As filed with the Securities and Exchange Commission on May 14, 1997.
Registration No. 333-21067
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO.2 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 jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code No.) I.D. Number)
1250 N.E. Loop 410, Suite 335
San Antonio, TX 78209
(210) 824-2496
(Address, including zip code, and telephone
number, including area code, of Registrant's principal executive offices)
William J. Gallagher, Chief Executive Officer
CluckCorp International, Inc.
1250 N.E. Loop 410, Suite 335
San Antonio, TX 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. Michael R. Koblenz, Esq.
Law Office of Gary A. Agron Mound, Cotton & Wollan
5445 DTC Parkway, Suite 520 One Battery Park Plaza
Englewood, CO 80111 New York, New York 10004
(303) 770-7254 (212) 804-4200
(303) 770-7257 (fax) (212) 344-8066 (fax)
Approximate date of commencement of the Offering: As soon as practicable
after the date of the Offering.
<PAGE>
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering.
If 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, check
the following box. __X__
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box:
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class Amount To Proposed Amount of
of Securities Be Maximum Price Offering Price Registration
to be Registered Registered Per Security Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Redeemable
Convertible Preferred
Stock, $1.00 par 575,000
value(1) Shares $10.00 $5,750,000 $1,742
Common Stock, $.01
par value, underlying
Series A Redeemable
Convertible Preferred
Stock and issuable upon 1,150,000
conversion or redemption(2)(4) Shares $5.00 $5,750,000 $1,742
Series A Redeemable
Convertible Preferred
Stock underlying
Representative's 200,000
Warrants(3) Shares $13.00 $ 2,600,000 $ 788
Common Stock, $.01
par value, underlying
Series A Redeemable
Convertible Preferred
Stock underlying the
Representative's 400,000
Warrants(2)(3)(4) Shares $5.00 $ 2,000,000 $ 606
Common Stock, $.01 par
value, issuable as
dividends upon the 530,770
Preferred Stock (5) Shares $6.50(5) $ 3,450,005 $1,045
Preferred Stock 1,725,000 $ .10 $ 172,500 $52
Purchase Warrants Warrants
Series A Redeemable 1,725,000 $10.50 $ 18,112,500 $5,489
Convertible Preferred Shares
Stock underlying
Preferred Stock Purchase
Warrants
Common Stock $.01 par
value underlying Series
A Redeemable Convertible
Preferred Stock underlying
the Warrants and issuable
upon conversion or 3,450,000 $ 5.00 $17,250,000 $5,228
redemption(2) Shares
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,085,000(4) $16,694(6)
<FN>
ii
<PAGE>
(1) Includes the overallotment option granted to the Representative to purchase
an additional 75,000 shares of Series A Redeemable Convertible Preferred
Stock ("Preferred Stock").
(2) Issuable upon conversion of the Preferred Stock. It is anticipated that
each share of Preferred Stock will be convertible into no more than two
shares of Common Stock, (based upon a value of $5.00 per share of Common
Stock) with the exact conversion ratio to be based upon the closing price
of the Common Stock on NASDAQ one day prior to the effective date of the
Registration Statement.
(3) Includes 50,000 shares of Preferred Stock issuable upon exercise of the
Representatives Preferred Stock Warrants and 150,000 shares of Preferred
Stock issuable upon exercise of the Representatives Warrants to purchase
Preferred Stock Warrants. The exercise price of the Representatives'
Warrants is equal to 130% of the Preferred Stock price.
(4) Pursuant to Rule 416, there is also being registered hereunder a presently
indeterminable number of shares of Common Stock that may be issued pursuant
to the anti-dilution provisions of the Preferred Stock.
(5) Assumes an annual dividend of 12% on $5,750,000 of Preferred Stock totaling
$690,000 payable in common stock at the current market price of $6.50 per
share, for a period of five years.
(6) $4,863 was previously paid. Accordingly $11,831 is due with this filing.
</TABLE>
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 8(a),
may determine.
(EXHIBIT INDEX LOCATED ON PAGE ___ OF THIS FILING)
iii
<PAGE>
CLUCKCORP INTERNATIONAL, INC.
Cross Reference Sheet
Item Caption Location or Caption in Prospectus
1. Front of Registration Statement and Outside Front Cover Page
Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover of Inside Front and Outside Back
Prospectus Cover Pages
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factors; Underwriting
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Underwriting
9. Legal Proceedings Business - Litigation
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Stockholders
Beneficial Owners and Management
12. Description of Securities Description of Securities
13. Interests of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Limitations on Liability and
Indemnification for Securities Act Indemnification
Liabilities
15. Organization Within Last Five Years Business; Certain Transactions
16. Description of Business Business; Risk Factors
17. Management's Discussion and Analysis Management's Discussion and
or Plan of Operations Analysis of Financial Condition
and Results of Operations
18. Description of Property Business - Properties
19. Certain Relationships and Related Certain Transactions
Transactions
iv
<PAGE>
20. Market for Common Equity and Related Price Range of Common Stock
Stockholder Matters
21. Executive Compensation Management - Executive
Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Not Applicable
Accountants on Accounting and
Financial Disclosure
v
<PAGE>
Subject to Completion Preliminary Prospectus Dated __________, 1997
CLUCKCORP INTERNATIONAL, INC.
500,000 Shares of Redeemable Convertible Preferred Stock
and
1,500,000 Redeemable Preferred Stock Purchase Warrants
CluckCorp International, Inc. (the "Company") is offering (the "Offering")
500,000 shares of $1.00 par value Series A Redeemable Convertible Preferred
Stock (the "Preferred Stock") at $10.00 per share and 1,500,000 Redeemable Class
A Preferred Stock Purchase Warrants (the "Warrants") through Global Equities
Group, Inc. as the lead managing underwriter and the representative
("Representative") of the underwriters ("Underwriters") herein named and
Suncoast Capital Corp. as the co-managing underwriter ("Co-Manager").
The Preferred Stock is convertible at the option of the holder at any time
after nine months from the date hereof into shares of the Company's $.01 par
value common stock (the "Common Stock"). The number of shares of Common Stock
issuable upon conversion of each share of Preferred Stock (the "Conversion
Rate") is equal to $10.00, divided by _____ (the "Conversion Price"). The
initial Conversion Rate is _____ shares of Common Stock for each share of
Preferred Stock. No additional cash consideration must be paid to exercise the
conversion right. The Preferred Stock will automatically convert to Common Stock
at the Conversion Rate if the closing price for the Preferred Stock equals or
exceeds $20.00 per share for ten consecutive trading days at any time after one
year from the date hereof. The Preferred Stock is convertible into Common Stock
at the election of the holder at any time after nine months from the date
hereof. The Preferred Stock may be redeemed in whole or in part, at the option
of the Company after nine months from the date hereof upon 30 days' written
notice (the "redemption date") at 110% of the average bid price per share for
the Preferred Stock on The NASDAQ SmallCap Tier of The NASDAQ Stock Market ("The
NASDAQ SmallCap Market") for the 20 trading days prior to the redemption date.
Dividends on the Preferred Stock are cumulative, will accrue and are payable
quarterly in arrears at a quarterly rate of $.30 per share representing a yield
of 12% per annum. The redemption price and dividends may be paid in cash or in
Common Stock of the Company at the Company's sole discretion. See "Description
of Securities."
Each Warrant entitles the holder to purchase one share of Preferred Stock
at $10.50 per share for a period of five years from the date hereof, subject to
adjustment in certain events. The Preferred Stock and Warrants will be
separately tradeable as of the date hereof and the Warrants may be exercised
after six months from the date hereof. Investors may purchase either Preferred
Stock, or Warrants or both securities.
The Warrants may be redeemed by the Company for $.01 per Warrant upon 30
day's notice at any time after nine months from the date hereof if the closing
price of the Company's Preferred Stock on the NASDAQ SmallCap Market averages at
least $11.00 per share for a period of 20 consecutive trading days or if the
Company redeems the Preferred Stock.. See "Description of Securities -
Redeemable Preferred Stock Purchase Warrants."
On May 13, 1997, the closing sale price of the Common Stock on The NASDAQ
SmallCap Market was $7.69 per share. The Company has applied to have the
Preferred Stock and Warrants listed on The NASDAQ SmallCap Market. This Offering
involves a high degree of risk and should not be purchased by investors
requiring current income. 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.
Price to Underwriting Proceeds to
Public Discounts (1)(3) Company (2)(3)
Per Share $ 10.00 $ 1.00 $ 9.00
Per Warrant $ .10 $ .01 $ .09
Total $5,150,000 $515,000 $4,635,000
(1) Excludes a nonaccountable expense allowance payable by the Company to the
Representative equal to 3% of the aggregate initial public offering price
of the Preferred Stock and Warrants. The Company has agreed to issue
warrants (the "Representative's Warrants") to the Representative to
purchase 50,000 shares of Preferred Stock for $13.00 per share and 150,000
Warrants for $.13 per Warrant and to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $350,000,
together with the Representative's nonaccountable expense allowance of
$154,500.
(3) Assumes no exercise of the Representative's option, exercisable within 45
days from the date of this Prospectus, to purchase up to 75,000 additional
shares of Preferred Stock and/or 225,000 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 Proceeds to Company will be $5,922,500, $592,250 and
$5,330,250, respectively. See "Underwriting."
The Preferred 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 in New York, New York on or about
__________, 1997.
GLOBAL EQUITIES GROUP, INC. SUNCOAST CAPITAL CORP.
The date of this Prospectus is ________________, 1997
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended (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 facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, copies of which may be obtained from
the Commission upon payment of the prescribed fees.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files 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. Copies of such material
can be obtained at prescribed rates from the Commission at such 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.
Certain persons participating in this Offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the securities
including purchase and sale transactions of the securities on The NASDAQ
SmallCap Market. For a description of these activities, see "Underwriting."
For California Residents
Investment in the securities of the Company described in this Prospectus by
California investors is expressly limited to investors who have an adjusted
gross income of at least $65,000 for the calendar year ended December 31, 1996
and an equal amount of adjusted gross income anticipated for the calendar year
ended December 31, 1997, together with a minimum of $250,000 of liquid net worth
(excluding home, home furnishings and automobile). In the event the California
investor does not have an adjusted gross income of $65,000 and liquid net worth
of $250,000, such investor may nevertheless purchase the Company's securities if
he or she has (i) a liquid net worth of $500,000 or more, (ii) $1,000,000 or
more of total net worth or (iii) $200,000 of gross annual income for the year
ended December 31, 1996.
1
<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 or the
Representative's Warrants.
Except for the historical information contained herein, the matters set
forth in this Prospectus include forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. These risks and
uncertainties are detailed throughout the Prospectus and will be further
discussed from time to time in the Company's periodic reports filed with the
Commission. The forward-looking statements included in the Prospectus speak only
as of the date hereof.
The Company
The Company owns, operates and franchises quick service restaurants under
the "Harvest Rotisserie" name, which feature marinated oak-roasted rotisserie
chicken, oak-roasted turkey breast, roast ham, meatloaf, an assortment of
sandwiches and other fresh homestyle food items. Harvest Rotisserie restaurants
(sometimes referred to as the "Restaurant(s)") emphasize rotisserie oak-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. Harvest Rotisserie side dishes include cold
dishes such as coleslaws and salads and hot dishes such as baked beans,
stuffing, corn, parsley potatoes, macaroni and cheese, steamed fresh vegetables,
mashed potatoes and gravy, rice, creamed spinach, cheese rice and baked cinnamon
apples. The Company maintains strict quality standards in purchasing, storing,
preparing and serving its entrees, side dishes, desserts and other products.
To date, the Company has opened three Restaurants in San Antonio, Texas
(one of which is used as both a training facility and a public restaurant) and
one Restaurant in Corpus Christi, Texas. The Company has also executed leases or
acquired property to develop five additional Restaurants in San Antonio and
Houston, Texas, although it currently has the funds to develop only three such
restaurants. The Company seeks to enter into traditional single Restaurant
franchise agreements as well as area development agreements although it has not
yet executed any franchise agreements and has no area development agreements in
effect. Area development agreements require the area developer to develop a
specified number of Restaurants within a delineated territory in accordance with
a development schedule. Management believes that area development agreements
allow for the more rapid development of a target market area by generally more
experienced restaurant operators who are able to realize economies of scale
resulting from opening a number of Restaurants in a given area. These operators
often require less management supervision by Company personnel and provide the
Company with higher franchise fee income in a shorter period of time.
The Company intends to use substantially all of the proceeds of the
Offering to acquire restaurant properties in certain metropolitan markets and
sublease the properties to area developers who will operate them as Harvest
Rotisserie restaurants. The Company may require the area developers to execute
promissory notes to the Company representing any acquisition costs advanced by
the Company and may also advance funds to area developers for costs incurred to
convert properties to Harvest Rotisserie restaurants and for working capital.
The Company will then seek to recoup its costs through franchise fee payments
and repayments of any promissory notes issued by the area developers who will
also be responsible to tender restaurant property lease payments directly to the
owners of the properties. See "Use of Proceeds."
2
<PAGE>
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 original "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"), a
nonaffiliate 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 is
obligated to pay a license fee of 2% of gross sales applicable only to its
Cluckers restaurants in Texas for the first ten 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. The Company is not required to pay a license fee for its Harvest
Rotisserie restaurants because it developed and owns the rights to the Harvest
Rotisserie name and concept.
In February 1996, the Company decided to concentrate on the development,
operation and franchising of Harvest Rotisserie restaurants, which the Company
believes is an improvement over the original Cluckers concept because Harvest
Rotisserie restaurants offer an expanded menu which includes a number of
additional homestyle entrees offering lower fat foods. Accordingly, it converted
its one Cluckers restaurant in San Antonio, Texas to a Harvest Rotisserie
restaurant.
In July 1996, the Company sold 1,000,000 shares of Common Stock and
2,300,000 common stock purchase warrants (the "IPO Warrants") in an initial
public offering ("IPO") of its securities through Global Equities Group, Inc.
("Global" or the "Representative") as representative of the underwriters of the
IPO. Global is also acting as the Representative in this Offering. The Company
realized net proceeds of approximately $4,700,000 from the IPO based upon the
sale of the Common Stock at $5.50 per share and the IPO Warrants at $.125 per
IPO Warrant. Proceeds from the IPO were used to open three Restaurants to date
and will be sufficient to finance an additional three of the five restaurant
properties currently under lease. The remaining two restaurant properties are
the subject of ground leases, and the Company will require additional financing
to construct the buildings which will house the Restaurants. The first three
Restaurants will be completed in 1997. However, there can be no assurance that
financing will be available to the Company to complete the remaining two
Restaurants. See "Business - Properties." Following the IPO, the Company's
Restaurant development schedule was initially delayed as a result of the
Company's decision to eliminate certain Restaurant sites and substitute new
sites selected following the IPO. See "Business - Properties."
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.
3
<PAGE>
The Offering
Securities Offered (1)..........500,000 shares of Preferred Stock and 1,500,000
Warrants. The Preferred Stock and Warrants are
separately tradeable as of the date of this
Prospectus.
Common Stock Outstanding (2)....2,366,030 shares at April 20, 1997.
Estimated Net Proceeds (1)......Approximately $4,130,500 after deducting
commissions and expenses of approximately
$1,019,500 including the Representative's
nonaccountable expense allowance and other
expenses of the Offering.
Use of Proceeds.................Acquisition of Restaurants for sublease to area
developers; financial assistance to area
developers and working capital. See
"Use of Proceeds."
The NASDAQ SmallCap Market
Symbols.......................Common Stock: ROTI
IPO Warrants: ROTIW
Preferred Stock: ROTIP
Class A Warrants: ROTIZ
Risk Factors....................Investment in the securities involves a high
degree of risk and should only be purchased by
investors capable of suffering a loss of their
entire investment. See "Risk Factors."
- ----------------------
(1) If the Overallotment Option is exercised in full, 75,000 additional shares
of Preferred Stock and 225,000 Warrants will be sold, with net proceeds to
the Company of $672,075 after deducting commissions and expenses.
(2) Does not include an aggregate of __________ 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 IPO Warrants, (ii) 300,000 shares issuable upon exercise of
the Warrants earned by the Representative in the IPO (the "Representative's
IPO Warrants"), (iii) __________ shares issuable upon conversion of the
Preferred Stock and the Preferred Stock issuable under the Representative's
Warrants, (iv) ______ shares issuable upon conversion of 1,500,000 shares
of Preferred Stock issuable upon exercise of the Warrants, (vi) 72,000
shares issuable upon exercise of other outstanding common stock purchase
warrants, and (v) 237,000 shares issuable under the Company's 1994 Stock
Option Plan. See "Capitalization" and "Description of Securities."
4
<PAGE>
Description of Preferred Stock
Conversion......... Each share of Preferred Stock is convertible into _____
shares of Common Stock, subject to adjustment under certain
circumstances at any time after nine months from the date
hereof. Fractional shares of Common Stock will be rounded to
the nearest whole share. The Preferred Stock will
automatically convert into Common Stock at any time after
nine months from the date hereof at the Conversion Rate if
the closing price on The NASDAQ SmallCap Market for the
Preferred Stock equals or exceeds $20.00 per share for ten
consecutive trading days.
Redemption..........The outstanding Preferred Stock is redeemable at the
Company's option at any time on or after nine months from
the date hereof upon 30 days' written notice at 110% of the
average bid price per share for the Preferred Stock on The
NASDAQ SmallCap Market for the 20 trading days prior to the
redemption date. The redemption price may be paid in either
cash or in the Company's Common Stock at the sole discretion
of the Company.
Voting Rights.......The Preferred Stock is nonvoting, except as to matters
affecting the rights of the Preferred Stockholders.
Liquidation
Preference.........$10.00 per share, plus accrued and unpaid dividends.
Dividends...........Quarterly cumulative dividends of $.30 per share of
Preferred Stock will be paid in cash or in the
Company's Common Stock at the sole discretion of the
Company. The value of any Common Stock issued will be the
last reported sales price of the Common Stock on The NASDAQ
SmallCap Market on the last day of each calendar quarter,
and fractional shares of Common Stock will be rounded to the
nearest whole share.
Description of Warrants............The Warrants may be exercised for a
period of five years from the date hereof (commencing
six months from the date hereof) at $10.50 per share of
Preferred Stock and are subject to redemption at $.01 per
Warrant after nine months from the date hereof if the
closing price of the Company's Preferred Stock on The NASDAQ
SmallCap Market averages at least $11.00 per share for a
period of 20 consecutive days, or if the Company redeems the
Preferred Stock. See "Description of Securities - Redeemable
Preferred Stock Purchase Warrants."
5
<PAGE>
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.
<TABLE>
<CAPTION>
Sixteen Weeks Ended
------------------- Year Ended Year Ended Year Ended
April 20, April 21, December 29, December 31, December 25,
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Restaurant ....................... $ 446,994 $ 63,138 $ 263,892 $ 226,678 $ 243,988
Area development fee, stockholder -- -- -- 50,000 --
--------- --------- ----------- ----------- -----------
446,994 63,138 $ 263,892 $ 276,678 $ 243,988
Cost and Expenses:
Cost of food and paper ........... 230,248 23,734 112,530 82,171 105,650
Restaurant salaries and benefits . 234,685 23,854 125,954 127,400 146,677
Occupancy and related expenses ... 65,012 16,747 58,191 63,605 67,611
Operating expenses ............... 140,219 20,242 73,661 86,641 106,647
General and administrative ....... 436,505 169,945 1,261,198 567,605 197,641
Preopening expenses .............. 86,314 9,493 131,074 59,363 25,783
Depreciation and amortization .... 60,635 30,824 104,467 73,879 58,940
--------- --------- ----------- ----------- -----------
Total operating expenses ..... 1,253,618 294,839 1,877,075 1,060,664 708,949
Loss from operations ............. (806,624) (231,701) (1,613,183) (783,986) (464,961)
Non-operating income (expense):
Interest income .................. 16,882 -- 56,747 -- --
Interest and debt discount expense (7,816) (177,319) (454,818) (140,497) (29,063)
--------- --------- ----------- ----------- -----------
9,066 (177,319) (398,071) (140,497) (29,063)
Net loss ............................. $ (797,558) $ (409,020) $(2,011,254) $ (924,483) $ (494,024)
========== ========== =========== =========== ===========
Net loss per common share ............ $ ( .34) $ ( .32) $ (1.29) $ (0.75) $ (0.49)
Weighted average number of
common shares outstanding(1) ....... 2,316,279 1,285,699 1,553,824 1,224,531 1,005,107
April 20, 1997
----------------------------
Historical As Adjusted(2)
---------- --------------
Balance Sheet Data:
Working capital ...................... $ 5,330 $ 4,135,830
Total assets ......................... 3,179,544 7,310,044
Total liabilities .................... 825,125 825,125
Long-term debt ....................... 49,860 49,860
Stockholders' equity ................. 2,354,419 6,484,919
<FN>
- -------------------
(1) Weighted average number of common shares outstanding includes common
equivalent shares issuable upon the exercise of outstanding stock options
and common stock purchase warrants.
(2) To reflect the issuance of the securities offered hereby, excluding
securities which may be issued upon exercise of the Overallotment Option.
</FN>
</TABLE>
6
<PAGE>
RISK FACTORS
Prospective purchasers should carefully consider the following risk factors
and the other information contained in this Prospectus before making an
investment in the securities. Information contained in this Prospectus includes
"forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "should," or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. See, e.g., "Management's Discussion
and Analysis of Financial Condition and Results of Operations." No assurance can
be given that the future results covered by the forward-looking statements will
be achieved. The following matters constitute cautionary statements identifying
important factors with respect to such forward-looking statements, including
certain risks and uncertainties that could cause actual results to vary
materially from the future results covered in such forward-looking statements.
Other unanticipated factors could also cause actual results to vary materially
from the future results covered in such forward-looking statements.
Limited Operating History; Negligible Revenues; Ongoing Substantial
Operating Losses. The Company has a limited operating history (commencing in
June 1993) upon which potential investors may base an evaluation of its
performance. The Company has operated at a loss since inception and has
accumulated a deficit of $4,374,354 at April 20, 1997. For the sixteen weeks
ended April 20, 1997 and the fiscal years ended December 29, 1996, and December
31, 1995, the Company reported revenues of $446,994, $263,892 and $276,678 and
net losses of 797,558, $2,011,254 and $924,483, respectively. There can be no
assurance that the Company's operations will become profitable or that revenues
will increase. The Company's operating expenses are expected to increase due to
its expansion plans and, accordingly, it is anticipated that the Company will
incur additional losses unless revenues from an expanded base of Restaurants or
franchise fees become sufficient to offset ongoing operating and expansion
costs, of which there can be no assurance. 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."
Four Restaurants in Operation; Operating Losses; Uncertainty of Market
Acceptance. The Company has only four Restaurants in operation, one of which is
being used both as a training facility and a public restaurant. This restaurant
has operated at a loss since opening in January 1994, and the Company believes
that at least two of its remaining three Restaurants are also currently
operating at a loss. 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."
Reliance Upon Public Offering Proceeds. The Company requires the proceeds
of the Offering to finance the acquisition of Restaurants expected to be
subleased to and operated by area developers selected by the Company. In the
event the Offering is not completed, the Company will not have the funds
necessary to acquire and sublease these Restaurants. See "Use of Proceeds."
Dependence Upon Area Developers. The Company intends to use substantially
all of the proceeds of the Offering to acquire restaurant properties to be
subleased to and operated by area developers after conversion to Harvest
Rotisserie restaurants. The Company will acquire the restaurant properties,
sublease the properties to area developers (if area developers are obtained by
the Company) and may also provide funds to the area developers to convert the
properties to Harvest Rotisserie restaurants and for initial working capital.
The Company will then seek to recoup its costs through royalty payments and loan
repayments from the area developers. If the Company is unable to attract area
developers willing to operate the restaurant properties or if the area
developers are unsuccessful in the operation of the restaurant properties, the
Company may be unable to recoup any or all of its investments in the properties
and would also be liable on leases it executed with the property owners. In such
event, the Company's financial condition and results of operations would be
severely adversely affected. The Company has no current understandings,
arrangements or agreements with any such area developers. See "Use of Proceeds"
and "Business - Application of Offering Proceeds."
7
<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 have
increased in the past few years, providing direct competition for customers and
resulting in the sale or closing of a number of rotisserie-roasted chicken
establishments including establishments operated by some of the larger franchise
chains. Moreover, other national restaurant chains could introduce new chains of
food service restaurants similar to Harvest Rotisserie. See
"Business-Competition."
Change of Management. Since August 1996, the Company's Chief Executive
Officer (who was also a director of the Company) and two of its outside
directors have resigned. Although the Company has added two new executive
officers and replaced the two directors who resigned, a lack of management
continuity may adversely affect the Company's operations in the near future. See
"Management."
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 upon 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 Expansion. The Company intends to continue to apply
proceeds from its IPO to develop Company-owned Restaurants. Developing
additional Restaurants will be dependent upon, 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, the Company's
general ability to successfully manage growth (including monitoring Restaurants,
controlling costs and maintaining effective quality controls), the availability
of adequate financing and the Company's ability to attract and retain qualified
franchisees. In the case of franchised restaurants, the Company will also be
substantially dependent upon the management skills of its franchisees. The
Company operates only four restaurants, and ongoing losses reported by these
Restaurants or losses incurred by 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-Restaurant Expansion."
Need for Additional Capital. In order to develop additional Restaurants,
the Company will have an ongoing need for additional capital. The Company has no
commitments or arrangements to obtain any additional capital, and no assurances
can be given that such capital will be available on terms satisfactory to the
Company, if at all. The Company's ability to open the remaining two Restaurants
of the five Restaurants for which leases have been executed is contingent upon
the Company's ability to obtain construction financing and equipment lease
financing. If it is unable to do so, the Company will be required to delay the
opening of these two Restaurants. See "Use of Proceeds" and
"Business-Properties."
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.
Currently, the Company has no area developers or franchisees. 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."
8
<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 future 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.
Compliance with such laws is time-consuming and expensive, and failure to comply
could subject the Company to significant liability to franchisees. 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."
Limited Menu. The Company's Harvest Rotisserie restaurants have limited
menus with chicken and turkey products accounting for a majority of 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."
Competitors Offer Discount Pricing. A number of quick service restaurant
companies (including chicken restaurants) 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 who do attempt to match these discount prices.
Possible Inadequacy of 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."
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 registered with the
United States Patent Office its Harvest Rotisserie name 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 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 does not have employment agreements with any
of its executive officers or employees (except Mr. Gallagher) and does not carry
key person insurance on any of their lives. See "Management."
No Dividends on Common Stock; Dilution Caused By Issuance of Common Stock
to Pay Preferred Stock Dividends. 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. Dividends on the Preferred Stock
may be paid in cash or in the Company's Common Stock at the sole discretion of
the Company. Should the Company elect to pay Preferred Stock dividends in Common
Stock, the ownership of Common Stock by the existing holders of Common Stock
will be diluted. See "Dividend Policy" and "Description of Securities-Preferred
Stock."
9
<PAGE>
Potential Adverse Effect of "In the Money" Warrants. The IPO Warrantholders
may purchase up to 2,300,000 shares of Common Stock at $4.00 per share, which is
considered to be "in the money" because the exercise price is below the current
market price of the Common Stock. Accordingly, the exercise of the IPO Warrants
may have a depressive effect upon the market price of the Common Stock by
significantly increasing the number of shares outstanding. See "Description of
Securities-IPO Warrants."
Potential Adverse Effect of Shares Issuable Upon Exercise of Stock Options
and Shares Eligible for Future Sale. The Company has 2,366,030 shares of Common
Stock outstanding as of April 20, 1997, and has reserved for issuance an
aggregate of __________ shares of Common Stock upon exercise of the Existing
Options. An aggregate of 1,000,000 shares issued in the IPO, 2,300,000 shares
underlying the IPO Warrants and __________ shares issuable upon conversion of
the Preferred Stock and Preferred Stock issuable upon exercise of the Warrants
have been previously registered or are being registered hereby. Additionally,
300,000 shares issuable upon exercise of the Representative's IPO Warrants and
__________ shares issuable upon conversion of the Representative's Warrants are
subject to demand registration rights, and 257,280 shares issued in connection
with the exercise of common stock purchase warrants must be registered by the
Company by August 10, 1997. Finally, a total of 990,000 shares of the Company's
Common Stock outstanding have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), are "restricted securities" but may be
sold from time to time under Rule 144 of the Securities Act, subject to lock-up
agreements restricting the sale of 750,000 of such shares until August 1997
except with the written consent of the Representative. The remaining 240,000
shares are subject to a lock-up agreement restricting sale through August 1997
executed by JEB Investment Company ("JEB"). However, the shares were
subsequently foreclosed upon by WaterMarc, and the JEB lock-up agreement may not
be effective against WaterMarc, in which event the 240,000 shares may be sold
prior to August 1997. 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 IPO Warrants, the shares issuable
upon conversion of the Preferred Stock and the 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. See "Certain Transactions", "Description of
Securities" and "Shares Eligible for Future Sale."
Representative's Limited Underwriting Experience. The Representative was
recently organized and has acted as a representative of the Underwriters in only
one prior public offering (which was the Company's IPO), although it has
participated as a dealer in offerings underwritten by others. This lack of
underwriting experience may adversely affect the development or continuation of
a trading market for the Preferred Stock and Warrants and negatively influence
the market price of the securities following the Offering. See "Underwriting."
Potential Adverse Effect Due to Underwriters' Influence on the Market Price
of the Securities. A significant amount of the securities 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 the
securities through or with the Underwriters. Should the Representative make a
market in the securities, 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 securities, and the price and liquidity of the
securities may be significantly affected by the degree, if any, of the
Underwriters' participation in such market.
Maintenance Criteria for The NASDAQ SmallCap Market Securities. The
National Association of Securities Dealers, Inc. ("the NASD"), which administers
The NASDAQ SmallCap Market, sets the criteria for continued eligibility on The
NASDAQ SmallCap Market. In order to continue to be included on The NASDAQ
SmallCap Market, 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 The NASDAQ SmallCap Market 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 or future maintenance requirements imposed by The NASDAQ SmallCap Market
may result in the discontinuance of the inclusion of its securities in The
NASDAQ SmallCap Market. 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."
10
<PAGE>
As a result, 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 Rule 15g (the "Rule") promulgated under the Exchange
Act, which 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. The
NASD recently proposed significantly more stringent maintenance requirements
which require $2 million in net tangible assets, 500,000 shares in the public
float and elimination of the exception to the $1 per share bid price
requirement. Should these new maintenance requirements be adopted, it will be
progressively more difficult for the Company to remain on NASDAQ.
Disclosure Related to Penny Stocks. The Commission has adopted rules that
define a "penny stock" as equity securities priced at under $5.00 per share
which are not listed for trading on The NASDAQ SmallCap Market (unless (i) the
issuer has a net worth of $2,000,000 if in business for more than three years or
$5,000,000 if in business for less than three years or (ii) the issuer has had
average annual revenues of $6,000,000 for the prior three years. 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 effecting transactions in penny stocks, which could reduce the
liquidity of the securities offered hereby.
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."
Redemption of Preferred Stock; Payment in Cash or Common Stock. Commencing
nine months from the date of this Prospectus, the Preferred Stock may be
redeemed by the Company on 30 days' prior written notice at 110% of the average
bid price per share for the Preferred Stock on NASDAQ for the 20 trading days
prior to the redemption date. Accordingly, holders of the Preferred Stock may be
required to either exchange their Preferred Stock for Common Stock or accept a
fixed payment price for each share of Preferred Stock. Moreover, the redemption
payment may be in cash or Common Stock of the Company, in the Company's sole
discretion. See "Description of Securities."
No Assurance of an Active Public Market. While the Preferred Stock and
Warrants will be free of restrictions on transfer, there is presently no public
market for the Preferred Stock or Warrants, and although the Company has applied
to have the Preferred Stock and Warrants included on The NASDAQ SmallCap Market,
there can be 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
Preferred Stock or Warrants in the future. See "Description of Securities."
Non-Registration in Certain Jurisdictions of Shares of Common Stock
Underlying the Preferred Stock. The Preferred Stock is not convertible unless,
at the time of conversion, the Company has a current prospectus covering the
shares of Common Stock issuable upon conversion of such Preferred Stock 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
Preferred Stock. Although the Company is registering the underlying Common Stock
hereby and will use its best efforts to maintain a current prospectus relating
thereto while the Preferred Stock is outstanding, there is no assurance that it
will be able to do so.
Redemption of Warrants. The Warrants may be redeemed by the Company at any
time after nine months 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 Preferred Stock on the NASDAQ SmallCap Market averages at least $11.00
per share for a period of 20 consecutive trading days or if the Company redeems
the Preferred Stock. 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 Preferred Stock Purchase Warrants."
Prospectus Must Be Current to Exercise Warrants; Non-Registration in
Certain Jurisdictions of Shares of Preferred 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 Preferred Stock issuable
upon exercise of the Warrants and such shares of Preferred 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 Preferred 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 Preferred 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 Preferred
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."
11
<PAGE>
Purchasers may buy Preferred Stock in the aftermarket or may move to
jurisdictions in which the shares of Common Stock underlying the Preferred Stock
are not so registered or qualified during the period that the Preferred Stock is
outstanding. In this event, the Company would be unable to issue Common Stock to
those persons desiring to convert their shares of Preferred Stock unless and
until such shares could be qualified for sale in jurisdictions in which such
purchasers reside, or an exemption from such qualification exists in such
jurisdiction. In such event, the holders of Preferred Stock could be unable to
convert their shares to Common Stock. See "Description of Securities."
Offering Price Arbitrarily Determined. The offering price of the Preferred
Stock 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 "Underwriting."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on The NASDAQ SmallCap Market under
the symbol "ROTI" since July 9, 1996.
The following table sets forth for the quarters indicated the range of high
and low closing prices of the Company's Common Stock as reported by The NASDAQ
SmallCap Market.
Price
--------------------
By Quarter Ended: High Low
-------- --------
October 6, 1996 ....................... $ 8.25 $ 5.67
December 29, 1996 ..................... $ 7.75 $ 5.75
April 20, 1997 ........................ $ 7.75 $ 6.00
July 13, 1997 (through May 13, 1997).... $ 8.00 $ 7.25
As of May 13, 1997, the Company had approximately 600 beneficial and
record holders of the Common Stock.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
securities after deducting underwriting commissions and expenses and other
expenses of the Offering are expected to be $4,130,500. The Company intends to
apply the net proceeds generally over a 12-month period as follows:
Amount Percent
<TABLE>
Amount Percent
------ -------
<S> <C> <C>
Acquisition of Restaurants for resale to area developers(1)............. 2,200,000 53.3%
Financial assistance to area developers(2).............................. 1,200,000 29.0%
Working capital ........................................................ 730,500 17.7%
-------- ----
TOTALS................................................................ $4,130,500 100.0%
<FN>
- -------------------
(1) The Company intends to acquire approximately 12 existing restaurant
properties in certain metropolitan markets, sell the assets of the
restaurant properties (such as furniture, fixtures and equipment) and
sublease the real estate leases to area developers selected by the Company
for operation of the properties as Harvest Rotisserie restaurants. Area
developers will be required to pay for the assets in cash or by execution
of a promissory note payable to the Company in installments over a
negotiated period of time. The promissory notes will be secured by the
restaurant assets as well as the real estate lease on the property. The
Company estimates that costs to acquire these properties (assuming the real
estate and buildings are not purchased) will range from $100,000 to
$500,000 per property and will average approximately $175,000 per property.
See "Business-Application of Offering Proceeds" and "Business-Restaurant
Purchase Agreements."
(2) The Company intends to provide financing (in addition to acquiring the
restaurant properties) to area developers selected by the Company who agree
to operate the restaurant properties leased to them by the Company. This
financing will include costs incurred by the area developer to convert the
properties to Harvest Rotisserie restaurants and initial working capital.
The Company estimates such area developer financing will average $100,000
per restaurant property. Any unused area developer financing will be added
to working capital. See "Business-Application of Offering Proceeds."
</FN>
</TABLE>
12
<PAGE>
Pending application, the net proceeds of the Offering will be invested in
interest bearing savings accounts, certificates of deposit and money market
accounts. Except for the working capital allocation, the net proceeds will not
be used to open Company-owned Restaurants unless the Restaurants are developed
for resale to area developers. See "Business-Restaurant Expansion." See also
"Business-Restaurant Purchase Agreements" for a description of the ten
restaurant properties the Company has contracted to acquire for resale to
prospective area developers. 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
April 20, 1997, and as adjusted to reflect the sale of the securities offered
hereby and the application of the net proceeds therefrom as described in "Use of
Proceeds."
<TABLE>
<CAPTION>
April 20,
1997
Historical As Adjusted(2)
---------- --------------
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $1.00 par value, 5,000,000 shares authorized,
no shares issued and outstanding, 500,000 shares as adjusted $ -- $ 500,000
Common Stock, $.01 par value, 10,000,000 shares authorized,
2,366,030 shares issued and outstanding(1) ................. 23,660 23,660
Additional paid-in capital ..................................... 6,705,113 10,335,613
Accumulated deficit ............................................ (4,374,354) (4,374,354)
----------- -----------
Total stockholders' equity ......................................... 2,354,419 6,484,919
----------- -----------
Total capitalization ............................................... $ 2,354,419 $ 6,484,919
=========== ===========
- -------------------
<FN>
(1) Does not include an aggregate of __________ 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 IPO Warrants, (ii) 300,000 shares issuable upon exercise of
the Warrants earned by the Representative in the IPO (the "Representative's
IPO Warrants"), (iii) __________ shares issuable upon conversion of the
Preferred Stock and the Preferred Stock issuable under the Representative's
Warrants, (iv) ______ shares issuable upon conversion of 1,500,000 shares
of Preferred Stock issuable upon exercise of the Warrants, (vi) 72,000
shares issuable upon exercise of other outstanding common stock purchase
warrants, and (v) 237,000 shares issuable under the Company's 1994 Stock
Option Plan. See "Capitalization" and "Description of Securities."
(2) To reflect the issuance of the securities offered hereby, excluding
securities which may be issued upon exercise of the Overallotment Option.
</FN>
</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. The Company will pay quarterly
cumulative dividends of $.30 per share of Preferred Stock in cash or in the
Company's Common Stock at the sole discretion of the Company. The value of any
Common Stock issued will be the last reported sales price of the Common Stock on
NASDAQ on the last day of each calendar quarter. See "Description of Securities-
Preferred Stock."
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 sixteen weeks ended April 20, 1997 and
April 21, 1996, have been derived from unaudited financial statements which are
also included herein. The results of operations for the sixteen weeks ended
April 20, 1997, are not necessarily indicative of the results to be expected for
the full year.
<TABLE>
<CAPTION>
Sixteen Weeks Ended
------------------- Year Ended Year Ended Year Ended
April 20, April 21, December 29, December 31, December 25,
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Restaurant ....................... $ 446,994 $ 63,138 $ 263,892 $ 226,678 $ 243,988
Area development fee, stockholder -- -- -- 50,000 --
--------- --------- ----------- ----------- -----------
446,994 63,138 $ 263,892 $ 276,678 $ 243,988
Cost and Expenses:
Cost of food and paper ........... 230,248 23,734 122,530 82,171 105,650
Restaurant salaries and benefits . 234,685 23,854 125,954 127,400 146,677
Occupancy and related expenses ... 65,012 16,747 58,191 63,605 67,611
Operating expenses ............... 140,219 20,242 73,661 86,641 106,647
General and administrative ....... 436,505 169,945 1,261,198 567,605 197,641
Preopening expenses .............. 86,314 9,493 131,074 59,363 25,783
Depreciation and amortization .... 60,635 30,824 104,467 73,879 58,940
--------- --------- ----------- ----------- -----------
Total operating expenses ..... 1,253,618 294,839 1,877,075 1,060,664 708,949
Loss from operations ............. (806,624) (231,701) (1,613,183) (783,986) (464,961)
Non-operating income (expense):
Interest income .................. 16,882 -- 56,747 -- --
Interest and debt discount expense (7,816) (177,319) (454,818) (140,497) (29,063)
--------- --------- ----------- ----------- -----------
9,066 (177,319) (398,071) (140,497) (29,063)
Net loss ............................. $ (797,558) $ (409,020) $(2,011,254) $ (924,483) $ (494,024)
========== ========== =========== =========== ===========
Net loss per common share ............ $ ( .34) $ ( .32) $ (1.29) $ (0.75) $ (0.49)
Weighted average number of
common shares outstanding(1) ....... 2,316,279 1,285,699 1,553,824 1,224,531 1,005,107
April 20, 1997
----------------------------
Historical As Adjusted(2)
---------- --------------
Balance Sheet Data:
Working capital ...................... $ 5,330 $ 4,135,830
Total assets ......................... 3,179,544 7,310,044
Total liabilities .................... 825,125 825,125
Long-term debt ....................... 49,860 49,860
Stockholders' equity ................. 2,354,419 6,484,919
- -------------------
(1) Weighted average number of common shares outstanding includes common
equivalent shares issuable upon the exercise of outstanding stock options
and common stock purchase warrants.
(2) To reflect the issuance of the securities offered hereby, excluding
securities which may be issued upon exercise of the Overallotment Option.
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was organized in June 1993 and opened its San Antonio Cluckers
restaurant in January 1994. The Company's operating results for 1994 and 1995,
including its limited revenues and ongoing losses, primarily reflect the
operations of its one Cluckers restaurant located in San Antonio, Texas. During
the fourth quarter of 1994, the Company established its corporate offices and
began the initial development of its franchising program. During the third
quarter of 1995, the Company began refinements to its Cluckers restaurant which
evolved into the Harvest Rotisserie restaurant. In February 1996 the Company
elected to limit its activities to the development of Harvest Rotisserie
restaurants and opened its first Harvest Rotisserie restaurant in November 1996.
In January and February 1997 the Company open two additional Harvest Rotisserie
restaurants, and in January 1997, the Company converted its San Antonio Cluckers
restaurant to a Harvest Rotisserie restaurant, at a cost of $25,000. To date,
the Company has four Restaurants in operation but has not sold any franchises
nor does it have any area development agreements in effect.
Results of Operations - For the sixteen weeks ended April 20, 1997 and April 21,
1996.
Revenues. Restaurant revenues for the sixteen weeks ended April 20, 1997
were $446,994, an increase of $383,856 as compared to the same period in 1996.
The increase in revenue was due to the opening of three additional restaurants
from November 1996 to February 1997. On a comparative basis, same store revenues
decreased $29,743 or 47.1% between the two periods. The decrease in same store
revenues was due in part to a reduction in the restaurant operating hours for
the Company's only restaurant in operation during the second quarter of 1996.
This restaurant is currently open five days each week from 11 a.m. to 2 p.m. and
is being used as a training facility. Initial sales volumes from the three newly
opened stores have met management expectations. Typically revenues from new
stores are not as high in the first several periods following openings as in
later periods. Management anticipates that sales volumes for its existing
restaurants will improve in future periods as a result of marketing efforts and
enhanced name recognition as the Company opens additional restaurants in the San
Antonio area, although there can be no such assurance.
Costs and Expenses. Cost of food and paper were 51.5% of restaurant
revenues for the sixteen weeks ended April 20, 1997, as compared to 37.6% for
the same period in 1996. The increase in food and paper costs was due to the
opening of new restaurants during the period. Costs of sales is generally higher
as a percentage of revenue for newly opened restaurants than for mature
restaurants due to increased food usage for opening promotions and
inefficiencies caused by less experienced employees.
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
$439,916 or 98.4% of restaurant revenues for the sixteen weeks ended April 20,
1997, as compared to $60,843 or 96.4% for the same period in 1996. A substantial
portion of these costs are fixed or indirectly variable. For the sixteen week
period ended April 20, 1997, these costs were disproportionate to revenues due
to the opening of new restaurants, which have higher expenses during the initial
periods after opening.
General and administrative expenses increased $266,560 or 157% for the
sixteen weeks ended April 20, 1997, as compared to the same period in 1996. The
increase resulted from the initial development of a corporate infrastructure
needed to support the planned expansion of Company-owned and franchised stores,
and continued expenses associated with the Company's expansion efforts.
Preopening expenses were $86,314 and $9,493 for the sixteen weeks ended
April 20, 1997 and April 21, 1996, respectively. Substantially all of the
increase in 1997 relates to the two additional restaurants opened during the
period and expenses associated with obtaining new sites for future restaurant
development.
Interest and Debt Discount Expense. Interest and debt discount expense
decreased by $169,503 for sixteen weeks ended April 20, 1997 as compared to the
same period in 1996, primarily as a result of the repayment of all outstanding
bridge notes in July 1996.
Net Loss. The Company incurred net losses of $797,558 for the sixteen weeks
ended April 20, 1997 as compared to $409,020 for the same period in 1996. The
increase in net loss was primarily the result of significantly higher general
and administrative expenses, preopening costs and initial operating losses for
newly opened restaurants. The Company expects to incur losses in future periods
until it generates sufficient revenues from expanded restaurant operations or
from franchising activities to offset ongoing operating, financing and
expansions costs.
Results of Operations-Fiscal Year 1996 Compared to Fiscal Year 1995.
Revenues. Restaurant revenues for 1996 were $263,892, a 16.4% increase as
compared to 1995. The increase in revenues was due to the opening of an
additional restaurant in November 1996. On a comparative basis, same store
revenues decreased $32,820, or 14.5%, between 1996 and 1995. The decrease in
same store revenues was due in part to a reduction in the restaurant operating
hours for the Company's only restaurant during the second quarter of 1996. The
restaurant is currently open five days each week from 11 a.m. to 2 p.m. and is
also being used as a training facility. Restaurant revenues in 1996 were
approximately 34% of capacity for the restaurant and below the restaurant's
operating costs. Management attributes the low sales volumes to the partial use
of the restaurant as a training facility, reduced hours of operation and the
lack of a drive-thru 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 due to enhanced name recognition as the
Company opens additional Restaurants in the San Antonio area, although there can
be no such assurance. The Company expects that most new restaurants will be
free-standing with drive-thru windows.
During 1995, revenues included an area development fee for $50,000 with a
then director of the Company. The area development arrangement was subsequently
modified extensively. See "Certain Transactions."
Costs and Expenses. Cost of food and paper were 46.4% of restaurant
revenues for 1996, as compared to 36.3% in 1995. The increase in food and paper
costs resulted primarily from food usage for recipe development for the
Company's expanded Harvest Rotisserie menu, and the opening of an additional
restaurant in November 1996, which typically has higher costs during the initial
periods after opening.
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
$257,806, or 97.7% of restaurant revenue for 1996, as compared to $277,646 or
122% in 1995. A substantial portion of these costs are fixed or indirectly
variable and therefore were disproportionate to revenues for both periods due to
low sales volumes.
General and administrative expenses increased $693,593, or 122%, in 1996 as
compared to 1995. The increase resulted from the establishment of the Company's
corporate offices in 1996 and expenses associated with the Company's financing,
franchising, and expansion activities. In 1996, these expenses included
salaries, benefits and contract services (25%), professional fees and offering
expenses (37%), travel-related expenses (10%), advertising and promotion (11%),
and other general and administrative expenses (17%).
Preopening expenses increased by $71,711 in 1996 as compared to the same
period in 1995. A substantial portion of the increase relates to initial costs
associated with the development of a new Harvest Rotisserie restaurant which
opened in November 1996.
15
<PAGE>
Interest and Debt Discount Expense. Interest and debt discount expense
increased to $454,818 for 1996 as compared to $140,497 for 1995. The significant
increase relates to the issuance of $1,684,000 face amount of 10% Bridge Notes
from December 1994 to March 1996. The total amount of amortized debt discount in
1996 was $367,153. The Bridge Notes were repaid in full in July 1996 from
proceeds of the Company's IPO.
Net Loss. The Company incurred a net loss of $2,011,254 for 1996 as
compared to $924,483 for 1995. The increase in net loss for 1996 was primarily
the result of significantly higher interest, debt discount expenses and general
and administrative expenses. The Company expects to incur significant losses in
future periods until it generates sufficient revenues from expanded restaurant
operations or from franchising activities to offset ongoing operating and
expansion costs.
Results of Operations-Fiscal Year 1995 Compared to Fiscal Year 1994
Revenues. Revenues for 1995 were comprised of $226,678 from restaurant
operations and $50,000 for an area development fee from 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 1995 decreased 7.1% as compared to 1994, which only included 11 months of
restaurant operations. Annualized restaurant sales volumes for 1995 were 14.8%
below 1994 levels, and were approximately 30% 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 2 p.m. and is also being used as a
training facility. Management attributes the low sales volume to the partial use
of the restaurant as a training facility and the lack of a drive-thru window at
the restaurant, which is located in a shopping center. The Company expects that
most new restaurants will be in free-standing facilities with drive-thru
windows.
Costs and Expenses. Cost of food and paper improved to 36.3% of restaurant
revenues for 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 122% of restaurant revenues, and $320,935, or 132% of restaurant
revenues for 1995 and 1994, respectively. A substantial portion of these costs
is 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.
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 public 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. 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 and included $87,659 of
amortized debt 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 1995 was primarily the result
of significantly higher general and administrative expenses and interest
expense, which offset an area development fee and slightly improved restaurant
operating results.
16
<PAGE>
Liquidity and Capital Resources
The Company has incurred losses from operations since inception, and as of
April 20, 1997, has an accumulated deficit of $4,374,354. The Company is not
currently generating sufficient revenues from operations to meet its cash
requirements. Management anticipates that the Company must increase revenues
from existing Restaurants, open at least four additional Restaurants and realize
revenues from its franchise program to generate a positive cash flow from
operations, although there can be no such assurance. The Company estimates it
will require up to six months to realize such increases in revenues from
operations. The ability of the Company to fund costs associated with its
operations and expansion plans is dependent upon the successful development of
its Restaurants, its franchising activities, and its ability to obtain
additional capital through future debt or equity placements.
The Company requires capital principally for the expansion of its
Restaurant operations, to fund costs associated with the promotion of its
franchise program, and for the continual development of a corporate
infrastructure to support the planned expansion in operations. During 1996 and
for the first sixteen weeks of 1997, the Company invested $1,614,675 in property
and equipment, of which approximately $1,451,703 was for the development of
three restaurants including the purchase of land and building for a restaurant
at a cost of $400,000. These restaurants opened in November 1996, January 1997,
and February 1997. To date, the Company has funded its operations and capital
needs with funds provided from the sale of its securities, including its IPO,
which raised net proceeds of approximately $4,700,000. The Company does not have
a working capital line of credit with any financial institution. Future sources
of liquidity will be limited to the Company's ability to obtain additional debt
or equity financing, which will be difficult to obtain until and unless the
Company begins to generate earnings. Management's plan is to move the Company
toward profitable operations in fiscal 1997 and to seek additional capital to
fund further expansion of its operations. There can be no assurance that the
Company will be successful in either regard.
Between December 1994 and March 1996, the Company issued a total of
$1,684,500 of 10% unsecured Bridge Notes. Proceeds from the Bridge Notes were
used for working capital purposes, development of the Company's initial
franchising program and to pay certain costs associated with the Company's IPO.
The Bridge Notes were repaid on July 15, 1996 using a portion of the proceeds
from the IPO.
The Company intends to use a significant portion of the proceeds from the
Offering to acquire restaurants for resale to area developers to be operated as
franchised Harvest Rotisserie restaurants.
Internal sources of capital are limited to the Company achieving profitable
operations in future periods or raising additional capital from investors. The
Company anticipates that its existing capital resources together with the
proceeds of the Offering and projected cash flows from planned operations will
be sufficient to maintain its operations through 1997; however, implementation
of the Company's expansion plans is dependent upon the completion of the
Offering. If it does not complete the Offering, the Company's expansion plans
will be significantly curtailed. See "Risk Factors-Need for Additional Capital"
and "Business-Properties."
BUSINESS
Introduction
The Company owns, operates and franchises quick service restaurants under
the "Harvest Rotisserie" name, which feature marinated oak-roasted rotisserie
chicken, oak-roasted turkey breast, roast ham, meatloaf, an assortment of
sandwiches and other fresh homestyle food items. Harvest Rotisserie restaurants
(sometimes referred to as the "Restaurant(s)") emphasize rotisserie oak-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. Harvest Rotisserie side dishes include cold
dishes such as coleslaws and salads and hot dishes such as baked beans,
stuffing, corn, parsley potatoes, macaroni and cheese, steamed fresh vegetables,
mashed potatoes and gravy, rice, creamed spinach, cheese rice and baked cinnamon
apples. The Company maintains strict quality standards in purchasing, storing,
preparing and serving its entrees, side dishes, desserts and other products.
To date, the Company has opened three Restaurants in San Antonio, Texas
(one of which is used as both a training facility and a public restaurant) and
one Restaurant in Corpus Christi, Texas. The Company has also executed leases or
acquired property to develop five additional Restaurants in San Antonio and
Houston, Texas, although it currently has the funds to develop only three such
Restaurants. The Company seeks to enter into traditional single Restaurant
franchise agreements as well as area development agreements, although it has not
yet executed any franchise agreements and currently has no area development
agreements in effect. Area development agreements require the area developer to
17
<PAGE>
develop a specified number of Restaurants within a delineated territory in
accordance with a development schedule. Management believes that area
development agreements allow for the more rapid development of a target market
area by generally more experienced restaurant operators who are able to realize
economies of scale resulting from opening a number of Restaurants in a given
area. These operators often require less management supervision by Company
personnel and provide the Company with higher franchise fee income in a shorter
period of time.
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 original "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 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. The Company is not required to pay a license fee for its Harvest
Rotisserie restaurants because it developed and owns the rights to the Harvest
Rotisserie name and concept.
In February 1996, the Company decided to concentrate on the development,
operation and franchising of Harvest Rotisserie restaurants, which the Company
believes are an improvement over the original Cluckers concept because Harvest
Rotisserie restaurants offer an expanded menu which includes a number of
additional homestyle entrees offering lower fat foods. Accordingly, it converted
its one Cluckers restaurant in San Antonio, Texas to a Harvest Rotisserie
restaurant.
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 continue to employ the following strategies it adopted in
connection with the development of its Harvest Rotisserie restaurants.
Fresh, High Quality, Convenient Homestyle Meals. The Company will focus on
its Harvest Rotisserie concept of rotisserie oak-roasted chicken, oak roasted
turkey breast, roast ham, meatloaf, sandwiches 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
are delivered to the Company's Restaurants several times each week in order to
allow for the fresh preparation of these food products. Cooked food items are
prepared with the use of ovens and steamers, rather than the fryers, grills, and
microwaves used by many other fast-food establishments. The Company maintains
strict quality standards in purchasing, storing, preparing and serving its
entrees, fresh side dishes, desserts and other products. All visible fat is
removed from poultry and ham prior to preparation. The chickens are 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.
18
<PAGE>
Complete Meal Value. The Company emphasizes complete, reasonably-priced
meals rather than focusing on discounting individual items or an a la carte
pricing system. Restaurant meals include a variety of entrees such as rotisserie
oak-roasted chicken, oak-roasted turkey, roast ham and meatloaf
customer-selected side dishes and desserts. Complete meals begin at
approximately $3.99, and menu combinations provide convenient multiple meal
selections for couples, families or larger groups. The Company's operating
philosophy is to provide high quality, healthful, quick service food rather than
the food often associated with the fast food industry. The Restaurants offer
large 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 Harvest Rotisserie
restaurant, featuring an efficient operating layout, standardized equipment and
tasteful and distinctive trade dress. The Company believes its Restaurant store
furnishings create an attractive and casual environment for both take-out and
dine-in customers.
Visible, High Traffic Store Locations. The Company emphasizes free-standing
pad sites or end-cap locations with drive-thru windows, ample parking and easy
access to and from high traffic roads. Highly visible signage consistent with
trade dress and local requirements is pursued.
Customer Service Commitment. The Company seeks friendly, customer-oriented,
and highly motivated employees at all 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 are encouraged to taste a sample.
Application of Offering Proceeds
The Company intends to use substantially all of the proceeds of the
Offering to acquire restaurant properties in certain metropolitan markets, sell
the assets and sublease the properties to area developers who will operate the
properties as Harvest Rotisserie restaurants. The Company may require the area
developers to execute promissory notes to the Company representing the purchase
price of the assets advanced by the Company and may also advance funds to area
developers for costs incurred to convert properties to Harvest Rotisserie
restaurants and for working capital. The Company will then seek to recoup its
costs through franchise fee payments and repayments of any promissory notes
issued by the area developers who will also be responsible to tender restaurant
property lease payments directly to the owners of the properties. See "Use of
Proceeds." The Company will not have any financial or ownership interest in the
Restaurants subleased to the area developers other than the right to obtain
repayment of any funds advanced to them. See "Area Development Agreements" for a
discussion of the obligations of area developers to develop specified numbers of
Restaurants in defined territories and their obligation to pay area development
fees and franchise fees to the Company.
If the Company is unable to locate area developers willing to purchase the
restaurant assets and sublease the restaurant properties or if the area
developers are unsuccessful in the operation of the restaurant properties, the
Company may be unable to recoup its investments in the properties and would be
liable for any leases it executed with the owners of the properties. If the
Company is unable to recoup such investments, its financial condition and
results of operations will be severely adversely affected. See "Use of
Proceeds."
In evaluating and selecting restaurant properties for assignment and
sublease to prospective area developers, the Company will apply the same
criteria it uses to select its own restaurant properties. Specifically, the
Company will limit restaurant properties to a small number of metropolitan areas
which the Company believes currently offer long range growth potential for its
Harvest Rotisserie concept. Each metropolitan area must offer the Company the
opportunity to promptly acquire at least three properties so that the Company
can take advantage of advertising and marketing economies of scale. The Company
will give priority to metropolitan areas in which it has already located a
prospective area developer and which contain identifiable properties which meet
the Company's demographic and population requirements. The Company does not have
specific population criteria for metropolitan areas, but rather evaluates the
population of the metropolitan area in comparison to the number of Restaurants
it believes its prospective area developer is capable of developing within a
24-month period. The ratio of potential Restaurants to population determines the
Company's ability to realize economies of scale. In terms of demographics, the
Company favors high employment and recreational population concentrations of
middle class white collar workers generally above the age of 30. Individual
19
<PAGE>
properties within a target metropolitan area will be selected based upon the
terms of the underlying property leases, anticipated costs of conversion to
Harvest Rotisserie restaurants, the ability of the Company to refinance any debt
associated with the property and the ability of the Company to sublease the
property to an area developer. The Company has not entered into any acquisition
agreements for restaurant properties or sublease agreements with prospective
area developers and there can be no assurance it will do so in the future. The
Company may also elect to enter into agreements for the conversion of restaurant
properties (to be developed as Company-owned restaurants) which are
significantly different than the prospective agreements described herein. To
date, no such agreements have been entered into and the Company does not have a
format for any such agreements.
Current Operations
The Company's Restaurants prominently display a rotisserie within customer
view. The location of the rotisserie, coupled with the flames emanating from the
hardwood, creates a focal point for the Restaurants. Chicken, turkey and other
entrees may be purchased in varying quantities or in combination with a choice
of side dishes. Most Restaurants offer inside seating and takeout service, range
in size from approximately 1,800 to 3,500 square feet and have drive-through
windows and seating capacities for approximately 45 to 70 diners. Generally,
restaurant hours are 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 therefore devotes significant efforts to the evaluation of
potential Restaurant sites regardless of whether such sites are intended as
Company owned, franchised, area developed or resale Restaurants. 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 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 180 days are required to
complete construction and open the Restaurant.
The design of the Restaurants is flexible and may be adapted to local
architectural styles and existing buildings with varying floor plans and
configurations. The Company intends to continue 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 are 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 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 generally include a manager, assistant manager,
cooks, counter personnel and kitchen workers.
The Company believes that the training and development of Restaurant
management personnel are a critical part of its operations. Restaurant
management personnel are trained by the Company for a 30-day period and until
each participant can demonstrate the management skills required to operate a
Restaurant at levels satisfactory to the Company. Restaurant managers are
responsible for day-to-day operations, including food preparation, customer
relations, maintenance, cost control and personnel relations. In addition,
Restaurant managers are 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 is the responsibility of the
Restaurant manager.
20
<PAGE>
Restaurant Expansion
The Company intends to open as many Restaurants as its capital will permit,
although the proceeds from the Offering (except for the working capital
allocation) will be used strictly to acquire Restaurants properties for resale
to area developers or for area developer financing. See "Use of Proceeds." The
amount of capital required will depend in part on whether the developed
Restaurants are Company-owned or franchised and whether the Restaurant buildings
are leased or constructed by the Company. 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, and its
ability to attract and retain qualified franchisees. To date the Company has
opened four Restaurants, has five other Restaurants subject to leases but has
not entered into any franchise agreements and has no area development agreements
in effect. The Company has the funds to develop three of the five Restaurants
but will be unable to develop the remaining two Restaurants without additional
financing. See "Properties".
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 $175,000 to $450,000 per
Restaurant (depending upon the size and location of the Restaurant and the
amount of leasehold improvements required) and will average approximately
$325,000 per Restaurant. If the Company elects to purchase the land and/or
purchase or construct the building, the development costs will be significantly
higher, will range from $500,000 to $850,000 per restaurant, and will average
$650,000 per Restaurant.
The Company previously sought to enter into joint venture agreements and
development arrangements to finance a portion of Restaurant development costs
but was unable to attract joint venture partners upon terms acceptable to it and
has therefore terminated any such arrangements.
Franchise Agreements
The Company has completed a Uniform Franchise Offering Circular ("UFOC")
and related franchise documents for its Harvest Rotisserie restaurant but has
not sold any franchises. The Harvest Rotisserie franchise agreement provides for
(i) a $35,000 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.
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 conducts regular inspections of its Restaurants to
determine whether they meet applicable quality, service and cleanliness
standards and will work with franchisees to improve substandard performance or
any items of non-compliance revealed in the course of its inspection. The
Company 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 are critical to the
reputation and success of its Restaurants and intends to act aggressively to
enforce applicable contractual requirements. Franchisees could contest such
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 $5,000 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
21
<PAGE>
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. The Company has no obligations under its area development agreements
beyond its contractual agreement not to sell franchises to anyone within the
area developer's territory.
Failure to meet development schedules or other breaches of the area
development agreement would lead to termination of the limited exclusivity
provided by the agreement, loss of any deposits paid to the Company,
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 received $20,000 as a deposit in cash and a
$30,000 non-interest bearing unsecured promissory note. In October 1996, the
Company refunded $10,000 of the deposit, cancelled the $30,000 promissory note
and reduced the number of Restaurants anticipated to be developed under the
agreement from ten Restaurants to two Restaurants. The developer is under no
obligation to develop any Restaurants in Singapore and, accordingly, the Company
no longer considers its agreement with the developer to constitute an area
development agreement.
No area development agreements are currently in effect, and there can be no
assurance that any Restaurants will be developed under area development
agreements. Negotiations with parties who previously expressed an interest in
area development agreements for Restaurants to be located in McAllen, Texas and
San Francisco, California were terminated. Although the Company continues to
negotiate with a number of entities for area developments in such markets as
Austin, Texas, Baltimore, Maryland, New York, New York, Indianapolis, Indiana,
Tampa, Florida and Northern California, there can be no assurance that the
Company will execute any such area development agreements in the future.
Marketing
The Company currently markets four Restaurants 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 (using working capital generated from its IPO and from
revenues from existing Restaurant operations) to include additional use of print
media, together with radio and television commercials. 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. Company-owned
and any future franchise Restaurants will contribute to a national advertising
fund to pay for the development of national advertising material and to a
separate 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 direct
and intensive competition. This intense competition has resulted in the sale or
closing of a number of rotisserie-roasted chicken restaurants including
establishments operated by some of the larger franchise chains. The inclusion of
roasted or baked chicken at many large, national food service chains, such as
KFC and Roy Rogers, and in supermarkets and convenience stores, creates
significant additional competition for customers. Moreover, other national food
service chains or companies could introduce new rotisserie-roasted or baked
22
<PAGE>
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 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. Most restaurant franchisors have greater market
recognition and greater financial, marketing and human resources than the
Company.
Trademarks and Service Marks
The Company has registered with the United States Patent and Trademark
Office ("PTO") its "Harvest Rotisserie" name, and service mark ("Mark"). There
can be no assurance that the Company will obtain sufficient protection for its
Harvest Rotisserie Mark or, that it will have the financial resources to enforce
or defend its Mark. 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. The Company has no plans to use the Cluckers name or
trademark as it is currently concentrating its efforts on its Harvest Rotisserie
restaurant concept. See "Prospectus Summary."
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.
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
Uniform Franchise Offering Circular ("UFOC") 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 the Company 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. The Company has carried workers' compensation insurance since August
1995.
Franchisees will 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 any such policies.
Employees
The Company employs four executive officers, six salaried corporate
employees and approximately 100 Restaurant employees. The Company's employees
are not represented by a union and the Company believes that its relations with
employees are satisfactory.
23
<PAGE>
Properties
The Company leases 2,500 square feet of space for its executive offices in
San Antonio, Texas under a 12 month lease expiring June 30, 1997 for $2,500 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 four Harvest Rotisserie restaurants in operation which were
opened in January 1994, November 1996, January 1997 and February 1997. Following
its IPO, the Company canceled three proposed Restaurant property leases and
substituted three of the leases set forth below. The lease substitutions were
made because the Company concluded that the new leases offered superior
locations to the original leases. Details concerning the Company's four current
and five planned Restaurants are described below. The Company expects that all
five planned Restaurants will be Company-owned and operated and three such
Restaurants will be opened in 1997. The Company's ability to open the remaining
two Restaurants is contingent upon the Company obtaining construction financing
and equipment lease financing. If the Company is unable to obtain this
financing, it will not have sufficient funds to open the remaining two
Restaurants.
<TABLE>
<CAPTION>
Form of Lease Monthly
Location Ownership Expiration Rent(3)
-------- --------- ---------- --------------
<S> <C> <C> <C>
Fredericksburg Road ....... Building Lease August 1998 $2,554
San Antonio, TX
Walzem Road ............... Building Lease February 2006 $2,700
San Antonio, TX
Tezel Road (1) ............ Real Estate Owned Not Applicable Not Applicable
San Antonio, TX
Hwy 281/Loop 1604(1)(4) ... Ground Lease February $4,500
San Antonio, TX
DeZavala Road(1)(4) ....... Ground Lease May 2027 $5,000
San Antonio, TX
South Braeswood Road (5) .. Building Lease January 2004 Greater of $3,000
Houston, TX or 5% of gross sales
4620 Broadway (5) ......... Building Lease January 2002 $4,900
San Antonio, TX
South Padre Island Drive(2) Building Lease November 1999 $5,000
Corpus Christi, TX
11730 West Avenue (5) ..... Building Lease May 2002 $4,500
San Antonio, TX
<FN>
- -----------------
(1) Sites substituted for previous sites.
(2) In January 1997, the Company purchased the furniture, fixtures and
equipment of an existing restaurant property (through the assumption of
$100,000 of debt in connection with the property) and converted the
property to a Harvest Rotisserie restaurant.
(3) Monthly rents are subject to customary escalation clauses in future periods
generally tied to a consumer price index or increases in the landlord's
operating expenses on the property.
(4) These two Restaurants require construction of buildings to house the
Restaurant facilities. The Company must obtain construction and equipment
lease financing in order to complete development of the properties.
(5) These three Restaurants will be opened by the Company in 1997 using funds
currently available to it.
</FN>
</TABLE>
24
<PAGE>
Restaurant Purchase Agreements
On February 3, 1997, the Company entered into an agreement (the
"Multi-Restaurant Agreement") to purchase all of the assets of nine restaurant
properties located in Florida, Indiana and North Carolina. The assets include
all leasehold interests, leasehold improvements, restaurant equipment and
signage for a purchase price of $2,340,000 including the assumption of debt in
the amount of $1,340,000 and $1,000,000 in cash. The Company tendered an earnest
money deposit of $75,000 and expects to close the transaction by June 13, 1997.
However, the Company is still in the due diligence period and may elect to
purchase none or less than all of the properties. Therefore, there can be no
assurance that the Company will acquire the nine restaurant properties.
Moreover, the Company will be unable to close the transaction unless the
Offering is completed.
On February 7, 1997, the Company entered into an agreement (the "Tampa
Agreement") to purchase all of the assets of a single restaurant located in
Tampa, Florida. The assets include real estate and improvements, restaurant
equipment and signage for a purchase price of $1,150,000 including the
assumption of debt in the amount of $880,000 and $270,000 in cash. The Company
tendered an earnest money deposit of $25,000, with closing to occur the earlier
of June 13, 1997 or five days after the Offering is completed. The Company will
be unable to close the transaction unless the Offering is completed.
The following chart sets forth the restaurant properties included in the
Multi-Restaurant Agreement and Tampa Agreement:
Location Lease Expiration Monthly Rent
-------- ---------------- ------------
6148 14th Street ...................April 2018 $5,518
Bradenton, FL
855 S. Tamiami Trail ...............June 2016 $6,335
Sarasota, FL
1360 N. Tamiami Trail...............January 2024 $6,311 plus 1%
Port Charlotte, FL over $1.5 million
401 North Dale Mabry ...............Not Applicable Not Applicable
Tampa, FL (1)
7824 Fairview Road .................June 2014 $4,085
Charlotte, NC
3225 Eastway Drive .................August 2019 $3,845
Charlotte, NC
2004 East 7th Street ...............May 2019 $3,896
Charlotte, NC
3832 Eagleview Drive ...............September 2025 $7,472
Indianapolis, IN
10099 East Washington ..............October 2019 $4,167
Indianapolis, IN
2518 E. County Line South...........September 2019 $6,104
Indianapolis, IN
- ---------------------
(1) The Tampa Agreement calls for purchase of the real estate and improvements
comprising the restaurant property.
25
<PAGE>
The Company intends to resell the restaurant properties acquired under the
Multi-Restaurant Agreement and Tampa Agreement to area developers, by selling
the assets and assigning the real estate leases as described in "Use of
Proceeds" and "-- Application of Offering Proceeds." However, the Company has
not entered into any agreements, understandings or arrangements with any such
prospective area developers, and there can be no assurance it will be able to do
so in the future. See also "Risk Factors - Dependence Upon Area Developers."
The Company has also entered into an agreement to develop one additional
restaurant property in St. Petersburg, Florida contingent upon certain due
diligence and inspections to be conducted by the Company. If the property is
acquired, it will be offered for resale to area developers along with the other
properties listed above in the Tampa, Florida area.
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the Company's
executive officers and directors:
<TABLE>
Officer or
Name Age Office Director Since
---- --- ------ --------------
<S> <C> <C> <C>
William J. Gallagher(1)(2) .......................... 57 Chairman of the Board of June 1993
Directors and Chief Executive Officer
Larry F. Harris 38 .................................. President, Chief Operating October 1996
Officer and Director
Sam Bell Steves Rosser .............................. 33 Vice President - Development, June 1993
Treasurer and Director
Michael M. Hogan(1)(2) .............................. 48 Director August 1996
Theodore M. Heesch(1)(2) ............................ 60 Director August 1996
Joseph Fazzone ...................................... 36 Chief Financial Officer January 1997
- -------------------
<FN>
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
</FN>
</TABLE>
On August 12, 1996, Jeffrey M. Morehouse resigned as a director and on
November 25, 1996, Henry H. Salzarulo resigned as a director. On December 9,
1996, D.W. Gibbs resigned as Chief Executive Officer and a director. On December
9, 1996, William J. Gallagher, the Company's Chairman, assumed the duties of
Chief Executive Officer and on the same date Larry F. Harris, the Company's
Executive Vice President, was appointed President and a director.
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.
Directors not employed by the Company receive $750 each for attending Board of
Directors' meetings and are reimbursed for out-of-pocket expenses.
26
<PAGE>
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 joined the Company in 1993 as its Chairman and
Director of Franchising. In December 1996 he was appointed Chief Executive
Officer. Mr. Gallagher has also 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 Chief Executive Officer for which he devotes approximately 90% of
his time to the Company's affairs.
Larry F. Harris joined the Company in October 1996 as its Executive Vice
President and Chief Operating Officer and was appointed its President in
December 1996. From December 1994 to September 1996, he was Chief Operating
Officer for a Monterey Pasta Company franchisee. From June 1994 to December
1994, he was director of operations for a Boston Market area developer and from
1984 to 1992, he was employed by Pizza Hut, Inc. in various capacities including
National Director of Operations for Mexico.
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.
Michael M. Hogan received his BBA degree in accounting from the University
of Texas at Austin in 1972 and has been engaged in the private practice of
accounting since 1975. His practice emphasizes restaurant formation, operation
and financing. From 1987 to 1989, he was a co-founder and Chief Financial
Officer of the 18 unit American Drive-Inns restaurants in Houston, Texas and in
1990 was one of the founders of two Tejas Grill restaurants in Austin, Texas.
Mr. Hogan has provided consulting services to the Company from time to time
amounting to less than $5,000 for the year ended December 29, 1996.
Theodore M. Heesch has been a registered architect specializing in
restaurant and hotel design since 1967. From 1981 to 1987, he was employed by
McFaddin Kendrick, Inc., an entertainment club developer, as Executive Vice
President. In 1988, Mr. Heesch formed TMHI to offer consulting services to the
hospitality industry, specializing in the design and development of food and
beverage facilities. In June 1994, Mr. Heesch became Senior Vice President of
Development for McFaddin Partners, a restaurant developer.
Joseph Fazzone has provided accounting and financial consulting services in
San Antonio, Texas as a sole practitioner since November 1994. From December
1991 to November 1994, he served as Chief Financial Officer of WaterMarc Food
Management, Inc., a restaurant operator and franchisor founded by Mr. Gallagher.
From 1990 to 1991, he served as Corporate Controller of TI-IN Network, Inc., a
San Antonio based educational satellite broadcasting network. From 1989 to 1990,
he served as Manager-Corporate Planning and Financial Analysis of Intelogic
Trace, Inc., a nationwide computer service provider. From 1984 to 1989, Mr.
Fazzone served as an Audit Manager with the San Antonio office of Ernst & Young.
Mr. Fazzone devotes approximately 60% of his time to the Company's affairs. Mr.
Fazzone is a certified public accountant, having received a B.B.A. degree in
accounting from Southwest Texas State University and an M.B.A. degree from the
University of Texas at San Antonio.
27
<PAGE>
Significant Employees
Manuel P. Ortiz has been the Company's Director of Operations since
November 1996. He managed and co-owned Country Fair restaurant from 1990 to
1992, and was a managing partner of the Boston Market area developer in Dallas,
Texas where he was involved in the development of several Boston Market
restaurants from 1992 to 1994. From 1994 until he joined the Company in November
1996, he was the General Manager in Texas for Red Robin International.
Richard N. Trimble has been the Company's Vice President of Operations
since May 1995 and its Director of Franchise Operations since November 1996. Mr.
Trimble joined Church's Fried Chicken ("Church's") in 1971, and was its District
Manager for East Texas from 1973 to 1982 and its Director of Operations for St.
Louis, Missouri from 1982 to 1986. From 1986 to 1989, Mr. Trimble was Regional
Vice President of Church's for southeast U.S. operations, directing the
operations of approximately 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 an
independent restaurant consultant.
Executive Compensation
The following table sets forth certain information concerning compensation
paid to the Company's executive officers for the fiscal years ended December 29,
1996, December 31, 1995 and December 31, 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 ......... 1994 49,800 0 0 0 0
Director
D.W. Gibbs ................ 1996 73,214 0 0 0 0
Chief Executive
Officer, President .... 1995 30,750 0 0 0 0
and Director
William J. Gallagher ...... 1996 79,209 0 3,640 0 0
Chairman of the
Board and ............. 1995 59,211 0 0 0 0
Chief Executive Officer
</TABLE>
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 former
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 shares per year commencing with the year
ending March 31, 1996. Mr. Gibbs resigned on December 9, 1996 at which time he
earned options to purchase a total of 16,000 shares. Mr. Gibbs advised the
Company that he might seek legal counsel if the Company and he could not
negotiate separation compensation. Mr. Gibbs did not have an employment
agreement with the Company at the time of his resignation and accordingly, the
Company did not negotiate separation compensation.
28
<PAGE>
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
based upon 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 was appointed Chief Executive Officer of the
Company in December 1996 and continues to be responsible for franchise and area
development sales. In September 1996, Mr. Gallagher's employment agreement was
amended to increase his base salary from $75,000 to $90,000 per year.
Larry F. Harris, the Company's President, is paid a base salary of $90,000
per year and is entitled to incentive bonuses aggregating up to an additional
$90,000 computed under a formula based upon the number of Company operated
Restaurants in operation and gross revenues in connection with the Restaurants.
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 $100,000. 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. 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.
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<PAGE>
As of the date of this Prospectus, options to purchase 237,000 shares have
been granted under the Plan of which 215,000 options have been granted to the
Company's executive officers and directors as follows. No such options have
vested or have been exercised.
Number of Exercise
Name Options Granted Price Expiration Date
---- --------------- ----- ---------------
William J. Gallagher............ 100,000 $6.00 September 2001
Larry F. Harris ....................40,000 6.00 September 2001
Theodore M. Heesch .................25,000 6.00 September 2001
Michael M. Hogan ...................25,000 6.00 September 2001
Joseph Fazzone .....................25,000 6.00 January 2002
Totals ......... 215,000
=======
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 20, 1997
concerning stock ownership of the Company's Common Stock 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. There are
no shares of Preferred Stock outstanding.
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 of Common Stock 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 stock
options or common stock purchase warrants.
Number of Shares of
Common Stock Percent of
Owned of Record Common Stock
Name and Beneficially Owned
---- ---------------- -----
William J. Gallagher(1)(2) ........... 146,667 5.9%
Larry F. Harris(3) ................... -0- -0-
Sam Bell Steves Rosser(1) ............ 66,666 2.8%
Joseph Fazzone (5).................... 25,000 1.0%
Michael M. Hogan(4) .................. 265,000 11.1%
Theodore M. Heesch(5) ................ 25,000 1.0%
Watermarc Food Management, Inc.(6) ... 240,000 10.1%
All officers and directors
as a group (6 persons)(2)(4)(5)(6) 528,333 20.8%
- --------------------
(1) Messrs. Gallagher and Rosser 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) Includes stock options, which vest in July 1997, to purchase up to 100,000
shares of Common Stock at $6.00 per share.
(3) Mr. Harris has been granted options, which vest in August 1997, to purchase
40,000 shares at $6.00 per share.
(4) Represents 240,000 shares owned by JEB Investment Company ("JEB"), of which
Mr. Hogan is the President and a principal stockholder, and stock options
to purchase up to 25,000 shares of Common Stock at $6.00 per share.
(5) Represents stock options granted to both Mr. Fazzone and Mr. Heesch, which
vest in July 1997, to purchase up to 25,000 shares of Common Stock each at
$6.00 per share.
(6) For a discussion of Watermarc's foreclosure of the 240,000 shares which
were previously held by JEB, see "Certain Transactions."
30
<PAGE>
CERTAIN TRANSACTIONS
William J. Gallagher, the Company's Chairman and Chief Executive Officer,
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. Mr. Gallagher continues to be a stockholder of WaterMarc,
although not a principal stockholder. 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
$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
totaling 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. In May 1997, WaterMarc foreclosed upon the 240,000
shares held by JEB and has advised the Company it intends to sell the shares as
soon as possible. Michael M. Hogan, a director of the Company, is the President
and a principal (and the controlling) stockholder of JEB. See "Shares Eligible
for Future Sale."
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 was acceptable to the two investors because they 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 Bruce T. McGill, Henry H. Salzarulo,
and Jeffrey M. Morehouse, then directors of the Company, for $300,000, or $1.25
per share, in order to finance the development of the Company's 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, then 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, none of whom were officers, directors or
principal stockholders of the Company.
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 the 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.
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<PAGE>
In March 1995, the Company entered into an employment agreement with D.W.
Gibbs, its then Chief Executive Officer and a director, and in August 1995, the
Company entered into an employment agreement with Mr. Gallagher, the Chairman
and Chief Executive Officer of the Company, which was subsequently amended in
September 1996. See "Management-Executive Compensation."
In March 1995, the Company executed an agreement with Bruce T. McGill, then
a 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), 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. In October 1996, the Company refunded $10,000 of the deposit, canceled the
$30,000 promissory note and reduced the number of Restaurants under the
agreement from ten Restaurants to two Restaurants. Under the agreement, 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.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 10,000,000 shares of $.01 par value
Common Stock. At April 20, 1997, there were 2,366,030 shares of Common Stock
outstanding, and an additional __________ shares of Common Stock are issuable
upon exercise of the Existing Options. See "Capitalization." 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.
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.
The Series A Redeemable Convertible Preferred Stock ("Preferred Stock") has
been authorized by the Board of Directors of the Company as a new series of the
Company's Preferred Stock, $1.00 par value, consisting of up to 3,000,000
shares. The shares of Preferred Stock when issued will be fully paid and
non-assessable under Texas law.
Dividends. Holders of shares of Preferred Stock will be entitled to
receive, out of funds at the time legally available therefor, dividends at the
quarterly rate of $.30 per share, payable in cash or in the Company's Common
Stock at the sole discretion of the Company and payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year beginning September
30, 1997. Dividends will accrue and are cumulative from the date of first
issuance of the Preferred Stock and will be payable to holders of record as they
appear on the stock books of the Company on such record dates as are fixed by
the Board of Directors. The value of the Common Stock to be issued as a dividend
will be the last reported sales price of the Common Stock on The NASDAQ SmallCap
Market. Any fractional shares of Common Stock will be rounded to the nearest
whole share on the last day of the calendar quarter. This Prospectus covers any
Common Stock issued as a Common Stock dividend on the Preferred Stock.
32
<PAGE>
Redemption. The Preferred Stock may not be redeemed by the Company until
nine months from the date hereof. Any shares of Preferred Stock outstanding
thereafter are redeemable for cash or in Common Stock of the Company in its sole
discretion, in whole or in part, at any time, at 110% of the bid price per share
of the Preferred Stock on The NASDAQ SmallCap Market for the 20 trading days
prior to the redemption date. This Prospectus covers any shares of Common Stock
issued to redeem the Preferred Stock.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock to
be redeemed at the holder's address shown on the stock transfer books of the
Company. After the redemption date, unless there shall have been a default in
payment of the redemption price, dividends will cease to accrue on the shares of
Preferred Stock called for redemption, and all rights of the holders of such
Preferred Stock will terminate except the right to receive the redemption price
without interest.
Conversion
Automatic Conversion. If at any time after nine months from the date
hereof, the closing price for the Preferred Stock, as quoted on The NASDAQ
SmallCap Market or any national securities exchange, exceeds $20.00 per share
for ten consecutive trading days, then the Preferred Stock will be automatically
converted into Common Stock.
Optional Conversion. The holder of Preferred Stock has the right, at the
holder's option, at any time after nine months from the date hereof, to convert
any or all such shares of Preferred Stock into Common Stock. The number of
shares of Common Stock issuable upon conversion of a share of Preferred Stock
(the "Conversion Rate") is equal to $10.00, plus accrued and unpaid dividends
through the date of conversion (to the extent unpaid within 15 business days
following the date of conversion), divided by $_____ (the "Conversion Price").
Although the Conversion Price is subject to adjustment for stock splits, reverse
stock splits and other similar capitalizations, the Preferred Stock does not
contain provisions protecting against dilution resulting from the sale of Common
Stock at a price below the Conversion Price or the then current market price of
the Company's securities. Assuming no accrued and unpaid dividends, the initial
Conversion Rate will be __________ shares of Common Stock per share of Preferred
Stock. Fractional shares of Common Stock will be rounded to the nearest whole
share.
Liquidation Rights. In the event of any liquidation, dissolution or winding
up of the Company, holders of shares of Preferred Stock are entitled to receive,
out of legally available assets, a liquidation preference of $10.00 per share,
plus an amount equal to any accrued and unpaid dividends to the payment date,
before any payment or distribution is made to the holders of Common Stock or any
series or class of the Company's stock hereafter issued that ranks junior as to
liquidation rights to the Preferred Stock, but the holders of the shares of the
Preferred Stock will not be entitled to receive the liquidation preference on
such shares until the liquidation preference of any other series or class of the
Company's stock previously or hereafter issued that ranks senior as to
liquidation rights to the Preferred Stock has been paid in full.
Voting Rights. The holders of the Preferred Stock will have no voting
rights except as to matters affecting the rights of Preferred Stockholders or as
to matters that all stockholders are entitled to vote on as a matter of law,
such as mergers or acquisitions. In connection with any such vote, each
outstanding share of Preferred Stock will be entitled to one vote, excluding any
shares held by the Company or any entity controlled by the Company, which shares
shall have no voting rights.
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.
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<PAGE>
Redeemable Preferred Stock Purchase Warrants
Each Warrant represents the right to purchase one share of Preferred Stock
at an initial exercise price of $10.50 per share for a period of five years from
the date hereof commencing six months 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 subdivisions or combinations of the
Preferred Stock or similar events. The Warrants to do not contain provisions
protecting against dilution resulting from the sale of additional shares of
Preferred Stock for less than the exercise price of the Warrants or the current
market price of the Preferred Stock.
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 nine months from the date hereof if the closing price of the
Company's Preferred Stock on the NASDAQ SmallCap Market averages at least $11.00
per share for a period of 20 consecutive trading days or if the Company redeems
the Preferred Stock.
Holders of Warrants may exercise their Warrants for the purchase of shares
of Preferred 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 effort to maintain a current Prospectus relating to
such shares of Preferred Stock at all times when the market price of the
Preferred 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 Preferred Stock issuable upon 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 Preferred 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.
IPO Warrants.
There are 2,300,000 IPO Warrants outstanding (each of which entitles the
holder to purchase one share of Common Stock at $4.00 per share until July 9,
2001). The exercise price and the number of shares issuable upon exercise of the
IPO 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 IPO 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 IPO
Warrants or the then current market price of the Company's Common Stock.
IPO 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 IPO
Warrant at any time after July 9, 1997 if the closing price of the Company's
Common Stock on the NASDAQ SmallCap Market averages at least $8.00 per share for
a period of 20 consecutive trading days.
Holders of IPO Warrants may exercise their IPO 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 IPO Warrants until the expiration date
of the IPO Warrants, although there can be no assurance that the Company will be
able to do so.
The shares of Common Stock issuable upon exercise of the IPO Warrants will
be, when issued in accordance with the IPO Warrants, fully paid and
non-assessable. The holders of the IPO Warrants have no rights as stockholders
until they exercise their IPO Warrants.
Other Outstanding Common Stock Purchase Warrants
The Company has 72,000 common stock purchase warrants outstanding as of
April 20, 1997, each exercisable at $2.50 per share, until December 1997.
Stock Transfer and Warrant Agent
Corporate Stock Transfer, Inc., Denver, Colorado, is the stock transfer
agent 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.
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<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 concerning 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 Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
The Company had 2,366,030 shares of Common Stock outstanding as of April
20, 1997 and has reserved for issuance an aggregate of __________ shares of
Common Stock upon exercise of the Existing Options. An aggregate of 1,000,000
shares issued in the IPO, 2,300,000 shares underlying the IPO Warrants and
__________ shares issuable upon conversion of the Preferred Stock and Preferred
Stock issuable upon exercise of the Warrants have been previously registered or
are being registered hereby. Additionally, 300,000 shares issuable upon exercise
of the Representative's IPO Warrants and __________ shares issuable upon
conversion of the Representative's Warrants are subject to demand registration
rights, and 257,280 shares underlying common stock purchase warrants which have
been exercised, must be registered by the Company by August 10, 1997. Finally, a
total of 990,000 shares of the Company's Common Stock outstanding have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
are "restricted securities" but may be sold from time to time under Rule 144 of
the Securities Act, subject to lock up agreements restricting the sale of
750,000 of such shares until August 1997 except with the written consent of the
Representative. In general, under Rule 144, a person (or persons whose shares
are aggregated) who has satisfied a one-year holding period, subject to certain
requirements concerning the availability of public information, and the manner
and notice of sale, may sell within any three-month period, a number of shares
which does not exceed the greater of one percent of the then outstanding common
shares or the average weekly trading volume during the four calendar weeks prior
to such sale. Rule 144 also permits, under certain circumstances, the sale of
shares by a person without any quantity limitation, as long as such person is
not an affiliate of the Company, has not been an affiliate for three months
prior to the sale and has beneficially owned the shares for at least two years.
The remaining 240,000 shares are also subject to a lock-up agreement restricting
sale through August 1997 executed by JEB Investment Company ("JEB"). However, in
May 1997 the shares were foreclosed upon by WaterMarc, and the JEB lock-up
agreement may not be effective against WaterMarc, in which event the 240,000
shares may be sold prior to the end of the lock-up period in August 1997.
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 IPO Warrants, the shares issuable upon conversion of the
Preferred Stock and the 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.
UNDERWRITING
The Underwriters named below, acting through Global Equities Group, Inc. as
the lead managing underwriter (the "Representative") and Suncoast Capital Corp.
as the co-managing underwriter, 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
Preferred Stock and Warrants from the Company in the amounts set forth below:
<TABLE>
<CAPTION>
Underwriter Shares of Preferred Stock Number of Warrants
----------- -------------------------- ------------------
<S> <C> <C>
Global Equities Group, Inc. _______ _______
Suncoast Capital Corp. _______ _______
Total 500,000 1,500,000
</TABLE>
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<PAGE>
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 securities to the public initially at the Offering prices set forth on the
cover page of this Prospectus, and to selected dealers, including Underwriters,
at such prices less a concession in an amount to be determined by the
Representative. The Underwriters will purchase the securities (including the
securities subject to the Overallotment Option) offered hereby at a discount
equal to 10% of the public Offering price, or $9.00 per share of Preferred Stock
and $.09 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 75,000 shares of Preferred Stock and/or 225,000 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 50,000 shares
of Preferred Stock at $13.00 per share and 150,000 Warrants at $.13 per
Warrant. 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 Preferred Stock and Warrants certain rights with respect to the
registration of the Preferred 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.
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 $50,000 has been paid to date.
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
could dilute the interests of the Company's Common 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.
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. In July 1996
the Representative acted as the Company's representative in connection with its
IPO sale of 1,000,000 shares of Common Stock at $5.50 per share and 2,300,000
IPO Warrants at $.125 per warrant. In November 1996, the Company entered into a
one-year consulting agreement with the Representative pursuant to which the
Representative agreed to provide financial consulting services to the Company,
consider the feasibility of secondary public offerings, implement strategic
planning, evaluate strategic alliances and prospective mergers and provide other
financial services. The Company agreed to pay to the Representative for such
consulting services a fee of $75,000, of which $50,000 has been paid.
36
<PAGE>
The Company has agreed (i) to allow the Representative to designate one
director to the Company's Board of Directors for a period of five years from the
date hereof and (ii) not to offer Common Stock or Preferred Stock or grant
options or warrants to purchase Common Stock without the prior written consent
of the Representative for a period of two years from the date hereof.
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 Preferred Stock. In the opinion of the Commission,
indemnification against liabilities under the Securities Act is against public
policy and is therefore unenforceable.
Prior to the Offering, there has been no public market for the Preferred
Stock and Warrants. The Preferred Stock price and Warrant exercise price were
arbitrarily determined through negotiations between the Company and the
Representative. The principal factors considered in pricing the securities were
the current price of the Common Stock, 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.
The Representative does not intend to sell the securities to any accounts
over which it exercises discretionary authority.
Although it has no obligation to do so, the Representative intends to
engage in market-making activities or soliciting brokerage activities with
respect to the purchase or sale of the Common Stock, Preferred Stock, the IPO
Warrants, and the Warrants in the NASDAQ SmallCap Market or other
over-the-counter market where such securities may trade. However, no assurance
can be given that the Representative will continue to participate as a market
maker for the securities of the Company or that other broker/dealers will make a
market in such securities. In connection with its IPO, the Company granted the
Representative the right to act as the Company's exclusive agent in connection
with any future solicitation of holders of the IPO Warrants to exercise their
IPO Warrants. Unless granted an exemption by the Commission from Regulation M
under the Exchange Act, the Representative will be prohibited from engaging in
any market-making activities or solicited brokerage activities with regard to
the Company's securities during a period prescribed by Regulation M before the
solicitation of the exercise of any IPO Warrants until the latter of the
termination of such solicitation activities or the termination by waiver or
otherwise of any right the Representative may have to receive a fee for the
exercise of the IPO Warrants following such solicitation. As a result, the
Underwriter and soliciting broker/dealers may be unable to continue to make a
market for the Company's securities during certain periods while the IPO
Warrants are exercisable. Such a limitation, while in effect, could impair the
liquidity and market prices of the Company's securities.
In connection with the Offering, the Underwriters and selling group members
(if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Preferred Stock
and Warrants. Such transactions may include stabilization transactions effected
in accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Preferred Stock or Warrants for the purpose of stabilizing
their market prices. The Underwriters may also create a short position for the
account of the Underwriters by selling more securities in connection with the
Offering than they are committed to purchase from the Company and in such case
may purchase securities in the open market following completion of the Offering
to cover all or a portion of such short position. The Underwriters may also
cover all or a portion of such short position, up to 75,000 additional shares of
Preferred Stock and 225,000 Warrants, by exercising the Overallotment Option.
Any of the transactions described in this paragraph may result in the
maintenance of the securities at a level above that which might otherwise
prevail in the open market. None of the transactions described in this paragraph
is required, and, if they are undertaken, they may be discontinued at any time.
In connection with the Offering the Underwriters and selling group members
(if any) and their respective affiliates may also engage in passive market
making transactions in the Preferred Stock and Warrants on The NASDAQ SmallCap
Market immediately prior to the commencement of sales in this Offering, in
accordance with Rule 103 under Regulation M. Passive market making consists of
displaying bids on The NASDAQ SmallCap Market limited by the bid prices of
independent market makers for a security and making purchases of a security
which are limited by such prices and effected in response to order flow. Net
purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average trading volume in the
securities during a specified prior period and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
securities at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
37
<PAGE>
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.
EXPERTS
The financial statements of the Company for the years ended December 29,
1996 and December 31, 1995, 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 Commission a Registration Statement on Form
SB-2 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 1400, Chicago,
Illinois 60661. 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.
38
<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 Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy such securities in any
jurisdiction to any person to whom it is unlawful to make such an offer or
solicitation in such jurisdiction. Neither the delivery of 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 .............................................................. 7
Price Range of Common Stock ............................................... 12
Use of Proceeds ........................................................... 12
Capitalization ............................................................ 13
Dividend Policy ........................................................... 13
Selected Financial Data ................................................... 14
Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................. 15
Business .................................................................. 17
Management ................................................................ 26
Principal Stockholders .................................................... 30
Certain Transactions ...................................................... 31
Description of Securities ................................................. 32
Shares Eligible for Future Sale ........................................... 35
Underwriting .............................................................. 35
Legal Matters ............................................................. 38
Experts ................................................................... 38
Additional Information .................................................... 38
Financial Statements ...................................................... F-1
Until __________, 1997 (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 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>
CLUCKCORP
INTERNATIONAL,
INC.
500,000 Shares of
Convertible Redeemable Preferred Stock
and
1,500,000 Redeemable Preferred Stock Purchase Warrants
PROSPECTUS
GLOBAL EQUITIES GROUP, INC.
SUNCOAST CAPITAL CORP.
__________, 1997
<PAGE>
CluckCorp International, Inc.
Contents
December 29, 1996
Audited Financial Statements Page
Report of Independent Certified Public Accountants...........................F-2
Balance Sheets...............................................................F-3
Statements of Operations.....................................................F-4
Statements of Stockholders' Equity...........................................F-5
Statements of Cash Flows.....................................................F-6
Statements...................................................................F-7
F-1
<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 29, 1996 and December 31, 1995, and the related statements
of operations, stockholders' equity, and cash flows for the fiscal years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CluckCorp International,
Inc. as of December 29, 1996 and December 31, 1995, and the results of its
operations and its cash flows for the fiscal years then ended, in conformity
with generally accepted accounting principles.
/s/ Akin, Doherty, Klein & Feuge, P.C.
- --------------------------------------
Akin, Doherty, Klein & Feuge, P.C.
San Antonio, Texas
February 6, 1997
(except for Note I, third paragraph, and Note K, second
paragraph, third sentence, as to which the date is May 12,1997)
F-2
<PAGE>
<TABLE>
<CAPTION>
CluckCorp International, Inc.
Balance Sheets
April 20, December 29, December 31,
1997 1996 1995
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash ......................................... $517,186 $1,271,443 $ 126,447
Cash, restricted ............................. 200,000 220,000 --
Inventories .................................. 23,783 8,658 5,044
Deferred financing costs ..................... -- -- 144,074
Other current assets ......................... 39,646 10,590 --
Note receivable from stockholder ............. -- -- 40,000
--------- ---------- -----------
Total Current Assets ................. 780,615 1,510,691 315,565
Property and Equipment, net ...................... 1,732,381 1,156,362 150,868
Other Assets
Intangible property rights, net of accumulated
amortization of $152,117, $139,825 and
$99,875 .................................. 247,383 259,675 299,625
Deposits ..................................... 230,279 83,257 25,007
Other assets ................................. 188,886 127,727 34,780
---------- ---------- -----------
666,548 470,659 359,412
---------- ---------- -----------
$3,179,544 $3,137,712 $ 825,845
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bridge notes payable, net of unamortized
discount of $-0-, -0-, and $133,523 ......... $ -- $ -- $ 940,977
Accounts payable, trade ....................... 337,627 134,204 161,642
Accrued liabilities ........................... 226,634 220,406 89,043
Notes payable to bank, current ................. 211,004 200,000 --
------- ---------- -----------
Total Current Liabilities .............. 775,265 554,610 1,191,662
Note payable to bank, less current portion.......... 49,860 -- --
Commitments and contingencies
Common stock subject to rescission, 0 shares
in 1997, 0 shares in 1996 and 57,750 shares
in 1995 ......................................... -- -- 195,818
Stockholders' Equity
Preferred stock .............................. -- -- --
Common stock - $.01 par value; 10,000,000 shares
authorized, 2,366,030 shares issued and
outstanding in 1997, 2,112,750 in 1996,
and 990,000 in 1995 ....................... 23,660 21,128 9,900
Additional paid - in capital ................ 6,705,113 6,138,770 994,007
Accumulated deficit ......................... (4,374,354) (3,576,796) (1,565,542)
--------- ---------- -----------
Total Stockholders' Equity (Deficit) .... 2,354,419 2,583,102 (561,635)
---------- ---------- -----------
$3,179,544 $ 3,137,712 $ 825,845
========== =========== ===========
See notes to financial statements.
F-3
<PAGE>
<CAPTION>
CluckCorp International, Inc.
Statements of Operations
Sixteen Weeks Ended Fiscal Years Ended
---------------------- -------------------------
April 20, April 21, December 29, December 31,
1997 1996 1996 1995
-------- -------- ---------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues
Restaurant operations .................. $446,994 $ 63,138 $ 263,892 $ 226,678
Area development fee, stockholder ...... -- -- -- 50,000
-------- -------- ---------- -----------
446,994 63,138 263,892 276,678
Costs and Expenses
Cost of food and paper ................. 230,248 23,734 122,530 82,171
Restaurant salaries and benefits ....... 234,685 23,854 125,954 127,400
Occupancy and related expenses ......... 65,012 16,747 58,191 63,605
Operating expenses ..................... 140,219 20,242 73,661 86,641
Preopening expenses .................... 86,314 9,493 131,074 59,363
General and administrative expenses .... 436,505 169,945 1,261,198 567,605
Depreciation and amortization .......... 60,635 30,824 104,467 73,879
--------- ------- ---------- -----------
Total costs and expenses ....... 1,253,618 294,839 1,877,075 1,060,664
--------- ------- ---------- -----------
Loss from operations ....................... (806,624) (231,701) (1,613,183) (783,986)
Other income (expense)
Interest income ........................ 16,882 -- 56,747 --
Interest expense and debt discount ..... (7,816) (177,319) (454,818) (140,497)
---------- -------- ---------- -----------
9,066 (177,319) (398,071) (140,497)
Net Loss .................................. $ (797,558) $ (409,020) $(2,011,254) $ (924,483)
========== ========== =========== ===========
Net loss per common share .................. $ ( .34) $ ( .32) $ (1.29) $ (.75)
========== ========== =========== ===========
Weighted average number of common
and common equivalent shares outstanding 2,316,279 1,285,699 1,553,824 1,224,531
========== ========== =========== ===========
See notes to financial statements.
F-4
<PAGE>
<CAPTION>
CluckCorp International, Inc.
Statements of Stockholders' Equity
Total
Common Stock Additional Stockholders'
------------------------ Paid-In Accumulated Equity
Shares Amount Capital Deficit (Deficit)
--------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 .... 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)
Issuance of common stock in
initial public offering ... 1,000,000 10,000 4,730,290 -- 4,740,290
Other issuances of common stock 65,000 650 219,233 -- 219,883
Common stock no longer subject
to rescission ............. 57,750 578 195,240 -- 195,818
Net loss for the year ......... (2,011,254) (2,011,254)
---------- ----------- ----------- ----------- -----------
Balance at December 29, 1996 .. 2,112,750 21,128 6,138,770 (3,576,796) 2,583,102
Issuance of common stock
(unaudited).................. 253,280 2,532 566,343 -- 568,875
Net loss for the period
(unaudited).................. -- -- -- (797,558) (797,558)
---------- ----------- ----------- ----------- -----------
Balance at April 20, 1997
(unaudited).................. 2,366,030 $ 23,660 $ 6,705,113 $(4,374,354) $ 2,354,419
========== =========== =========== =========== ===========
See notes to financial statements.
F-5
<PAGE>
CluckCorp International, Inc.
Statements of Cash Flows
<CAPTION>
Sixteen Weeks Ended Fiscal Years Ended
---------------------- --------------------------
April 20, April 21, December 29, December 31,
1997 1996 1996 1995
---------- --------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating Activities
Net loss for the year ........................................... $(797,558) $(409,020) $(2,011,254) $ (924,483)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization ............................... 60,635 30,824 94,109 73,879
Amortization of bridge note discount ........................ 367,154 87,659
Loss on forfeited deposits .................................. -- 136,855 -- 17,338
Changes in operating assets and liabilities:
Cash, restricted ........................................ 20,000 -- (20,000) --
Inventories ............................................. (15,125) (1,875) (3,614) (2,046)
Deferred financing costs ................................ -- (10,701) 144,074 (142,429)
Other current assets .................................... (29,056) 10,000 (10,590) (40,000)
Accounts payable and accrued expenses ................... 209,651 81,060 103,925 133,037
---------- -------- ----------- -----------
Net cash (used) by operating activities ............................. (551,453) (162,857) (1,336,196) (797,045)
Investing Activities
Purchases of property and equipment ............................. (555,021) (73,255) (1,059,654) (5,071)
Increase in deposits and other assets ........................... (212,522) (81,927) (151,197) (57,395)
---------- -------- ----------- -----------
Net cash (used) by investing activities ............................. (767,543) (155,182) (1,210,851) (62,466)
Financing Activities
Net proceeds from sale of common stock and warrants ............. 568,875 -- 4,960,173 --
Net proceeds from sale of common stock subject to rescission .... -- 209,884 -- 195,818
Proceeds from issuance of bridge notes payable .................. -- 376,370 376,370 764,318
Proceeds from bank borrowings ................................... -- -- 200,000 --
Restricted cash for note payable ................................ -- -- (200,000) --
Repayments of stockholder advances .............................. -- -- 40,000 (16,889)
Repayments of bridge notes payable .............................. -- -- (1,684,500) --
Repayments of bank borrowings.................................... (4,136) --
--------- -------- ----------- -----------
Net cash provided by financing activities ........................... 564,739 586,254 3,692,043 943,247
--------- -------- ----------- -----------
Net increase (decrease) in cash ..................................... (754,257) 268,215 1,144,996 83,736
Cash at beginning of period ......................................... 1,271,443 126,447 126,447 42,711
--------- -------- ----------- -----------
Cash at End of Period ............................................... $ 517,186 $ 394,662 $ 1,271,443 $ 126,447
========== ========= =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995
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
three restaurants in San Antonio and one restaurant in Corpus Christi, Texas.
The restaurants provide 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 conducted operations during
1996.
Fiscal Year: In 1996, the Company adopted a 52/53 - week fiscal year ending
on the last Sunday in December. The fiscal year is divided into thirteen
four-week periods. The first quarter consists of four periods and each of the
remaining three quarters consist of three periods, with the first, second and
third quarters ending 16 weeks, 28 weeks and 40 weeks respectively, into the
fiscal year.
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. At December 29, 1996, the Company had deposits of $218,795 in
a financial institution which exceeded the FDIC insured amount.
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 15 to 20 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. (CWRC), an unaffiliated Florida corporation,
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 last two fiscal years.
Deferred Offering and Financing Costs: Deferred offering costs are netted
against the equity offering to which they apply when the proceeds are received.
Deferred financing costs are amortized over the life of the respective notes
payable.
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: Preopening costs, which consist primarily of salaries and
other direct expenses relating to the set up, initial stocking, training, and
general management activities incurred prior to the opening of new stores, are
charged to expense as incurred.
Advertising Costs: Advertising costs of $133,366 and $35,820 during the
fiscal years ended December 29, 1996 and December 31, 1995, respectively, were
charged to expense as incurred.
F-7
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - Continued
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
during the next fiscal year is uncertain.
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.
Interim Financial Statements: The unaudited financial statements as of
April 20, 1997 and for the sixteen weeks ended April 20, 1997 and April 21, 1996
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 - NOTES PAYABLE
At December 29, 1996, the Company had outstanding a $200,000 note payable
to a financial institution. The note, which is collateralized by a $200,000
certificate of deposit, bears interest at the rate of 6.50% and is payable in
monthly installments of interest only. The principal and accrued interest is due
at the maturity date of November 3, 1997.
At December 31, 1995, the Company had bridge notes payable outstanding of
$940,977, net of unamortized discount of $133,523. The notes were issued to
individuals in four separate private offerings from May, 1995 through March,
1996, and were paid off in full with the proceeds from the Company's initial
public offering completed in July 1996. During the fiscal years ended in 1996
and 1995, $367,153 and $87,659 of discount applicable to the bridge notes was
amortized to interest expense.
The Company's weighted-average interest rate on it short-term borrowings,
before amortization of debt discount, was 9.8% in 1996 and 10.5% in 1995. After
considering amortization of debt discount, the weighted-average interest rate
was 50.6% in 1996 and 28.1% in 1995.
NOTE C - SUPPLEMENTAL FINANCIAL STATEMENT DATA
Property and equipment consists of the following:
December 29, December 31,
1996 1995
----------- -----------
Land ............................ $ 160,000 $ --
Buildings ....................... 240,400 --
Furniture, fixtures and equipment 365,719 78,150
Leasehold improvements .......... 487,515 115,830
----------- -----------
1,253,634 193,980
Less accumulated depreciation ... (97,272) (43,112)
----------- -----------
Property and equipment, net .... $ 1,156,362 $ 150,868
=========== ===========
Accrued liabilities consists of the following at:
December 29, December 31,
1996 1995
-------- --------
Accrued payroll and related liabilities $ 21,416 $ 6,874
Accrued interest payable .............. -- 51,758
Accrued reporting costs ............... 94,900 --
Accrued property lease payments ....... 100,000 29,500
Other accrued liabilities ............. 4,090 911
-------- --------
$220,406 $ 89,043
======== ========
F-8
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995
NOTE D - OPERATING LEASES
The Company currently conducts all its operations and maintains its
administrative offices in leased facilities. The Company also has entered into
lease agreements for facilities in San Antonio, Texas which the Company intends
to develop as restaurants in the future. Lease terms generally are ten years
with two or three five-year renewal options. Most of the leases contain
escalation clauses and require payment of common area maintenance charges or
taxes, insurance and other expenses. The Company also leases certain equipment
under non-cancelable operating leases having terms expiring at various dates
through 2001. Rental expense under operating lease agreements, including common
area maintenance charges, was $156,393 and $120,262 for the periods ended
December 29, 1996 and December 31, 1995, respectively.
Future minimum lease payments which are required under operating leases
that have initial or remaining non-cancelable lease terms in excess of one year
are as follows:
Years Ended December: Amount
- --------------------- -----------
1997 $ 297,710
1998 283,285
1999 258,331
2000 257,121
2001 256,435
Thereafter 1,592,780
-----------
Total future minimum payments $ 2,945,662
===========
NOTE E - FEDERAL INCOME TAXES
Deferred income taxes resulted from the following temporary differences and
loss carryforwards at:
December 29, December 31,
1996 1995
----------- -----------
Deferred tax asset - loss carryforwards $ 3,400,000 $ 1,565,542
=========== ===========
Net deferred tax asset at expected rates $ 1,156,000 $ 532,284
Less valuation allowance ............... (1,156,000) (532,284)
----------- -----------
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 2011.
NOTE F - STOCKHOLDERS' EQUITY
Initial Public Offering: In July 1996, the Company sold 1,000,000 shares of
common stock and 2,300,000 warrants to purchase common stock in an initial
public offering of its securities. The Company realized net proceeds of
$4,740,290 from the offering based upon the sale of the common stock at $5.50
per share and the warrants at $.125 per warrant.
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.
F-9
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995
NOTE F - STOCKHOLDERS' EQUITY - Continued
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, redemption and voting rights and liquidation rates have not
been set by the Board of Directors. See Note K.
Common Stock Subject to Rescission: At December 31, 1995, the Company had
classified 118,750 shares of common stock issued between August 1995 and March
1996 in connection with the sale of $1,197,500 of bridge notes as temporary
equity due to the uncertainty as to whether the private placement exemption
could be claimed since these securities were sold after the filing of the
Registration Statement. Without the exemption, the transactions could be
considered integrated with the offering, subjecting the Company to potential
liability for sales of unregistered securities. All bridge note holders were
repaid their investment upon the closing of the initial public offering in July
1996. However, the possibility exists 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 a 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. Management considers the likelihood of a claim being filed to be remote
and has reclassified these shares as equity at December 29, 1996.
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. All options granted under the plan
for 1996 and 1995 were at fair market value as of the date of grant and vest
over various periods beginning in 1997 through 2000.
The Company applies APB Opinion 25 and related interpretations in
accounting for this plan, and has adopted the disclosure only provisions of SFAS
No. 123. Accordingly, no compensation cost has been recognized in 1996 or 1995.
Had the Company accounted for its employee stock options based on the fair value
at the date of grant consistent with the provisions of SFAS No. 123, the
Company's net loss and net loss per common share on a proforma basis would have
been as follows:
1996 1995
----------- ----------
Net loss - as reported $(2,011,254) $(924,483)
Net loss - proforma (2,082,678) (924,483)
Net loss per common share as reported (1.29) (.75)
Net loss per common share proforma (1.34) (.75)
A summary of the status of the Company's stock option plan as of December
29, 1996 and December 31, 1995, and changes during the fiscal years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1996 1995
------------------------------ ---------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding options at beginning of year 80,000 $ 2.50 -- $ --
Granted ............................ 206,000 5.94 80,000 2.50
Exercised .......................... -- -- -- --
Forfeited .......................... (80,000) 2.50 -- --
------- ------
Outstanding options at end of year ..... 206,000 5.94 80,000 2.50
======= ======
Options exercisable at year end -- ..... -- 16,000
======= ======
Weighted-average fair value of
options granted during the year ....... $ 1.62 --
</TABLE>
F-10
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995
NOTE F - STOCKHOLDERS' EQUITY - Continued
The following table summarizes information about the options outstanding at
December 29, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Number Weighted-Average Number
Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Price at 12/29/96 Contractual Life Exercise Price at 12/29/96 Exercise Price
-------------- ----------- ---------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
$ 3.85 6,000 4.6 years $ 3.85 -- $ 3.85
6.00 200,000 4.8 years 6.00 -- 6.00
------- ------
206,000 4.8 years 5.94 -- 5.92
======= ======
Warrants: The following is a summary of warrant activity, after giving
effect to the July 17, 1995 reverse stock split:
<CAPTION>
Warrants/ Exercise
Issue Date Purpose Options Price Expiration
- ----------- --------------------------- ---------- ------ -----------------
<S> <C> <C> <C> <C>
April 1994 Private sale of common stock 100,000 $ 2.50 December 31, 1997
August 1994 Private sale of common stock 30,480 2.50 December 31, 1997
December 1994 Bridge notes 35,600 2.50 December 31, 1997
May 1995 Bridge notes 159,200 2.50 December 31, 1997
July 1996 Initial public offering 2,300,000 4.00 July 9, 2001
July 1996 Initial public offering 100,000 6.60 July 9, 2001
July 1996 Initial public offering 200,000 4.15 July 9, 2001
---------
Outstanding at December 29, 1996 2,925,280
=========
</TABLE>
NOTE G - RELATED PARTY TRANSACTIONS
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 $50,000, of which the Company had received $20,000. A
non-interest bearing unsecured promissory note initially due March 30, 1996 was
extended to September 30, 1996. In December 1996, the area development agreement
was modified to reduce the number of restaurants that can be developed from ten
to two and reduce the fee from $50,000 to $10,000. The stockholder was refunded
$10,000 and the balance of the note was charged to expense.
On August 10, 1995, the Company entered into a five year employment
agreement with its Chairman and Chief Executive Officer. 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. In September 1996, the employment agreement
was amended to increase his salary from $75,000 to $90,000 per year.
During 1996, the Company paid its Chairman and Chief Executive Officer
$29,800 for certain fixed assets used in the operations of the Company.
The Company has a $20,000 certificate of deposit which collateralizes a
personal loan for an officer of the Company.
F-11
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 29, 1996 and December 31, 1995
NOTE H - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company paid interest of $139,423 during the fiscal year ended December
29, 1996. No interest was paid during the fiscal year ended December 31, 1995,
and no federal or state taxes were paid during fiscal years ended December 31,
1996 and 1995.
NOTE I - LOSS PER SHARE
Loss per common share is computed by dividing net loss by the weighted
average number of shares outstanding during each period plus, when their effect
is dilutive, common stock equivalents consisting of certain shares subject to
stock options and warrants. In 1996, the inclusion of additional shares assuming
the exercise of the stock options and warrants would have been antidilutive.
Loss per common share is calculated as follows:
Fiscal Year Ended
--------------------------
December 29, December 31,
1996 1995
----------- -----------
Net loss ....................................... $(2,011,254) $ (924,483)
=========== ===========
Weighted average number of shares outstanding .. 1,553,824 1,001,287
Common stock equivalents due to assumed exercise
of options and warrants .................... -- 223,244
----------- ----------
1,553,824 1,224,531
Net loss per common share ...................... $ (1.29) $ (.75)
=========== ===========
The Financial Accounting Standards Board in February, 1997 issued Statement
No, 128, Earnings Per Share, effective for fiscal years ending after December
31, 1997. Implementation of this Statement is not expected to have a significant
impact on the earnings per share calculation of the Company.
NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS
The only financial instruments of the Company at December 29, 1996, are
cash and notes payable. The carrying amount of the financial instruments
approximate fair value.
NOTE K - SUBSEQUENT EVENTS
In January 1997, warrants to purchase 253,280 shares of common stock were
exercised, resulting in proceeds to the Company of $633,200.
In February, 1997, the Company filed a Registration Statement on Form SB-2
covering the sale of 500,000 shares of the Company's Convertible Redeemable
Preferred Stock. The stock is being offered at $10 per share and is convertible
into common stock, at a to be determined conversion price. In May 1997, the
Registration Statement was amended to also include the sale of 1,500,000
Preferred Stock Purchase Warrants at $.10 per Warrant. There is no assurance
that the Registration Statement will be declared effective by the Securities and
Exchange Commission, or that the Company will be successful in selling the
Preferred Stock.
F-12
<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..................... $ 16,694
NASD Filing Fee.......................... 6,008
Blue Sky Filing Fees..................... 15,000
Blue Sky Legal Fees...................... 30,000
Printing Expenses........................ 60,000
Legal Fees and Expenses.................. 120,000
Accounting Fees.......................... 40,000
NASDAQ SmallCap Application.............. 10,000
Transfer Agent and Certificates.......... 2,000
Miscellaneous Expenses................... 50,298
--------
TOTAL.................................... $350,000
(1) Does not include the Representative's commissions and fees of $669,500
($769,925 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").
II-2
<PAGE>
(i) 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
(ii) 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 totaling
approximately $42,000.
(iii) 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.
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
(iv) 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
II-3
<PAGE>
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.
(v) 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 were registered as a
part of the Registrant's Registration Statement on Form SB-2, File No. 33-95796
declared effective July 9, 1996.
(vi) 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 were registered as a part of the
Registrant's Registration Statement on Form SB-2, File No. 33-95796 declared
effective July 9, 1996.
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
1.17 Form of Underwriting Agreement (2)
1.18 Form of Selling Group Agreement (2)
1.19 Form of Representatives' Warrant (2)
1.20 Form of Agreement Among Underwriters (2)
1.21 Form of Amended Underwriting Agreement (2)
1.22 Form of Amended Underwriting Agreement
1.23 Form of Amended Selling Group Agreement
1.24 Form of Amended Representatives' Warrant
1.25 Form of Amended Agreement Among Underwriters
II-4
<PAGE>
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)
5.02 Opinion of Gary A. Agron, Esq., regarding
legality of the Preferred Stock (includes
Consent)(2)
5.03 Amended Opinion of Gary A. Agron, Esq.
10.01 Incentive Stock Option Plan(1)
10.02 Settlement Agreement with Cluckers Wood Roasted
Chicken, Inc.(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)
10.20 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)
II-5
<PAGE>
10.24 License Agreement(1)
10.25 Amendment to Area Development Agreement with
Mr. McGill(2)
10.27 Ground Lease (Harvest Rotisserie - Dezavala)(2)
10.28 Ground Lease (Harvest Rotisserie - Herzberg)(2)
10.29 Consulting Agreement with the Representative(2)
10.30 Building Lease (Harvest Rotisserie - Corpus
Christi (2)
10.31 Building Lease (Harvest Rotisserie - San
Antonio)(2)
10.32 Agreement with Roasters Corp. (2)
10.33 Agreement with Pollo Operators, Inc.(2)
10.34 Building Lease (Harvest Rotisserie - 11730 West
Avenue, San Antonio) (2)
10.35 Land Contract (St. Petersburg)(2)
23.09 Consent of Akin, Doherty, Klein & Feuge, P.C.(2)
23.10 Consent of Gary A. Agron, Esq., (See 5.02,
above)(2)
23.11 Consent of Akin, Doherty, Klein & Feuge, P.C. (2)
23.12 Consent of Akin, Doherty, Klein & Feuge, P.C.
(1) Incorporated by reference to the Registrant's definitive Registration
Statement on Form SB-2 File No. 33-95796 declared effective on July 9,
1996.
(2) 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
II-6
<PAGE>
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) 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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(g) It will provide to the Underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
II-7
<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 ____________, 1997.
CLUCKCORP INTERNATIONAL, INC.
By: /s/ William J. Gallagher
----------------------------
William J. Gallagher
Chief Executive Officer
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
By: /s/ William J. Gallagher Chairman of the Board of __________, 1997
- ------------------------------ Directors and Chief Executive
William J. Gallagher Officer
By: /s/ Larry F. Harris President and Director __________, 1997
- ------------------------------
Larry F. Harris
By: /s/ Sam Bell Steves Rosser Vice President - Development, __________, 1997
- ------------------------------ Treasurer and Director
Sam Bell Steves Rosser
By: /s/ Michael M. Hogan Director __________, 1997
- ------------------------------
Michael M. Hogan
By: /s/ Theodore M. Heesch Director __________, 1997
- ------------------------------
Theodore M. Heesch
By: /s/ Joseph Fazzone Chief Financial Officer and __________, 1997
- ------------------------------ Principal Accounting Officer
Joseph Fazzone
<PAGE>
CLUCKCORP INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit No. Title
1.22 Form of Amended Underwriting Agreement
1.23 Form of Amended Selling Group Agreement
1.24 Form of Amended Representatives' Warrant
1.25 Form of Amended Agreement Among Underwriters
5.03 Amended Opinion of Gary A. Agron, Esq.
23.12 Consent of Akin, Doherty, Klein & Feuge, P.C.
EXHIBIT 1.22
UNDERWRITING AGREEMENT
CLUCKCORP INTERNATIONAL, INC.
500,000 Shares of 12%
Convertible Redeemable Preferred Stock
(Liquidation Preference $10.00 per Preferred Security)
and
1,500,000 Redeemable Preferred Stock Purchase Warrants
May____, 1997
GLOBAL EQUITIES GROUP, INC.
As Representative of the several
Underwriters named in Schedule 1
5 Hanover Square - 22nd Floor
New York, New York 10004
Dear Sirs:
CluckCorp International, Inc. a Texas corporation proposes to sell an
aggregate of 500,000 shares (the "Firm Stock") of the Company's Series A
Redeemable Convertible Preferred Stock par value $1.00 per share (the "Preferred
Stock") and 1,500,000 Redeemable Preferred Stock Purchase Warrants (the
"Warrants"). The Preferred Stock and the Warrants are hereinafter collectively
referred to as the Securities. In addition, the Company proposes to grant to the
Underwriters named in Schedule 1 hereto (the "Underwriters") an option to
purchase up to an additional 75,000 shares of Preferred Stock and/or 225,000
Warrants on the terms and for the purposes set forth in Section 2 (the "Option
Stock"). The Firm Stock and the Option Stock, if purchased, are hereinafter
collectively called the "Stock." This is to confirm the agreement concerning the
purchase of the Stock from the Company by the Underwriters named in Schedule 1
hereto (the "Underwriters") in the amounts set forth opposite their respective
names.
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1. Representations, Warranties and Agreements of the Company. The Company
represents, warrants, and agrees that:
(a) A registration statement on Form SB-2 (No. 333- 21067), and an
amendment thereto, with respect to the Stock have (i) been prepared by
the Company in conformity with the requirements of the Securities Act
of 1933 (the "Securities Act") and the rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, (ii) been filed with the Commission
under the Securities Act and (iii) become effective under the
Securities Act; and a second registration statement on Form SB-2 with
respect to the Stock (i) may also be prepared by the Company in
conformity with the requirements of the Securities Act and the Rule
and Regulations and (ii) if to be so prepared, will be filed with the
Commission under the Securities Act pursuant to Rule 462(b) of the
Rules and Regulations on the date hereof. Copies of the first such
registration statement and the amendment to such registration
statement, together with the form of any such second registration
statement, have been delivered by the Company to you as the
representative (the "Representative") of the Underwriters. As used in
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this Agreement, "Effective Time" means (i) with respect to the first
such registration statement, the date and the time as of which such
registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission and (ii)
with respect to any second registration statement, the date and time
as of which such second registration statement is filed with the
Commission, and "Effective Times" is the collective reference to both
Effective Times; "Effective Date" means (i) with respect to the first
such registration statement, the date of the Effective Time of such
registration statement and (ii) with respect to any second
registration statement, the date of the Effective Time, and "Effective
Dates" is collective reference to both Effective Dates; "Preliminary
Prospectus" means such prospectus included in any such registration
statement, or amendments thereof, before it became effective under the
Securities Act and any prospectus filed with the Commission by the
Company with the consent of the Representative pursuant to Rule 424(a)
of the Rules and Regulations; "Primary Registration Statement" means
the first registration statement referred to in this Section 1(a), as
amended as its Effective Time, "Rule 462(b) Registration Statement"
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means the second registration Statement, if any, referred to in this
Section 1(a), as filed with the Commission, and "Registration
Statements" means both the Primary Registration Statement and any Rule
462(b) Registration Statement, including in each case all information
contained in the final prospectus filed with the Commission pursuant
to Rule 424(b) of the Rules and Regulations in accordance with Section
6(a) hereof and deemed to be a part of the Registration Statement
pursuant to paragraph (b) of Rule 430A of the Rules and Regulations;
and "Prospectus" means such final prospectus, as first filed with the
Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the
Rules and Regulations. The Commission has not issued any order
preventing or suspending these of any Preliminary Prospectus.
(b) The Primary Registration Statement conforms (and the Rule 462(b)
Registration Statement, if any, the Prospectus and any further
amendments or supplements to the Registration Statements or the
Prospectus, when they become effective or are filed with the
Commission, as the case may be, will conform) in all respects to the
requirements of the Securities Act and the Rules and Regulations and
do not and will not, as of the applicable effective date (as to the
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Registration Statements and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that
no representation or warranty is made as to information contained in
or omitted from the Registration Statements or the Prospectus in
reliance upon and in conformity with written information furnished to
the Company through the Representative by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The Company and each of its subsidiaries (as defined in Section 15)
have been duly incorporated and are validly existing as corporations
in good standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good
standing as foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct of their
respective businesses requires such qualification, and have all power
and authority necessary to own or hold their respective properties and
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to conduct the businesses in which they are engaged; and one of the
subsidiaries of the Company is a "significant subsidiary", as such
term is defined in Rule 405 of the Rules and Regulations.
(d) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, and fully
paid and non-assessable and conform to the description thereof
contained in the Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable and
(except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) The unissued shares of the Stock to be issued and sold by the Company
to the Underwriters hereunder have been duly and validly authorized
and, when issued and delivered against payment therefor as provided
herein will be duly and validly issued, fully paid and non-assessable;
and the Stock will conform to the description thereof contained in the
Prospectus.
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(f) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby
will not conflict with or 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, loan agreement or other agreement
or instrument to which the Company or any of its subsidiaries is a
party or by which the company or any of is subsidiaries is bound or to
which any of the properties or assets of the Company or any of its
subsidiaries is subject, nor will such actions result in any violation
of the provisions of the charter or by-laws of the Company or any of
its subsidiaries or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or
assets; and except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act and applicable state securities laws in connection with the
purchase and distribution of the Stock by the Underwriters, no
consent, approval, authorization or order or, or filing or
registration with, any such court or governmental agency or body is
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required for the execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated
hereby.
(g) 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.
(h) The Company has not sold or issued any shares of Common or Preferred
Stock during the six-month period preceding the date of the
Prospectus, including any sales pursuant to Rule 144A, or Regulations
D or S of, the Securities Act.
(i) Neither the Company nor any of its subsidiaries has sustained, since
the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
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insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, there has not been any change in the
capital stock or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders, equity
or results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus.
(j) The financial statements (including the related notes and supporting
schedules) filed as part of the Registration Statements or included in
the Prospectus present fairly the financial condition and results of
operations of the entities purported to be shown thereby, at the dates
and for the periods indicated, and have been prepared in conformity
with generally accepted accounting principles applied on a consistent
basis throughout the periods involved.
(k) Akin, Doherty, Klein & Feuge, P.C. who have certified certain
financial statements of the Company, whose report appears in the
Prospectus and who have delivered the initial letter referred to in
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in Section 7(e) hereof, are independent public accountants as required
by the Securities Act and the Rules and Regulations.
(l) There are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property
or asset of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its
subsidiaries, might have a material adverse effect on the consolidated
financial position, stockholders' equity, rules of operations,
business or prospects of the Company and its subsidiaries; and to the
best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(m) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to either of the
Registration Statements by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed
as exhibits to the either of the Registration Statements or
incorporated therein by reference as permitted by the Rules and
Regulations.
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(n) The warrants (the "Underwriters' Warrants") to be issued to the
Representative hereunder will be, when issued, duly and validly
authorized and executed by the Company and will constitute valid and
binding obligations of the Company, legally enforceable in accordance
with their terms, and the Company will have duly authorized, reserved
and set aside the shares of its Preferred Stock and Warrants issuable
upon exercise of the Underwriters' Warrants and such stock, when
issued and paid for upon exercise of the Underwriters' Warrants in
accordance with the provisions thereof, will be duly and validly
registered, authorized and issued, fully-paid and non-assessable.
(o) The Company represents that no person has acted as a finder in
connection with the transactions contemplated herein except as set
forth in the registration statement. The Company will indemnify the
Underwriters with respect to any claim for finder's fees in connection
herewith. Except as set forth in the registration statement, the
Company further represents that it has no management or financial
consulting agreements with any person and that, except as set forth in
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the Registration statement and in the Prospectus or otherwise
disclosed to the Representative in writing prior to the date hereof,
no promoter, officer, director, consultant or shareholder of the
Company is directly or indirectly, affiliated or associated with an
NASD member broker-dealer.
2. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 500,000 shares of
Preferred Stock and 1,500,000 Warrants severally and not jointly, to the several
underwriters and each of the Underwriters, severally and not jointly, agrees to
purchase the number of shares of the Firm Stock set opposite that Underwriter's
name in Schedule 1 hereto. Each Underwriter shall be obligated to purchase from
the Company that number of shares of the Firm Stock which represents the same
proportion of the number of shares of the Firm Stock to be sold by the Company,
as the number of shares of the Firm Stock set forth opposite the name of such
Underwriter in Schedule 1 represents of the total number of shares of the Firm
Stock to be purchased by all of the Underwriters pursuant to this Agreement. The
respective purchase obligations of the Underwriters with respect to the Firm
Stock shall be rounded among the Underwriters to void fractional shares, as the
Representative may determine.
In addition, the Company grants to the Underwriters an option to purchase
up to 75,000 shares of the Preferred Stock and 225,000 Warrants (the "Option
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Stock", as previously defined). Such option is granted solely for the purpose of
covering over-allotments in the sale of Firm Stock and is exercisable as
provided in Section 4 hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriters with respect to
the Option Stock shall be adjusted by the Representative so that no Underwriter
shall be obligated to purchase Option Stock other than 100 share amounts. The
price of both the Firm Stock and any Option Stock shall be $9.00 per share of
Preferred Stock and $0.09 Per Warrant which represents the public offering price
of $10.00 per share of Preferred Stock and $0.10 per Warrant less an
underwriting discount of ten percent. All or any portion of such discount may be
reallowed by you for sale through licensed securities dealers who are members in
good standing of the NASD. Notwithstanding anything contained herein to the
contrary, Global individually and not as Representative, may purchase all or any
part of the Option Stock and is not obligated to offer the Option Stock to the
other Underwriters.
The Company is not obligated to deliver any of the Stock to be delivered on
the First Delivery Date or the Second Delivery Date (as hereinafter defined), as
the case may be, except upon payment for all the Stock to be purchased on such
Delivery Date as provided herein.
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3. Offering of Stock by the Underwriters. Upon authorization by the
Representative of the release of the Firm Stock, the several Underwriters
proposed to offer the Firm Stock for sale upon the terms and conditions set
forth in the Prospectus; provided, however, that no Stock registered pursuant to
the Rule 462(b) Registration Statement, if any, shall be offered prior to the
Effective Time thereof.
4. Delivery of and Payment for the Stock. Delivery of and payment for the
Firm Stock shall be made at the office of counsel for the Representative, Mound,
Cotton & Wollan, at One Battery Park Plaza, New York, New York 10004, at 10:00
A.M., New York City time, on the third full business day following the date of
this Agreement or at such other date or place as shall be determined by
agreement between the Representative and the Company. This date and time are
sometimes referred to as the "First Delivery Date." On the First Delivery Date,
the Company shall deliver or cause to be delivered certificates representing the
Firm Stock to the Representative for the account of each Underwriter against
payment to or upon the order of the Company of the purchase price by bank wire,
certified or official bank check or checks payable in New York Clearing House
(same-day) funds. In making payment to the Company, the Representative may first
deduct all sums due to it for the balance of the non-accountable expense
allowance and under the Financial Consulting Agreement entered into between the
Company and Representative in November 1996. Time shall be of the essence, and
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delivery at the time and place specified pursuant to this Agreement is further
condition of the obligation of each Underwriter hereunder. On the First Delivery
Date, the Company shall deliver in respect of the Firm Stock one certificate
evidencing all of the shares of such series of securities being sold on the
First Delivery Date registered in the name of _____________________, as nominee
for The Depository Trust Company ("DTC"). Interests in the Firm Stock will be
represented by book entries on the records of DTC as the Underwriters may
request not less than two full business days in advance of the First Delivery
Date. For the purpose of expediting the checking and packaging of the
certificates for the Firm Stock, the Company and the Selling Stockholders shall
make the certificates representing the Firm Stock available for inspection by
the Representative in New York, New York, not later than 2:00 P.M., New York
City time, on the business day prior to the First Delivery Date.
At any time on or before the forty-fifth day after the date of this
Agreement the option granted in Section 2 may be exercised by written notice
being given to the Company by the Representative. Such notice shall set forth
the aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Representative, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
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be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the place
specified in the first sentence of the first paragraph of this Section 4 (or at
such other place as shall be determined by agreement between the Representative
and the Company) at 10:00 A.M., New York City time, on the Second Delivery Date.
On the Second Delivery Date, the Company shall deliver or cause to be delivered
the certificates representing the Option Stock to the Representative for the
account of each Underwriter against payment to or upon the order of the Company
of the purchase price by bank wire, certified or official bank check or checks
payable in New York Clearing House (same-day) funds. Time shall be of the
essence, and delivery at the time and place specified pursuant to this Agreement
is a further condition of the obligation of each Underwriter hereunder. On the
Second Delivery Date, the Company shall deliver in respect of the Option Stock
one certificate evidencing all of the shares of such series of securities being
sold on the Second Delivery Date registered in the manme of _______________as
nominee for DTC. For the purpose of expediting the checking and packaging of the
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certificates for the Option Stock, the Company shall make the certificates
representing the Option Stock available for inspection by the Representative in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
(e) At the time of making payment for the Firm stock, the Company also
hereby agrees to sell to the Representative Underwriters' Warrants to purchase
up to 50,000 shares of Preferred Stock and 150,000 Warrants at an aggregate
purchase price of $10.00. Each Underwriters' Warrant shall entitle the owner
thereof to purchase one Preferred Stock of the Company at an exercise price of
$13.00 and one Warrant at $0.13 per Warrant. The Preferred Stock and Warrants
shall be similar in all respects to the Preferred Stock and Warrants sold to the
public. Such Underwriters' Warrants are to become exercisable upon the
expiration of one year from the Effective Date, and shall remain exercisable for
four years thereafter, such warrants may be transferred only to officers of
partners of the Underwriters and selling group members and their officers or
partners. The Underwriters' Warrants shall contain such other terms and
provisions as may be set forth in agreements with respect thereto (the
"Underwriters' Warrants Agreements") executed and delivered by the Company and
you simultaneously with the execution and delivery of this Agreement. The
Underwriters' Warrant Agreements shall provide that the exercise price and the
number and type of securities issuable upon exercise thereof shall be adjusted
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upon the occurrence of certain events. As provided in the Underwriters' Warrant
Agreements, you may designate that the Underwriters' Warrants be issued in
varying amounts directly to your bona fide officers and not to you. Such
designation will be made by you only if you determine that such issuances would
not violate the interpretations of the NASD relating to the review of corporate
financing arrangements. The holders of the Underwriters' Warrants will be
entitled to the registration rights set forth in the Underwriters' Warrant
Agreements.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Rule 462(b) Registration Statement, if necessary, in a
form approved by the Representative and to file such Rule 462(b)
Registration Statement with the Commission on the date hereof; to
prepare the Prospectus in a form approved by the Representative and to
file such Prospectus pursuant to Rule 424(b) under the Securities Act
not later than 10:00 A.M., New York City time, the day following the
execution and delivery of this Agreement; to make no further amendment
or any supplement to the Registration Statements or to the Prospectus
prior to the Second Delivery Date except as permitted herein; to
advise the Representative, promptly after it receives notice thereof,
of the time when any amendment to either Registration Statement has
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been filed or becomes effective or any supplement to the Prospectus or
any amended Prospectus has been filed and to furnish the
Representative, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospects, of the suspension of the qualification of the Stock for
offering or sale in any jurisdiction, of the initiation or threatening
of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration
Statements or the Prospectus or for additional information; and, in
the event of the issuance of any stock order or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or suspending any such qualification, to use promptly its
best efforts to obtain its withdrawal;
(b) To furnish promptly to the Representative and to counsel for the
Underwriters a signed copy of each of the Registration Statements as
originally filed with the Commission, and each amendment thereto filed
with the Commission, including all consents and exhibits filed
therewith;
(c) To deliver promptly to the Representative in New York City such number
of the following documents as the Representative shall request: (i)
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conformed copies of the Registration Statements as originally filed
with the Commission and each amendment thereto (in each case excluding
exhibits other than this Agreement and the computation of per share
earnings) (ii) each Preliminary Prospectus, the Prospectus (not later
than 10:00 A.M., New York City time, of the day following the
execution and delivery of this Agreement) and any amended or
supplemented Prospectus (not later than 10:00 A.M., New York City
time, on the day following the date of such amendment or supplement)
prior to the expiration of nine months after the Effective Time of the
Primary Registration Statement in connection with the offering or sale
of the Stock (or any other securities relating thereto) and if at such
time any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary during such same period to amend or supplement the
Prospectus in order to comply with the Securities Act, to notify the
Representative and, upon its request, to prepare and furnish without
charge to each Underwriter and to any dealer in securities as many
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copies as the Representative may from time to time reasonably request
of an amended or supplemented Prospectus which will correct such
statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with
sales of any of the Stock at any time nine months or more after the
Effective Time of the Primary Registration Statement upon the request
of the Representative but at the expense of such Underwriter, to
prepare and deliver to such Underwriter as many copies as the
Representative may from time to time reasonably request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the
Securities Act; (d) To file promptly with the Commission any amendment
to the Registration Statements or the Prospectus or any supplement to
the Prospectus that may, in the judgment of the Company or the
Representative, be required by the Securities Act or requested by the
Commission; (e) Prior to filing with the Commission any (i) amendment
to either of the Registration Statements or supplement to the
Prospectus or (ii) any Prospectus pursuant to Rule 424 of the Rules
and Regulations, to furnish a copy thereof to the Representative and
counsel for the Underwriters and obtain the consent of the
Representative to the filing:
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(f) As soon as practicable after the Effective Date of the Primary
Registration Statement, to make generally available to the Company's
security holders and to deliver to the Representative an earnings
statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of the Company, Rule
158); (g) For a period of five years following the Effective Date of
the Primary Registration Statement, to furnish to the Representative
copies of all materials furnished by the Company to its shareholders
and all public reports and all reports and financial statements
furnished by the Company to the principal national securities exchange
upon which the Common, Preferred Stock or Warrants may be listed
pursuant to requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation of
the Commission thereunder; (h) Promptly from time to time to take such
action as the Representative may reasonably request to qualify the
Stock for offering and sale under the securities laws of such
jurisdictions as the Representative may request and to comply with
such laws so as to permit the continuance of sales and dealings
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therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Stock; (i) For a period of two years
from the date of the Prospectus, not to offer for sale, sell or
otherwise dispose of (or enter into any transaction which is designed
to, or could be expected to, result in the disposition or purchase by
any person of), directly or indirectly, any shares of Preferred Stock,
Common Stock or Warrants (other than the Stock and shares issued
pursuant to employee benefit plans, qualified stock option plans or
other employee compensation plans existing on the date hereof or
pursuant to currently outstanding options, warrants or rights), or
sell or grant options, rights or warrants with respect to any shares
of Common Stock or preferred stock (other than the grant of options
pursuant to option plans existing on the date hereof), without the
prior written consent of the Representative; and to cause each officer
and director of the Company to furnish to the Representative, prior to
the First Delivery Date, a letter or letters, in form and substance
satisfactory to counsel for the Underwriters, pursuant to which each
person shall agree not to offer for sale, sell or otherwise dispose of
(or enter into any transaction which is designed to, or could be
expected to, result in the disposition or purchase by any person of),
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directly or indirectly, any shares of Preferred Stock, Common Stock or
Warrants for a period of two years from the date of the Prospectus,
without the prior written consent of the Representative; (j) Prior to
filing with the Commission any reports on Form SR pursuant to Rule 463
of the Rules and Regulations, to furnish a copy thereof to the counsel
for the Underwriters and receive and consider its comments thereon,
and to deliver promptly to the Representative a signed copy of each
report on Form SR filed by it with the Commission; (k) To apply the
net proceeds from the sale of the Stock being sold by the Company as
set forth in the Prospectus; and (l) To take such steps as shall be
necessary to ensure that neither the Company nor any subsidiary shall
become an "investment company" within the meaning of such term under
the Investment Company Act of 1940 and the rules and regulations of
the Commission thereunder. (m) For a period of five years from the
Effective Date of the Registration Statement, the Representative shall
have the right to designate one person as a member to the Board of
Directors of the Company, who shall be invited to and have the right
to attend every meeting of the Board of Directors together with the
right to vote. Such member will be reimbursed for expenses, including
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travel, and receive compensation in the same amount as any other
member of the Board of Directors and will be indemnified by the
Company against any claims arising out of his participation at
meetings of the Board of Directors. During such period, the Company
will hold at least four meetings per year of its Board of Directors.
(n) Until such time as the securities of the Company are listed on the
New York Stock Exchange or the American Stock Exchange (not including
The Emerging Growth Company List) but in no event more than three
years from the Effective Date, the Company shall retain a company
reasonably acceptable to the Representative, to prepare a post
registration blue sky market survey for the Representative for
distribution to market makers. Such survey shall be provided to the
Representative monthly with the first survey delivered to it as soon
as practicable after the completion of the public offering. The cost
of the first year's survey will not exceed $5,000. In lieu of the
foregoing, the Company may cause its legal counsel to provide the
Representative with a survey to be updated at least monthly. (o) The
Company will use its best efforts to obtain liability insurance at
reasonable costs insuring its directors and officers against any
liabilities asserted against them in connection with the preparation
for and the closing of the public offering which is the subject of
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this Agreement and the initial public offering which transpired in
July 1996. (p) The Company, for a period of at least three years
following the public offering, shall retain the services of a
financial public relations firm(s) reasonably satisfactory to the
Representative, said agreement(s) to commence no later than 90 days
after the Closing of the public offering. During this time period, the
Company and its officers and directors will not hold discussions with
any member of the news media, issue news releases or permit other
publicity about the Company concerning financial information or the
occurrence of material events without the approval of the Company's
counsel and for the period from the date hereof and ending at the end
of the period for which a prospectus must be delivered, the Company
will obtain the approval of the Underwriters' counsel concerning all
of the above matters. During such period, the Company will deliver to
the Representative all press releases in advance to your Investment
Banking Department (Attention: Thomas McDermott) and once released,
final copies of such news releases or other publicity, in any medium,
related to the Company will be delivered to you.
6. Expenses. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
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that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statements and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statements as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus, all as provided in
this Agreement; (d) the costs of reproducing and distributing this Agreement;
(e) the costs of distributing the terms of agreement relating to the
organization of the underwriting syndicate and selling group to the members
thereof by mail, telex or other means of communication; (f) the costs of
delivering and distributing the Custody Agreements and the Powers of Attorney,
if any; (g) the filing fees incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of sale of the
Stock; (h) the fees and expenses of qualifying the Stock under the securities
laws of the several jurisdictions as provided in Section 5(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters) (i) the expense of placing one or more
"tombstone" advertisements or promotional materials as directed by you
(provided, however, that the aggregate amount thereof shall not exceed $20,000)
and of offering memorabilia; (j) all costs and expenses associated with due
diligence meetings and presentations (including the payment for road show
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conference centers). Further, the Company shall be responsible for all legal
fees and expenses incurred with regard to the post registration Blue Sky Market
Survey and qualification process; and (i) all other costs and expenses incident
to the performance of the obligations of the Company.
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 Stock, of which $50,000 has been paid and the balance of which
shall be payable at the First Delivery Date provided, however, that in the event
that no First Delivery Date 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 $50,000 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 Ninety (90%) to Global and
ten percent (10%) to Suncoast Capital Corp., the Co-Manager.
7. Conditions of Underwriters' Obligations. The respective obligations of
the Underwriters hereunder are subject to the accuracy, when made and on each
Delivery Date, of the representations and warranties of the Company contained
herein, to the performance by the Company its respective obligations hereunder,
and to each of the following additional terms and conditions:
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(a) The Rule 462(b) Registration Statement, if any, and the Prospectus
shall have been timely filed with the Commission in accordance with
Section 6(a); no stop order suspending the effectiveness of either of
the Registration Statements or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and any request of the Commission for
inclusion of additional information in either of the Registration
Statements or the Prospectus or otherwise shall have been complied
with.
(b) No Underwriter shall have discovered and disclosed to the Company on
or prior to such Delivery Date that the Registration Statement either
of the Registration Statements or the Prospectus or any amendment or
supplement thereto contains any untrue statement of a fact which, in
the opinion of counsel for the Underwriters, is material or omits to
state any 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.
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(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Custody
Agreements, the Powers of Attorney, the Stock, the Registration
Statements and the Prospectus, and all other legal matters relating to
this Agreement and the transactions contemplated hereby shall be
reasonably satisfactory in all respects to counsel for the
Underwriters and the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable
them to pass upon such matters. (d) Gary A. Agron, Esq. shall have
furnished to the Representative his written opinion, as counsel to the
Company, addressed to the Underwriters and dated such Delivery Date,
in form and substance satisfactory to the Representative, to the
effect that:
(i) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good
standing as foreign corporations in each jurisdiction in which
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their respective ownership or lease of property or the conduct of
their respective businesses requires such qualification, and have
all power and authority necessary to own or hold their respective
properties and conduct the businesses in which they are engaged;
(ii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the
Company (including the shares of Stock being delivered on such
Delivery Date) have been duly and validly authorized and issued,
are fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; and all of the issued shares
of capital stock of each subsidiary of the Company have been duly
and validly authorized and issued and are fully paid,
non-assessable and (except for directors' qualifying shares) are
owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims;
(iii)There are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any
shares of the Stock pursuant to the Company's charter or by-laws
or any agreement or other instrument known to such counsel;
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(iv) The Company and each of its subsidiaries have good and marketable
title in fee simple to all real property owned by them, in each
case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as do not
materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries; and all real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material and
do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(v) To the best of such counsel's knowledge, there are no legal or
governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property or asset of
the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries,
might have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations,
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business or prospects of the Company and its subsidiaries; and,
to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others;
(vi) The Primary Registration Statement was declared effective under
the Securities Act as of the date and time specified in such
opinion, the Rule 462(b) Registration Statement, if any, was
filed with the Commission on the date specified therein, the
Prospectus was filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and Regulations
specified in such opinion on the date specified therein and no
stop order suspending the effectiveness of either of the
Registration Statements has been issued and, to the knowledge of
such counsel, no proceeding for that purpose is pending or
threatened by the Commission;
(vii)The Registration Statements, as of their respective Effective
Dates, and the Prospectus, as of its date, and any further
amendments or supplements thereto, as of their respective dates,
make by the Company prior to such Delivery Date (other than the
financial statements and other financial data contained therein,
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as to which such counsel need express no opinion) complied as to
form in all material respects with the requirements of the
Securities Act and the Rules and Regulations;
(viii) To the best of such counsel's knowledge, there are no contracts
or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statements by
the Securities Act or by the Rules and Regulations which have not
been described or filed as exhibits to the Registration
Statements or incorporated therein by reference as permitted by
the Rules and Regulations;
(ix) This Agreement has been duly authorized, executed and delivered
by the Company;
(x) The issue and sale of the shares of Stock being delivered on such
Delivery Date by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation
of the transactions contemplated hereby will not conflict with or
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, loan agreement or other agreement or instrument known
to such counsel to which the Company or any of its subsidiaries
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is a party or by which the Company or any of its subsidiaries is
bound or to which any of the properties or assets of the Company
or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or
by-laws of the Company or any of its subsidiaries or any statute
or any 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 subsidiaries or any of their properties or
assets; and, except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Exchange Act and applicable state securities laws in connection
with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and
performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby; and
(xi) To the best of such counsel's knowledge, there are no contracts,
agreements or understandings between the Company and any person
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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.
In rendering such opinion, such counsel may (i) state that their opinion is
limited to matters governed by the Federal laws of the United States of America,
the laws of the State of New York and the General Corporation Law of the State
of Texas and that such counsel is not admitted in the State of Texas and (ii) in
giving the opinion referred to in Section 9(d)(iv), state that no examination of
record titles for the purpose of such opinion has been made, and that they are
relying upon a general review of the titles of the Company and its subsidiaries,
upon opinions of local counsel and abstracts, reports and policies of title
companies rendered or issued at or subsequent to the time of acquisition of such
property by the Company or its subsidiaries, upon opinions of counsel to the
lessors of such property and, in respect of matters of fact, upon certificates
or officers of the Company or its subsidiaries, provided that such counsel shall
state that they believe that both the Underwriters and they are justified in
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relying upon such opinions, abstracts, reports, policies and certificates. Such
counsel shall also have furnished to the Representative a written statement,
addressed to the Underwriters and dated such Delivery Date, in form and
substance satisfactory to the Representative, to the effect that (x) such
counsel has acted as counsel to the Company on a regular basis (although the
Company is also represented by its General Counsel, has acted as counsel to the
Company in connection with previous financing transactions and has acted as
counsel to the Company in connection with the preparation of the Registration
Statements, and (y) based on the foregoing, no facts have come to the attention
of such counsel which lead them to believe that the Registration Statements, as
of their respective Effective Dates, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading, or
that the Prospectus contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in order to
make the statement therein, in light of the circumstances under which they were
made, not misleading. The foregoing opinion and statement may be qualified by a
statement to the effect that such counsel does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statements or the Prospectus except for that statements made in the
Prospectus under the caption, "Description of Preferred Stock", insofar as such
statements relate to the Stock and concern legal matters.
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(e) At the time this Agreement is executed, and on the First and Second
Delivery Dates you shall have received letters from Akin, Doherty, Klein &
Ferge, P.C. independent public accountants for the Company addressed to
you, as Representative of the Underwriters, and dated, respectively, as of
the date of this Agreement and as of the First or Second Delivery Date, in
form and substance satisfactory to the Representative, to the effect that:
(i) They are independent public accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and
Regulations of the Commission thereunder;
(ii) Stating that in their opinion, the financial statements and schedules
of the Company included in the Registration Statement and Prospectus
and covered by their report therein comply as to form in all material
respects with the applicable accounting requirements of the Act and
the 1934 Act and the applicable published Rules and Regulations of the
Commission issued thereunder;
(iii)On the basis of the procedures (but not an audit made in accordance
with generally accepted auditing standards) (1) consisting of a
reading of the latest available interim financial statements of the
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Company (a copy of which shall be attached to such letter), (2) a
reading of the minutes of meetings and consents of the stockholders
and the Board of Directors of the Company and the Committees of such
boards subsequent to the date of the most recent audited balance sheet
of the Company and included in the Registration Statement and the
Prospectus, as set forth in the minute books of the Company, (3)
inquiries of officers and other employees of the Company responsible
for financial and accounting matters of the Company, with respect to
transactions and events subsequent to the date of the most recent
audited balance sheet of the Company included in the Registration
Statement and the Prospectus, and other specified procedures and
inquiries to a date not more than five days prior to the date of such
letter, nothing has come to their attention that would cause them to
believe that (a) the unaudited financial statements and schedules of
the Company included in the Registration Statement and Prospectus do
not comply as to form in all material respects with the applicable
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accounting requirements of the Act and the Exchange Act and the
applicable published Rules and Regulations of the Commission
thereunder, or that such unaudited financial statements are not fully
presented in accordance with generally accepted accounting principles
except to the extent that certain footnote disclosures have been
omitted in accordance with applicable rules of the Commission under
the Exchange Act applied on a basis substantially consistent with that
Statement and the Prospectus; (b) with respect to the period
subsequent to the date of the most recent balance sheet of the Company
included in the Registration Statement and the Prospectus, there were,
as of the date of the most recent available monthly financial
statements of the Company and its subsidiaries, if any, and as of a
specified date not more than five days prior to the date of such
letter, any changes in the capital or long-term indebtedness of the
Company or any decrease in the net current assets or increase in
shareholders' deficit of the Company, in each case as compared with
the amounts shown in the most recent balance sheet included in the
Registration Statement and the Prospectus, except for changes, or
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decreases or increases that the Registration Statement and the
Prospectus disclose have occurred or may occur or which are set forth
in such letter; or (c) that during the period from the date following
the date of the most recent balance sheet of the Company and its
subsidiaries included in the Registration Statement and the Prospectus
to the Date of the most recent available monthly financial statements
of the Company, if any, and to a specified date not more than five
days prior to the date of such letter, there was any decrease, as
compared with the corresponding period in the prior fiscal year, in
total revenues, or total or per share net income, except for decreases
which the Registration Statement and the Prospectus disclose have
occurred or may occur or which are set forth in such letter and (d)
stating percentages of revenues and earnings, and other financial
information pertaining to the Company set forth in the Registration
Statement and the Prospectus, which have been specified by you prior
to the date of this Agreement, to the extent that such amounts,
numbers, percentages and information may be derived from the general
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accounting and financial records of the Company or from schedules
furnished by the Company, and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate
procedures specified by you (which procedures do not constitute an
audit in accordance with generally accepted auditing standards) set
forth in such letter, and found them to be in agreement.
(iv) In addition to the examination referred to in their reports included
in the Registration Statement and the Prospectus and the limited
procedures referred to in clause (iii) above, they have carried out
certain specified procedures, not constituting an audit, with respect
to certain amounts, percentages and financial information which are
under the captions "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Management-Executive
Compensation," "Certain Transactions," "Selected Financial Data,"
"Dilution," and "Risk Factors, " as well as such other financial
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information as may be specified by the Representative, and that they
have compared such amounts, percentages and financial information with
the accounting records of the Company and have found them to be in
agreement.
(f) The Company and the Representative shall be in compliance with an agreement
(the "Financial Consulting Agreement") retaining the Representative to act
as a management and financial consultant to the Company for a one-year
period commencing as of November 1996. The Company has agreed to pay to the
Representative for such consulting services a fee of $75,000 of which
$50,000 has been paid.
(g) The Company shall have furnished to the Representative a certificate, dated
such Delivery Date, of its Chairman of the Board, its President or a Vice
President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the Company in
Section 1 are true and correct as of such Delivery date; the Company
has complied with all its agreements contained herein; and the
conditions set forth in Sections 9(a) and 9(i) have been fulfilled;
and
(ii) They have carefully examined the Registration Statements and the
Prospectus and, in their opinion (A) the Registration Statements, as
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of their respective Effective Dates, and the Prospectus, as of each of
the Effective Dates, did not include any untrue statement of a
material fact and did not omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and (B) since the Effective Date of the Primary
Registration Statement, no event has occurred which should have been
set forth in a supplement or amendment to either of the Registration
Statements or the Prospectus.
(h) Neither the Company nor any of its subsidiaries shall have sustained since
the date of the latest audited financial statements included in the
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus or (ii) since such date
there shall not have been any change in the capital stock or long-term debt
of the Company or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
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management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is, in the judgment of the Representative,
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Stock being
delivered on such Delivery Date on the terms and in the manner contemplated
in the Prospectus. (i) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following: (i) trading
in securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by such
exchange or by any other regulatory body or governmental authority having
jurisdiction, (ii) a banking moratorium shall have been declared by Federal
or state authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
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emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States) which has a material and adverse effect on
the securities markets generally as to make it, in the judgment of a
majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance satisfactory to
counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Underwriter, its
officers and employees and each person, if any, who controls any
Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of Stock), to which
that Underwriter, officer, employee or controlling person may become
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subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
(A) in any Preliminary Prospectus, either of the Registration Statements or
the Prospectus, or in any amendment or supplement thereto, or (B) in any
blue sky application or other documents prepared or executed by the Company
(or based upon any written information furnished by the Company)
specifically for the purpose of qualifying any or all of the Stock under
the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any
Preliminary Prospectus, either of the Registration Statements or the
Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to
make the statements therein not misleading or (iii) any act or failure to
act, or any alleged act or failure to act, by an Underwriter in connection
with, or relating in any manner to, the Stock or the offering contemplated
hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon matters covered by
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clause (i) or (ii) above, and shall reimburse each Underwriter and each
such officer, employee and controlling person promptly upon demand for any
legal or other expenses reasonably incurred by that Underwriter, officer,
employee or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that
the Company and the Principal Stockholder shall 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, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any such
amendment or supplement, or in any Blue Sky Application in reliance upon
and in conformity with written information furnished to the Company through
the Representative by or on behalf of any Underwriter specifically for
inclusion therein; and provided further that the Company shall not be
liable in the case of any matter covered by clause (iii) above to the
extent that it is determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or action resulted
directly from any such act or failure to act undertaken or omitted to be
taken by such Underwriter through its gross negligence or wilful
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misconduct. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Underwriter or to any
officer,employee or controlling person of that Underwriter. (c) Each
Underwriter, severally and not jointly, shall indemnify and hold harmless
the Company, its officers and employees, each of its directors and each
person, if any, who controls the Company within the meaning of the
Securities 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 Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in
any Preliminary Prospectus, either of the Registration Statements or the
Prospectus, or in any amendment or supplement thereto, or (B) in any Blue
Sky Application or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, either of the Registration Statements or the
Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to
make the statements therein not misleading, but in each case only to the
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extent that the 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 or on
behalf of that Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling person
for any legal or other expenses reasonably incurred by the Company or any
such director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company or any such director, officer
or controlling person.
(d) Promptly after receipt by an indemnified party under this Section 10 of
notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under this
Section 10 except to the extent it has been materially prejudiced by such
failure and, provided further, that the failure to notify the indemnifying
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party shall not relieve it from any liability which it may have to an
indemnified party otherwise than under this Section 10. If any such claim
or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall
not be liable to the indemnified party under this Section 10 for any legal
or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that the Representative shall have the
right to employ counsel to represent jointly the Representative and those
other Underwriters and their respective officers, employees and controlling
persons who may be subject to liability arising out of any claim in respect
of which indemnity may be sought by the Underwriters against the Company
under this Section 10 if, in the reasonable judgment of the Representative,
it is advisable for the Representative and those Underwriters, officers,
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employees and controlling persons to be jointly represented by separate
counsel, and in that event the fees and expenses of such separate counsel
shall be paid by the Company. Each indemnified party, as a condition of the
indemnity agreements contained in Sections 10(a), 10(b) and 10(c), shall
use its best efforts to cooperate with the indemnifying party in the
defense of any such action or claim. No indemnifying party shall (i)
without the prior written consent of the indemnified withheld), settle or
compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its
written consent or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless
any indemnified party from and against any loss of liability by reason of
such settlement or judgment.
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(e) If the indemnification provided for in this Section 10 shall for any reason
be unavailable to or insufficient to hold harmless an indemnified party
under Section 10(a), 10(b) or 10(c) in respect to any loss, claim, damage
or liability, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate
to reflect the relative benefits received by the Company on the one hand
and the Underwriters on the other from the offering of the Stock or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) about but also the relative fault of the
Company on the one hand and the Underwriters on the other with respect to
the statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other with respect to such
offering shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Stock purchased under this Agreement
-53-
<PAGE>
(before deducting expenses) received by the Company on the one hand, and
the total underwriting discounts and commissions received by the
Underwriters with respect to the shares of the Stock purchased under this
Agreement, on the other hand, bear to the total gross proceeds from the
offering of the shares of the Stock under this Agreement in each case as
set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Underwriters, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 10(e) were to
be determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which
does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to above
in this Section 10(e) shall be deemed to include, for purposes of this
-54-
<PAGE>
Section 10(e), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 10(e), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Stock underwritten by it and
distributed to the public was offered to the public exceeds the amount of
any damages which such Underwriter has otherwise paid or become liable to
pay by reason of any untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided
in this Section 10(e) are several in proportion to their respective
underwriting obligations and not joint.
(f) The Underwriters severally confirm that the statements with respect to the
public offering of the Stock set forth on the cover page of, and under the
caption "Underwriting" in, the Prospectus are correct and constitute the
only information furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statements and
the Prospectus.
-55-
<PAGE>
9. Defaulting Underwriters. If, on either Delivery Date, any Underwriter
defaults in the performance of its obligations under this Agreement, the
remaining non-defaulting Underwriters shall be obligated to purchase the Stock
which the defaulting Underwriter agreed but failed to purchase on such Delivery
Date in the respective proportions which the number of shares of the Firm Stock
set opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total number
of shares of the Stock which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total number of shares
of the Stock to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of the Stock which it agreed to purchase on such Delivery
Date pursuant to the terms of Section 3. If the foregoing maximums are exceeded,
the remaining non-defaulting Underwriters, or those other underwriters
satisfactory to the Representative who so agree, shall have the right, but shall
not be obligated, to purchase, in such proportion as may be agreed upon among
them, all the Stock to be purchased on such Delivery Date. If the remaining
Underwriters or other underwriters satisfactory to the Representative do not
elect to
-56-
<PAGE>
purchase the shares which the defaulting Underwriter or Underwriters agreed but
failed to purchase on such Delivery date, this Agreement (or, with respect to
the Second Delivery Date, the obligation of the Underwriters to purchase, and of
the Company to sell, the Option Stock) shall terminate without liability on the
part of any non-defaulting Underwriter or the Company except that the Company
will continue to be liable for the payment of expenses to the extent set forth
in Section 6 and 11. As used in this Agreement, the term "Underwriter" includes,
for all purposes of this Agreement unless the content requires otherwise, any
party not listed in Schedule 1 hereto who, pursuant to this Section 11,
purchases Firm Stock which a defaulting Underwriter agreed but failed to
purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If other
underwriters are obligated or agree to purchase the Stock of a defaulting or
withdrawing Underwriter, either the Representative or the Company may postpone
the First Delivery Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statement, the Prospectus or
in any other document or arrangement.
10. Termination. The obligations of the Underwriters hereunder may be
terminated by the Representative by notice given to and received by the Company
-57-
<PAGE>
prior to delivery of and payment for the Firm Stock if, prior to that time, any
of the events described in Sections 7(h) or 9(i) shall have occurred or if the
Underwriters shall decline to purchase the Stock for any reason permitted under
this Agreement.
11. Reimbursement of Underwriters' Expenses. If (a) the Company shall fail
to tender the Stock for delivery to the Underwriters for any reason permitted
under this Agreement, or (b) the Underwriters shall decline to purchase the
Stock for any reasons permitted under this Agreement (including the termination
of this Agreement pursuant to Section 10), the Company shall reimburse the
Underwriters for the fees and expenses of their counsel and for such other
out-of-pocket expenses as shall have been incurred by them in connection with
this Agreement and the proposed purchase of the Stock, and upon demand the
Company shall pay the full amount thereof to the Representative. If this
Agreement is terminated pursuant to Section 9 by reason of the default of one or
more Underwriters, the Company shall not be obligated to reimburse any
defaulting Underwriter on account of those expenses.
12. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission to Global Equities Group, Inc., Five Hanover Square,
New York, New York 10004, Attention: Alexander Shvartz and Thomas
McDermott;
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<PAGE>
(b) if to the Company, shall be delivered or sent by mail, telex or facsimile
transmission to the address of the Company set forth in the Primary
Registration Statement, Attention: William Gallager, Chairman and Chief
Executive Officer; provided, however, that any notice to an Underwriter
pursuant to Section 8(d) shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
acceptance telex to the Representative, which address will be supplied to
any other party hereto by the Representative upon request. Any such
statements, requests, notices or agreements shall take effect at the time
of receipt thereof. The Company shall be entitled to act and rely upon any
request, consent, notice or agreement given or made on behalf of the
Underwriters by the Representative.
13. Persons Entitled to Benefit of Agreement. This Agreement shall inure to
the benefit of and be binding upon the Underwriters, the Company and their
respective personal representatives and successors. This Agreement and the terms
and provisions hereof are for the sole benefit of only those persons, except
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<PAGE>
that (A) the representations, warranties, indemnities and agreements of the
Company contained in this Agreement shall also be deemed to be for the benefit
of the officers and employees of each Underwriter and the person or persons, if
any, who control each Underwriter within the meaning of Section 15 of the
Securities Act and (B) the indemnity agreement of the Underwriters contained in
Section 8(c) of this Agreement shall be deemed to be for the benefit of
directors, officers and employees of the Company and any person controlling the
Company within the meaning of Section 15 of the Securities Act. Nothing in this
Agreement is intended or shall be construed to given any person, other than the
persons referred to in this Section 15, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
14. Survival. The respective indemnities, representations, warrants and
agreements of the Company and the Underwriters contained in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
survive the delivery of and payment for the Stock and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of them
or any person controlling any of them.
15. Definition of the Terms "Business Day" and "Subsidiary". For purposes
of this Agreement, (a) "business day" means any day on which the NASDAQ Stock
Market is open for trading and (b) "subsidiary" has the meaning set forth in
Rule 405 of the Rules and Regulations.
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<PAGE>
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
17. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for convenience of reference
only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement between the Company and
the Underwriters, please indicate your acceptance in the space provided for the
purpose below.
Very truly yours,
CLUCKCORP INTERNATIONAL, INC.
By_____________________________
President
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<PAGE>
Accepted:
GLOBAL EQUITIES GROUP, INC.
By_____________________________
Michael Christ, President
For itself and as Representative
of the several Underwriters named
in Schedule 1 hereto
-62-
<PAGE>
SCHEDULE 1
Shares of
Underwriters Preferred Stock Number of Warrants
Global Equities
Group, Inc.
Co-Manager................
Suncoast Capital
Corp......................
Total 500,000 $1,500,000
-63-
<PAGE>
EXHIBIT 1.23
SELLING GROUP AGREEMENT
500,000 Shares of Convertible Redeemable Preferred Stock
$10.00 per share
and
1,500,000 Redeemable Preferred Stock Purchase Warrants
May__, 1997
Global Equities Group, Inc.
As the Lead Managing Underwriter
and the Representative of the Underwriters,
5 Hanover Square
New York, New York 10004
Dear Sirs:
We acknowledge receipt of the Prospectus dated Mayo , 1997
(hereinafter called the "Prospectus") relating to the offering of 500,000 shares
of $1.00 par value Series A Redeemable Convertible Preferred Stock (the
"Preferred Stock") at $10.00 per share and 1,500,000 Redeemable Preferred Stock
Purchase Warrants (the "Warrants") of CluckCorp International, Inc. (hereinafter
called the "Company").
We understand that the Underwriters are offering, through you, certain of
the Preferred Stock for sale to certain securities dealers at the public
offering price of $10.00 per share of Preferred Stock and $.10 per Warrant less
a concession of $1.00 per share of Preferred Stock and that any Underwriter may
allow, and dealers may reallow, a concession not in excess of $ . o per share of
Preferred Stock and $. per warrant to other Underwriters or to other dealers who
enter into an agreement in this form.
We hereby agree with you as follows with respect to any purchase of the
Preferred Stock and the Warrants from you or from any other Underwriter or from
any other dealer at a concession from the public offering price.The Preferred
Stock and Warrants are hereinafater collectively referred to as the
"Securities."
In purchasing the Securities, we will rely only on the Prospectus and no
other statements whatsoever, written or oral.
1. Offering and Trading Provisions. The Securities purchased by us at a
concession from the public offering price shall be promptly offered to the
public upon the terms set forth in the Prospectus or for sale at a concession
not in excess of $.o per share of Preferred Stock and $.___per Warrant to any
other member of the National Association of Securities Stock Dealers, Inc.
(hereinafter called the "NASD") who enters into an agreement with you in this
<PAGE>
Global Equities
May 13, 1997
Page -2-
form or to foreign banks or dealers not eligible for membership in the NASD who
(i) agree that they will make no sales of the Preferred Stock within the United
States, its territories its possessions, or to persons who are citizens thereof
or resident therein, (ii) 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 Rules of Fair Practice as though they were such a
member and Section 25 of such Article as it applies to a non-member broker or
dealer in a foreign country and (iii) enter into an agreement with you in this
form.
Except as permitted by you, we will not at any time prior to the completion
by us of distribution of Securities acquired by us pursuant to this Agreement,
bid for, purchase or sell, directly or indirectly, any Securities other than (i)
as provided for in this Agreement, the Agreement Among Underwriters or the
Underwriting Agreement relating to the Securities or (ii) 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 Regulation M of the Securities and Exchange Commission applicable
to this offering.
We agree to advise you from time to time upon request, prior to the
termination of this Agreement, of the number of Securities remaining unsold
which were purchased by us from you or from any other Underwriter or dealer at a
concession from the public offering price and, on your request, we will resell
to you any such Securities remaining unsold at the purchase price thereof if, in
your opinion, such Securities are needed to make delivery against sales made to
others.
We agree that without your consent we will not sell to any account over
which we exercise discretionary authority any of the Securities which we
purchase and which are subject to the terms of this Agreement.
If prior to the termination of this Agreement you purchase or contract to
purchase any Securities which were purchased by us from you or from any other
Underwriter or dealer at a concession from the public offering price (including
any Securities represented by certificates which may have been issued on
transfer or in exchange for certificates originally representing such
Securities), 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
<PAGE>
Global Equities
May 13, 1997
Page -3-
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.
2. Delivery and Payment. If we purchase any Securities from you hereunder,
we agree that such purchases will be evidenced by your written confirmation and
will be subject to the terms and conditions set forth in the confirmation and in
the Prospectus.
Securities purchased by us from you hereunder shall be paid for in full at
the public offering price stated above, or, if you shall so advise us, at such
price less the applicable concession, at the office of Global Equities Group,
Inc., 5 Hanover Square, New York, New York 10004, at such time and on such day
as you may advise us, by certified or official bank check payable in New York
Clearing House funds to the order of Global Equities Group, Inc. against
delivery of the Securities. If we are called upon to pay the public offering
price of the Securities purchased by us, the applicable concession will be paid
to us, less any amounts charged to our account pursuant to Article 1 above,
after termination of this Agreement.
3. Termination. You will advise us of the date and time of termination of
this Agreement or of any designated provisions hereof. This Agreement shall in
any event terminate 30 business days after the date of the initial public
offering of the Securities unless sooner terminated by you.
4. Representation and Liability of Dealers and Underwriters. We represent
that we are a member in good standing with the NASD or that we are a foreign
bank or dealer not eligible for membership in the NASD which agrees to make no
sales of Securities within the United States, its territories or its
possessions, or to persons who are citizens thereof or resident therein. In
making sales of Securities, if we are such a member of the NASD, 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's Rules of Fair Practice, or, if we are such a
foreign bank or dealer, we agree to comply with such Interpretation, Sections 8,
24, and 36 of such Article as though we are such a member and Section 25 of such
Article as it applies to a non-member broker or dealer in a foreign country.
<PAGE>
Global Equities May 13, 1997 Page -4- We will not give any information or
make any representations other than those contained in the Prospectus, or act as
agent for the Company or any Underwriter.
We agree that you, as Representative of the Underwriters, have full
authority to take such action as may seem advisable to you in respect to all
matters pertaining to the offering of the Securities. Neither you, as
Representative of the several Underwriters, nor any of the other Underwriters
shall be under any liability to us for any act or omission, except for
obligations expressly assumed in this Agreement.
All communications to you relating to the subject matter of this Agreement
shall be addressed to Global Equities Group, Inc., 5 Hanover Square, New York,
New York 10004, and any notices to us shall be deemed to have been duly given if
mailed or telegraphed to us at the address shown below.
5. Blue Sky Matters. Neither you, as Representative of the several
Underwriters, nor any of the other Underwriters will have any responsibility
with respect to the right of any dealer to sell the Securities in any
jurisdiction, notwithstanding any information you may furnish in that
connection.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
Very truly yours,
---------------------------
---------------------------
---------------------------
(Address)
By_________________________
Authorized Signatory
Date______________
<PAGE>
EXHIBIT 1.24
CLUCKCORP INTERNATIONAL, INC.
AND
GLOBAL EQUITIES GROUP, INC.
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated as of ___, 1997
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of , 1997 between CLUCKCORP
INTERNATIONAL, INC., a Texas corporation (the "Company"), and GLOBAL EQUITIES
GROUP, INC. (hereinafter referred to variously as the "Holder" or the
"Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative warrants
("Warrants") to purchase up to 50,000 shares of the Company's Series A
Redeemable Convertible Preferred Stock, (the "Preferred Stock") and 150,000
Redeemable Class A Preferred Stock Purchase Warrants (the "Redeemable Warrants")
of the Company; and WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Company and the several Underwriters listed therein to act as
the Representative in connection with the Company's proposed public offering of
up to 500,000 shares of Preferred Stock at a public offering price of $10.00 per
share and 1,500,000 Warrants at a public offering price of $.10 per Warrant (the
"Public Offering"); and WHEREAS, the Warrants to be issued pursuant to this
Agreement will be issued on the First Delivery Date (as such term is defined in
the Underwriting Agreement) by the Company to the Representative in
consideration for, and as part of the Representative's compensation in
connection with, the Representative acting as the Representative pursuant to the
Underwriting Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of an aggregate ten dollars ($10.00), the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
1. Grant. The Representative (or its designees) is hereby granted the right
to purchase, at any time from , 1998, until 5:30 P.M., New York time, on , 2002,
up to an aggregate of 50,000 shares of Preferred Stock at an initial exercise
price (subject to adjustment as provided in Section 8 hereof) of $13.00 per
share and 150,000 Redeemable Warrants at an initial exercise price, subject
to adjustment, of $.13 per Warrant. Each Redeemable Warrant is exercisable to
purchase one addition share of Preferred Stock at an initial exercise price of
$10.50 from _________, 1998 until 5:30 p.m. New York time on _____________,
2002, at which time the Redeemable Warrants shall expire. Except as set forth
herein, the shares of Preferred Stock and the Redeemable Warrants issuable upon
exercise of the Warrants are in all respects identical to the shares of
Preferred Stock and Redeemable Warrants being purchased by the Underwriters for
resale to the public pursuant to the terms and provisions of the Underwriting
Agreement. The shares of Preferred Stock and the Redeemable Warrants issuable
upon exercise of the Warrants are sometimes hereinafter referred to collectively
as the "Securities."
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3
<PAGE>
3. Exercise of Warrant. Section 3.1 Method of Exercise. The Warrants
initially are exercisable at the respective initial exercise price (subject to
adjustment as provided in Section 8 hereof) per share of Preferred Stock and
Redeemable Warrants set forth in Section 6 hereof payable by certified or
official bank check in New York Clearing House funds, subject to adjustment as
provided in Section 8 hereof. Upon surrender of a Warrant Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Securities purchased at the
Company's principal executive offices in San Antonio, Texas (presently located
at 1250 N.E. Loop 410, Suite 335, San Antonio, Texas 78209) the registered
holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to
receive a certificate or certificates for the shares of Preferred Stock
purchased and a certificate or certificates for the Redeemable Warrants
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional shares of the Preferred Stock and Redeemable Warrants underlying
the Warrants). Warrants may be exercised to purchase all or part of the
Securities. In the case of the purchase of less than all the Securities
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the Securities.
4
<PAGE>
Section 3.2 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be (i) when referring to the Preferred
Stock, the last reported sale price, or, in case no such reported sale takes
place on such day, the average of the last reported sale prices for the last
three (3) trading days, in either case as officially reported by the principal
securities exchange on which the Preferred Stock is listed or admitted to
trading or by the Nasdaq National Market ("Nasdaq/NM"), or, if the Preferred
Stock is not listed or admitted to trading on any national securities exchange
or quoted by the National Association of Securities Dealers Automated Quotation
System ("Nasdaq"), the average closing bid price as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar
organization if Nasdaq is no longer reporting such information, or if the
Preferred Stock is not quoted on Nasdaq, as determined in good faith (using
customary valuation methods) by resolution of the members of the Board of
Directors of the Company, based on the best information available it or (ii)
when referring to the Redeemable Warrant, the last reported sales price, or, in
the case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Redeemable
Warrants are listed or admitted to trading or by Nasdaq/NM, or, if the
Redeemable Warrants are not listed or admitted to trading on any national
securities exchange or quoted by Nasdaq, the average closing bid price as
furnished by the NASD through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Redeemable Warrants are not quoted
by Nasdaq or are no longer outstanding, the Market Price of a Redeemable Warrant
shall equal the difference between the market Price of the Preferred Stock and
the Exercise Price of the Redeemable Warrant.
5
<PAGE>
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Preferred Stock and/or Warrants and/or
other Securities, properties or rights underlying such Warrants shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holder thereof including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in
such names as may be directed by, the Holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificates
in a name other than that of the Holder, and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid. The Warrant Certificates and the certificates representing
the shares of Preferred Stock and Redeemable Warrants underlying the Warrants
(and/or other Securities, properties or rights issuable upon the exercise of the
Warrants ) shall be executed on behalf of the Company by the manual or facsimile
signature of the then Chairman or Vice Chairman of the Board of Directors or
President or Vice President of the Company. Warrant Certificates shall be dated
the date of execution by the Company upon initial issuance, division, exchange,
substitution or transfer. Certificates representing the shares of Preferred
Stock and Redeemable Warrants and the shares of Preferred Stock underlying each
Redeemable Warrant (and/or other Securities, properties or rights issuable upon
exercise of the Warrants) shall be dated as of the Notice Date (regardless of
when executed or delivered) and dividend bearing Securities so issued shall
accrue dividends from the date of issuance.
6
<PAGE>
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers of the Representative.
6. Exercise Price. Section 6.1 Initial and Adjusted Exercise Price. Except
as otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $13.00 per share of Preferred Stock and $0.13 per Redeemable
Warrant. The adjusted exercise price shall be the price which shall result from
time to time from any and all adjustments of the initial exercise price in
accordance with the provisions of Section 8 hereof. Any transfer of a Warrant
shall constitute an automatic transfer and assignment of the registration rights
set forth in Section 7 hereof with respect to the Securities or other
Securities, properties or rights underlying the Warrants. Section 6.2 Exercise
Price. The term "Exercise Price" herein shall mean the initial exercise price or
the adjusted exercise price, depending upon the context or unless otherwise
specified.
7. Registration Rights. Section 7.1 Registration Under the Securities Act
of 1933. The Warrants, the shares of Preferred Stock and any other Securities
issuable upon exercise of the Warrants have not been registered under the
Securities Act of 1933 as amended (the "Act"). Upon exercise, in whole or in
7
<PAGE>
part, of the Warrants, certificates representing the Preferred Stock underlying
the Warrants and any of the other Securities issuable upon exercise of the
Warrants (collectively, the "Warrant Securities") shall bear the following
legend.
The Securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"),
and may not be offered or sold except pursuant to (i) an
effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of Securities), or
(iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
Section 7.2 Piggyback Registration. If, at any time commencing after the
date hereof and expiring five (5) years thereafter, the Company proposes to
register any of its Securities under the Act (other than pursuant to Form S-4,
Form S-8 or a comparable registration statement) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Representative and to all other Holders of the
Warrants and/or the Warrant Securities of its intention to do so. If the
Representative or other Holders of the Warrants and/or Warrant Securities notify
the Company within twenty (20) business days after receipt of any such notice of
its or their desire to include any such Securities in such proposed registration
statement, the Company shall afford the Representative and such Holders of the
Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
Securities shall have been made) to elect
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not to file any such proposed registration statement, or to withdraw the same
after the filing but prior to the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing one year from the date hereof and expiring four
(4) years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such Securities (assuming
the exercise of all of the Warrants) shall have the right (which right is in
addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Representative and Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale of their respective Warrant
Securities for nine (9) consecutive months by such Holders and any other Holders
of the Warrants and/or Warrant Securities who notify the Company within ten (10)
days after receiving notice from the Company of such request, provided that the
holders of the Warrants and/or Warrant Securities have purchased the Warrant
Securities prior to any such registration statement being filed.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein, if the
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Company shall not have filed a registration statement for the Warrant Securities
within the time period specified in Section 7.4(a) hereof pursuant to the
written notice specified in Section 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Securities, the Company may, at its option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities requesting such registration, repurchase (i) any and all
Warrant Securities of such Holders at the higher of the Market Price per share
of Preferred Stock on (x) the date of the notice sent pursuant to Section 7.3(a)
or (y) the expiration of the period specified in Section 7.4(a) and (ii) any and
all Warrants of such Holders at such Market Price less the Exercise Price of
such Warrant. Such repurchase shall be in immediately available funds and shall
close within two (2) days after the later of (i) the expiration of the period
specified in Section 7.4(a) or (ii) the delivery of the written notice of
election specified in this Section 7.3(d).
Section 7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration statement
within sixty (60) days of receipt of any demand therefor, shall use its best
efforts to have any registration statements declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell Warrant Securities
such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3 hereof including, without limitation, the Company's legal
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<PAGE>
and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with Section 7.4(a), the Company shall, in addition
to any other equitable or other relief available to the Holder(s), be liable for
any and all incidental or special damages sustained by the Holder(s) requesting
registration of its or their Warrants and/or Warrant Securities.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant Securities to
be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify each of the Underwriters contained in Section 8 of the
Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
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if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in Section 8 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
(f) The Company shall not permit the inclusion of any Securities other than
the Warrant Securities to be included in any registration statement filed
pursuant to Section 7.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 7.3 hereof, without the prior written consent of the Holders
of the Warrants and Warrant Securities representing a Majority of such
Securities.
(g) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
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issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of Securities.
(h) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(i) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below and to the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
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(j) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Representative. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriter(s), and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter(s). The Holders shall be parties
to any underwriting agreement relating to an underwritten sale of their Warrant
Securities and may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such underwriter(s) shall also be made to and for the benefit of such
Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriter(s) except as
they may relate to such Holders and their intended methods of distribution.
(k) For purposes of this Agreement, the term "Majority" in reference to the
Holders of Warrants or Warrant Securities, shall mean in excess of fifty percent
(50%) of the then outstanding Warrants or Warrant Securities that (i) are not
held by the Company, an affiliate, officer, creditor, employee or agent thereof
or any of their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith and (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act.
8. Adjustments to Exercise Price and Number of Securities.
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Section 8.1 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Preferred Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
Section 8.2 Stock Dividends and Distributions. In case the Company shall
pay a dividend in, or make a distribution of, shares of Preferred Stock or of
the Company's capital stock convertible into Preferred Stock, the Exercise Price
shall forthwith be proportionately decreased. An adjustment made pursuant to
this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
Section 8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
Section 8.4 Definition of Preferred Stock. For the purpose of this
Agreement, the term "Preferred Stock" shall mean (i) the class of stock
designated as Series A Redeemable Convertible Preferred Stock in the Certificate
or Articles of Incorporation or (ii) any other class of stock resulting from
successive changes or reclassifications of such Preferred Stock consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value.
Section 8.5 Merger or Consolidation. In case of any consolidation of the
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Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Preferred Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of Securities of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
Section 8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment
of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the Warrant Securities
issuable upon the exercise of the Warrants;
(b) If the amount of said adjustment shall be less than two cents (2(cent))
per Warrant Security, provided, however, that in such case any adjustment that
would otherwise be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which,
together with any adjustment so carried forward, shall amount to at least two
cents (2(cent)) per Warrant Security.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
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Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Preferred Stock upon
the exercise of the Warrants, nor shall it be required to issue scrip or pay
cash in lieu of fractional interests, it being the intent of the parties that
all fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Preferred Stock or Redeemable Warrants or
other Securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Preferred Stock,
solely for the purpose of issuance upon the exercise of the Warrants and the
Redeemable Warrants, such number of shares of Preferred Stock or other
Securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Preferred Stock and the Redeemable
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Warrants and other Securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. The Company further covenants and agrees that upon
exercise of the Redeemable Warrants underlying the Warrants and payment of the
respective Redeemable Warrant exercise price therefor, all shares of Preferred
Stock and other Securities issuable upon such exercises shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Preferred Stock
issuable upon the exercise of the Warrants to be listed (subject to official
notice of issuance) on all securities exchanges on which the Preferred Stock
issued to the public in connection herewith may then be listed and/or quoted.
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur: (a) the Company shall take a record of the holders of its shares of
Preferred Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings or capital surplus
(in accordance with applicable law), as indicated by the accounting treatment of
such dividend or distribution on the books of the Company; or
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(b) the Company shall offer to all the holders of its Preferred Stock any
additional shares of capital stock of the Company or Securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or substantially all
of its property, assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable Securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable Securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Redeemable Warrants. The form of the certificate representing
redeemable warrants (and the form of election to purchase shares of preferred
stock upon the exercise of redeemable warrants and the form of assignment
printed on the reverse thereof) shall be substantially as set forth in Exhibit
"A" to the Warrant Agreement dated as of the date hereof by and between the
Company, and Corporate Stock
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Transfer, Inc. as warrant agent (the "Redeemable Warrant Agreement"). Each
Redeemable Warrant issuable upon exercise of the Warrants shall evidence the
right to initially purchase a fully paid and non-assessable share of Preferred
Stock at an initial purchase price of $10.50 from __________, 1998 until 5:30
p.m. New York time _____, 2002 at which time the Redeemable Warrants, unless the
exercise period has been extended shall expire. The exercise price of the
Redeemable Warrants and the number of shares of Preferred Stock issuable upon
the exercise of the Redeemable Warrants are subject to adjustment, whether or
not the Warrants have been exercised and the Redeemable Warrants have been
issued, in the manner and upon the occurrence of the event set forth in Section
of the Warrant Agreement, which is hereby incorporated herein by reference and
made a part hereof as if set forth in its entirety herein. Subject to the
provisions of this Agreement and upon issuance of the Redeemable Warrants
underlying the Warrants, each registered holder of such Redeemable Warrant shall
have the right to purchase from the Company (and the Company shall issue to such
registered holders) up to the number of fully paid and non-assessable shares of
Preferred Stock (subject to adjustment as provided herein and in the Warrant
Agreement), free and clear of all preemptive rights of stockholders, provided
that such registered holder complies with the terms governing exercise of the
Redeemable Warrant set forth in the Warrant Agreement, and pays the applicable
exercise price, determined in accordance with the terms of the Warrant
Agreement. Upon exercise of the Redeemable Warrants, the Company shall forthwith
issue to the registered holder of any such Redeemable Warrant in his name or in
such name as may be directed by him, certificates for the number of shares of
Preferred Stock so purchased. Except as otherwise provided in this Agreement,
the Warrants underlying the Warrants shall be governed in all respects by the
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terms of the Warrant Agreement. The Redeemable Warrants shall be transferrable
in the manner provided in the Warrant Agreement, and upon any such transfer, a
Redeemable Warrant Certificate shall be issued promptly to the transferee. The
Company covenants to, and agrees with, the Holder(s) that without the prior
written consent of the Holder(s), which will not be unreasonably withheld, the
Warrant Agreement will not be modified, amended, canceled, altered or
superseded, and that the Company will send to each Holder, irrespective of
whether or not the Warrants have been exercised, any and all notices required by
the Redeemable Warrant Agreement to be sent to holders of Redeemable Warrants.
14. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to the registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof or to
such other address as the Company may designate by notice to the Holders.
15. Supplements and Amendments. The Company and the Representative may from
time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Representative) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representative may deem necessary or desirable and which the Company and
the Representative deem shall not adversely affect the interests of the Holders
of Warrant Certificates.
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16. Successors. All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close of business on
, 2004. Notwithstanding the foregoing, the indemnification provisions of Section
7 shall survive such termination until the close of business on _________, 2010.
18. Governing Law; Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Representative and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representative and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the Representative
and the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
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set forth in Section 14 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company, the Representative and the Holders agree that
the prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
19. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement and the Warrant Agreement to the extent portions thereof
are referred to herein) contains the entire understanding between the parties
hereto with respect to the subject matter hereof and may not be modified or
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Representative and any other registered Holders of Warrant Certificates or
Warrant Securities.
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23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
CLUCKCORP INTERNATIONAL, INC.
By:_________________________________
Attest:
- ---------------------------------------
Name:
Title:
GLOBAL EQUITIES GROUP, INC.
By:_________________________________
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EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, , 2002
No. W- Warrants to Purchase
50,000 shares of
Preferred Stock and
150,000 Redeemable Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or registered assigns, is the
registered holder of Warrants to purchase initially, at any time from , 1998
until 5:30 p.m. New York time on , 2002 ("Expiration Date"), up to 50,000 shares
of Preferred Stock, $1.00 par value ("Preferred Stock"), of CLUCKCORP
INTERNATIONAL, INC., a Texas corporation (the "Company"), 150,000 Redeemable
Warrants of the Company (one Redeemable Warrant entitling the owner to purchase
one fully-paid and non-assessable share of Preferred Stock) at the initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $13.00 per share and $0.13 per Warrant upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the
Representative's Warrant Agreement dated as of _______________, 1997 between the
Company and GLOBAL EQUITIES GROUP, INC. (the "Warrant Agreement"). Payment of
the Exercise Price shall be made by certified or official bank check in New York
Clearing House funds payable to the order of the Company or by surrender of this
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Warrant Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
The Warrants may be exercised in whole or in part for shares of Preferred
Stock and/or Redeemable Warrants. Upon the exercise of less than all of the
Warrants evidenced by this Certificate, the Company shall forthwith issue to the
holder hereof a new Warrant Certificate representing such number of unexercised
Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
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All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ___________, 1997
CLUCKCORP INTERNATIONAL, INC.
By:_______________________________
A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
|_| Shares of Preferred Stock and
Redeemable Warrants
|-|
|-|
|-|
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House funds to the order of CLUCKCORP
INTERNATIONAL, INC. in the amount of $_______________all in accordance with the
terms of Section 3.1 of the Representative's Warrant Agreement dated as of
___________________, 1997 between Cluckcorp International, Inc. and Global
Equities Group, Inc. The undersigned requests that a certificate for such
securities be registered in the name of whose address is________________________
_____________ and that such Certificate be delivered to ____________________
whose address is .
Dated: Signature:
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
(Insert Social Security or Other Identifying Number of Assignee)
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
|_| Shares of Preferred Stock and
Redeemable Warrants
|-|
|-|
|-|
|-|
and herewith tenders in payment for such securities Warrants all in accordance
with the terms of Section 3.2 of the Representative's Warrant Agreement dated as
of ________________, 1997 between Cluckcorp International Inc. and Global
Equities Group, Inc. The undersigned requests that a certificate for such
securities be registered in the name of _________________ whose address is
_______________________________ and that such Certificate be delivered to whose
address is _________________________.
Dated: Signature:
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
(Insert Social Security or Other Identifying Number of Assignee)
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________ hereby sells, assigns and transfers
unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: Signature:
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
(Insert Social Security or Other Identifying Number of Assignee)
A-6
<PAGE>
EXHIBIT 1.25
CLUCKCORP INTERNATIONAL, INC.
500,000 Shares of Convertible Redeemable Securities
$10.00 per share
and
1,500,000 Redeemable Preferred Stock Purchase Warrants
AGREEMENT AMONG UNDERWRITERS
As of May___, 1997
Global Equities Group, Inc.
As Lead Managing Underwriter and
the Representative of the Underwriters
5 Hanover Square
New York, New York 10004
Attention: Thomas McDermott, Vice President
Investment Banking
Dear Sirs:
We hereby agree with you as follows with respect to (i) the purchase and
offering by Global Equities Group, Inc. as the lead managing underwriter and the
representative (the "Representative") and Suncoast Capital Corp. as the
co-managing underwriter ("Suncoast" and collectively with the Representative,
the "Underwriters") of an aggregate of 500,000 shares of $1.00 par value Series
A Redeemable Convertible Securities (the "Securities") at $10.00 per share and
1,500,000 Redeemable Class A Securities Purchase Warrants (the "Redeemable
Warrants") at a public offering price of $.10 per Warrant of CluckCorp
International, Inc. (the "Company"). The Preferred Stock and Warrants are
hereinafater collectively referred to as the "Securities".
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:
<PAGE>
Global Equities
May 13, 1997
2
(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.
(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 9 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 90 percent (90%) to Global and ten percent (10%) to Suncoast.
(c) In connection with the subject underwriting, the Representative will
receive Securities Purchase Warrants (the "Representative's Warrants") to
purchase up to fifty thousand (50,000) shares of Securities for $13.00 per share
and/or 150,000 Warrants at an initial exercise price, subject to adjustment, of
$.13 per warrant.
3. Authorization Under Underwriting Agreement. The Under- writing 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
<PAGE>
Global Equities
May 13, 1997
3
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:
(a) To postpone the Effective Date or the First Delivery 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 Underwriter) 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 number of shares of Securities as
the Underwriters may determine; provided, however, that such reservations and
<PAGE>
Global Equities
May 13, 1997
4
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 shares 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.
(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 shares of Securities are
released for public offering and of the number of shares of Securities sold or
reserved for sale for our account. We shall retain for direct sale any
<PAGE>
Global Equities
May 13, 1997
5
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.
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 Option Stock (as defined in the Underwriting Agreement) 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
<PAGE>
Global Equities
May 13, 1997
6
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
Securities 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 Regulation M of the Commission applicable to this offering.
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 portion of the 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
<PAGE>
Global Equities
May 13, 1997
7
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.
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
<PAGE>
Global Equities
May 13, 1997
8
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 8 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.
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.
<PAGE>
Global Equities
May 13, 1997
9
(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.
This agreement shall be governed by and construed in accordance with the
laws of the State of New York.
<PAGE>
Global Equities
May 13, 1997
10
This agreement is being executed by us and delivered to you in
duplicate.
Very truly yours,
Suncoast Capital Corp.
By____________________________
Authorized Signatory or
Attorney-In-Fact
Confirmed as of the date first above mentioned.
GLOBAL EQUITIES GROUP, INC.
As Lead Managing Underwriter and
the Representative of the Underwriters
named in Schedule I
By____________________________
<PAGE>
Global Equities
May 13, 1997
11
SCHEDULE I
Shares of Number of
Underwriters Securities Warrants
GLOBAL EQUITIES GROUP, INC. . . . . .
Suncoast Capital Corp.
Total . . . . . . . . . . . . . . . .
500,000 1,500,000
<PAGE>
EXHIBIT 5.03 for CLUCKCORP INTERNATIONAL, INC.
May 7, 1997
CluckCorp International, Inc.
1250 N.E. Loop 410, Suite 335
San Antonio, TX 78209
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We are counsel for CluckCorp International, Inc., a Texas corporation (the
"Company") in connection with its proposed public offering under the Securities
Act of 1933, as amended, of up to 575,000 shares of Convertible Redeemable
Preferred Stock (the "Preferred Stock") and 1,500,000 Preferred Stock Purchase
Warrants ("Warrants") through a Registration Statement on Form SB-2
("Registration Statement") as to which this opinion is a part, to be filed with
the Securities and Exchange Commission (the "Commission").
In connection with rendering our opinion as set forth below, we have
reviewed and examined originals or copies identified to our satisfaction of the
following:
(1) Articles of Incorporation, and amendments thereto, of the Company as
filed with the Secretary of State of the State of Texas.
(2) Corporate minutes containing the written deliberations and resolutions
of the Board of Directors and shareholders of the Company.
(3) The Registration Statement and the Preliminary Prospectus contained
within the Registration Statement.
(4) The other exhibits to the Registration Statement.
We have examined such other documents and records, instruments and
certificates of public officials, officers and representatives of the Company,
and have made such other investigations as we have deemed necessary or
appropriate under the circumstances.
<PAGE>
CluckCorp International, Inc.
May 7, 1997
Page 2
Based upon the foregoing and in reliance thereon, it is our opinion that
the Preferred Stock, any Common Stock issuable upon conversion of the Preferred
Stock and any Preferred Stock offered under the Registration Statement will,
upon the purchase, receipt of full payment, issuance and delivery in accordance
with the terms of the offering described in the Registration Statement, be fully
and validly authorized, legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus constituting a part thereof.
Very Truly Yours,
Gary A. Agron
<PAGE>
EXHIBIT 23.12
CONSENT 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 February 6, 1997, relating to the Financial Statements of CluckCorp
International, Inc. and to the references to our firm under the caption
"Experts" in the Prospectus.
Akin, Doherty, Klein & Feuge, P.C.
San Antonio, Texas
May 9, 1997
