significant future obligations or commitments under the area development
agreement.
In February 1996, the Company executed a nonbinding letter of intent to
sell area development rights to a third party pursuant to which the third party
would have the right but not the obligation to open at its expense up to 50
Harvest Rotisserie restaurants in the Baltimore, Maryland area over a five-year
period. There can be no assurance that any of these Restaurants will be
developed. Under the letter of intent, the third party will pay a combined
development fee and franchise fee of $10,000 per Restaurant. The Company is also
negotiating with four other parties who are interested in area development
agreements for Restaurants to be located in Austin, Texas, McAllen, Texas and
San Francisco, California. There can be no assurance that the Company will be
successful in executing area development agreements with any of these parties.
23
<PAGE>
Marketing
The Company has not commenced marketing Harvest Rotisserie restaurants
because no such restaurants are yet in operation. The Company currently markets
its San Antonio restaurant on a limited basis primarily through print media,
restaurant signage, direct mail and in-store displays which emphasize the
healthfulness, quality and homestyle nature of the food products and otherwise
promote the rotisserie concept. The Company intends to expand its advertising
efforts to include additional use of print media, together with radio and
television spots as the Company opens additional Restaurants in selected market
areas. The Company's advertising efforts also seek to promote value through the
purchase of complete meals or meal combinations, as opposed to a la carte
selection or pricing. Both Company-owned and franchise Restaurants will
contribute to a national advertising fund to pay for the development of
advertising material and to a separate advertising fund to pay for advertising
in local markets.
Competition
The food service industry is intensely competitive with respect to food
quality, concept, location, service and price. There are many well-established
food service competitors with substantially greater financial and other
resources than the Company and with substantially longer operating histories.
The Company competes with take-out food service companies, fast-food
restaurants, casual full-service dine-in restaurants, delicatessens,
cafeteria-style buffets and prepared food stores, as well as with supermarkets
and convenience stores. Competitors include national, regional and local pizza
restaurants, Chinese food restaurants, other purveyors of carry-out food and
convenience dining establishments, including such chains as Pizza Hut,
McDonald's and others. Other rotisserie roasted chicken concepts and homestyle
food concepts, such as Boston Market and Kenny Rogers' Roasters, provide more
direct competition. The inclusion of roasted or baked chicken at certain large,
national food service chains, such as Kentucky Fried Chicken and Roy Rogers, and
in supermarkets and convenience stores, also provides competition for customers.
In addition, one or more national food service chains or companies could
introduce new multi-unit rotisserie, roasted or baked chicken restaurants. The
Company believes that its Harvest Rotisserie restaurants will compete favorably
in terms of taste, food quality, convenience, customer service and value, which
the Company believes are the most important factors to the segments of the
population the Company currently targets.
Competition in the food service business is often affected by changes in
consumer tastes, national, regional and local economic and real estate
conditions, demographic trends, traffic patterns, the cost and availability of
labor, purchasing power, availability of product and local competitive factors.
Some or all of these factors could cause the Company and future franchisees to
be adversely affected.
The Company also competes for franchisees with multinational fast food
chains, national and regional restaurant chains and other regional and local
restaurant franchisors. Many restaurant franchisors have greater market
recognition and greater financial, marketing and human resources than the
Company.
Trademarks and Service Marks
The Company has applied to the United States Patent and Trademark Office
("PTO") to register the "Harvest Rotisserie" name, trademark and service mark
("MARKS"). There can be no assurance that the Company will obtain sufficient
protection for its Harvest Rotisserie Marks or, if such protection is granted,
that it will have the financial resources to enforce or defend its Marks. The
Company has the exclusive right in Texas to use the Cluckers name, trademark and
service mark which have been registered with the PTO. In addition, the Company
has registered the Cluckers name in Mexico and has applied to register the
Cluckers name (or, in certain cases, the name in connection with additional
words or graphics) in the United Kingdom, Canada, Singapore and Malaysia.
Regulation
The Company's Restaurants must comply with federal, state and local
government regulations applicable to consumer food service businesses generally,
including those relating to the preparation and sale of food, minimum wage
requirements, overtime, working and safety conditions, mandated health insurance
coverage and citizenship requirements, as well as regulations relating to
zoning, construction, health, business licensing and employment. The Company
believes that it is in material compliance with these provisions.
24
<PAGE>
Certain states and the Federal Trade Commission require a franchisor to
provide specified disclosure statements to potential franchisees before granting
a franchise. Additionally, many states require the franchisor to register its
franchise with the state before it may offer a franchise. The Company believes
that its Harvest Rotisserie UFOC (together with any applicable state versions or
supplements) complies with both the Federal Trade Commission guidelines and all
applicable state laws regulating franchising in those states in which it intends
to offer franchises.
Insurance
The Company carries general liability, product liability and commercial
insurance of up to $2,000,000 which it believes is adequate for businesses of
its size and type. However, there can be no assurance that the Company's
insurance coverage will remain adequate or that insurance will continue to be
available to the Company at reasonable rates. In the event coverage is
inadequate or becomes unavailable, the Company could be materially adversely
affected. Effective August 1, 1995, the Company began carrying workers'
compensation insurance.
Franchisees will also be required to maintain certain minimum standards of
insurance pursuant to their franchise agreements including commercial general
liability insurance, worker's compensation insurance and all risk property and
casualty insurance. The Company requires that it be named as an additional
insured on such policies.
Employees
The Company employs three executive officers, one administrative employee
and 12 Restaurant employees. The Company believes that its relations with its
employees are satisfactory.
Properties
The Company leases its executive offices in San Antonio, Texas under a 12
month lease expiring June 30, 1997 for $1,700 per month. The Company's San
Antonio restaurant is leased pursuant to a five-year lease expiring August 1998,
for $2,554 per month. The Company believes its executive office facilities are
adequate for its needs in the foreseeable future and that additional space is
available at reasonable rates.
The Company has entered into leases for six Harvest Rotisserie restaurants
at the locations and under the terms described below. The Company anticipates
that all six Restaurants will be wholly-owned. The development of these
Restaurants is contingent upon completion of the offering. See "Use of
Proceeds."
<TABLE>
<CAPTION>
Anticipated Primary
Location (1)(2) Monthly Rent Opening Date Lease Expires
--------------- ------------ ------------ -------------
<S> <C> <C> <C>
Embassy West Shopping Center (1) $3,281 plus 5% of
San Antonio, Texas gross sales over
$1,000,000 annually August 1996 May 2006
206 E. Houston $2,600 September 1996 January 2001
San Antonio, Texas
Highway 123 (1)(3) $3,125 October 1996 September 2001
Seguin, Texas
5299 Walzem Road (2) $2,700 June 1996 February 2006
San Antonio, Texas
5915 S. Braeswood (2) Greater of $3,000 or
Houston, Texas 5% of gross sales September 1996 January 2004
938 N.E. Loop 410 (4) $4,200 October 1996 December 2000
San Antonio, Texas
25
<PAGE>
(1) All locations involve remodeling existing restaurant structures, except the Embassy West Shopping Center and Highway 123
locations which involve construction of a new structure by the Company's landlord.
(2) All of the leases (except Braeswood Road) were executed in July and August 1995. All such leases, except Walzem Road and
Braeswood Road, are contingent upon the Company completing a feasibility study satisfactory to it prior to the leases
becoming binding in May 1996.
(3) The lease is contingent upon the landlord obtaining financing satisfactory to the landlord to construct the restaurant
structure.
(4) The lease is contingent upon the Company providing the financing to construct a new restaurant structure at the Company's
expense. The Company cannot assure that such financing will be available. See "--Proposed Expansion."
</TABLE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the Company's
executive officers and directors:
<TABLE>
<CAPTION>
Officer or
Name Age Office Director Since
---- --- ------ --------------
<S> <C> <C> <C>
William J. Gallage 56 Chairman of the Board of 1993
Directors and Director
of Franchising
D. W. Gibbs 49 Chief Executive Officer, 1995
President and Director
Richard N. Trimble 57 Vice President - Operations 1995
Sam Bell Steves Rosser 32 Vice President - Development, 1993
Treasurer and Director
Henry H. Salzarulo 53 Director 1993
Jeffrey M. Morehouse 48 Director 1995
</TABLE>
Directors hold office for a period of one year from their election at the
annual meeting of stockholders and until their successors are duly elected and
qualified. Officers of the Company are elected by, and serve at the discretion
of, the Board of Directors. None of the above individuals has any family
relationship with any other except Mr. Rosser who is Mr. Gallagher's son-in-law.
There are no committees of the Board of Directors. Directors not employed by the
Company receive $250 each for attending Board of Directors' meetings and are
reimbursed for out-of-pocket expenses.
Background
The following is a summary of the business experience of each executive
officer and director of the Company for at least the last five years:
William J. Gallagher has been President of Jagbanc Capital Ltd., a merchant
bank headquartered in San Antonio, Texas since September 1994. From February
1991 to September 1994, Mr. Gallagher was the founder and then Chairman and CEO
of WaterMarc Food Management, Inc., which operated 32 Marcos Mexican
Restaurants, Billy Blues Barbecue Grills, Longhorn Cafes and BBQ Pete's
restaurants and sold Chris' Pitts and Billy Blues Bar-B-Q sauce. From February
1990 until September 1992, Mr. Gallagher was a Vice President at Kemper
Securities. Prior to 1990, Mr. Gallagher founded or co-founded several companies
including Sunny's National Stores (a 150-unit convenience store chain in Texas),
American Drive-Inn (an 18-unit drive-in restaurant chain in Houston, Texas) and
the Guadalupe Valley Winery in New Braunfels, Texas. Mr. Gallagher also served
as a director of CWRC from June 1993 to November 1994. He is the Company's
Chairman and Director of Franchising for which he devotes 75% of his time to the
Company's affairs.
26
<PAGE>
D. W. Gibbs. Mr. Gibbs was Vice President of Corporate Planning for
Church's Fried Chicken ("Church's"), a national quick service fried chicken
franchisor from 1980 to 1983. From 1983 to 1986, he was Church's Vice
President--Regional Manager, responsible for approximately 300 Church's
restaurants from Houston, Texas to Pensacola, Florida. At the same time, he was
President of Ron's Krispy Fried Chicken, a wholly-owned fried chicken restaurant
subsidiary. From 1986 to 1988, Mr. Gibbs was Senior Vice President and Director
of Operations for all 1,100 Church's restaurants. From January 1988 until he
joined the Company in March 1995, Mr. Gibbs was a consultant to the quick food
service industry. Additionally, from January 1991 to December 1992 he was Vice
President of Operations for Lucky 7, Inc., a Sbarro Italian restaurant
franchisee which operated 12 franchises.
Richard N. Trimble. Mr. Trimble joined Church's in 1971, and was District
Manager for East Texas from 1973 to 1982 and Director of Operations for St.
Louis from 1982 to 1986. From 1986 to 1989, he was Regional Vice President of
Church's for southeast U.S. operations, directing the operations of 250
restaurants. From February 1989 to December 1993, he was a Church's franchisee
in East Texas, operating two restaurants and from December 1993 until he joined
the Company in May 1995, he was a restaurant consultant.
Sam Bell Steves Rosser joined the Company in June 1993, as its President
and assumed the duties of Vice President-Development in March 1995. He was
employed by Olive Garden restaurants as a member of the store operating staff
from March 1992 until May 1993. From October 1988 until December 1991, he was
employed by Dwight L. Lieb, a real estate developer, as a commercial property
manager and leasing agent.
Henry H. Salzarulo, M.D. Dr. Salzarulo has practiced medicine as an
anesthesiologist since 1967, and has been Chairman of the Department of
Anesthesiology at Oconee Memorial Hospital in Seneca, South Carolina since 1988.
From 1983 to 1988, he was also an Assistant Professor of Anesthesiology at the
University of Texas School of Medicine in Houston, Texas. He received an M.D.
degree from Indiana University.
Jeffrey M. Morehouse has been engaged in the private practice of law in San
Antonio, Texas since 1973. He graduated from St. Mary's University Law School in
1969.
Executive Compensation
The following table sets forth certain information concerning compensation
paid to the Company's Chief Executive Officer for the years ended December 31,
1995 and 1994.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Long-Term
Compensation Compensation
------------ ------------
Name and Other Annual Awards All Other
Principal Position Year Salary Bonus Compensation Options Compensation
------------------ ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sam Bell Steves Rosser 1995 $49,500 $0 $0 $0 $0
Vice President, Treasurer
and Director 1994 49,800 0 0 0 0
1993 27,900 0 0 0 0
D. W. Gibbs 1995 30,750 0 0 0 0
Chief Executive Officer,
President and Director
William J. Gallagher 1995 59,211 0 0 0 0
Chairman of the Board and
Director
</TABLE>
27
<PAGE>
- ------------
On March 17,1995, the Company entered into an employment agreement through
December 31,1995 and monthly thereafter, with D.W. Gibbs, the Company's Chief
Executive Officer and a director, pursuant to which the Company agreed to pay
Mr. Gibbs $3,000 per month through December 31, 1995, and $6,250 per month
thereafter and issue to him options to purchase 80,000 shares of the Company's
Common Stock at $2.50 per share exercisable until March 31, 2000. The stock
options vest at the rate of 16,000 stock options per year commencing with the
year ending March 31, 1996. If Mr. Gibbs' employment with the Company is
terminated for any reason, all stock options not yet vested will be cancelled.
The Board of Directors and Mr. Gibbs have agreed to negotiate a salary and a
term of employment commensurate with operations to the Company to be effective
as of the closing date of the offering. Annual compensation under the employment
agreement is expected to be approximately $ 100,000 per year.
In August 1995, the Company entered into a five-year employment agreement
with William J. Gallagher, its Chairman, to act as its franchise sales director
pursuant to which Mr. Gallagher will receive, for a period of five years, a
salary equal to the greater of $75,000 per year or 20% of all franchise and area
development fees paid to the Company, together with 5% of all royalty fees
received by the Company under any franchise agreements and area development
agreements which were executed during the time of Mr. Gallagher's employment
agreement. Mr. Gallagher will devote at least 75% of his time to these
activities.
Stock Option Plan
In July 1994, the Company adopted its 1994 Stock Option Plan (the "Plan"),
which provides for the grant to employees, officers, directors and consultants
of options to purchase up to 250,000 shares of Common Stock, consisting of both
"incentive stock options" within the meaning of Section 422A of the United
States Internal Revenue Code of 1986 (the "Code") and "non-qualified" options.
Incentive stock options are issuable only to employees of the Company, while
non-qualified options may be issued to non-employee directors, consultants and
others, as well as to employees of the Company.
The Plan is administered by the Board of Directors, which determines those
individuals who shall receive options, the time period during which the options
may be partially or fully exercised, the number of shares of Common Stock that
may be purchased under each option and the option price.
The per share exercise price of the Common Stock subject to an incentive
stock option may not be less than the fair market value of the Common Stock on
the date the option is granted. The per share exercise price of the Common Stock
subject to a non-qualified option is established by the Board of Directors. The
aggregate fair market value (determined as of the date the option is granted) of
the Common Stock that any employee may purchase in any calendar year pursuant to
the exercise of incentive stock options may not exceed $10O,000. No person who
owns, directly or indirectly, at the time of the granting of an incentive stock
option to him, more than 10% of the total combined voting power of all classes
of stock of the Company is eligible to receive any incentive stock options under
the Plan unless the option price is at least 110% of the fair market value of
the Common Stock subject to the option, determined on the date of grant.
Non-qualified options are not subject to these limitations.
No incentive stock option may be transferred by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by him or her. In the event of
termination of employment other than by death or disability, the optionee will
have three months after such termination during which he or she can exercise the
option. Upon termination of employment of an optionee by reason of death or
permanent total disability, his or her option remains exercisable for one year
thereafter to the extent it was exercisable on the date of such termination. No
similar limitation applies to non-qualified options.
Options under the Plan must be granted within ten years from the effective
date of the Plan. The incentive stock options granted under the Plan cannot be
exercised more than ten years from the date of grant except that incentive stock
options issued to 10% or greater stockholders are limited to five year terms.
All options granted under the Plan provide for the payment of the exercise price
in cash or by delivery to the Company of shares of Common Stock already owned by
the optionee having a fair market value equal to the exercise price of the
options being exercised, or by a combination of such methods of payment.
Therefore, an optionee may be able to tender shares of Common Stock to purchase
additional shares of Common Stock and may theoretically exercise all of his
stock options with no additional investment other than his original shares.
28
<PAGE>
Any unexercised options that expire or that terminate upon an optionee
ceasing to be an officer, director or an employee of the Company become
available once again for issuance. As of the date of this Prospectus, options to
purchase 80,000 shares have been granted under the Plan to D.W. Gibbs,
exercisable at $2.50 per share until March 31, 2000, vesting 16,000 stock
options per year over a five-year period commencing with the year ending March
31, 1996. See "Management--Executive Compensation."
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 31,1996
concerning stock ownership of the Company's $.01 par value Common Stock
currently and upon completion of the offering by all persons known to the
Company to own beneficially 5% or more of the outstanding shares of Common
Stock, by each director and by all directors and officers as a group. See
"Selling Stockholders."
Except as otherwise noted, the persons named in the table own the shares
beneficially and of record and have sole voting and investment power with
respect to all shares shown as owned by them, subject to community property
laws, where applicable. Each stockholder's address is in care of the Company at
1250 N.E. Loop 410, Suite 335, San Antonio, Texas 78209. The table also reflects
all shares of Common Stock which each individual has the right to acquire within
60 days from the date hereof upon exercise of options, warrants or other rights.
<TABLE>
<CAPTION>
Number of Percent of Class Percent of Class
Shares of of Common of Common
Common Stock Prior to Stock After
Name Stock Owned Offering Offering
---- ----------- --------------- ----------------
<S> <C> <C> <C>
William J. Gallagher (1) 46,667 4.2% 1.9%
D. W. Gibbs (2) 32,000 2.8% 1.3%
Sam Bell Steves Rosser (1) 66,666 6.0% 2.8%
Henry H. Salzarulo (3) 66,000 5.9% 2.7%
Jeffrey M. Morehouse (4) 60,000 5.4% 2.5%
John H. Coleman, III (1) 66,667 6.0% 2.8%
Richard Wagner (5) 80,600 6.9% 3.3%
JEB Investment Company 240,000 21.6% 10.0%
All officers and directors
as a group (6 persons) (1)(2)(3)(4) 271,333 23.3% 11.0%
(1) Messrs. Rosser, Gallagher and Coleman may be deemed to be "promoters" and "founders" of the Company as those terms are
defined under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
(2) Represents vested stock options to purchase up to 32,000 shares of Common Stock (out of a total grant of 80,000 stock
options) at $2.50 per share under the Company's 1994 Stock Option Plan. See "Management--Executive Compensation."
(3) Includes Warrants to purchase up to 13,000 shares of Common Stock at $2.50 per share.
(4) Includes Warrants to purchase up to 10,000 shares of Common Stock at $2.50 per share.
(5) Includes Warrants to purchase up to 53,600 shares of Common Stock at $2.50 per share.
29
</TABLE>
<PAGE>
SELLING STOCKHOLDERS
This Prospectus also registers 118,750 shares of Common Stock which may be
sold from time to time in open market transactions at prevailing market prices
by the individuals listed in the table below. These individuals, none of whom
are officers, directors or 10% or greater stockholders of the Company, acquired
the shares being registered in the offering between August 1995 and March 1996
as additional consideration for loaning the Company an aggregate of $ 1,187,500,
evidenced by Bridge Notes which will be repaid with proceeds of the offering.
The Company will not receive proceeds from the sale of Common Stock by the
Selling Stockholders. See "Use of Proceeds."
Amount of
Shares To Be
Number of Number of Shares Owned After
Name Shares Owned Registered For Sale Offering
---- ------------ ------------------- ------------
John Wilhide 11,000 1,000 10,000
Andrew J. Salperto 6,000 1,000 5,000
William Mahon 2,500 2,500 0
Robert Rynarzewski 20,000 20,000 0
William Downey 5,500 5,500 0
Curtis Norris 1,000 1,000 0
Richard Wagner 32,000 12,000 20,000
John M. Downey 15,000 5,000 10,000
Robert Stoltz 2,250 2,250 0
Joseph Kostoff 1,000 1,000 0
Steven Greenberg 500 500 0
Stanley Morton 1,000 1,000 0
Michael Grear 21,500 1,500 20,000
Alan Hoehle 12,500 2,500 10,000
Gerry Stoltz 1,000 1,000 0
Donald Drews 7,500 7,500 0
Donald Clark 1,500 1,500 0
Norman Glutzen 12,500 2,500 10,000
Brian Cosner 1,000 1,000 0
Lewis A. Myers 2,000 2,000 0
Michael Tucker 1,500 1,500 0
Fredrick Garner 2,500 2,500 0
Ron Lang 2,500 2,500 0
Ora Toledano 40,000 40,000 0
------- ------- ------
Totals 203,750 118,750 85,000
======= ======= ======
CERTAIN TRANSACTIONS
William J. Gallagher, the Company's Chairman, along with certain other
stockholders and directors of the Company, are or were stockholders, officers
and/or directors of WaterMarc Food Management, Inc. ("WaterMarc") during the
time the transactions described in the next following paragraph occurred. The
Company believes that the transactions described below were fair, reasonable and
consistent with the terms of transactions which the Company could have entered
into with nonaffiliated third parties. All future transactions with affiliates
will be approved by a majority of the Company's disinterested directors.
In June 1993, WaterMarc assigned to the Company all of the development
rights it had obtained for Cluckers restaurants at an original cost to WaterMarc
of 47,000 shares of its common stock. On June 18,1993, these shares were
tendered by WaterMarc to Cluckers Wood Roasted Chicken, Inc., ("CWRC") the
Cluckers franchisor, and valued at 8.50 per WaterMarc share, or a total of
30
<PAGE>
$399,500. The development rights consisted of Cluckers franchise rights in
Houston, Galveston, Dallas and San Antonio, Texas, and area development rights
in Mexico and Central America. In consideration of this assignment, the Company
issued to WaterMarc a convertible promissory note ("Note") due June 30,1998 in
the amount of $800,000 payable at the option of the Company in whole, or in
part, in cash or Common Stock of the Company. The Note bore interest at 8% per
annum, and was secured by all the assets of the Company and the stockholdings of
Messrs. Gallagher, Coleman and Rosser. The substantial increase in the Note
above the $399,500 of consideration paid by WaterMarc for the area development
rights was attributable to the rights to the Mexico and Central America markets,
which WaterMarc and the Company believed to have more value and market
development potential than had been assigned by CWRC. During 1994, the Company
repaid $315,000 of the Note and the Company and WaterMarc agreed to convert the
remaining portion of the Note and other advances to the Company from WaterMarc
totalling approximately $42,000, and $63,430 of accrued interest, into 240,000
shares of the Company's Common Stock, (valued at $2.50 per share by the
Company's Board of Directors), which shares were subsequently sold by WaterMarc
to JEB Investment Company ("JEB") for $1,800,000 payable by JEB in the form of a
promissory note secured by the 240,000 shares, bearing interest at 9% per annum
and payable June 30, 1996. WaterMarc has advised the Company that it considers
the JEB promissory note in default and is taking steps to foreclose upon the
240,000 shares which raises a question as to the ownership of the shares. JEB
has advised the Company that (i) it has not received formal notice of any such
foreclosure (ii) it is investigating the validity of the promissory note and it
intends to enter into settlement discussions with WaterMarc in the near future.
If WaterMarc is successful in obtaining such shares from JEB, WaterMarc would
become a principal stockholder of the Company and the lock up agreement covering
the 240,000 shares which provides that the shares may not be sold until June
1997 may not be effective against WaterMarc in which event the shares could be
sold beginning in June 1996. The Company believes that the potential transfer of
the 240,000 shares to WaterMarc will have no other material affect on the
Company.
In June 1993, the Company issued 200,000 shares of its Common Stock to
Messrs. Gallagher, Coleman and Rosser, officers and directors of the Company,
for services rendered valued at $5,000, or $.025 per share, which was the par
value of the Common Stock at the time of issuance. During the same month, the
Company issued 100,000 shares of its Common Stock to two investors for services
rendered valued at $12,500 or $.125 per share, an increase of $.10 per share
which reflects the fact that the two investors were not founders of the Company
and provided services rather than cash.
In August 1993, the Company sold 240,000 shares of its Common Stock to a
seven member investor group which included Henry H. Salzarulo and Jeffrey M.
Morehouse, directors of the Company, and Bruce T. McGill, a former director of
the Company for $300,000 or $1.25 per share in order to finance the development
of its first Cluckers restaurant in San Antonio, Texas.
In April 1994, the Company sold 100,000 units of its securities at $2.50
per unit to a seven member investor group which included Henry H. Salzarulo and
Jeffrey M. Morehouse, directors of the Company. Each unit consisted of one share
of Common Stock and a warrant to purchase an additional share at $2.50 per share
at any time until April 1996. In March 1996, the expiration date of the warrant
was extended to December 1997.
In August 1994, the Company sold 110,000 shares of its Common Stock at
$2.50 per share to an investor group.
The sales of Common Stock described in the three prior paragraphs reflect
an increase in price from $1.25 to $2.50 per share and were a result of
negotiations between the Company and the named investors. The Company believes
it was able to realize a higher price per share in later transactions because
the Company's business had matured and the perceived risk associated with the
business had lessened.
In March 1995, the Company entered into an employment agreement with D.W.
Gibbs, its Chief Executive Officer and a director and in August 1995, the
Company entered into an employment agreement with Mr. Gallagher, a director and
former Chairman of the Company. See "Management--Executive Compensation."
31
<PAGE>
In March 1995, the Company executed an area development agreement with
Bruce T. McGill, a former director of the Company, to develop up to ten Cluckers
restaurants in Singapore over a 20-year period. Mr. McGill agreed to pay a
$50,000 license fee (including $20,000 in cash and a promissory note for $30,000
due September 30, 1996), a 5% royalty and a 4% advertising fee on gross revenues
generated from the Cluckers restaurants. The license was converted to apply to
Harvest Rotisserie restaurants in March 1996. Under the license, Mr. McGill also
has a right of first refusal until March 30, 1997, to match the terms of any
license the Company agrees to sell to develop Harvest Rotisserie restaurants in
Malaysia.
Between December 1994 and May 1995, the Company borrowed $497,000 from an
investor group evidenced by promissory notes bearing interest at 10% per annum
and due in November 1995 (subsequently extended to September 1996), or upon
closing of the offering, whichever is sooner. As additional consideration for
the loans, the Company issued 198,800 common stock purchase warrants at the rate
of one warrant for each $2.50 loaned, with each warrant entitling the holder to
purchase one share of the Company's Common Stock at $2.50 per share at any time
until December 1997. The loans will be repaid with proceeds of the offering. See
"Use of Proceeds."
Between August 1995 and March 1996, the Company borrowed $ 1,187,500 from
the Selling Stockholders evidenced by promissory notes bearing interest at 10%
per annum and due in September 1996, or upon closing of the offering, whichever
is sooner. As additional consideration for the loans, the Company issued 118,750
shares of its Common Stock to the Selling Stockholders, which shares are being
registered hereby. The loans will be repaid with proceeds of the offering. See
"Use of Proceeds."
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 10,000,000 shares of $.01 par value
Common Stock. At March 31,1996, there were 1,108,750 shares of Common Stock
outstanding and an additional 2,879,280 shares of Common Stock are issuable upon
exercise of the Existing Options including 2,300,000 shares issuable upon
exercise of the Warrants and Representative's Warrants. The holders of Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders, including the election of directors. There
is no right to cumulate votes in the election of directors. The holders of
Common Stock are entitled to any dividends that may be declared by the Board of
Directors out of funds legally available therefor subject to any prior rights of
holders of Preferred Stock. In the event of liquidation or dissolution of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preferences of any
outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights and have no right to
convert their Common Stock into any other securities. All of the outstanding
shares of Common Stock are fully paid and nonassessable.
Redeemable Common Stock Purchase Warrants
Each Warrant represents the right to purchase one share of Common Stock at
an initial exercise price of $4.00 per share for a period of five years from the
date hereof commencing one year from the date hereof. The exercise price and the
number of shares issuable upon exercise of the Warrants are subject to
adjustment in certain events, including the issuance of Common Stock as a
dividend on shares of Common Stock, subdivisions or combinations of the Common
Stock or similar events. The Warrants do not contain provisions protecting
against dilution resulting from the sale of additional shares of Common Stock
for less than the exercise price of the Warrants or the current market price of
the Company's securities.
Warrants may be redeemed in whole or in part, at the option of the Company,
upon 30 days' notice, at a redemption price equal to $.01 per Warrant at any
time after one year from the date hereof if the closing price of the Company's
Common Stock on NASDAQ averages at least $8.00 per share for a period of 20
consecutive trading days.
32
<PAGE>
Holders of Warrants may exercise their Warrants for the purchase of shares
of Common Stock only if a current prospectus relating to such shares is then in
effect and only if such shares are qualified for sale, or deemed to be exempt
from qualification, under applicable state securities laws. The Company is
required to use its best efforts to maintain a current Prospectus relating to
such shares of Common Stock at all times when the market price of the Common
Stock exceeds the exercise price of the Warrants until the expiration date of
the Warrants, although there can be no assurance that the Company will be able
to do so.
The shares of Common Stock issuable on exercise of the Warrants will be,
when issued in accordance with the Warrants, fully paid and non-assessable. The
holders of the Warrants have no rights as stockholders until they exercise their
Warrants.
For the life of the Warrants, the holders thereof have the opportunity to
profit from a rise in the market for the Company's Common Stock, with a
resulting dilution in the interest of all other stockholders. So long as the
Warrants are outstanding, the terms on which the Company could obtain additional
capital may be adversely affected. The holders of such Warrants might be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital by a new offering of securities on terms
more favorable than those provided by such Warrants.
Other Outstanding Common Stock Purchase Warrants
The Company has issued 329,280 common stock purchase warrants each
exercisable at $2.50 per share until December 1997. See "Certain Transactions."
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock,
$1.00 par value (the "Preferred Stock"). The Preferred Stock may, without action
by the stockholders of the Company, be issued by the Board of Directors from
time to time in one or more series for such consideration and with such relative
rights, privileges and preferences as the Board may determine. Accordingly, the
Board has the power to fix the dividend rate and to establish the provisions, if
any, relating to voting rights, redemption rate, sinking fund, liquidation
preferences and conversion rights for any series of Preferred Stock issued in
the future.
It is not possible to state the actual effect of any other authorization of
Preferred Stock upon the rights of holders of Common Stock until the Board
determines the specific rights of the holders of any other series of Preferred
Stock. The Board's authority to issue Preferred Stock also provides a convenient
vehicle in connection with possible acquisitions and other corporate purposes,
but could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock. Accordingly, the issuance of
Preferred Stock may be used as an "anti-takeover" device without further action
on the part of the stockholders of the Company, and may adversely affect the
holders of the Common Stock. No shares of Preferred Stock are outstanding and
none are contemplated to be issued.
Stock Transfer and Warrant Agent
Corporate Stock Transfer, Inc., Denver, Colorado, is the transfer and
warrant agent for the Company's securities.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation provide that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for an act or omission in the director's capacity as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for any transaction from which the director derived an improper
personal benefit or (iv) for an act or omission for which the liability of the
director is expressly provided by an applicable statute. The effect of this
provision in the Articles of Incorporation is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages from a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. In addition, the Articles of Incorporation
provide that any repeal or modification of this provision by the Company's
stockholders or by Texas law will not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to such repeal or
modification. Moreover, any further elimination of director liability under
Texas law will further limit the directors' liability under this provision. This
provision does not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care.
33
<PAGE>
The Company's Articles of Incorporation also require the Company to
indemnify its directors and officers against expenses and certain other
liabilities arising out of their conduct on behalf of the Company to the maximum
extent and under all circumstances permitted by law, including liabilities
arising out of legal actions brought or threatened against them for their
conduct on behalf of the Company, provided that each such person acted in good
faith and in a manner he or she reasonably believed was in or not opposed to the
Company's best interests. In the case of an action by or in the right of the
Company, indemnification is available if such person acted in good faith and in
a manner that he or she reasonably believed was in or not opposed to the
Company's best interests, except as regards a person adjudged to be liable to
the Company, unless a court shall determine that such person is fairly and
reasonably entitled to indemnity for certain expenses.
Insofar as the indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
A total of 990,000 shares of the Company's outstanding Common Stock at
March 31, 1996 (not including 118,750 shares being registered hereby on behalf
of the Selling Stockholders) are "restricted securities" as that term is defined
under Rule 144 adopted under the Securities Act of 1933, as amended, end may be
sold, subject to the lock up agreements described below, from time to time under
Rule 144, with 640,000 shares currently available for sale, 240,000 shares
available for sale in June 1996 and the remaining 110,000 shares available for
sale in August 1996. The Selling Stockholders' shares may be sold from time to
time in open market transactions at prevailing market prices upon completion of
the offering. See "Selling Stockholders." Notwithstanding the above, all of the
Company's stockholders have entered into a lock up agreement with the
Representative not to publicly offer their Common Stock for sale for a period of
13 months from the date hereof, except with the written consent of the
Representative. A question as to the ownership of the 240,000 shares currently
registered in the name of JEB Investment Company may affect the lock up
agreement covering such shares to the extent that such shares may be sold under
Rule 144 beginning in June 1996 rather than June 1997. See "Certain
Transactions." In general, Rule 144 provides that a person holding restricted
securities for a period of two years may sell each three months, provided he is
not part of a control group acting in concert to sell, an amount equal to the
greater of the average weekly reported trading volume of the Common Stock during
the four calendar weeks preceding the sale, or one percent of the Company's
outstanding Common Stock following the offering (a minimum of 21,087 shares).
This limitation does not apply to a non-affiliate of the Company who has
beneficially owned the restricted securities for a period of three years prior
to sale. Such sales may have a depressive effect upon the market price of the
Company's Common Stock.
The Company has registered hereby 2,000,000 shares underlying the Warrants
and has granted demand and piggyback registration rights for 300,000 shares of
Common Stock underlying warrants included in the Representative's Warrants.
34
<PAGE>
UNDERWRITING
The Underwriters named below, acting through Global Equities Group, Inc. as
lead managing underwriter (the "Representative"), have agreed, severally and not
jointly, subject to the terms and conditions contained in an Underwriting
Agreement dated the date of the commencement of the offering contemplated
hereby, to purchase the Common Stock and Warrants from the Company in the
amounts set forth below:
Shares of Number of
Underwriter Common Stock Warrants
----------- ------------ ---------
Global Equities Group, Inc.
PCM Securities Limited, L.P.
--------- ---------
Total 1,000,000 2,000,000
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the securities offered hereby, if any are purchased. The Company
has been advised by the Representative that the Underwriters propose to offer
the Common Stock and Warrants to the public initially at the offering price set
forth on the cover page of this Prospectus, and to selected dealers, including
Underwriters, at such price less a concession in an amount to be determined by
the Representative. The Underwriters will purchase the Common Stock and Warrants
(including the Common Stock and Warrants subject to the Overallotment Option)
offered hereby at a discount equal to 10% of the public offering price, or $.55
per share of Common Stock and $.0125 per Warrant.
The Company has granted the Representative an Overallotment Option,
exercisable during the 45-day period after the date of this Prospectus, to
purchase up to 150,000 shares of Common Stock and/or 300,000 Warrants on the
same terms as the securities being purchased by the Underwriters from the
Company. The Representative may exercise the Overallotment Option only to cover
overallotments in the sale of the securities that the Underwriters agreed to
purchase.
The Company has agreed to issue to the Representative warrants
(collectively the "Representative's Warrants") to purchase up to 100,000 shares
of Common Stock at $6.60 per share and 200,000 warrants at $.15 per warrant.
Each warrant entitles the holder to purchase one share of Common Stock at $4.00
per share. The Representative's Warrants are exercisable for a period of four
years beginning one year from the date of this Prospectus. The Representative's
Warrants are non-transferable for a period of one year following the date of
this Prospectus, except to any of the Underwriters or to any individual who is
either a partner or an officer of an Underwriter or by operation of law or by
will or the laws of descent and distribution. The holders of the
Representative's Warrants will have, in that capacity, no voting, dividend or
other shareholder rights. Any profit realized by the Representative on the sale
of the securities issuable upon exercise of the Representative's Warrants may be
deemed to be additional underwriting compensation.
The Company has granted the holders of the Representative's Warrants and
the underlying Common Stock and Warrants certain rights with respect to the
registration of the Common Stock and Warrants underlying the Representative's
Warrants under the Securities Act of 1933, as amended (the "Securities Act").
The Company has agreed, for a period of four years commencing one year following
the effective date of the Registration Statement of which this Prospectus is a
part, at the request of any holder of the securities issued or issuable upon
exercise of the Representative's Warrants, to use its best efforts to effect at
the Company's expense a maximum of one registration under the Securities Act
(the "Demand Registration") with respect to the securities underlying the
Representative's Warrants. Subject to certain limitations, in the event the
Company proposes to register any of its securities under the Securities Act
during the five-year period following the effective date of the Registration
Statement of which this Prospectus is a part, the holders of the
Representative's Warrants and underlying securities are entitled to notice of
such registration and may elect to include ("piggyback") the securities
underlying the Representative's Warrants held by them in such registration. In
connection with the above registrations, the Company is required to pay all
fees, disbursements and out-of-pocket expenses associated with the Demand
Registration and any piggyback registrations, except for the brokerage fees,
commissions and, in the case of any piggyback registrations, legal fees of the
holders of the Representative's Warrants or the underlying securities.
35
<PAGE>
The Representative will also receive a nonaccountable expense allowance of
3% of the aggregate initial public offering price of the securities sold in this
offering, of which $34,000 has been paid to date. None of the Company's offering
expenses will be paid by the Selling Stockholders.
By virtue of holding the Representative's Warrants, the Representative
possesses the opportunity to profit from a rise in the market price of the
Company's securities. Furthermore, the exercise of the Representative's Warrants
and the Warrants thereby obtained would dilute the interests of the Company's
stockholders. The existence of the Representative's Warrants may make it more
difficult for the Company to raise additional equity capital. Although the
Company will obtain additional equity capital upon exercise of the
Representative's Warrants, it is likely that the Company could then raise
additional capital on more favorable terms than those of the Representative's
Warrants.
For a period of five years after the date of this Prospectus, the Company
will pay the Representative a fee of 5% of the exercise price of each Warrant
exercised, provided (i) the market price of the Common Stock on the date the
Warrant was exercised was greater than the Warrant exercise price on that date;
(ii) the exercise of the Warrant was solicited by a member of the NASD; (iii)
the Warrant was not held in a discretionary account; (iv) the disclosure of
compensation arrangements was made both at the time of the Offering and at the
time of exercise of the Warrant; (v) the solicitation of the exercise of the
Warrant was not a violation of Rule 10b-6 promulgated under the Exchange Act;
and (vi) the Representative is designated in writing as a soliciting broker.
Unless granted an exemption by the Commission from Rule 10b-6 under the Exchange
Act, the Representative and any other soliciting broker-dealers will be
prohibited from engaging in any market-making activities or solicited brokerage
activities with regard to the Company's securities during the periods prescribed
by exemption (xi) to Rule 10b-6 before the solicitation of the exercise of any
Warrant until the later of the termination of such solicitation activity or the
termination of any right the Representative and any other soliciting
broker/dealer may have to receive a fee for the solicitation of the exercise of
the Warrants.
The Company paid the Representative a commission of $40,000 in connection
with the Company's sale of $400,000 of Bridge Notes in March 1996. See "Certain
Transactions."
The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act and to contribute in
certain events to liabilities incurred by the Underwriters in connection with
the sale of the Units. In the opinion of the Commission, indemnification against
liabilities under the Securities Act is against public policy and is therefore
unenforceable.
Upon completion of the offering, for a period of three years, the Company
has also agreed to give notice to the Representative of meetings of the
Company's Board of Directors and to allow a designee of the Representative to
attend such meetings. The Company has also agreed not to issue any of its equity
securities for a period of one year from the date hereof, without the prior
written consent of the Representative.
Prior to the offering, there has been no public market for the Common Stock
or Warrants. The Common Stock and Warrant offering prices and the exercise price
of the Warrants were arbitrarily determined through negotiations between the
Company and the Representative. The principal factors considered in pricing the
securities were the Company's current and anticipated revenues and earnings, its
overall business prospects and the general condition of the securities markets
at the time of the offering.
LEGAL MATTERS
Gary A. Agron, Esq., Englewood, Colorado, has represented the Company in
connection with the offering. Mound, Cotton & Wollan, New York, New York, has
acted as counsel for the Representative in connection with the offering.
36
<PAGE>
EXPERTS
The financial statements of the Company for the years ended December
31,1995 and 1994, and the period June 18, 1993 (Inception) to December 31,1993,
included herein, have been audited by Akin, Doherty, Klein & Feuge, P.C.,
independent certified public accountants. The financial statements have been so
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act, with respect to
the securities offered by this Prospectus. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and the exhibits
thereto, which may be examined without charge at the public reference section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the regional offices of the Commission located at 7
World Trade Center, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Street, Suite 140O, Chicago, nlinois60661. Copies of all or any
portion of the Registration Statement may be obtained from the Public Reference
Section of the Commission, upon payment of prescribed fees.
37
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
CluckCorp International, Inc.
San Antonio, Texas
We have audited the accompanying balance sheets of CluckCorp International,
Inc. as of December 31, 1995 and 1994, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years then ended and the
period of inception, June 18, 1993 to December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CluckCorp International,
Inc. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for the years then ended, and the period of inception, June 18,1993
to December 31,1993, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred net losses of $924,483, $494,024 and $147,035 during the
years ended December 31,1995 and 1994, and the period of inception, June 18,
1993 to December 31,1993 and as of December31, 1995, the Company's current
liabilities exceeded its current assess by $876,097 and had a deficit in
stockholders' equity of $365,817. These factors, among others, as discussed in
Note B to the financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Akin, Doherty, Klein & Feuge, P.C.
San Antonio, Texas
March 15, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
CluckCorp International, Inc.
Balance Sheets
March 31, December 31,
1996 1995 1994
----------- ---- ----
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash $ 434,200 $ 126,447 $ 42,711
Inventories 6,918 5,044 2,998
Prepaid expenses 187,967 119,364 1,645
Deferred loan costs 44,803 24,710 -
Note receivable from stockholder 30,000 40,000 -
--------- --------- ---------
Total Current Assets 703,888 315,565 47,354
Property and Equipment
Construction in progress 69,498 - -
Furniture, fixtures and equipment 78,996 78,150 77,080
Leasehold improvements 115,830 115,830 115,830
--------- --------- ---------
264,324 193,980 192,910
Less accumulated depreciation (51,972) (43,112) (18,160)
--------- --------- ---------
212,352 150,868 174,750
Other Assets
Intangible property rights, net of
amortization
of $109,862 in 1996, $99,875 in
1995 and $59,925 in 1994 289,638 299,625 339,575
Deposits 36,677 25,007 19,504
Other assets 37,536 34,780 5,203
---------- --------- ---------
363,851 359,412 364,282
---------- --------- ---------
$1,280,091 $ 825,845 $ 586,386
========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Bridge notes payable, net of
unamortized discount
of $287,039 in 1996, $133,523
in 1995 and $-0- in 1994 $1,397,461 $ 940,977 $ 89,000
Accounts payable, trade 187,695 161,642 83,827
Accrued liabilities 115,255 89,043 33,822
Advances from stockholder - - 16,889
---------- --------- ---------
Total Current Liabilities 1,700,411 1,191,662 223,538
Commitments and contingencies
Common stock subject to rescission,
118,750 shares in 1996 and
57,750 shares in 1995 405,702 195,818 -
Stockholders' Equity (Deficit)
Preferred stock - $1 par value,
5,000,000 shares authorized,
no shares issued or outstanding - - -
Common stock - $.01 par value,
10,000,000 shares authorized,
990,000 shares issued and
outstanding in 1996, 1995 and 1994 9,900 9,900 9,900
Additional paid - in capital 994,007 994,007 994,007
Accumulated deficit (1,829,929) (1,565,542) (641,059)
---------- --------- ----------
Total Stockholders' Equity
(Deficit) (826,022) (561,625) 362,848
---------- --------- ----------
$1,280,091 $ 825,845 $ 586,386
========== ========= ==========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
CluckCorp International, Inc.
Statements of Operations
Years Ended
March 31, December 31, Period of Inception
------------------------ ------------------------- June 18, 1993 to
1996 1995 1995 1994 December 31 1993
---------- ---------- --------- --------- -------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Restaurant $ 50,602 $ 68,665 $ 226,678 $ 243,988 $ -
Area development fee, stockholder - 50,000 50,000 - -
---------- -------- --------- --------- ---------
50,602 118,665 276,678 243,988 -
Costs and Expenses
Cost of food and paper 19,019 24,762 82,171 105,650 -
Restaurant salaries and benefits 19,811 31,924 127,400 146,677 -
Occupancy and related expenses 13,258 16,129 63,605 67,611 -
Operating expenses 14,645 21,738 86,641 106,647 -
General and administrative expenses 107,853 65,456 567,605 197,641 49,883
Preopening expenses 9,192 11,850 59,363 25,783 42,514
Depreciation and amortization 23,590 14,769 73,879 58,940 20,271
---------- -------- --------- --------- ---------
Total costs and expenses 207,368 186,628 1,060,664 708,949 112,668
---------- -------- --------- --------- ---------
Loss from operations (156,766) (67,963) (783,986) (464,961) (112,668)
Interest and debt discount expense 107,621 3,799 140,497 29,063 34,367
---------- -------- --------- --------- ---------
Net Loss $( 264,387) $(71,762) $(924,483) $(494,024) $(147,035)
========== ======== ========= ========= =========
Net loss per common share $ (.21) $ (.06) $ (.75) $ (.49) $ (.21)
---------- -------- --------- --------- ---------
Weighted average number of common
and common equivalent shares
outstanding 1,275,016 1,213,244 1,224,531 1,005,107 703,244
========= ========= ========= ========= =======
See notes to financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CluckCorp International, Inc.
Statements of Stockholders' Equity (Deficit)
Common Stock Additional Total
------------ Paid-In Accumulated Stockholders'
Shares Amount Capital (Deficit) Equity (Deficit)
------ ------ ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock
on June l8,1993 200,000 $ 2,000 $ 3,000 $ - $ 5,000
Issuance of common stock 340,000 3,400 309,100 - 312,500
Net loss for the period - - - (147,035) (147,035)
--------- ------- ---------- ----------- ---------
Balance at December31, 1993 540,000 5,400 312,100 (147,035) 170,465
Issuances of common stock 210,000 2,100 494,150 - 496,250
Exchange of common stock
for reduction in
obligations to affiliate 240,000 2,400 187,757 - 190,157
Net loss for the year - - - (494,024) (494,024)
--------- ------- ---------- ----------- ---------
Balance at December 31, 1994 990,000 9,900 994,007 (641,059) 362,848
Net loss for the year - - - (924,483) (924,483)
--------- ------- ---------- ----------- ---------
Balance at December 31, 1995 990,000 9,900 994,007 (1,565,542) $(561,635)
Net loss for the period - - - (264,387) (264,387)
(Unaudited)
--------- ------- ---------- ----------- ---------
Balance at March 31, 1996 990,000 $ 9,900 $ 994,007 $(1,829,929) $(826,022)
========= ======= ========== =========== =========
(Unaudited)
See notes to financial statements
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CluckCorp International, Inc.
Statements of Cash Flows
Three Months Ended Years Ended
March 31, December 31, Period of Inception
--------------------------- --------------------------- June 18, 1993 to
1995 1994 1995 1994 December 31, 1993
---------- ---------- --------- --------- --------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net loss for the period $(264,387) $(71,762) $(924,483) $(494,024) $ (147,035)
Adjustments to reconcile
net loss to net cash used
in operations:
Depreciation and amortization 23,590 14,769 73,879 58,940 20,271
Common stock issued for
services and expenses - - - 29,063 17,500
Amortization of bridge note
discount 80,114 - 87,659 - -
Loss on forfeited deposits - - 17,338 - -
Changes in operating assets
and liabilities:
Inventories (1,874) (597) (2,046) (2,998) -
Prepaid expenses (68,603) 1,645 (117,719) (1,645) -
Deferred loan costs (20,093) (35,727) (24,710) - -
Other current assets 10,000 (40,000) (40,000) - -
Accounts payable and
accrued liabilities 52,265 (14,231) 133,037 117,649 34,367
-------- ------- -------- -------- -------
Net cash (used) by
operating activities (188,988) 145,903) (797,045) (293,015) (74,897)
Investing Activities
Purchases of property and
equipment (72,843) (814) (5,071) (97,408) (95,502)
Additions to deposits and
other assets (16,670) (5,034) (57,395) (18,210) (7,623)
-------- ------- -------- -------- -------
Net cash(used)by investing
activities (89,513) (5,848) (62,466) (115,618) (103,125)
Financing Activities
Net proceeds from sale of
common stock - - - 496,250 300,000
Net proceeds from sale of
common stock subject to
rescission 209,884 - 195,818 - -
Proceeds from issuance of
bridge notes payable, net
of discount 376,370 288,000 764,318 89,000 -
Advances from stockholder - - - 22,889 -
Advances from affiliate - - - 42,227 -
Repayments of stockholder advances - (11,000) (16,889) (6,000) -
Repayments of obligations to
affiliate - - - (315,000) -
-------- ------- -------- -------- -------
Net cash provided by investing
activities 586,254 277,000 943,247 329,366 300,000
-------- ------- -------- -------- -------
Net increase (decrease) in cash 307,753 125,249 83,736 (79,267) 121,978
Cash at beginning of period 126,447 42,711 42,711 121,978 -
Cash at End of Period $434,200 $167,960 $ 126,447 $ 42,711 $ 121,978
======== ======== ============ ======== =========
See notes to financial statements.
F-5
</TABLE>
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: CluckCorp International, Inc. ("CluckCorp" or the "Company")
was organized in the State of Texas on June 18, 1993, and is an operator and
developer of a quick service restaurant concept. The Company currently operates
one restaurant in San Antonio, Texas which opened in January 1994. The
restaurant provides high quality quick service food featuring marinated
oak-roasted rotisserie chicken with a variety of homemade side dishes.
The Company incorporated two wholly-owned subsidiaries during 1995,
Cluckers Restaurants, Inc. and Harvest Restaurants, Inc., to act as franchisors
for the Company's restaurants. Neither subsidiary had any operations during
1995.
Cash and Cash Equivalents: The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market and consist primarily of restaurant food and paper.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets (generally seven years for furniture,
fixtures and equipment and five years for leasehold improvements), or applicable
lease terms if less. Maintenance and repairs are charged to expense as incurred,
while improvements which increase the value of the property and extend the
useful lives are capitalized.
Intangible Property Rights: The Company obtained under an agreement with
Cluckers Wood Roasted Chicken, Inc., an unaffiliated Florida corporation (CWRC),
an exclusive license to use all of CWRC's intangible property rights in the
State of Texas. Intangible property rights acquired from CWRC are stated at
original acquired cost and amortized over a ten year period. The Company
periodically assesses the valuation of the rights in light of projected
operating results and economic conditions and impairments are recognized when
the expected future undiscounted operating cash flows derived from such rights
are less than their carrying value. No impairments have been recognized to date.
Amortization expense of $39,950 is included in the accompanying statements of
operations for each of the years ended December 31, 1995 and 1994, and $ 19,975
for the period ended December 31, 1993.
Revenue Recognition: Revenue from restaurant and product sales are
recognized in the period in which food and beverage products are sold. Revenue
from nonrefundable area development fees is recognized when all material
services or conditions relating to the area development sale have been
substantially performed or satisfied by the Company.
Preopening Costs: Certain expenses incurred in connection with the opening
of a restaurant (principally the costs of supplies and staff training) and in
connection with acquiring site locations for planned future restaurants are
charged to expense as incurred.
Income Taxes: In accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", deferred tax assets and
liabilities are recognized for temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements. A
valuation allowance is provided against net deferred tax assets when realization
is doubtful.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-6
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements (Continued)
December 31, 1995 and 1994
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interim Financial Statements: The unaudited financial statements as of
March 31, 1996 and for the three months ended March 31, 1996 and 1995 include
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the results for such interim periods. The results for these
interim periods are not necessarily indicative of the results for a full year.
NOTE B - UNCERTAINTIES
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. However, the Company has sustained
substantial operating losses since its inception. In addition, operations at
current levels will not generate working capital sufficient to meet future
operating requirements. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not reflect any adjustments that might result from the outcome of this
uncertainty. The Company's continuation as a going concern is dependent upon its
ability to obtain additional capital or financing to fund the development of new
restaurants and a franchising program, and to achieve profitable operations.
Management plans include obtaining additional capital or financing through
either public or private offerings. Management also intends to concentrate
efforts at bringing its current operations to profitability.
Subsequent to year end, the Company issued an additional $610,000 of bridge
notes, exclusive of offering costs of $61,000, through a private placement, and
entered into a letter of intent in February, 1996 with an investment banking
firm for the purpose of underwriting an initial public offering of the Company's
securities. See Note K.
NOTE C - BRIDGE NOTES PAYABLE
As of December 31, 1995 and 1994, the Company had bridge notes payable
outstanding of $940,977 and $89,000 (net of unamortized discount of $133,523 and
$-0-), respectively.
Between December 1994 to November 1995, the Company issued a total of
$1,074,500 of unsecured promissory notes ("Bridge Notes"), exclusive of $93,435
of offering costs. The bridge notes bear interest at 10% per annum payable at
maturity, due the earlier of six months from the date of issuance, or upon the
closing of a future public financing which results in cumulative proceeds of at
least $1,000,000. The notes were issued to individuals in three separate private
offerings as follows; (i) $497,000 completed in May 1995, (of which $89,000 was
issued in December 1994), originally due November 1995 and extended to May 1996,
(ii) $225,000 in August 1995, originally due February 1996 and extended to May
1996, and (iii) $352,500 in November 1995, due May 1996.
As additional consideration for the $497,000 bridge notes, the Company
issued to the investors 198,800 common stock purchase warrants, with each
warrant entitling the holder to purchase one share of the Company's common stock
at $2.50 per share until December 31, 1997. Management valued the common stock
of the Company at $2.50 per share during the period of time the bridge note was
funded, as an independent appraisal of the common stock was not obtained.
Accordingly, no allocation of the note proceeds to the warrants is applicable.
As additional consideration for advancing the remaining $225,000 of bridge
notes in August 1995 and $325,500 of bridge notes in November 1995, the Company
issued to the investors an aggregate of 57,750 shares of its common stock.
Management valued the common stock of the Company at $3.83 per share during the
period of time the bridge notes were funded, as an independent appraisal of the
common stock was not obtained. The gross proceeds and offering costs were
allocated between the bridge notes and the common stock in accordance with their
relative fair values. The discount resulting from the difference between the
stated value of the bridge notes and their determined fair values is reported as
a direct deduction to the amount of the bridge notes and is amortized as
interest expense over the stated life of the bridge notes. During 1995, $87,659
of the discount was amortized to interest expense.
F-7
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements (Continued)
December 31, 1995 and 1994
NOTE C - BRIDGE NOTES PAYABLE (Continued)
The Company's weighted-average interest rate (interest and amortization of
discount) on its short-term borrowings was 28% in 1995 and 10% in 1994.
NOTE D - ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31,:
1995 1994
------- -------
Accrued payroll and related liabilities $ 6,874 $27,907
Accrued interest payable 51,758 -
Accrued property lease payments 29,500 -
Other accrued liabilities 911 5,915
------ -----
$89,043 $33,822
======= =======
NOTE E - OPERATING LEASES
The Company conducts all its operations and maintains its administrative
offices in leased facilities. The San Antonio restaurant lease has a five year
term with renewal clauses for an additional ten years. This lease requires the
Company to pay for common area maintenance charges and other expenses. The
Company also has entered into two ten year lease agreements for facilities in
Houston and San Antonio, Texas which the Company intends to develop as
restaurants in the future. The Company also leases certain equipment under
non-cancelable operating leases having terms expiring at various dates through
1997. Rental expense under operating lease agreements was approximately $
120,262, $69,234 and $ -0- for the periods ended December 31, 1995, 1994 and
1993, respectively.
Future minimum lease payments are as follows:
Years Ended December 31 Amount
----------------------- ------
1996 $ 109,094
1997 104,711
1998 90,078
1999 67,200
2000 68,200
Thereafter 309,600
---------
Total future minimum payments $ 748,883
=========
The Company has also entered into non-binding leases for four additional
restaurant site locations, with lease terms ranging from 5 to 10 years. If
consummated, the leases will require aggregate annualized lease payments
beginning at approximately $150,000 per year and increasing over the lease term.
F-8
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements (Continued)
December 31, 1995 and 1994
NOTE F - FEDERAL INCOME TAXES
Deferred income taxes resulted from the following temporary differences and
loss carryforwards at December 31,:
1995 1994
---------- ---------
Deferred tax asset - loss carryforwards $1,565,542 $ 641,059
========== =========
Net deferred tax asset at expected rates $ 532,284 $ 217,960
Less valuation allowance (532,284) (217,960)
--------- --------
Deferred tax asset allowed $ - $ -
========= =======
The Company has not recorded any income tax expense (benefit) since its
inception. The Company's tax operating loss carryforwards are available for
utilization against taxable income and expire in various amounts from 2008
through 2010.
NOTE G - STOCKHOLDERS' EQUITY
Reverse Common Stock Split: On July 17, 1995, the Board of Directors
authorized a five-for-two reverse common stock split. All references to number
of shares and to stock warrants as well as per share information have been
adjusted to reflect the stock split on a retroactive basis.
Preferred Stock: The Company has authorized 5,000,000 shares of $ 1 par
value preferred stock, none of which is issued or outstanding. Dividend rates,
conversion rights, rights of redemption and voting and liquidation rates have
not been set by the Board of Directors.
Sales and Issuances of Common Stock and Warrants: On June 18, 1993, the
Company issued a total of 200,000 shares of common stock to its President and
Co-Chairmen of the Board of Directors for $5,000. The Company also exchanged
100,000 shares of its common stock for services valued at $12,500 and charged
this amount to expense in the accompanying statement of operations in 1993.
Subsequently in 1993, the Company sold 240,000 shares of its common stock to
seven investors for $300,000 in a private transaction.
In April 1994, the Company sold 100,000 units of its securities to seven
investors for $250,000 in a private transaction. Each unit consisted of one
share of common stock and one warrant to purchase an additional share of common
stock for $2.50 per share through April 1996.
In August 1994, the Company sold 110,000 shares of its common stock to a
group of investors for $246,250, net of offering costs of $28,750, in a private
transaction. In connection with this sale, the Company issued warrants to the
placement agent to purchase a total of 30,480 shares of common stock for $2.50
per share exercisable through December 31, 1996.
In December 1994 and May 1995, the Company issued 35,600 and 163,200
warrants, respectively, in connection with the issuance of bridge notes to
purchase a total of 198,800 shares of common stock for $2.50 per share,
exercisable through December 31, 1997.
F-9
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements (Continued)
December 31, 1995 and 1994
NOTE G - STOCKHOLDERS' EQUITY (Continued)
In connection with the sale of $1,187,500 of Bridge Notes and the issuance
of 118,750 shares of Common Stock to the bridge lenders (who are the Selling
Stockholders herein) between August 1995 and March 1996, the Company may not
have established an adequate basis to claim the private placement exemption by
virtue of the fact that sales of these securities were made after the filing of
the Registration Statement. If the Company is unable to establish such a basis,
these transactions could be considered integrated with the offering, subjecting
the Company to potential liability for the sales of unregistered securities. If
such an assertion were made and upheld, the Company would otherwise be required
to rescind the issuance of the Bridge Notes and the Common Stock, return the
principal amount of the Bridge Notes together with interest and possibly other
damages. However, under the terms of the Bridge Notes the Company is required to
repay the Bridge Notes plus accrued interest on the closing of the offering.
Nevertheless, the Company could be liable for a claim by the bridge lenders in
connection with the issuance of the 118,750 shares of Common Stock to them at
the rate of $3.83 per share (or an aggregate of $454,812), which is the per
share value, before offering costs, attributed to the Common Stock by the
Company in its financial statements for the year ended December 31, 1995 and for
the three months ended March 31, 1996. No bridge lender has asserted any claim
for rescission or damages, nor is the Company aware of any bridge lender who
intends to do so. See "Selling Stockholders" and "Certain Transactions."
As a result of the contingency related to the issuance of the 118,750
shares of Common Stock, the Company has classified such stock as temporary
equity.
In August and November 1995, the Company issued 22,500 and 35,250 shares of
its common stock, respectively, in connection with the issuance of bridge notes.
Stock Option Plan: In July 1994, the Company adopted a stock option plan
which provides for the granting of either incentive stock options or
non-qualified stock options. Options can be issued to officers, employees,
directors and outside consultants; however, incentive stock options are issuable
only to eligible officers and employees. The Company has reserved a total of
250,000 shares of common stock for the plan. In March 1995 options for the
purchase of 80,000 shares of common stock at $2.50 per share were granted to the
Company's Chief Executive Officer. The options vest 20% per year, commencing on
the date of grant and expire March 31,2000. The options were issued at the fair
market value of the Company's common stock as determined by management as an
independent appraisal of the Company was not obtained. No compensation expense
was recorded in connection with the options granted.
Warrants and Options: The following is a summary of warrant and option
activity, after giving effect to the July 17, 1995 reverse stock split:
<TABLE>
<CAPTION>
Warrants/ Exercise
Options Price Expiration
--------- -------- ----------
<S> <C> <C> <C>
Issued in April 1994 in conjunction with
private sale of common stock (warrants) 100,000 $2.50 December 31, 1997
Issued in August 1994 in conjunction with
private sale of common stock (warrants) 30,480 2.50 December 31, 1997
Issued in December 1994 in conjunction
with bridge notes (warrants) 35,600 2.50 December 31,1997
-------
Outstanding at December 31, 1994 166,080
Issued in May 1995 in conjunction with
bridge notes (warrants) 163,200 2.50 December 31, 1997
Granted and vested under stock option plan
to Company officer (options) 16,000 2.50 March 31, 2000
-------
Outstanding at December 31, 1995 345,280
=======
F-10
</TABLE>
<PAGE>
NOTE H - RELATED PARTY TRANSACTIONS
In June 1993, the Company received franchise and development rights, valued
at $399,500, (the affiliate's historical cost basis as determined by generally
accepted accounting principles) by assignment from an affiliated company
(CluckCorp's current Chairman and majority stockholder was formerly the Chairman
and majority stockholder of the affiliate) for a convertible promissory note,
payable at the option of the Company in cash or common stock. The affiliate
initially acquired these franchise and development rights directly from CWRC. In
1994, the Company also received advances from the same affiliate of $42,227,
repaid $315,000 of the obligations and issued 240,000 shares of common stock in
exchange for full settlement of the remaining obligations to the affiliate,
including $63,430 of accrued interest.
In 1994, the Company received advances from its Chairman totaling $22,889,
and subsequently repaid $6,000 of this amount in 1994, and repaid the remaining
balance of $16,889 in 1995.
In March 1995, the Company entered into an employment agreement with its
Chief Executive Officer (CEO) effective through December 31, 1995. After
December 31, 1995, the Company and the CEO agreed to negotiate a new employment
agreement with an effective date to coincide with the Company's proposed initial
public offering of common stock. Annual compensation under the new agreement is
expected to be approximately $100,000 per year.
In March 1995, the Company entered into an area development agreement with
a stockholder of the Company for the exclusive license to develop up to ten
restaurants in Singapore over a 20-year period. The fee under the area
development agreement was $5O,000, of which the Company had received $10,000 as
of December 31, 1995, and a second $10,000 payment was received on March 6,
1996. A non-interest bearing unsecured promissory note initially due March 30,
1996 has been extended to September 30, 1996. The license fee is nonrefundable
and the Company has no significant future commitments or obligations under the
area development agreement.
On August 10, 1995, the Company entered into a five year employment
agreement with its Chairman. Annual compensation is fixed at the larger of
$75,000 or 20% of all franchise and area development fees paid to the Company
together with 5% of all royalty fees received by the Company under any franchise
agreements and area development agreements executed during the Chairman's
employment.
NOTE I- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company has not paid any interest or taxes for the periods ended
December 31, 1995, 1994 and 1993.
During the period ended December 31, 1993, the Company received franchise
and area development rights, valued at $399,500, for the issuance of a
convertible note payable to an affiliate and payable at the option of the
Company in cash or common stock.
During the year ended December 31,1994, the Company exchanged 240,000
shares of common stock for a reduction in its remaining obligations due an
affiliate of $190,157.
NOTE J - LOSS PER SHARE
Loss per common and common equivalent share are computed by dividing net
loss by the weighted average number of shares outstanding during each period.
Warrants and options outstanding are dilutive and are assumed to be outstanding
for all periods presented, using the treasury stock method.
F-11
<PAGE>
<TABLE>
<CAPTION>
CluckCorp International, Inc.
Notes to Financial Statements (Continued)
December 31, 1995 and 1994
NOTE J - LOSS PER SHARE (Continued)
Loss per common share is calculated as follows:
Three Months Ended Year Ended Period of Inception
March 31 December 31, June 18,1993 to
1996 1995 1995 1994 December 31 1993
---------- ---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Net loss $ (264,387) $ (71,762) $ (924,483) $ (494,024) $(147,035)
========== ========== ========== ========== =========
Weighted average number
of shares outstanding 1,051,772 990,000 1,001,287 781,863 480,000
Common stock equivalents due
to assumed exercise of
options and warrants 223,244 223,244 223,244 223,244 223,244
---------- ---------- ---------- ---------- ---------
1,275,O16 1,213,244 1,224,531 1,005,107 703,244
========== ========== ========== ========== =========
Net loss per common share $ (.21) $ (.06) $ (.75) $ (.49) $ (.21)
========== ========== ========== ========== =========
Supplemental pro forma net
loss per common share* $ (.31) N/A $ (.66) N/A N/A
========== ==========
</TABLE>
* The supplemental pro forma net loss per common share has been calculated
assuming the bridge notes payable of $1,397,461 (net of unamortized
discount of $287,O39) and $94O,977 (net of unamortized discount of
$133,523) on March 31, 1996 and December 31, 1995, respectively, have been
repaid as of the beginning of each respective period from proceeds of the
Company's proposed initial public offering of its common stock. Weighted
average shares outstanding and net loss have been appropriately adjusted.
F-12
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements (Continued)
December 31, 1995 and 1994
NOTE K - SUBSEQUENT EVENTS
In February, 1996, the Company entered into a letter of intent with an
investment banking firm for the purpose of underwriting an initial offering of
the Company's common stock. The offering will be for two types of securities (i)
1,000,000 shares of common stock at an initial public offering price of $5.50
per share and (ii) 2,000,000 warrants at an initial public offering price of
$0.125 per share, with each warrant allowing for the purchase of one share of
common stock at $4.00 per share, exercisable 12 months after the effective date
of the offering.
In March 1996 the Company borrowed an additional $61O,000 exclusive of
offering costs of $61,000, through the issuance of unsecured bridge notes
payable to individuals. The bridge notes bear interest at 10% payable at
maturity, and are due the earlier of September 1996, or upon the closing of the
offering. As additional consideration for the loans, the Company issued 500
shares of common stock for each $5,000 of bridge notes for a total of 61,000
shares of common stock. Management valued the common stock of the Company at
$3.83 per share, as an independent appraisal of the common stock was not
obtained. The gross proceeds and offering costs were allocated between the
bridge notes and the common stock in accordance with their relative fair values.
F-13
<PAGE>
INSIDE BACK COVER
[ GRAPHIC OMITTED ]
PICTURE ON
UPPER LEFT THIRD OF PAGE
Plate of chicken
entree
PICTURE ON
MIDDLE RIGHT THIRD OF PAGE
Roasting Chickens
on Rotisserie
PICTURE ON
LOWER LEFT THIRD OF PAGE
Counter Person
with customers
<PAGE>
======================================== ======================================
No dealer, salesman or other person
has been authorized to give any
information or to make any
representations other than those
contained in this Prospectus, and if
given or made, such information or
representations must not be relied upon
as having been authorized. This CLUCKCORP
Prospectus does not constitute an offer INTERNATIONAL
to sell or a solicitation of an offer to INC.
buy any securities other than the
registered securities to which it
relates. This Prospectus does not
constitute an offer to sell or a
solicitation of an offer to buy such 1,000,000 Shares of Common Stock,
securities in any jurisdiction to any 2,000,000 Redeemable Common
person to whom it is unlawful to make Stock Purchase Warrants and
such an offer or solicitation in such 118,750 Shares of Common Stock
jurisdiction. Neither the delivery of Offered by Selling Stockholders
this Prospectus nor any sale hereunder
shall, under any circumstances, create
any implication that there has been no
change in the affairs of the Company
since the date hereof or that the
information contained herein is correct
as of any time subsequent to its date.
TABLE OF CONTENTS
-----------------
Page
----
Available Information ........... 2
Prospectus Summary .............. 3
Risk Factors .................... 6 ----------
Use of Proceeds ................. 11 PROSPECTUS
Capitalization .................. 12 ----------
Dilution ........................ 12
Dividend Policy ................. 13
Selected Financial Data ......... 14
Management's Discussion and
Analysis of Financial
Condition and Results
of Operations .................. 15
Business ........................ 19
Management ...................... 26
Principal Stockholders .......... 29
Selling Stockholders ............ 30
Certain Transactions ............ 30
Description of Securities ....... 32
Limitations on Liability and
Indemnification ............... 33
Shares Eligible for
Future Sale ................... 34
Underwriting .................... 35
Legal Matters ................... 36
Experts ......................... 37 GLOBAL EQUITIES GROUP, INC.
Additional Information .......... 37 PCM SECURITIES LIMITED, L.P.
Financial Statements ............ F-1
Until , 1996, (25 days from the
date of this Prospectus) all dealers
effecting transactions in the registered
securities whether or not participating
in this distribution, may be required to , 1996
deliver a prospectus. This is in
addition to the obligation of dealers to
deliver a prospectus when acting as
underwriters and with respect to their
unsold allotments or subscriptions
======================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers.
Article Eleven of the Registrant's Articles of Incorporation provide as
follows:
"Section 1. Mandatory Indemnification and Advancement of Expenses. Each
person who was or is made a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, any
appeal in such action, suit or proceeding, and any inquiry or investigation that
could lead to such an action, suit or proceeding ("Proceeding"), by reason of
the fact that he is or was a Director or Officer of the Corporation, or who,
while a Director or Officer of the Corporation, is or was serving at the request
of the Corporation as a director, officer, partner, venturer, proprietor,
trustee, employee, agent, or similar functionary of another corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit plan or
other enterprise, shall be indemnified and held harmless by the Corporation to
the fullest extent permitted by the Act against all judgments, penalties
(including excise and similar taxes), fines, settlements, and reasonable
expenses (including attorneys' fees) actually incurred by such person in
connection with such Proceeding. Such right shall be a contract right and shall
include the right to require advancement by the Corporation of reasonable
expenses (including attorneys' fees) incurred in defending any such Proceeding
in advance of its final disposition; provided, however, that the payment of such
expenses in advance of the final disposition of such Proceeding shall be made by
the Corporation only upon delivery to the Corporation of a written affirmation
by such person of his good faith belief that he has met the standard of conduct
necessary for indemnification under the Act and a written undertaking, by or on
behalf of such person, to repay all amounts so advanced if it should be
ultimately determined that such person has not satisfied such requirements.
Section 2. Nature of Indemnification. The indemnification and advancement
of expenses provided for herein shall not be deemed exclusive of any other
rights permitted by law to which a person seeking indemnification may be
entitled under any Bylaw, agreement, vote of Shareholders or disinterested
Directors or otherwise, and shall continue as to a person who has ceased to be a
Director or Officer of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 3. Insurance. The Corporation shall have power to purchase and
maintain insurance or other arrangements on behalf of any person who is or was a
director, Officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article Eleven or the Act."
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to officers, directors or persons
controlling the Company, the Company has been advised that, in the opinion of
the Securities and Exchange Commission, Washington, D.C. 20549, such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by an officer, director or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
officer, director or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Act and will be governed by the final adjudication
of such issue.
ITEM 25. Other Expenses of Issuance and Distribution.(1)
SEC Registration Fee.......................................... $ 6,225
NASD Filing Fee............................................... 2,305
Blue Sky Filing Fees.......................................... 10,000
Blue Sky Legal Fees........................................... 20,000
Printing Expenses............................................. 25,000
Legal Fees and Expenses....................................... 120,000
Accounting Fees............................................... 40,000
NASDAQ SmallCap Application................................... 7,500
Transfer Agent and Certificates............................... 2,000
Miscellaneous Expenses........................................ 16,970
----------
TOTAL......................................................... $ 250,000
(1) Does not include the Representative's commissions and fees of $747,500
($859,623 if the over-allotment is exercised). All expenses are estimated except
SEC and NASD registration and filing fees.
ITEM 26. Recent Sales of Unregistered Securities
During the last three years, the Registrant sold the following shares
of its Common Stock which were not registered under the Securities Act of 1933,
as amended (the "1933 Act").
(i) In June 1993, the Registrant sold 300,000 shares of its $.01 par value
Common Stock to the following persons for services rendered valued as indicated:
II-2
<PAGE>
Name Number of Shares Value for Services
---- ---------------- ------------------
William J. Gallagher 66,667 .025
John H. Coleman III 66,667 .025
Sam Bell Steves Rosser 66,666 .025
Bank Scandinaeve En Suisse 40,000 .125
Nico Letschert 60,000 .125
(ii) In August 1993, the Registrant sold 240,000 shares of its $.01 par
value Common Stock to the following persons at $1.25 per share:
Name Number of Shares
---- ----------------
Dr. Henry H. Salzarulo 40,000
Bruce T. McGill 40,000
Dr. & Mrs. George Bruce 20,000
Steve Kunkmoeller 10,000
Steve Kunkmoeller, Inc. Ret. Trust 10,000
Dr. Larry S. Bowman 20,000
Jeffrey Morehouse 40,000
Nico Letschert 60,000
(iii) In April 1994, the Registrant sold 100,000 Units of its securities,
each Unit consisting of one share of $.01 par value Common Stock and one common
stock purchase warrant for $2.50 per Unit to the following persons:
Name Number of Shares
---- ----------------
Dr. Henry H. Salzarulo 20,000
Paul Bourke 20,000
Dr. & Mrs. George Bruce 4,000
Robert Jones 20,000
Jeffrey Morehouse 10,000
Michael Presinger 20,000
Dr. Larry Bowman 6,000
(iv) In June 1994, the Registrant issued 240,000 shares of its $.01 par
value Common Stock to WaterMarc Food Management, Inc. ("WaterMarc") in exchange
for a cancellation of approximately $485,000 of an $800,000 promissory note
issued to WaterMarc and other advances received from WaterMarc totalling
approximately $42,000.
(v) In August 1994, the Registrant sold 110,000 shares of its $.01 par
value Common Stock to the following persons at $2.50 per share. The Private
Placement Agent, World Equities, Inc. received 11,000 common stock purchase
warrants exercisable at $2.50 per share until December 1996 as additional
compensation for acting as the Company's Selling Agent in connection with the
sale of the shares.
II-3
<PAGE>
Name Number of Shares
---- ----------------
David Robbins 5,000
Norman Glutzen 10,000
Eric Matye 10,000
John F. Wilhide 10,000
Andrew J. Salperto 5,000
Alan Haehle 10,000
Richard Wagner 20,000
Michael J. Grear 20,000
Bhagvan Vaghani 10,000
John M. Downey 10,000
(vi) Between December 1994 and May 1995, the Registrant borrowed $497,000
from a group of 24 investors (all of whom were "accredited investors" as that
term is defined under Regulation D of the 1933 Act), evidenced by promissory
notes ("Bridge Notes") bearing interest at 10% per annum. As additional
consideration for purchase of the Bridge Notes, each investor received one
common stock purchase warrant for each $2.50 loaned (an aggregate of 198,800
warrants), exercisable to purchase one share of Common Stock at $2.50 per share
at any time until December 1997. The Private Placement Agent, World Equities,
Inc., received 19,480 warrants identical in terms to the warrants issued to the
investors as additional compensation for acting as the Company's selling agent
in connection with the loan.
(vii) In August and November 1995, the Registrant borrowed $577,500 from a
group of 20 investors (all of whom were "accredited investors" as that term is
defined under Regulation D of the 1933 Act), evidenced by promissory notes
("Notes") bearing interest at 10% per annum. As additional consideration for
purchase of the Notes, the investors received an aggregate of 57,750 shares of
Common Stock for no additional consideration, which shares are being registered
hereby. See "Selling Stockholders" for a list of all such stockholders and the
number of shares held.
(viii) In March 1996, the Registrant borrowed $610,000 from three investors
(all of whom were "accredited investors" as that term is defined under
Regulation D of the 1933 Act), evidenced by promissory notes ("Notes") bearing
interest at 10% per annum. As additional consideration for purchase of the
Notes, the investors received an aggregate of 61,000 shares of Common Stock for
no additional consideration, which shares are being registered hereby. See
"Selling Stockholders" for a list of all such stockholders and the number of
shares held.
II-4
<PAGE>
With respect to the above sales, the Registrant relied on Section 4(2)
and/or Regulation D of the 1933 Act. No advertising or general solicitation was
employed in offering the securities. The securities were offered to a limited
number of individuals all of whom purchased as an investment and not with a view
to distribution or resale and the transfer thereof was appropriately restricted
by the Registrant. No advertising or general solicitation was employed in any of
the sales. All security holders were sophisticated investors capable of
analyzing the merits and risks of their investment and realizing a loss of their
entire investment.
ITEM 27. Exhibits.
Exhibit No. Title
----------- -----
1.01 Form of Underwriting Agreement(1)
1.02 Form of Selling Group Agreement(1)
1.03 Form of Representative's Warrant(1)
1.04 Form of Agreement Among Underwriters(1)
1.05 Form of Amended Underwriting Agreement(1)
1.06 Form of Amended Selling Group Agreement(1)
1.07 Form of Amended Representative's Warrant(1)
1.08 Form of Amended Agreement Among Underwriters(1)
1.09 Form of Amended Underwriting Agreement(1)
1.10 Form of Amended Selling Group Agreement(1)
1.11 Form of Amended Representative's Warrant(1)
1.12 Form of Amended Agreement Among Underwriters(1)
1.13 Form of Amended Underwriting Agreement(1)
1.14 Form of Amended Selling Group Agreement(1)
1.15 Form of Amended Representative's Warrant(1)
1.16 Form of Agreement Among Underwriters(1)
II-5
<PAGE>
1.17 Form of Amended Underwriting Agreement (1)
1.18 Form of Amended Selling Group Agreement (1)
1.19 Form of Amended Representative's Warrant (1)
1.20 Form of Agreement Among Underwriters (1)
1.21 Form of Amended Underwriting Agreement
1.22 Form of Amended Agreement Among Underwriters
2.01 Articles of Incorporation of the Registrant, as
amended(1)
2.02 Bylaws of the Registrant(1)
2.03 Articles of Incorporation of Harvest Restaurants,
Inc.(1)
2.04 Bylaws of Harvest Restaurants, Inc.(1)
2.05 Articles of Incorporation of Cluckers Restaurants,
Inc.(1)
2.06 Bylaws of Cluckers Restaurants, Inc.(1)
4.01 Form of Warrant Agreement(1)
5.01 Opinion of Gary A. Agron, Esq., regarding legality
of the Common Stock and Warrants
(includes Consent)(1)
10.01 Incentive Stock Option Plan(1)
10.02 Settlement Agreement with Cluckers Wood Roasted
Chicken, Inc.(1)
10.03 Real Estate Lease (Cluckers Restaurant)(1)
10.04 Real Estate Lease (Cluckers Restaurant)(1)
10.05 Real Estate Lease (Cluckers Restaurant)(1)
10.06 Real Estate Lease (Cluckers Restaurant)(1)
10.07 Real Estate Lease (Cluckers Restaurant)(1)
10.08 Real Estate Lease (Cluckers Restaurant)(1)
II-6
<PAGE>
10.09 Real Estate Lease (Cluckers Restaurant)(1)
10.10 Real Estate Lease (Cluckers Restaurant)(1)
10.11 Real Estate Lease (Cluckers Restaurant)(1)
10.12 Uniform Franchise Offering Circular (Cluckers)(1)
10.13 Form of Franchise Agreement (Cluckers)(1)
10.14 Form of Area Development Agreement (Cluckers)(1)
10.15 Employment Agreement with Mr. Gallagher(1)
10.16 Employment Agreement with Mr. Gibbs(1)
10.17 Area Development Agreement with Mr. McGill(1)
10.18 Letter of Intent for sale of San Francisco,
California area development rights(1)
10.19 Letter of Intent to Execute Joint Venture
Agreement(1)
10.20 Uniform Franchise Offering Circular (Harvest
Rotisserie)(1)
10.21 Form of Area Development Agreement (Harvest
Rotisserie)(1)
10.22 Form of Franchise Agreement (Harvest Rotisserie)(1)
10.23 License Agreement(1)
10.24 License Agreement(1)
10.25 Amendment to Area Development Agreement with
Mr. McGill (1)
10.26 Letter of Intent for sale of Baltimore, Maryland
area development rights (1)
23.01 Consent of Akin, Doherty, Klein & Feuge, P.C.(1)
23.02 Consent of Gary A. Agron, Esq., (See 5.01, above.)
(1)
II-7
<PAGE>
23.03 Consent of Akin, Doherty, Klein & Feuge, P.C.(1)
23.04 Consent of Akin, Doherty, Klein & Feuge, P.C.(1)
23.05 Consent of Akin, Doherty, Klein & Feuge, P.C.(1)
23.06 Consent of Akin, Doherty, Klein & Feuge, P.C.(1)
23.07 Consent of Akin, Doherty, Klein & Feuge, P.C.(1)
23.08 Consent of Akin, Doherty, Klein & Feuge, P.C.
(1) Previously filed.
ITEM 28. Undertakings.
The Registrant hereby undertakes that:
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(b) Subject to the terms and conditions of Section 13(a) of the Securities
Exchange Act of 1934, it will file with the Securities and Exchange Commission
such supplementary and periodic information, documents and reports as may be
prescribed by any rule or regulation of the Commission heretofore or hereafter
duly adopted pursuant to authority conferred in that section.
(c) If the issuer relies on Rule 430A under the Securities Act, that the
small business issuer will:
(i) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer under Rule 424(b)(1), or
(4) or 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
II-8
<PAGE>
(ii) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
(d) Any post-effective amendment filed will comply with the applicable
forms, rules and regulations of the Commission in effect at the time such
post-effective amendment is filed.
(e) It will file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(f) It will file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(g) It will provide to the Underwriter at the closing specified in the
underwriting agreement certificates in suc denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in San Antonio, Texas, on June 24, 1996.
CLUCKCORP INTERNATIONAL, INC.
By /s/ D. W. GIBBS
-------------------------------------
D. W. Gibbs
Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William J. Gallagher Chirman of the Board of June 24, 1996
- ------------------------ Directors -------------
William J. Gallagher
/s/ D. W. Gibbs Chief Executive Officer, June 24, 1996
- --------------- President and Director -------------
D. W. Gibbs
/s/ Richard N. Trimble Vice President - Operations June 24, 1996
- ---------------------- -------------
Richard N. Trimble
/s/ Sam Bell Steves Rosser Vice President - Development, June 24, 1996
- -------------------------- Treasurer (Chief Financial -------------
Sam Bell Steves Rosser Officer and Principal Accounting
Officer) and Director
/s/ Henry H. Salzarulo Director June 24, 1996
- ---------------------- -------------
Henry H. Salzarulo
/s/ Jeffrey M. Morehouse Director June 24, 1996
- ------------------------ -------------
Jeffrey M. Morehouse
<PAGE>
CLUCKCORP INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit No. Title
----------- -----
1.21 Form of Amended Underwriting Agreement
1.22 Form of Amended Agreement Among Underwriters
23.08 Consent of Akin, Doherty, Klein & Feuge, P.C.
CLUCK CORP INTERNATIONAL, INC.
1,000,000 Shares of Common Stock
2,000,000 Redeemable Common Stock Purchase Warrants
AGREEMENT AMONG UNDERWRITERS
As of , 1996
Global Equities Group, Inc.
As Representative of the
Underwriters and Co-Manager
5 Hanover Square
New York, New York 10004
Dear Sirs:
We hereby agree with you as follows with respect to (i) the purchase and
offering by Global Equities Group, Inc. (the "Representative") and PCM
Securities Limited, L.P., as Co-Manager ("PCM" and collectively with the
Representative, the "Underwriters") of an aggregate of 1,000,000 shares of
common stock, $.01 par value (the "Common Stock") and 2,000,000 redeemable
Common Stock Purchase Warrants (the "Warrants" and, together with the Common
Stock, the "Securities"), of Cluck Corp International, Inc. (the "Company").
1. Registration Statement. We confirm that we have examined the
registration statement (including the prospectus) relating to the Securities as
amended to the date of this agreement and we are familiar with the terms of the
Securities to be offered and the other terms of the offering which are to be
reflected in the proposed pricing amendment to the registration statement. The
registration statement as amended at the time it becomes effective, including
financial statements and exhibits, is referred to in this agreement as the
Registration Statement, and the prospectus in the form first filed with the
Securities and Exchange Commission (the "Commission") pursuant to its Rule
424(b) is referred to as the Prospectus.
We further confirm that:
(a) Insofar as it relates to us, the information in the Registration
Statement as amended to this date and in the proposed amendment is correct
and complete and is not misleading.
(b) We are aware of and are willing to accept our responsibilities
under the Securities Act of 1933 as an Underwriter and Co-Manager of the
offering to be named in the Registration Statement.
<PAGE>
(c) We are willing to proceed with the underwriting of the Securities
in the manner contemplated in the Underwriting Agreement.
(d) You are authorized, in your discretion and on our behalf, with
approval of counsel for the Representative of the Underwriters, Mound,
Cotton & Wollan, to approve any proposed amendment and the Prospectus and
to approve of or to object to any further amendments to the Registration
Statement, or amendments or supplements to the Prospectus.
2. Underwriting Agreement. (a) We authorize you to execute and deliver on
our behalf the Underwriting Agreement in substantially the form annexed hereto
as Exhibit A. The number of Securities set forth opposite each Underwriter's
name in Schedule I to the Underwriting Agreement, or such number increased as
set forth in Section 12 of the Underwriting Agreement, is referred to in this
agreement as the original underwriting commitment of such Underwriter, and the
ratio which such original underwriting commitment bears to the total number of
Securities is referred to in this agreement as the underwriting proportion of
such Underwriter.
(b) Our firms have also agreed that in addition to the ten percent (10%)
underwriters' discount payable to each firm with respect to the Securities which
it underwriters, the three percent (3%) non-accountable expense allowance will
be paid seventy percent (70%) to Global and thirty percent (30%) to PCM.
(c) In connection with the subject underwriting, the Underwriters will
receive warrants to purchase up to one hundred thousand (100,000) shares of
CluckCorp common stock at $6.60 per share and two hundred thousand (200,000)
warrants at $.15 per warrant (the "Underwriters' Warrants"). Global will receive
seventy percent (70%) of the Underwriters' Warrants and PCM will receive thirty
percent (30%) of the Underwriters' Warrants.
3. Authorization Under Underwriting Agreement. The Underwriting Agreement
provides that the obligations of the Underwriters thereunder are subject, among
other things, to the condition that the Registration Statement shall have become
effective no later than 5:00 P.M., New York time, on the date of the
Underwriting Agreement. You are hereby authorized, in your discretion, to extend
such time to not later than 1:00 P.M., New York time, on the date following such
date and, with the consent of Underwriters, including yourselves, who have
agreed to purchase in the aggregate at least a majority of the Securities, to
agree to one or more subsequent extensions of such date and to take on our
behalf any action that may be necessary for such purposes.
You are also authorized in your sole discretion to take the following
action with respect to the Underwriting Agreement:
-2-
<PAGE>
(a) To postpone the Effective Date or the Option Closing Date (as such
terms are defined in the Underwriting Agreement) or, except as provided
above, to extend any other date specified in the Underwriting Agreement.
(b) To exercise any right of cancellation or termina- tion.
(c) To arrange for the purchase by other persons (including yourselves
or any other Underwriters) of any of the Securities not taken up by any
defaulting Underwriter or by the other Underwriters as provided in Section
12 of the Underwriting Agreement.
(d) To consent to such other changes in or waivers of provisions of
the Underwriting Agreement as in your judgment do not materially and
adversely affect our rights and obligations.
4. Method of Offering. We agree, jointly with you, to manage the
underwriting and the public offering of the Securities and to take such action
in connection therewith and in connection with the purchase, carrying and resale
of the Securities, including without limitation the following, as you in your
sole discretion deem appropriate or desirable:
(a) To determine the time of the initial public offering of the
Securities and the Underwriters' gross spread.
(b) To make any changes in the terms of the offering.
(c) To make changes in those who are to be Underwriters and in the
respective numbers of the Securities to be purchased by them, provided that
our original underwriting commitment shall not be changed without our
consent.
(d) To determine all matters relating to advertising and
communications with dealers or others.
(e) To reserve for sale and to sell to institutions or other retail
purchasers, for the Underwriters account, such of Securities as the
Underwriters may determine; provided, however, that such reservations and
sales shall be made for the respective accounts of the several Underwriters
as nearly as practicable in their respective underwriting proportions,
except for such sales for the account of a particular Underwriter
designated by such a purchaser.
(f) To reserve for sale and to sell to dealers, for the Underwriters
account, such of the Underwriters Securities as the Underwriters may
determine; provided, however, that such dealers shall be members in good
standing of the National Association of Securities Dealers, Inc. (the
"NASD") or foreign banks or dealers not eligible for membership in the NASD
who (A) agree that they will make no sales of Securities within the United
States, its territories or its possessions or to persons who are citizens
thereof or resident therein and (B) agree that in making sales of such
Securities outside the United States, its territories or possessions they
will comply with the requirements of the NASD's Interpretation with Respect
to Free-Riding and Withholding and with Sections 8, 24 and 36 of Article
III of the NASD's Rules of Fair Practice as though they were such a member
and will comply with Section 25 of such Article as it applies to a
non-member broker or dealer in a foreign country, and (C) may include any
of the Underwriters. Such sales shall be made pursuant to Dealer Agreements
substantially in the form set forth as Exhibit B hereto.
-3-
<PAGE>
(g) To apportion such sales to dealers among the Underwriters as
nearly as practicable in the ratio that the Securities of each Underwriter
so reserved bears to the total number of Securities of all Underwriters so
reserved; provided, however, that if such ratio is to be revised by reasons
of the release of any of the Securities for direct sale as hereinafter
provided, sales may be apportioned by you from day to day on the basis of
the ratio existing at the end of the preceding day.
(h) To fix the concession to dealers and the reallowance to dealers
and, after the initial public offering of the Securities to make changes in
the concession and reallowance.
(i) At any time with respect to unsold Securities retained by an
Underwriter: (A) to reserve any such Securities for sale by the other
Underwriter for the account of the Underwriters or (B) to purchase any such
Securities which in the Representative's opinion are needed to enable you
to make deliveries for the accounts of the several Underwriters pursuant to
this agreement. Such purchases may be made at the public offering price, or
at the Underwriters' option, at such price less all or any part of the
concession to dealers.
We understand that you will advise us when the Securities are released for
public offering and of the number of Securities sold or reserved for sale for
our account. We shall retain for direct sale any Securities purchased by us and
not so sold or reserved. Direct sales shall be made in accordance with the terms
of offering set forth in the Prospectus. With your consent, we may obtain
release from you for the direct sale of the Securities held by you for sale
pursuant to subparagraphs (e) and (f) above but not sold and paid for. To the
extent Securities so released had been reserved for sale to dealers, the number
of Securities reserved for our account for sale to dealers shall be
correspondingly reduced. We will advise you from time to time, at your request,
of the number of Securities retained by us which remain unsold and of the number
of Securities remaining unsold which were delivered to us pursuant to the last
paragraph of this Section 4.
If, prior to the termination of this agreement, you shall purchase or
contract to purchase any of the Securities sold directly by us, in your
discretion you may (i) sell for our account the Securities so purchased and
debit or credit our account for the loss or profit resulting from such sale,
(ii) charge our account with an amount equal to the concession to dealers with
respect thereto and credit such amount against the cost thereof or (iii) require
us to purchase such Securities at a price equal to the total cost of such
purchase including commissions and transfer taxes on redelivery. Certificates
for the Securities delivered on such repurchase need not be identical to the
certificates for the Securities so purchased by you.
-4-
<PAGE>
5. Trading Authorizations. We authorize you, during the term of this
agreement in your discretion:
To make purchases and sales of the Securities, in the open market or
otherwise (in addition to purchases and sales made under the authority of
Section 4), either for long or short account, on such terms and at such prices
as you may determine.
All such purchases and sales shall be made for the respective accounts of
the several Underwriters as nearly as practicable in their respective
underwriting proportions; provided, however, that at no time shall our net
commitment resulting from such purchases and sales, either for long or short
account, exceed 15% of our original underwriting commitment and provided that in
determining our net commitment for short account there shall be subtracted the
maximum number of Additional Securities which we are entitled to purchase. We
agree to take up at cost on demand any Securities so purchased for our account
and to deliver on demand any Securities so sold. Without limiting the generality
of the foregoing, you may buy or take over for the respective accounts of the
several Underwriters, all in the proportion and within the limits set forth, at
the price at which reserved, any of the Securities reserved for sale by you but
not sold and paid for, for such purposes as you may determine, including, but
not limited to, the covering of short sales.
We agree to maintain any records required of us pursuant to Rule 17a-2
under the Securities Exchange Act of 1934.
6. Limitation on Transactions by Underwriters. Except as permitted by you,
we will not during the term of this agreement bid for, purchase, sell or attempt
to induce others to purchase or sell, directly or indirectly, any shares of
Common Stock or Warrants other than (i) as provided in the Underwriting
Agreement and this agreement, (ii) purchases from or sales to dealers of the
Securities at the public offering price less all or any part of the reallowance
to dealers or (iii) purchases or sales by us of any securities as broker on
unsolicited orders for the account of others.
We represent that we have not participated in any transaction prohibited by
the preceding paragraph and that we have at all times complied with the
provisions of Rule 10b-6 of the Commission applicable to this offering.
-5-
<PAGE>
We may, with your prior consent, make purchases of the Securities from and
sales to other Underwriters at the public offering price, less all or any part
of the concession to dealers.
We agree not to sell to any account over which we exercise discretionary
authority, without the prior written consent of the customer, any of the
Securities which we purchase and which are subject to the terms of this
agreement.
7. Delivery and Payment. At 9:00 A.M., New York time on the Effective Date,
we will deliver to you at your office a certified or official bank check,
payable in New York Clearing House funds, to the order of Global Equities Group,
Inc. or otherwise as you may direct, for either (a) an amount equal to the
public offering price less the selling concession in respect of the Securities
to be purchased by us or (b) an amount equal to the public offering price less
the selling concession in respect of such of the Securities to be purchased by
us as shall have been retained by or released to us for direct sale, as you
shall direct. You shall use such funds to make payment on our behalf to the
Company of the purchase price for our Securities. Any balance shall be held by
you for our account. If you have not received our funds as requested, you may in
your discretion make any such payment on our behalf and we will promptly deliver
funds to you in the amount so requested. Any such payment by you will not
relieve us from any of our obligations under this agreement or under the
Underwriting Agreement.
We authorize you, in carrying out the provisions of this agreement, in your
discretion, to arrange loans for our account, to advance your funds for our
account, charging current interest rates, and to hold or pledge as security
therefor all or any part of the Securities which you may be holding for our
account. Any lender is hereby authorized to accept your instructions with
respect to such loans, and we authorize you to execute and deliver notes or
other instruments in connection therewith.
You shall promptly remit to us or credit to your account (i) the proceeds
of any loan taken down on our behalf and (ii) upon payment to you for any
Securities sold for our account, an amount equal either to the purchase price
paid by us or the price received by you therefor, as you may determine.
We authorize you to take delivery of certificates for the Securities,
registered as you may direct in order to facilitate deliveries, and to deliver
any Securities reserved for us against sales. You will deliver to us
certificates for the unreserved Securities and certificates for the reserved but
unsold Securities as soon as practicable after the termination of the provisions
referred to in Section 10.
Certificates for all other Securities which you then hold for our account
shall be delivered to us upon termination of this agreement, or prior thereto in
your discretion, and certificates for any Securities may at any time be
delivered to us for carrying purposes only, subject to redelivery upon demand.
If, upon termination of this agreement, an aggregate of not more than 10% of the
Securities remains unsold, you may, in your discretion, sell such Securities at
such prices as you may determine.
-6-
<PAGE>
8. Blue Sky Qualification. Upon request, you will inform us as to the
jurisdictions in which you have been advised by counsel that the Securities have
been registered or qualified for sale under the respective securities or Blue
Sky laws, but you do not assume any responsibility or obligation as to our right
to sell the Securities in any jurisdiction.
9. Indemnification and Certain Claims. Each Underwriter, including
yourselves, agrees to indemnify and hold harmless each of the other
Underwriters, and each person, if any, who controls any other Underwriter within
the meaning of Section 15 of the Securities Act of 1933 and to reimburse their
expenses, all to the extent, if any, and upon the terms that we agree to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and any person controlling the Company to reimburse
their expenses, as set forth in the Underwriting Agreement.
We agree that in respect of any matters connected with or action taken by
you pursuant to this agreement you shall act only as agent of the Underwriters
and you shall be under no liability to us in any such respect or in respect of
the form of, or the statements contained in, or the validity of, any preliminary
prospectus or the Registration Statement or Prospectus, or any amendment or
supplement with respect thereto, or for any report or other filing made by you
for us on our behalf under this agreement, except for want of good faith and for
obligations expressly assumed by you herein and no obligation on you part will
be implied or inferred from confirmation or acceptance of this agreement.
We will pay our proportionate share (based on our underwriting proportion)
of (a) all expenses incurred by you in investigating or defending against any
claim or proceeding which is asserted or instituted by any party (including any
governmental or regulatory body) other than an Underwriter based upon the claim
that the Underwriters constitute an association, unincorporated business or
other separate entity, or relating to the Registration Statement or Prospectus
(or any amendment or supplement thereto) or any preliminary prospectus and (b)
any liability incurred by you in respect of any such claim or proceeding,
whether such liability shall be the result of a judgment or the result of any
settlement agreed to by you, other than any such liability as to which you
actually receive indemnity pursuant to the first paragraph of this Section 9 or
indemnity or contribution pursuant to Section 7 of the Underwriting Agreement.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder shall cease except (i) the mutual obligations to settle
accounts hereunder, (ii) our obligations to pay any transfer taxes which may be
assessed and paid on account of any sales hereunder for our account, (iii) our
obligation with respect to purchases which may be made by you from time to time
thereafter to cover any short position incurred under this agreement, (iv) our
agreements contained in the first and third paragraphs of Section 9 hereof and
(v) the obligations of any defaulting Underwriter, all of which shall continue
until fully discharged. If any other Underwriter defaults in its obligations
under this agreement we will assume our proportionate share (determined on the
basis of the respective underwriting proportions of the non-defaulting
Underwriters) of such obligations without relieving the defaulting Underwriter
from liability.
-7-
<PAGE>
The accounts arising pursuant to this Agreement shall be settled and paid
as soon as practicable after termination, except that you may reserve such
amount as you deem advisable to cover any additional contingent expenses.
You are authorized at any time:
(a) To make partial distributions of credit balances or call for the
payment of debit balances.
(b) To determine the amounts to be paid to or by us, which
determination shall be final and conclusive.
(c) To charge our account with (i) all transfer taxes on sales made
for our account and (ii) our underwriting proportion of all expenses (other
than transfer taxes) incurred by you, as Representative of the several
Underwriters, in connection with the transactions contemplated by this
agreement.
(d) To maintain any of our funds at any time with your general funds
without accountability for interest.
10. Miscellaneous. Nothing in this agreement shall constitute us partners
with you and the obligations of ourselves and you are several and not joint.
Each Underwriter elects to be excluded from the application of Subchapter K,
Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended. Default
by any Underwriter with respect to the Underwriting Agreement shall not release
us from any of our obligations thereunder or hereunder.
Your authority under this agreement and under the Underwriting Agreement
may be exercised solely by you.
Any notice from you to us shall be deemed to have been given if mailed,
telegraphed or hand delivered, or telephoned and subsequently confirmed in
writing, to our address stated in the Underwriting Agreement which we have
furnished to you for transmittal to the Company.
We confirm that we are a member in good standing of the NASD and that, in
making sales of the Securities, we agree to comply with all applicable rules of
the NASD, including, without limitation, the NASD's Interpretation with Respect
to Free-Riding and Withholding and Section 24 of Article III of the NASD' Rules
of Fair Practice. We also confirm that our commitment to purchase Securities
pursuant to the Underwriting Agreement will not result in a violation of Rule
15c3-1 under the Securities Exchange Act of 1934 or of any similar provisions of
any applicable rules of any securities exchange to which we are subject or of
any restriction imposed upon us by any such exchange or any governmental
authority.
-8-
<PAGE>
This agreement shall be governed by and construed in accordance with the
laws of the State of New York.
This agreement is being executed by us and delivered to you in duplicate.
Very truly yours,
PCM SECURITIES LIMITED, L.P.
By
------------------------------------
Authorized Signatory or
Attorney-In-Fact
Confirmed as of the date first above mentioned.
GLOBAL EQUITIES GROUP, INC.
As Representative of the
Co-Managing Underwriters
named in Schedule I
By
--------------------------------------
-9-
<PAGE>
SCHEDULE I
Shares of Number of
Underwriters Common Stock Warrants
GLOBAL EQUITIES GROUP, INC. . . . . . 700,000 1,400,000
PCM SECURITIES LIMITED, L.P.. . . . . 300,000 600,000
Total . . . . . . . . . . . . . . . . 1,000,000 2,000,000
-10-
CLUCKCORP INTERNATIONAL, INC.
1,000,000 Shares of Common stock, $.01 par value,
and 2,000,000 Redeemable Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
Global Equities Group, Inc.
As Representative of the
Underwriters and
Co-Managing Underwriter
5 Hanover Square
New York, New York 10004
PCM Securities Limited, L.P.
As Underwriter and Co-Manager
40 Broad Street, 10th Floor
New York, New York 10004
Re: CluckCorp International, Inc.
Gentlemen:
The undersigned, CluckCorp International, Inc. a Texas corporation (the
"Company"), proposes to issue and sell to Global Equities Group, Inc. ("Global")
and PCM Securities Limited, L.P. ("PCM" and, collectively with Global, the
"Underwriters") pursuant to this Underwriting Agreement (this "Agreement"), and
the Underwriters for whom Global is acting as representative (the
"Representative") desire to purchase in the amounts set forth opposite the names
of the Underwriters in Schedule I of this Agreement, an aggregate of 1,000,000
shares of Common Stock, $.01 par value (the "Common Stock"), of the Company and
2,000,000 Redeemable Common Stock Purchase Warrants (the "Warrants" and,
together with the Common Stock, the "Securities"). The Company also proposes to
issue and sell to the Representatives an aggregate of not more than 150,000
additional shares of Common Stock and/or 300,000 additional Warrants (the
"Additional Securities") if requested by the Representative as provided in
Section 2 hereof.
As the Representative, Global has advised the Company (a) that it is
authorized to enter into this Agreement on behalf of the Underwriters, and (b)
that the Underwriters are willing to purchase the numbers of Securities
aggregating in total 1,000,000 shares of Common Stock and 2,000,000 Warrants set
forth opposite their respective names in Schedule I, plus the Representative has
the option to purchase the Additional Securities, if the Representative elects
to exercise its right to purchase Additional Securities, in whole or in part,
for the purpose of covering over-allotments as provided in Section 2.
<PAGE>
The shares of Common Stock initially issuable upon the exercise of the
Warrants are herein called the "Warrant Shares."
1. Representations and Warrants of the Company. The Company represents,
warrants and agrees that:
(a) A registration statement on Form SB-2 (File No. 33- 95796),
including a preliminary form of prospectus, with respect to the Common Stock,
the Warrants and the Warrant Shares has been filed with the Securities and
Exchange Commission (the "Commission"); one or more amendments to such
registration statement have been or will be so filed; and the Company may file
prior to the effective date of such registration statement an additional
amendment to such registration statement, including a final form of prospectus.
Each such preliminary prospectus is herein referred to as a "Preliminary
Prospectus", and the registration statement (including all exhibits), as amended
at the time it becomes effective (the "Effective Date"), and the final
prospectus in the form filed with the Commission pursuant to its Rule 424(b)
after the Registration Statement becomes effective are herein respectively
referred to as the "Registration Statement" and the "Prospectus".
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus and has not, to the knowledge of the Company,
instituted any proceedings with respect to such order.
(c) At the Effective Date and at all times subsequent thereto up to the
Closing Date (as hereinafter defined), the Registration Statement and the
Prospectus, as amended or supplemented, will conform in all material respects to
the requirements of the Securities Act of 1933 and the rules and regulations
thereunder (the "Act"), and neither of such documents will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading,
except that the foregoing does not apply to statements or omissions in either of
such documents based upon written information furnished to the Company by any
Underwriter through the Representative expressly for use therein; provided that
such information is limited to that contained in the "Underwriting" section of
such documents and the information contained in the cover page of the Prospectus
summarized therefrom.
(d) The financial statements, together with the related notes, contained
in the Registration Statement and the Prospectus fairly present the financial
position of the Company and the results of its operations as of the dates, or
for the periods, therein specified; such financial statements have been prepared
in accordance with generally accepted accounting principles.
-2-
<PAGE>
(e) Except as reflected in or contemplated by the Registration Statement
or the Prospectus, since the respective dates as of which information is given
in the Registration Statement and the Prospectus, (i) there has not been any
material adverse change in the condition, financial or otherwise, of the Company
or in its business taken as a whole, (ii) there has not been any material
transaction entered into by the Company other than transactions in the ordinary
course of business, (iii) the Company has not declared or paid any dividend or
other distribution on the Common Stock, and (iv) there has not been any change
in the Certificate of Incorporation or the By-Laws of the Company.
(f) There does not exist any material breach or default under any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company is a party or any of its property is subject. Neither the execution nor
the delivery of this Agreement, nor the consummation of the transactions herein
contemplated nor compliance with the terms, conditions or provisions hereof will
result in a material breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or any of its property
is subject, or the Certificate of Incorporation or By-laws of the Company or any
law, decree, judgment, order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company for any of its property,
except insofar as the enforceability of this Agreement may be limited by the
application of the Federal securities laws, the rules and regulations
promulgated thereunder and judicial and administrative decisions thereunder.
(g) The Company has an authorized capital stock as set forth in the
Prospectus and all the outstanding shares of such capital stock have been duly
and validly authorized and issued and are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus.
(h) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Texas, with full
corporate power and authority under such laws to own its properties and conduct
its business as described in the Prospectus; the Company is duly qualified to do
business as a foreign corporation in good standing in all other jurisdictions,
if any, in which it owns or leases substantial property or in which it maintains
an office, except where the failure so to qualify would not have a material
adverse effect on the business of the Company. The Company has no subsidiaries
except as set forth in the Prospectus.
(i) The Securities have been duly authorized and, upon issuance,
delivery and payment therefor in the manner described in the Prospectus, will be
duly and validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus.
-3-
<PAGE>
(j) At the time of the delivery of the Securities to the Underwriters
hereunder, the Company will have entered into a warrant agency agreement (the
"Warrant Agreement") with Corporate Stock Transfer, Inc., substantially in the
form filed as Exhibit 4.01 to the Registration Statement, and the Warrant
Agreement will be a valid and binding agreement enforceable in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization or
other laws of general applicability relating to or affecting the enforcement of
creditors' rights.
(k) The Warrant Shares have been duly authorized and reserved for
issuance upon the exercise of the Warrants and the Warrant Shares, when issued
upon such exercise, will be duly and validly issued, fully paid and
non-assessable and will conform to the description thereof contained in the
Prospectus.
(l) There are no issued, outstanding or reserved options, warrants or
rights to purchase shares of Common Stock other than as set forth in the
Prospectus, and neither the shareholders of the Company nor any other persons
have preemptive rights with respect to the Common Stock.
(m) No consent, approval, authorization or other order of any
governmental authority is required in connection with the execution and delivery
by the Company of this Agreement or the issuance and sale by the Company of the
Common Stock, the Warrants and the Warrant Shares, except such as may be
required under the Act or state securities and Blue Sky laws. This Agreement has
been duly authorized, executed and delivered by the Company.
(n) There are no legal or governmental proceedings pending to which the
Company is a party or of which any property of the Company is the subject, other
than litigation described in the Prospectus or which individually and in the
aggregate is not material to the business of the Company taken as a whole; and
to the best of the knowledge of the Company, no such proceedings are threatened
by governmental authorities or threatened by others.
(o) Upon delivery of and payment for the Securities as provided herein,
the purchasers will receive good and marketable title to the Common Stock and
the Warrants, respectively, free and clear of all liens, encumbrances, equities
and claims whatsoever.
(p) Until the Closing Date, the Company will not issue any additional
shares of Common stock or grant any rights to acquire Common Stock.
(q) It has the authority to enter into this Agreement and sell the
Securities to the Underwriters and the Additional Securities to the
Representative; and, no additional consent or approval is required for the
execution of this Agreement and/or the sale of the Securities and Additional
Securities.
-4-
<PAGE>
(r) The Company has timely filed all tax returns and paid all taxes that
have become due.
2. Agreement to Sell and Purchase. On the basis of the representations and
warranties contained in this Agreement, and subject to its terms and conditions,
the Company agrees to issue and sell 1,000,000 shares of Common Stock and
2,000,000 Warrants to the Underwriters and each Underwriter agrees, severally
and not jointly, to purchase from the Company at a purchase price per Common
Stock and/or Warrant as hereinafter provided (the "Purchase Price") the number
of shares of Common stock and Warrants set forth opposite the name of such
Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company hereby agrees to
issue and sell to the Representative, and the Representative shall have a
one-time right to purchase, severally and not jointly, up to 150,000 additional
shares of Common Stock and/or 300,000 additional Warrants from the Company at
the Purchase Price. Additional Securities may be purchased as provided in
Section 4 solely for the purpose of covering over-allotments made in connection
with the offering of the Securities.
The Purchase Price per each share of Common Stock and one Warrant
(including the Additional Securities, if the over-allotment option is used) to
be paid by the Underwriters, except that the purchase price for the Additional
Securities is paid for solely by the Representative, will be an amount equal to
the initial public offering price of $5.50 per one share of Common Stock less
the amount $.55 per share and $.125 per Warrant less the amount of $.0125 per
warrant.
The Underwriters will offer all or any part of the Securities directly to
the public at such initial public offering price per Common Stock and Warrants
and will offer any balance thereof to certain dealers (the "Selected Dealers")
who are members of the National Association of Securities Dealers, Inc. ("NASD")
or foreign brokers or dealers in accordance with Section 25(c) of the Rules of
the NASD. Such Selected Dealers in offering the Securities shall do so as
subagents and the Underwriters may allow to them a concession on such initial
public offering price not to exceed $_______________ per Common Stock and
Warrants and such Selected Dealers may reallot a discount on such initial public
offering price not to exceed $______________ per Common Stock and Warrants.
The Company hereby agrees not to sell or otherwise dispose of any shares of
Common Stock (except pursuant to Warrants, options and convertible securities
outstanding as of the Closing or issued under the Company's stock option plans
described in the Prospectus) for a period of 12 months after the date of the
Prospectus without the Representative's prior written consent.
-5-
<PAGE>
For a period of five (5) years after the date of this Prospectus, the
Company will pay the Representative a fee of 5% of the exercise price of each
Warrant exercised, provided (i) the market price of the Common Stock on the date
this Warrant was exercised was greater than the Warrant exercise price on that
date; (ii) the exercise of the Warrant was solicited by a member of the NASD;
(iii) the Warrant was not held in a discretionary account; (iv) the disclosure
of compensation arrangements was made both at the time of the Offering and at
the time of exercise of the Warrant; (v) the solicitation of the exercise of the
Warrant was not a violation of Rule 10b-6 promulgated under the Exchange Act;
and (vi) the Representative is designated in writing as a soliciting broker.
Unless granted an exemption by the Commission from Rule 10-b under the Exchange
Act, the Representative and any other soliciting broker-dealers will be
prohibited from engaging in any market-marking activities or solicited brokerage
activities with regard to the Company's securities during the periods prescribed
by exemption (xi) to Rule 10b-6 before the solicitation of the exercise of any
Warrant until the later of the termination of such solicitation activity or the
termination of any right the Representative and any other soliciting
broker/dealer may have to receive a fee for the solicitation of the exercise of
the Warrants.
3. Terms of Public Offering. The Company is advised by the Representative
that the Underwriters propose initially to offer the Securities upon the terms
set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and payment for
the Securities shall be made at a closing (the "Closing") to be held at the
offices of the Representative, 5 Hanover Square, 12th floor, New York, New York,
at 10:00 A.M., New York time, on the third business day (the "Closing Date")
following the Effective Date. The Closing Date and the location of the delivery
of and payment for the Securities may be varied by agreement between the
Representative and the Company.
Delivery to the Representative of and payment for any Additional Securities
to be purchased by the Representative shall be made at the offices of the
Representative, 5 Hanover Square, New York, New York, at 10:00 A.M., New York
time, on such date (the "Option Closing Date"), which may be the same as the
Closing Date but shall in no event be earlier than the Closing Date nor later
than ten business days after the giving of written notice from the
Representative to the Company of the Underwriters' determination to purchase a
number of Additional Securities as specified in said notice. Said notice may be
given at any time within 45 days following the date of this Agreement. The
Option Closing Date and the location of the delivery of and payment for the
Additional Securities may be varied by agreement between the Representative and
the Company.
-6-
<PAGE>
Certificates for the Securities shall be registered in such names and
issued in such denominations as the Representative shall request in writing no
later than two full business days prior to the Closing Date or the Option
Closing Date, as the case may be. Such certificates shall be made available to
the Representative for inspection not later than 9:30 A.M., New York Time, on
the business day next preceding the Closing Date or the Option Closing Date, as
the case may be. The certificates for the Securities shall be delivered to the
Representative on the Closing Date or the Option Closing Date, as the case may
be, with any transfer taxes thereon duly paid by the Company, for the respective
accounts of the Underwriters, against payment of the Purchase Price therefor by
certified or official bank check or checks payable in New York Clearing House
(next day) funds to the order of the Company.
5. Underwriter's Warrants. At the Closing, the Company will sell to the
Underwriters, at a price of $_______ their pro rata portion of Warrants (the
"Underwriter's Warrants") to purchase up to 100,000 shares of Common Stock at a
price of $6.60 per share and 200,000 Warrants at $.15 per Warrant (the "Warrant
Securities"). The Underwriters Warrants are exercisable for a period of four
years beginning one year from the date of the Prospectus. The Underwriters
Warrants are non-transferable for a period of one year following the date of the
Prospectus, except to any of the Underwriters or to any individual who is either
a partner or an officer of an Underwriter or by operation of law or by will or
the laws of descent and distribution.
6. Expenses. The Company will pay the fees and disbursements of its
attorneys, all of its expenses incident to the preparation and filing of the
Registration Statement under the Act and the qualification of the Securities for
sale under Blue Sky and securities laws of the various states, the fees and
disbursements of counsel related to Blue Sky and securities laws qualification,
the charges of the NASD in connection with its review of the underwriting
arrangements, the fees and expenses of any transfer or warrant agent, any
Federal and/or state taxes upon the issuance of the Securities, the reasonable
costs of a "tombstone" advertisement with respect to the offering of the
Securities and all expenses of printing the Registration Statement, the
Prospectus and all other related documents or instruments prepared in connection
with the transactions contemplated hereby, including, without limitation, this
Agreement, the Securities and any Blue Sky memoranda.
In addition, the Company will pay to the Underwriters a non-accountable
expense allowance in an amount equal to 3% of the gross proceeds derived from
the sale of the Securities, of which $34,000 has been paid and the balance of
which shall be payable at the Closing provided, however, that in the event that
no Closing shall be held, the Company in lieu of such payment shall reimburse
the Representative in full (up to a maximum of $90,000) for its reasonable
out-of-pocket expense, including, without limitation, its legal fees and
disbursements, and the Underwriters shall reimburse the Company if and to the
extent that such expenses are less than the $__________ previously advanced
amount with respect to such expenses. The non-accountable expense allowance
shall be payable to the Underwriters based on their pro rata participation in
the offering which is seventy percent (70%) to Global and thirty percent (30%)
to PCM.
-7-
<PAGE>
7. Covenants of the Company. The Company covenants and agrees with you
that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and will advise the Representative promptly of any
proposal to amend or supplement the registration statement as presently amended,
or the related form of prospectus, prior to the Effective Date, and will not
effect such amendment or supplement without the consent of the Representative,
which shall not be unreasonably withheld; the Company will also advise the
Representative promptly of the effectiveness of the Registration Statement, of
any amendment or supplement institution by the Commission of any suspension of
qualification or stop order proceedings in respect of the Registration
Statement, and will use its best efforts to prevent the issuance of any such
stop order and to obtain as soon as possible its lifting, if issued.
(b) If at any time when a prospectus relating to the Securities is
required to be delivered under the Act any event occurs as a result of which the
Prospectus is then amended or supplemented would include an untrue statement of
a material fact, or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend or supplement
the Prospectus to comply with the Act, the Company, at its cost, promptly will
prepare and file with the Commission an amendment or supplement which will
correct such statement or omission and/or which will effect such compliance and
will furnish the Underwriters with copies of any such amended Prospectus or
supplement to the Prospectus.
(c) Not later than the first day of the eighteenth full calendar month
after the date hereof, the Company will make generally available to its security
holders an earnings statement (which need not be audited) covering a period of
at least 12 months beginning after the Effective Date which will satisfy the
provisions of Section 11(a) of the Act.
(d) The Company has furnished or will furnish to you copies of the
Registration Statement (two of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all amendments and
supplements to such documents, in each case as soon as available and in such
quantities as you shall reasonably request. The Company will forward to the
Representative three complete bound volume containing the appropriate documents
relating to the offering.
-8-
<PAGE>
(e) The Company will use its best efforts to qualify the Common Stock,
the Warrants and the Warrant Shares for offering and sale, and in determining
the eligibility of such securities for investment, under the Blue Sky or
securities laws of such jurisdictions as the Representative shall designate and
are reasonably available and will continue such qualifications in effect so long
as required for the distribution of the Securities, provided, however, that in
connection with such designation, the Company shall not be required to file a
general consent to service of process in any jurisdiction.
(f) For a period of five years after the Effective Date, the Company
will furnish to the Representative, within the time permitted for filing with
the Commission, a balance sheet and statements of operations, stockholders'
equity (or deficit) and cash flows of the Company as at the end of and for each
fiscal year in such period, all in reasonable detail and certified by
independent public accountants; and the Company will furnish to the
Representative (i) as soon as available a copy of each report of the Company
mailed to the stockholders or filed with the Commission, and (ii) from time to
time, such other information then existing concerning the Company as the
Representative may reasonably request.
(g) The Company will apply the net proceeds of the sale of the
Securities as set forth under the caption "Use of Proceeds" in the Prospectus
and will file reports with the Commission with respect to the sale of the
Securities and the application of the proceeds therefrom as may be required in
accordance with Rule 463 under the Act.
(h) The Company will cause each of its executive officers, directors and
5% or greater stockholders to furnish to the Representative, on or prior to the
date hereof, a letter or letters, in form and substance satisfactory to the
Representative, pursuant to which each such person shall agree not to sell
publicly any shares of Common Stock during the 13-month period following the
Effective Date, except with the Representative's prior written consent.
(i) At the Closing, the Company will execute and deliver to the
Underwriters the Underwriters Warrants.
(j) For a period of three years from the date hereof, the Company, at
its expense, shall provide the Representative, or its designee, if so requested
in writing, with copies of the Company's daily transfer sheets.
-9-
<PAGE>
(k) For a period of 90 days from the date hereof, the Company (i) will
consult with the Representative prior to the distribution to third parties of
any financial information, news releases, and/or other publicity regarding the
Company, its business, or any terms of the offering of the Securities and (ii)
will provide to the Representative for its review prior to distribution copies
of all documents which the Company or its public relations advisors intend to
distribute.
(l) Promptly following the Closing, the Company will use its best
efforts to obtain, and maintain for a period of at least five years, a listing
in either Moody's Industrial Manual or Standard and Poor's Corporation Records.
(m) For a period of not less than three years from the Effective Date,
the Company will permit the Representative's designee to attend meetings of the
Company's Board of Directors as a non-voting observer. Such designee shall
receive notices of all meetings of the Board.
(n) The Company will obtain inclusion of the Securities, the Warrants
and the Common Stock in the NASDAQ system as of the Closing Date.
(o) It will not issue any equity securities for a period of one year
from the date of the Prospectus without the Representative's consent.
8. Conditions of the Obligations of the Underwriters. The obligations of
the Underwriters at the Closing hereunder will be subject to the accuracy of the
representations and warranties on the part of the Company herein as of the date
hereof and as of the Closing Date, to the accuracy of the statements of the
Company's officers made in any certificate furnished pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions precedent:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M., New York time, on the date of this Agreement, or such later date
as shall have been consented to by the Representative; and prior to the Closing
Date no stop order suspending the effectiveness of the Registration Statement
will have been issued and no proceedings for that purpose shall have been
instituted, or to the knowledge of the Company or the Representative, shall be
contemplated by the Commission;
(b) The Representative shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment or supplement thereto,
contains an untrue statement of fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading;
-10-
<PAGE>
(c) The Representative shall have received a written opinion of Gary A.
Agron, Esq., counsel for the Company (or from other counsel satisfactory to the
Representative), dated the Closing Date, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Texas,
with full corporate power and authority under such laws to own its
properties and conduct its business as described in the Prospectus; the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions, if any, in which it owns or
leases substantial property or in which it maintains an office, except
where the failure so to qualify would not have a material adverse effect
on the business of the Company;
(ii) The Company has an authorized capital stock as set forth in the
Prospectus and all the outstanding shares of capital stock have been
duly and validly authorized and issued and are fully paid and
non-assessable, and conform to the description thereof contained in the
Prospectus;
(iii) To the best of such counsel's knowledge there are no legal or
governmental proceedings pending or threatened to which the Company is a
party or of which any property of the Company is the subject, other than
litigation described in the Prospectus or which individually and in the
aggregate is not material to the business of the Company taken as a
whole;
(iv) This Agreement has been duly authorized, executed and delivered
by the Company;
(v) The Securities have been duly authorized and, upon issuance,
delivery and payment therefor in the manner described in the Prospectus,
will be duly and validly issued, fully paid and non-assessable; the
Warrant Agreement has been duly authorized, executed and delivered and
is a valid and binding agreement enforceable in accordance with its
terms except as the same may be limited by bankruptcy, insolvency,
reorganization or other laws of general applicability relating to or
affecting the enforcement of creditors' rights, and except that no
opinion need be expressed with respect to the remedy of specific
performance; the Warrant Shares have been duly authorized and reserved
for issuance upon such exercise will be validly issued and fully paid
and non-assessable; and the Warrant Securities have been duly and
validly authorized and reserved for issuance, and such Warrant
Securities, when issued in accordance with the terms of the
Representative's Warrants, will be duly an validly issued, fully paid
and non-assessable and the Common Stock, the Warrants, the Warrant
Shares, the Representative's Warrants, the Warrant Securities and the
Warrant Agreement conform to the description thereof in the Prospectus;
-11-
<PAGE>
(vi) Neither the execution nor the delivery of this Agreement, nor
the consummation of the transactions herein contemplated nor compliance
with the terms, conditions or provisions hereof, will result in a breach
or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust or other agreement
or instrument, known to such counsel, to which the Company is a party or
any of its properties is subject, or the Certificate of Incorporation or
By-laws of the Company or any law, decree, judgment, order, rule or
regulation, known to such counsel, of any court or governmental agency
or body having jurisdiction over the Company or any of its property,
except insofar as the enforceability of this Agreement may be limited by
the application of the Federal securities laws and decisions thereunder
and except that such counsel need express no opinion as to the
applicability of the Blue Sky or securities laws of the various states;
and
-12-
<PAGE>
(vii) on the basis of the participation by such counsel in
conferences with representatives of the Company and its accountants at
which the contents of the Registration Statement and the Prospectus and
related matters were discussed, and based upon the advice of the
Company, but without independent verification by such counsel of the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus or any amendments or
supplements thereto, and without expressing any opinion as to the
financial statements and other financial data contained therein: (A)
nothing has come to such counsel's attention which leads it to believe
that the Registration Statement and the Prospectus, as amended or
supplemented by any amendments or supplements thereto made by the
Company prior to the Closing Date, do not comply as to form in all
material respects with the requirements of the Act; (B) nothing has come
to such counsel's attention which leads it to believe that the
Registration Statement or the Prospectus, as amended or supplemented by
any such amendments or supplements thereto, contains any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading; (C) such counsel does not know of any contract
or other document required to be described in or filed as an exhibit to
the Registration Statement which is not so described or filed; (D) the
Registration Statement has become effective under the Act, and, to the
best of the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated by the Commission. and there are no contracts, agreements
or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement
under the Securities Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to include
such securities in the securities registered pursuant to the
Registration Statements or in any securities being registered pursuant
to any other registration statement filed by the Company under the
Securities Act.
As to matters of fact in the conclusions expressed in the foregoing
opinion, such counsel may rely upon certificates, copies of which shall have
been furnished to the Representative, of public officials and of appropriate
officers of the Company.
(d) The Representative shall have received a certificate of the President
and of the Treasurer of the Company, dated the Closing Date, to the effect that:
(i) Since the Effective Date, there shall not have occurred any
event required to be set forth in an amended or supplemented Prospectus
which shall not have been so set forth, any such amendment or supplement
shall not have included any untrue statement of a material fact or have
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
-13-
<PAGE>
(ii) Subsequent to the respective dates of which information is
given in the Registration Statement and Prospectus and prior to the
Closing Date, and except as set forth in or contemplated by the
Prospectus, (A) other than in the ordinary course of business, the
Company has not incurred and will not have incurred any liabilities or
obligations, direct or contingent, nor has it nor will it have entered
into any transaction, in either case which are material to the business
of the Company will not have been any change in the capital stock or
long-term debt of the Company from that set forth under the heading
captioned "Capitalization" in the Prospectus, or any material adverse
change, financial or otherwise, in the financial position, results of
operations or general affairs of the Company, considered as a whole; and
(iii) To the knowledge of such persons (A) the representations and
warranties contained in Section 1 hereof are, at the Closing Date, true
and correct, (B) the Registration Statement has become effective, no
stop order suspending the effectiveness thereof has been issued prior to
the Closing Date and no proceedings for that purpose, prior to that
date, have been initiated or threatened by the Commission, and (C) every
reasonable request for additional information on the part of the
Commission, to be included in the Registration Statement or the
Prospectus or otherwise, has been complied with.
(e) At the time of execution of this Agreement and also at the Closing
Date, Akin, Doherty, Klein & Feuge, P.C., shall have furnished to the
Representative a letter or letters, dated the date of delivery thereof, in form
and substance satisfactory to the Representative:
(i) Stating that they are independent certified public accountants
within the meaning of the Act and the published rules and regulations
thereunder, and the answer to Item 10 of the Registration Statement is
correct insofar as it relates to them; and
-14-
<PAGE>
(ii) Setting forth, as of the date of such letter (or, with respect
to matters involving changes or developments since the respective dates
as of which specified financial information is given in the Prospectus,
as of a date not more than five days prior to the date of such letter),
the conclusions and findings of said firm with respect to the financial
information and other matters designated by you.
(f) The Company shall have furnished to you such certificates in
addition to those specifically mentioned herein, as you may have reasonably
requested, as to the accuracy, on the Closing Date, of the representations and
warranties of the Company; as to the performance by the Company of its
obligations hereunder; and as to the other concurrent or precedent conditions to
the obligations of the Underwriters hereunder.
(g) All corporate and legal proceedings taken and all legal opinions
rendered in connection with the Registration Statement and the issue and sale of
the Securities shall be satisfactory in form and substance to Mound, Cotton &
Wollan counsel to the Representative, and such counsel shall have been furnished
with such papers and information as they may reasonably have requested in this
connection.
The several obligations of the Underwriters to purchase Additional
Securities hereunder are subject to satisfaction on and as of the Option Closing
Date of the conditions set forth above, except that the opinion called for in
paragraph (c) shall be revised to reflect the sale of the Additional Securities.
9. Conditions of Company's Obligations. The obligations of the Company to
sell and deliver the Securities are subject to the following conditions:
(a) The Registration Statement shall have become effective and prior to
the Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been instituted or, to the knowledge of the Company or the
Representative, shall be contemplated by the Commission.
(b) At the Closing Date there shall be in full force and effect
appropriate orders, where necessary, of such regulatory authorities as have
jurisdiction over the issue and sale of the Securities, permitting the issue and
sale of the Securities upon the terms and conditions herein set forth or
contemplated and containing no provision unacceptable to the Company.
-15-
<PAGE>
10. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each Underwriter, and
each person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
the Prospectus or any amendment or supplement thereto, or any related
Preliminary Prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will reimburse
each Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue omission made in any of such
documents in reliance upon and in conformity with written information furnished
to the Company through the Representative by the Underwriters expressly for use
therein; and provided, further, that the indemnity agreement contained in this
Section 10(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person, if any, who
controls such Underwriter) through whom the person asserting any such loss,
claim, damage, liability or action purchased the Securities which are the
subject thereof if such Underwriter or a Selected Dealer who purchased the
Securities from such Underwriter failed to deliver a copy of the Prospectus to
such person at or prior to the confirmation of the sale of such person or at or
prior to the confirmation of the sale of such Securities to such person in any
case where such delivery is required by the Act and the untrue statement or
omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus. This indemnify agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the Registration Statement, and each person, if any, who controls the Company
within the meaning of the Act against any losses, claims, damages or liabilities
to which the Company or any such director, officer or controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related Preliminary Prospectus, or arise out of or
are based upon the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company through
the Representative by such Underwriter expressly for use therein; and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such other director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
This indemnity agreement will be in addition to any liability which the
Underwriters may otherwise have.
-16-
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section 10
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 10, notify such indemnifying party of the commencement thereof; but the
failure so to notify such indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 10. In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
assume (at its own expense) the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assure the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 10 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if, in the judgment
of the indemnified party, it is advisable for the indemnified party and its
controlling persons to be represented by separate counsel, the indemnified party
shall have the right to employ a single counsel to represent the indemnified
party and all such controlling persons, in which event the fees and expenses of
such separate counsel shall be borne by the indemnifying party. No indemnifying
party shall be liable for any compromise or settlement of any such action
effected without its consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Sections 10(a) and
10(b) hereof is for any reason held to be unavailable from the Company or any
Underwriter, the Company and the Underwriters shall contribute to the aggregate
losses, claims, damages and liabilities (including any investigation, legal and
other expenses incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding or any claims asserted, but after deducting
any contributions received by the Company from persons other than the
Underwriters who may also be liable for contribution, the Company hereby
agreeing to seek contribution from such persons) to which the Company and the
Underwriters may be subject in such proportion so that the Underwriters are
responsible for that portion represented by the percentage that the sum of the
underwriting discount and the non-accountable expense allowance appearing on the
cover page of the Prospectus bears to the public offering price appearing
thereon and the Company is responsible for the balance; provided, however that:
-17-
<PAGE>
(i) in no case, other than fraudulent misrepresentation as set
forth in clause (ii) below, shall an Underwriter be responsible under
this Section 10(d) for any amount in excess of the sum of the
underwriting discount and the non-accountable expense allowance
applicable to the Securities purchased by it hereunder; and
(ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
For purposes of this Section 10(d), each person, if any, who controls an
Underwriter within the meaning of the Act, shall have the same rights to
contribution as such Underwriter, and each person, if any, who controls the
Company within the meaning of the Act, each officer of the Company who shall
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company, subject in each case to
clauses (i) and (ii) of this Section 10(d). Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section 10(d), notify such
party or parties from whom contribution may be sought, but the omission to so
notify such party or parties shall not relieve the party or parties from who
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section 10(d).
11. Registration Rights.
11.1 The Company is obligated to register the Warrant Securities, on the
terms, and subject to the conditions, set forth below:
(a) If at any time during the four-year period beginning on the first
anniversary of the Effective Date the Company shall file a registration
statement (other than a registration statement on Form S-8 or Form S-4 or any
successor form thereto) with respect
-18-
<PAGE>
to any of its securities under the Act or shall file a post-effective amendment
to any registration statement (other than a registration statement on Form S-8
or Form S-4 or any successor form thereto), which post-effective amendment
contains a prospectus complying with Section 10(a) if the Act, the Company will
give to the holders of the Underwriters Warrants and the Warrant Securities, no
less than 30 days' prior written notice of its intention to file such
registration statement of post-effective amendment, as the case may be, and
promptly after receipt of a written request made by the holders of any portion
of the Underwriters' Warrant or Warrant Securities, within 20 days after the
giving of such notice, the Company will use its best efforts to register under
the Act all Warrant Securities ("Securities to be Registered") covered by any
such request and will maintain the prospectus included in any registration
statement which may be so filed current for a period of 120 days subsequent to
the effective date of such registration statement.
(b) At any time during the four-year period beginning on the first
anniversary of the Effective Date, the holders of at least 75% of the
Underwriters Warrants and/or Warrant Securities shall have the one time right
upon the written request of such holders to cause the Company to use its best
efforts to register all of such holders' Securities to be Registered covered by
such request for a public offering on an appropriate form under the Act. The
Company shall cause such registration statement on such form to remain effective
for a period of 120 days from the initial effective date thereof.
(c) All of the expenses incurred in registering the Securities to be
Registered under (a) or (b) above, including reasonable fees and expenses of
separate counsel for the holders of the Securities to be Registered in the case
of a registration under (b) but not a registration under (a), shall be borne by
the Company, except that underwriting discounts or commissions attributable to
the Securities to be Registered shall be borne by the holders of such Securities
to be Registered.
(d) The holders of Securities to be Registered shall use their best
efforts not to request a registration under (b) above at a time when a special
audit of the financial statements of the Company would be required under the
rules of the Commission.
11.2 If at time within 120 days after a post-effective amendment or a new
registration statement covering the Securities to be Registered as provided in
Section 11.1 hereof, shall have become effective, to the knowledge of the
Company any event occurs as a result of which a prospectus included therein
relating to the Securities to be Registered as then amended or supplemented
would include any untrue statement of a material fact, or would not state a
material fact necessary to make the statements therein, in the light of the
circumstances then existing, not misleading, the
-19-
<PAGE>
Company will promptly notify the holder or holders of Securities to be
Registered covered by such prospectus thereof and, if such event occurs within
120 days (excluding any period during which a stop order is in effect) after the
effective date of the registration statement or post-effective amendment to a
registration statement of its own cost and expense amend or supplement such
prospectus in order to correct such statement or omission in order that the
prospectus as so amended or supplemented will comply with the requirements of
Section 10(a) of the Act. In case any such holder or holders is required to
deliver a prospectus after such 120-day period, the Company will, at the expense
of such holder or holders, prepare promptly such prospectus or prospectuses and
thereafter amend or supplement the same as may be necessary to permit compliance
with Section 10(a) of the Act.
11.3 In connection with any registration statement or post- effective
amendment pursuant to Section 11.1:
(a) the Company will comply with all applicable rules and regulations of
the Commission or any similar Federal commission and will make available to its
security holders, as soon as practicable, an earning statement (which need not
be audited) covering a period of at least 12 months, but not more than 18
months, beginning with the first month after the effective date of the
registration statement or post-effective amendment, as the case may be, which
earning statement will satisfy the provisions of Section 11(a) of the Act;
(b) each holder of the Securities to be Registered covered by such
post-effective amendment or registration statement, as the case may be, will
furnish in writing to the Company such information regarding such holder and its
proposed plan of distribution of such Securities to be Registered as the Company
shall request in order to have such post-effective amendment or registration
statement declared effective;
(c) the Company agrees to furnish at its own cost and expense to the
holders of the Securities to be Registered a prospectus (in such reasonable
quantities as such holders shall request) containing certified financial
statements and other information meeting the requirements of the Act and the
rules and regulations thereunder and relating to the Securities to be
Registered; and
(d) the Company will use its best efforts to qualify the Securities to
be Registered covered by any registration statement or post-effective amendment
for public offering or sale on the effectiveness thereof in such jurisdictions
as the holders offering the same shall reasonably request; provided, however,
that the Company shall not be required to qualify as a foreign corporation in
any jurisdiction or to give a general consent to service of process in any
jurisdiction except in connection with matters arising from the sale of
securities in such jurisdiction. The filing frees and reasonable fees and
expenses of counsel in connection with such qualification shall be paid for the
Company.
-20-
<PAGE>
11.4 In the event of any such registration of any Securities to be
Registered, the Company will indemnify and hold harmless each holder of
securities being offered and each person, if any, who may be deemed to control
such holder within the meaning of Section 15 of the Act against any losses,
claims, damages or liabilities, joint or several, to which any of them may
become subject under the Act, or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained on the effective date thereof, in any registration statement or
post-effective amendment under which such securities were registered under the
Act, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and will
reimburse each of them for any legal or any other expenses reasonably incurred
by them in connection with investigating, defending or settling any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to any of them to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon any untrue
statement of any material fact contained, on the effective date thereof, in such
registration statement or post-effective amendment, such preliminary prospectus
or such final prospectus or any such amendment or supplement in reliance upon
and in conformity with information furnished in writing by such persons to the
Company expressly for use in the preparation thereof, or arises out of or is
based upon any omission or alleged omission to state a material fact in
connection with such written information required to be stated in such
registration statement, such post-effective amendment, such preliminary
prospectus or such final prospectus or any such amendment or supplement in light
of the circumstances under which it is used, not misleading. For purposes of
this Section 11.4, "information furnished in writing by such persons" shall
include information contained in any portion of such registration statement,
such post-effective amendment, such preliminary prospectus or such final
prospectus or any such amendment or supplement which has been expressly
identified and approved in writing in a letter signed by the person or persons
involved. Each such person shall promptly give notice to the Company after such
person has actual knowledge of any such claim as to which indemnity may be
sought hereunder, or of the commencement of any legal proceedings against such
person as to such claim, whichever shall first occur, and shall permit the
Company to assume the defense of any such claim or any litigation resulting from
such claim; provided, however, that:
-21-
<PAGE>
(a) counsel reasonably satisfactory to the Company and each such person
involved shall act as counsel for the Company and shall conduct the defense of
such claim or litigation; and
(b) each such person may participate in such defense at the expense of
such person, and provided, further, that the omission by any such person to give
notice to the Company as provided in this sentence or the failure to permit the
Company to conduct such defense shall relieve the Company of its obligations
under this Section 11.4, but shall not relieve the Company of its obligations
otherwise than under this Section 11.4. The Company shall notify each such
person involved within 15 days after the Company shall have received such notice
if the Company shall elect to defend such claim or litigation therefrom. If the
Company assumes the defense of any such claim or litigation resulting therefrom,
the obligation of the Company under this Section 11.4 shall be limited to taking
all steps necessary in the defense or settlement of such claim or litigation
resulting therefrom and to holding the person involved harmless from and against
any losses, damages or liabilities caused by or arising out of any settlement
approved by the Company or any judgment in connection with such claim or
litigation resulting therefrom. The Company shall not, in the defense of such
claim or any litigation resulting therefrom, consent to entry of any judgment
except with the consent of each such person involved or enter into any
settlement (except with the consent of each such person involved) which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such person of a release from all liability in respect of such claim or
litigation.
11.5 In the event of any such registration of any Securities to be
Registered, each holder of such securities being offered shall indemnify and
hold harmless the Company, each of its directors and officers who signed the
registration statement, and any person who controls the Company within the
meaning of the Act from and against any loss, claim, damage or liability, joint
or several, or any action in respect thereof, to which the Company or any such
director, officer or controlling person may become subject, under the Act or
otherwise, insofar as such loss, claim, damage, liability or action, arises out
of, or is based upon, any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or post-effective
amendment under which such securities were registered under the Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or arises out of, or is based upon, the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that the untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any such
-22-
<PAGE>
holder specifically for inclusion therein, and reimburse the Company for any
legal and other expenses reasonably incurred by the Company or any such
director, officer or controlling person in investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action.
The foregoing indemnity agreement is in addition to any liability which any such
holder may otherwise have to the Company or any of its directors, officers or
controlling persons.
12. Termination. This Agreement shall become effective when notification of
the effectiveness of the Registration Statement has been released by the
Commission.
This Agreement may be terminated at any time prior to the Closing Date by
the Representative by written notice to the Company if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in or
affecting particularly the general condition, financial or otherwise, of the
Company or the earnings, affairs, or business prospects of the Company, whether
or not arising in the ordinary course of business, which would, in reasonable
judgment of the Representative, materially impair the investment quality of the
Securities, (ii) any outbreak of hostilities or other national or international
calamity or crisis or change in economic conditions if the effect of such
outbreak, calamity, crisis or change on the financial markets of the United
States would, in the reasonable judgment of the Representative, make the
offering or delivery of the Securities impracticable, (iii) suspension of
reporting of closing or bid and asked prices by the NASD Automated Quotation
System or suspension of trading in securities on the New York Stock Exchange or
the American Stock Exchange or limitation on prices (other than limitations on
hours or numbers of days of trading) for securities on either such Exchange,
(iv) the enactment, publication, decree or other promulgation of any Federal or
state statute, regulation, rule or order of any court or other governmental
authority which in the reasonable judgment of the Representative materially and
adversely affects or will materially and adversely affect the business or
operations of the Company, (v) declaration of a banking moratorium by either
Federal or New York State authorities or (vi) the taking of any action by any
Federal, state or local government or agency in respect of its monetary or
fiscal affairs which in the reasonable judgment of the Representative has a
material adverse effect on the securities market in the United States.
13. Substitution of Underwriters. If any Underwriter shall for any reason
not permitted hereunder cancel their obligations to purchase the Securities
hereunder, or shall fail to take up and pay for the number of securities set
forth opposite their respective names in Schedule I hereto upon tender of such
securities in accordance with the terms hereof, then:
-23-
<PAGE>
(a) If the aggregate number of Securities which such Underwriter agreed
but failed to purchase does not exceed 10% of the total number of Securities,
the other Underwriter shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Securities which such
defaulting Underwriter agreed but failed to purchase.
(b) If any Underwriter so defaults and the agreed number of Securities
with respect to which such default or defaults occurs is more than 10% of the
total number of Securities, the remaining Underwriter shall have the right to
take up and pay for the Securities, which the defaulting Underwriter agreed but
failed to purchase. If such remaining Underwriter does not take up and pay for
the Securities which the defaulting Underwriter agreed but failed to purchase,
the time for delivery of the Securities shall be extended to the next business
day to allow the Underwriters the privilege of substituting within twenty-four
hours (including nonbusiness hours) another Underwriter or Underwriters
satisfactory to the Company. If no such Underwriter or Underwriters shall have
been substituted as aforesaid, within such twenty-four hour period, the time of
delivery of the Securities may, at the option of the Company, be again extended
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including nonbusiness hours)
another Underwriter or Underwriters to purchase the Securities which the
defaulting Underwriter agreed but failed to purchase. If it shall be arranged
for the remaining Underwriter to take up the Securities of the defaulting
Underwriter as provided in this Section, (i) the Company or the Representative
shall have the right to postpone the time of delivery for a period of none more
than seven business days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of Securities to
be purchased by the remaining Underwriters or substituted Underwriters shall be
taken at the basis of the underwriting obligation for all purposes of this
Agreement.
If in the event of a default by one Underwriter and the remaining
Underwriter shall not take up and pay for all the Securities agreed to be
purchased by the defaulting Underwriter or substitute another Underwriter or
Underwriters as aforesaid, the Company shall not find or shall not elect to seek
another Underwriter or Underwriters for such Securities as aforesaid, then this
Agreement shall terminate.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the
-24-
<PAGE>
provisions of this Section 9 shall not in any event affect the liability of any
defaulting Underwriter to the Company arising out of such default.
14. Miscellaneous. Any notice required or permitted to be given hereunder
shall be given in writing by depositing the same in the United States Mail,
postage prepaid, or by courier service or facsimile transmission, addressed as
follows:
to the Underwriters:
Global Equities Group, Inc.
5 Hanover Square
New York, New York 10004
Attention: Michael Christ
with a copy to:
Michael R. Koblenz, Esq.
Mound, Cotton & Wollan
One Battery Park Plaza
New York, New York 10004
to the Company:
CluckCorp International, Inc.
1250 N.E. Loop 410, Suite 335
San Antonio, Texas 78209
with a copy to:
Gary A. Agron, Esq.
5445 DTC Parkway, Suite 520
Englewood, Colorado 80111
Except as otherwise expressly provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Underwriters, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Securities from any of the Underwriters merely because of such
purchase.
The Representative represents and warrants that it has been authorized by
the Underwriters to enter into this Agreement on their behalf and to act for
them in the manner provided in this Agreement.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable in the case of agreements made and to
be performed entirely within such State.
-25-
<PAGE>
This Agreement may be signed in counterparts which together shall
constitute one and the same instrument.
If the foregoing correctly sets forth the agreement among the Company and
the Underwriters, kindly sign and return to us the enclosed duplicate of this
letter, whereupon it will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
Very truly yours,
CLUCKCORP INTERNATIONAL, INC.
By
------------------------------
Agreed and accepted in New York, New York, as of the date hereof.
GLOBAL EQUITIES GROUP, INC.
Acting as Representative of
the Underwriters
By
---------------------------
Michael Christ
PCM SECURITIES LIMITED, L.P.
By
----------------------------
-26-
<PAGE>
SCHEDULE I
Shares of Number of
Underwriters Common Stock Warrants
GLOBAL EQUITIES GROUP, INC. . . . . . 700,000 1,400,000
PCM SECURITIES LIMITED, L.P.. . . . . 300,000 600,000
Total . . . . . . . . . . . . . . . . 1,000,000 2,000,000
CONSENT AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CluckCorp International, Inc.
We hereby consent to the use in this Registration Statement on Form SB-2 of
our report dated March 15, 1996, relating to the Financial Statements of
CluckCorp International, Inc. and to the references to our firm under the
caption "Experts" in the Prospectus.
/s/ AKIN, DOHERTY, KLEIN & FEUGE
----------------------------------------
Akin, Doherty, Klein & Feuge, P.C.
San Antonio, Texas
June 24, 1996
