As filed with the Securities and Exchange Commission on February __, 1997.
Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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.
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 $1,743
Common Stock, $.01
par value, underlying
Series A Redeemable
Convertible Preferred 1,725,000
Stock(2)(4) Shares $3.33 $5,744,250 $1,741
Series A Redeemable
Convertible Preferred
Stock Underlying
Representative's 50,000
Warrants(3) Shares $12.00 $ 600,000 $ 182
Common Stock, $.01
par value, underlying
Series A Redeemable
Convertible Preferred
Stock Underlying the
Representative's 150,000
Warrants(2)(4) Shares $3.33 $ 499,500 $ 152
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,597,568(4) $3,818(4)
</TABLE>
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<PAGE>
(1) Includes the overallotment option granted to the Representative to purchase
an additional 112,500 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 three shares 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) The exercise price of the Representative's Warrants is equal to 120% 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 and a presently
indeterminable number of shares of Common Stock that may be issued as dividends
on the Preferred Stock.
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)
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<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
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
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<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
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<PAGE>
Subject to Completion Preliminary Prospectus Dated __________, 1997
CLUCKCORP INTERNATIONAL, INC.
500,000 Shares of Convertible Redeemable Preferred Stock
$10.00 per share
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 through Global Equities Group,
Inc. as the lead managing underwriter and the representative ("Representative")
of the underwriters ("Underwriters") herein named and through __________ as the
co-managing underwriter ("Co-Manager").
The Preferred Stock is convertible at the option of the holder at any time
after one year 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. The Preferred Stock will automatically convert to Common Stock at the
Conversion Rate if the closing price for the Preferred Stock equals or exceeds
$15.00 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 one year from the date hereof. The
Preferred Stock may be redeemed in whole or in part, at the option of the
Company after two years 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 Market ("NASDAQ") for the 20 trading days prior to
the redemption date. Dividends on the Preferred Stock are cumulative, will
accrue and are payable at a quarterly rate of $_____ per share representing a
yield of between 12% and 15% per annum, to be fixed by further negotiations
between the Company and the Representative in cash or in the Company's Common
Stock at the sole discretion of the Company. See "Description of Securities."
On January 31, 1997, the closing sale price of the Common Stock on NASDAQ
was $6.25 per share. The Company has applied to have the Preferred Stock listed
on NASDAQ.
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.
<PAGE>
Price to Public Underwriting Proceeds to
Discounts(1)(3) Company(2)(3)
Per Share ............ $10.00 $1.00 $9.00
Total ................ $5,000,000 $500,000 $4,500,000
(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. The Company has agreed to issue Preferred Stock
purchase warrants (the "Representative's Warrants") to the Representative
to purchase 50,000 shares of Preferred Stock for $12.00 per share 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 $250,000,
together with the Representative's nonaccountable expense allowance of
$150,000.
(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 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 $5,750,000, $575,000 and $5,175,000, respectively. See
"Underwriting."
The Preferred Stock is 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 Preferred Stock will be made in New York, New York on or about
__________, 1997.
GLOBAL EQUITIES GROUP, INC.
The date of this Prospectus is __________, 1997
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<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.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ AND, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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<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, 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 and operates and intends to franchise quick service
restaurants featuring marinated wood-roasted rotisserie chicken, oak roasted
turkey breast, roast ham, meatloaf, an assortment of sandwiches and other fresh
homestyle food items under the name "Harvest Rotisserie." Harvest Rotisserie
restaurants (sometimes referred to as the "Restaurant(s)") emphasize rotisserie
roasted chicken, turkey and fresh homestyle side dishes consistent with what the
Company believes to be (i) an increased consumer demand for take-home prepared
foods, (ii) an emphasis on lower fat foods such as chicken and turkey, and (iii)
the popularity of homestyle cooking. Harvest Rotisserie side dishes include cold
dishes such as coleslaws and salads and hot dishes such as baked beans,
stuffing, corn on the cob, 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 two restaurants in San Antonio, Texas, one
operated under the Harvest Rotisserie name and the other operated under the name
"Cluckers." The Cluckers restaurant is used by the Company as both a training
facility and a public restaurant and is expected to be relocated and converted
to a Harvest Rotisserie restaurant in 1997. The Company has also executed leases
or acquired property to develop six additional Restaurants in San Antonio,
Houston and Corpus Christi, Texas. The Company has not yet sold any franchises
or executed any franchise agreements or area development agreements.
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
4
<PAGE>
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.
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
internationally, and is obligated to pay a license fee of 2% of gross sales
applicable only to its Cluckers restaurants in Texas for the first 10 years and
1% of gross sales thereafter. No such license fees are required for Restaurants
outside the United States. In February 1995 and July 1995, the Company formed
Cluckers Restaurants, Inc. and Harvest Restaurants, Inc., wholly-owned Texas
corporate subsidiaries, to act as franchisors for the Company's Cluckers and
Harvest Rotisserie restaurants.
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.
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
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<PAGE>
sale of the Common Stock at $5.50 per share and the IPO Warrants at $.125 per
IPO Warrant. The Company's principal executive offices are located at 1250 N.E.
Loop 410, Suite 335, San Antonio, Texas 78209 and its telephone number is (210)
824-2496.
The Offering
Securities Offered (1)......500,000 shares of Preferred Stock.
Common Stock Outstanding(2).2,108,750 shares at October 6, 1996.
Estimated Net Proceeds(l)...Approximately $4,100,000 after deducting commissions
and expenses of approximately $900,000 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."
NASDAQ Symbols..............Common Stock: ROTI
Warrants: ROTIW
Preferred Stock: ROTIP (Proposed)
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 will be sold, with net proceeds to the
Company of $4,752,500 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) 298,800 shares
issuable upon exercise of other outstanding common stock purchase
warrants (249,480 of which were exercised after October 6, 1996), and
(v) 215,000 shares issuable under the Company's 1994 Stock Option Plan.
See "Capitalization" and "Description of Securities."
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<PAGE>
Description of Preferred Stock
Conversion Each share of Preferred Stock is convertible into _____
shares of Common Stock, subject to adjustment in certain
events at any time after one year from the date hereof. The
Preferred Stock will automatically convert into Common Stock
at any time after one year from the date hereof at the
Conversion Rate if the closing price for the Preferred Stock
equals or exceeds $15.00 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 two years from the
date hereof upon 30 days' 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.
Voting Rights The Preferred Stock is nonvoting, except as required by law.
Liquidation
Preference $10.00 per share, plus accrued and unpaid dividends.
Dividends Quarterly cumulative dividends of $_____ 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.
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<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>
Forty-Week Period Ended Year Ended Year Ended
October 6, October 8, December 31, December 31,
---------- ---------- ------------ ------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Restaurant $ 157,827 $ 184,997 $ 226,678 $ 243,988
Area development fee, stockholder -- 50,000 50,000 --
-------------- ------------ ------------ --------
$ 157,827 $ 234,997 $ 276,678 $ 243,988
Cost and Expenses:
Cost of food and paper 68,624 67,068 82,171 105,650
Restaurant salaries and benefits 87,846 94,336 127,400 146,677
Occupancy and related expenses 46,426 44,899 63,605 67,611
Operating expenses 51,595 61,349 86,641 106,647
General and administrative 718,754 362,974 567,605 197,641
Preopening expenses 63,044 31,862 59,363 25,783
Depreciation and amortization 73,165 44,812 73,879 58,940
------------- ----------- ----------- ---------
Total operating expenses 1,109,454 707,300 1,060,664 708,949
------------ ----------- ----------- ---------
Loss from operations (951,627) (472,303) (783,986) (464,961)
Non-operating income (expense):
Interest income 22,392 -- -- --
Interest and debt discount expense (451,496) (44,806) (140,497) (29,063)
------------ ----------- ------------ -----------
(429,104) (44,806) (140,497) 29,063
Net loss $(1,380,731) $ (517,109) $ (924,483) $(494,024)
============ =========== =========== ==========
Net loss per common share $ (1.00) $ (.43) $ (0.75) $ (0.49)
Weighted average number of
common shares outstanding(1) 1,386,661 1,216,287 1,224,531 1,005,107
</TABLE>
October 6, 1996
---------------
Historical As Adjusted(2)
---------- --------------
Balance Sheet Data:
Working capital $ 2,391,985 $ 6,491,985
Total assets 3,619,412 7,719,412
Total liabilities 415,786 415,786
Long-term debt -- --
Stockholders' equity 2,797,924 6,897,924
- ----------
(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. See Note J of the Notes to Financial
Statements.
(2) To reflect the issuance of the Preferred Stock offered hereby, excluding
75,000 shares of Preferred Stock which may be issued upon exercise of the
Overallotment Option.
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<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
following risk factors and the other information contained in this Prospectus
before making an investment in the Preferred Stock. 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.
Qualified Opinion. The Company's Financial Statements through December 31,
1995 were prepared assuming that the Company will continue as a going concern.
The Company's independent accountants, in their report regarding the Company's
financial statements, indicated that the Company has incurred losses since
inception and as of December 31, 1995, had a deficit in working capital of
$876,097 and also had a deficit in stockholders' equity of $365,817. The report
indicated that these factors raised substantial doubt as to the Company's
ability to continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Note B" to the
Notes to Financial Statements.
Limited Operating History; Negligible Revenues; 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 $2,946,273 at October 6, 1996. For the 40 weeks ended
October 6, 1996, and year ended December 31, 1995, the Company reported revenues
of $157,827 and $276,678 and net losses of $1,380,731 and $924,483,
respectively. There can be no assurance that the Company's operations will
become profitable or that revenues will increase. The likelihood of the
Company's success must be considered in light of the problems, experiences,
difficulties, complications and delays frequently encountered in connection with
the operation and development of new businesses. See "Business" and "Financial
Statements."
Two Restaurants in Operation; Operating Losses; Uncertainty of Market
Acceptance. The Company has only two Restaurants in operation, one of which is
operated under the Cluckers name and is being used both as a training facility
and a public restaurant. The Cluckers restaurant has operated at a loss since
opening in January 1994 and the Company believes that its Harvest Rotisserie
restaurant, opened in November 1996, is also 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.
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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. See "Use of Proceeds" and "Business - Application
of Offering Proceeds."
Intense Competition. The food service industry is intensely competitive
with respect to food quality, concept, location, service and price. There are
many well-established food service competitors with substantially greater
financial and other resources than the Company and with substantially longer
operating histories. The Company competes with take-out food service companies,
fast-food restaurants, casual full-service dine-in restaurants, delicatessens,
cafeteria- style buffets and prepared food stores, as well as with supermarkets
and convenience stores. The number of rotisserie roasted chicken establishments
and the number of national restaurant chains, fast-food and grocery stores
offering rotisserie roasted chicken and other homestyle food products has
increased in the past few years, providing direct competition for customers 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."
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<PAGE>
Risks Associated with the Food Service Industry. Food service businesses
are often affected by changes in consumer tastes, national, regional and local
economic conditions, demographic trends, traffic patterns and the type, number,
and location of competing restaurants. Multi-unit food service chains may also
be affected by publicity resulting from poor food quality, illness, injury, or
other health concerns or operating issues stemming from individual restaurants.
Dependence on frequent deliveries of fresh produce also subjects food service
businesses such as the Company to the risk that shortages or interruptions in
supply caused by adverse weather or other conditions could adversely affect the
availability, quality and cost of food ingredients. In addition, factors such as
inflation, increased food, labor and employee benefits costs, regional weather
conditions and the limited availability of experienced management and hourly
employees may also adversely affect the food service industry in general and the
Company's results of operations and financial condition in particular. See
"Business."
Risks Associated With Expansion. The Company intends to continue to apply
proceeds from its IPO to develop Company-owned Restaurants. Developing
additional Restaurants will be dependent on, among other things, market
acceptance for the Company's Harvest Rotisserie concept, the availability of
suitable Restaurant sites, timely development and construction of the
Restaurants, the hiring of skilled management and other personnel, 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 on the management skills of its franchisees. The Company
operates only two 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 expand its operations, 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. See "Use of Proceeds" and "Underwriting."
Importance of Attracting Competent Area Developers and Franchisees. The
Company's future success will be dependent upon its ability to attract and
retain Restaurant area developers and franchisees and the manner in which
Restaurant franchisees operate, develop and promote their Restaurants.
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."
11
<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. 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."
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 which do
attempt to match these discount prices.
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, trademark and service
mark. The Company's exclusive right to the Cluckers Marks is limited in the
United
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<PAGE>
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."
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
substantially below the current market price of the Common Stock. Accordingly,
the exercise of the IPO Warrants may have a depressive effect on 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 2,108,750 shares of Common
Stock outstanding as of October 6, 1996, 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 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
249,480 shares underlying common stock purchase warrants exercised after October
6, 1996, 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
500,000 of such shares until August 1997 except with the written consent of the
Representative. The remaining 240,000 shares are also subject to a
13
<PAGE>
lockup agreement restricting sale through August 1997 executed by JEB Investment
Company ("JEB"). However, the shares were subsequently foreclosed upon by
WaterMarc and the JEB lockup 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 (i) adversely affect the development or continuation
of a trading market for the Preferred Stock, (ii) limit the effectiveness of the
Representative's due diligence responsibilities to review and verify the
information in the Prospectus and to negotiate the Offering price of the
Preferred Stock, and (iii) negatively influence the market price of the
Preferred Stock following the Offering. See "Underwriting."
Potential Adverse Effect due to Underwriters' Influence on the Market Price
of the Securities. A significant amount of the Preferred Stock 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
Preferred Stock through or with the Underwriters. Should the Representative make
a market in the Preferred Stock, 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 Preferred Stock, and the price and
liquidity of the Preferred Stock may be significantly affected by the degree, if
any, of the Underwriters' participation in such market.
Maintenance Criteria for Nasdaq Securities. The National Association of
Securities Dealers, Inc. ("the NASD"), which administers NASDAQ, sets the
criteria for continued NASDAQ eligibility. In order to continue to be included
in NASDAQ, a company must maintain $2 million in total assets, a $200,000 market
value of its public float and $1 million in total capital and surplus. In
addition, continued inclusion requires two market-makers, at least 300 holders
of the Common Stock and a minimum bid price of $1 per share; provided, however,
that if a company falls below such minimum bid price, it will remain eligible
for continued inclusion in NASDAQ if the market value of the public float is at
least $1 million and the Company has $2 million in capital and surplus. The
Company's failure to meet these maintenance criteria in the future or future
maintenance requirements imposed by NASDAQ may result in the discontinuance of
the inclusion of its securities in NASDAQ. In such event,
14
<PAGE>
trading, if any, in the securities may then continue to be conducted in the
non-NASDAQ over-the-counter market in what are commonly referred to as the
electronic bulletin board and the "pink sheets." As a result, an investor may
find it more difficult to dispose of or to obtain accurate quotations as to the
market value of the securities. In addition, the Company would be subject to a
rule promulgated by the Securities and Exchange Commission (the "Commission")
that, if the Company fails to meet criteria set forth in such rule, imposes
various sales practice requirements on broker-dealers who sell securities
governed by the rule to persons other than established customers and accredited
investors. For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transactions prior to sale. Consequently, the
rule may have an adverse effect on the ability of broker-dealers to sell the
securities, which may affect the ability of purchasers in the Offering to sell
the securities in the secondary market. 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." In the event that any of the Company's securities are
characterized in the future as penny stock, broker-dealers dealing in the
securities will be subject to the disclosure rules for transactions involving
penny stocks which require the broker-dealer among other things to (i) determine
the suitability of purchasers of the securities, and obtain the written consent
of purchasers to purchase such securities and (ii) disclose the best (inside)
bid and offer prices for such securities and the price at which the
broker-dealer last purchased or sold the securities. The additional burdens
imposed upon broker-dealers may discourage them from affecting transactions in
penny stocks, which could reduce the liquidity of the securities offered hereby.
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."
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<PAGE>
Redemption of Preferred Stock. Commencing two years 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. See "Description of Securities."
No Assurance of an Active Public Market. While the Preferred Stock will be
free of restrictions on transfer, there is presently no public market for the
Preferred Stock and although the Company has applied to have the Preferred Stock
included on NASDAQ, 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 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.
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 was arbitrarily determined through negotiations between the Representative
and the Company and does not necessarily bear any relationship to the Company's
assets, earnings or other investment criteria. See "Underwriting."
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<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on NASDAQ 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 NASDAQ.
Price
-----
By Quarter Ended: High Low
---- ---
October 6, 1996................................ $8.25 $5.67
December 29, 1996.............................. $7.75 $5.75
March 31, 1997 (through January 31, 1997)...... $6.38 $5.88
As of January 31, 1997, the Company had approximately 600 stockholders of
record.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Preferred Stock after deducting underwriting commissions and expenses and other
expenses of the Offering are expected to be $4,100,000. The Company intends to
apply the net proceeds generally over a 12-month period as follows:
Amount Percent
------ -------
Acquisition of Restaurants for resale
to area developers(1) 2,200,000 53.7%
Financial assistance to area developers(2) 1,400,000 34.1%
Working capital 500,000 12.2%
---------- ------
TOTALS $4,100,000 100.0%
========== ======
- ----------
(1) The Company intends to acquire existing restaurant properties in
certain metropolitan markets and sublease the properties to area
developers selected by the Company for operation of the properties as
Harvest Rotisserie restaurants. The Company estimates costs to acquire
these properties will range from $100,000 to $500,000 per property and
will average approximately $175,000 per property. See "Business -
Application of Offering Proceeds."
(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
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<PAGE>
average $75,000 per restaurant property. See "Business - Application
of Offering Proceeds."
Pending application, the net proceeds of the Offering will be invested in
interest bearing savings accounts, certificates of deposit and money market
accounts. Any additional proceeds received upon the exercise of 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
October 6, 1996, and as adjusted to reflect the sale of the Preferred Stock
offered hereby and the application of the net proceeds therefrom as described in
"Use of Proceeds."
<TABLE>
<CAPTION>
October 6, 1996
---------------
Historical As Adjusted(2)
---------- --------------
<S> <C> <C>
Common Stock subject to rescission, 118,750 shares $ 405,702 $ 405,702
Stockholders' equity:
Preferred Stock, $1.00 par value, 5,000,000 shares authorized,
no shares issued and outstanding, 500,000 shares as adjusted -- 500,000
Common Stock, $.01 par value, 10,000,000 shares authorized;
1,990,000 shares issued and outstanding(1) 19,900 19,900
Additional paid-in capital 5,724,297 9,324,297
Accumulated deficit (2,946,273) (2,946,273)
----------- -----------
Total stockholders' equity 2,797,924 6,897,924
----------- ----------
Total capitalization $3,203,626 $7,303,626
=========== ==========
</TABLE>
- ----------
(1) Does not include an aggregate of __________ shares of Common Stock issuable
upon exercise of 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,
(iii) __________ shares issuable upon conversion of the Preferred Stock and
the Preferred Stock issuable under the Representative's Warrants, (iv)
298,800 shares issuable upon exercise of other outstanding common stock
purchase warrants (249,800 of which were exercised after October 6, 1996,
and (v) 215,000 shares issuable under the Company's 1994 Stock Option Plan.
See "Capitalization" and "Description of Securities."
(2) To reflect the issuance of the Preferred Stock offered hereby, excluding
112,500 shares of Preferred Stock which may be issued upon exercise of the
Overallotment Option.
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<PAGE>
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 $_____ 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."
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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 forty-week periods ended October 6, 1996
and October 8, 1995, have been derived from unaudited financial statements which
are also included herein. The results of operations for the forty-week period
ended October 6, 1996, are not necessarily indicative of the results to be
expected for the full fiscal year.
<TABLE>
<CAPTION>
Forty-Week Period Ended Year Ended Year Ended
October 6, October 8, December 31, December 31,
---------- ---------- ------------ ------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Restaurant $ 157,827 $ 184,997 $ 226,678 $ 243,988
Area development fee, stockholder -- 50,000 50,000 --
-------------- ------------ ------------ --------
$ 157,827 $ 234,997 $ 276,678 $ 243,988
Cost and Expenses:
Cost of food and paper 68,624 67,068 82,171 105,650
Restaurant salaries and benefits 87,846 94,336 127,400 146,677
Occupancy and related expenses 46,426 44,899 63,605 67,611
Operating expenses 51,595 61,349 86,641 106,647
General and administrative 718,754 362,974 567,605 197,641
Preopening expenses 63,044 31,862 59,363 25,783
Depreciation and amortization 73,165 44,812 73,879 58,940
------------- ----------- ----------- ---------
Total operating expenses 1,109,454 707,300 1,060,664 708,949
------------ ----------- ----------- ---------
Loss from operations (951,627) (472,303) (783,986) (464,961)
Non-operating income (expense):
Interest income 22,392 -- -- --
Interest and debt discount expense (451,496) (44,806) (140,497) (29,063)
------------ ----------- ------------ -----------
(429,104) (44,806) (140,497) 29,063
Net loss $(1,380,731) $ (517,109) $ (924,483) $(494,024)
============ =========== =========== ==========
Net loss per common share $ (1.00) $ (.43) $ (0.75) $ (0.49)
Weighted average number of
common shares outstanding(1) 1,386,661 1,216,287 1,224,531 1,005,107
</TABLE>
October 6, 1996
Historical As Adjusted(2)
Balance Sheet Data:
Working capital $ 2,391,985 $ 6,491,985
Total assets 3,619,412 7,719,412
Total liabilities 415,786 415,786
Long-term debt -- --
Stockholders' equity 2,797,924 6,897,924
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<PAGE>
- ----------
(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. See Note J of the Notes to Financial
Statements.
(2) To reflect the issuance of the Preferred Stock offered hereby, excluding
75,000 shares of Preferred Stock which may be issued upon exercise of the
Overallotment Option.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was organized in June 1993, and from inception to December 31,
1993, its operations were limited to activities related to obtaining financing
and the development of its San Antonio Cluckers restaurant which opened in
January 1994. The Company's operating results, 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, and the Company completed development of the Harvest Rotisserie
franchise program during this period. In February 1996 the Company elected to
limit its activities to the development of Harvest Rotisserie restaurants, and
opened its first Harvest Rotisserie restaurant in November 1996. To date, the
Company has opened one Cluckers and one Harvest Rotisserie restaurant, but has
not sold any franchises or executed any franchise agreements or area development
agreements.
Results of Operations-Forty-Week Periods ended October 6, 1996 and October 8,
1995
Revenues. Restaurant revenues for each period were derived entirely from
the Company's one Cluckers restaurant in San Antonio, Texas. Restaurant revenues
for the period ended October 6, 1996 were $157,827, a 14.7% decrease as compared
to the same period in 1995. The decrease in revenues was due in part to a
reduction in the restaurant operating hours which was implemented during the
third quarter of 1995. The restaurant is currently open five days each week from
11 a.m. to 2 p.m. and is being used as a training facility. Restaurant revenues
during the first forty weeks of 1996 were approximately 30% 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
and the lack of a drive-through window at the restaurant, which is located in a
shopping center. The Company expects that most new Restaurants will be
free-standing with drive-through windows.
During the 40 week period ended October 8, 1995 revenues included execution
of an area development agreement for $50,000 with a then director of the
Company. The agreement was subsequently modified extensively. See "Certain
Transactions."
Costs and Expenses. Cost of food and paper were 43.5% of restaurant
revenues for the forty-week period ended October 6, 1996, as compared to 36.3%
for the same period 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.
Restaurant salaries, benefits, occupancy and related expenses, and
operating expenses include all other restaurant level operating expenses, the
major components of which are direct
22
<PAGE>
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 118% of restaurant revenue for the
forty-week period ended October 6, 1996, as compared to 108% for the same
comparable period 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 104% for the forty-week
period ended October 6, 1996 as compared to the same period in 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.
Preopening expenses increased by $31,182 for the forty-week period ended
October 6, 1996 as compared to the same period in 1995. The increase relates to
initial costs associated with the development of a new Harvest Rotisserie
restaurant which opened in November 1996.
Interest and Debt Discount Expense. Interest and debt discount expense
increased to $406,690 for the forty-week period ended October 6, 1996 as
compared to 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 net losses of $1,380,731 for the forty-week
period ended October 6, 1996 as compared to $517,109 for the same period in
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-Years Ended December 31, 1995 and 1994
Revenues. Revenues for the year ended December 31, 1995, were comprised of
$226,678 from restaurant operations and $50,000 from the sale of an area
development license to a stockholder of the Company. Revenues from restaurant
operations were derived entirely from the San Antonio Cluckers restaurant which
opened in January 1994. Restaurant revenues for the year ended December 31,
1995, decreased 7.1% as compared to 1994, which only included eleven months of
restaurant operations. Annualized restaurant sales volumes for 1995 were 14.8%
below 1994 levels, and were approximately 45% of capacity for the restaurant and
below the restaurant's operating costs for both periods. The decrease in
revenues is due in part to a reduction in the restaurant operating hours which
was implemented during the third quarter of 1995. The restaurant is currently
open five days each week from 11 a.m. to 2 p.m. and is being used as a training
facility. Management attributes the low sales volumes to the partial use of the
restaurant as a training facility and the lack of a drive-through window at the
restaurant,
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which is located in a shopping center. Management anticipates that the sales
volume for this restaurant may improve marginally in future periods after
conversion to a Harvest Rotisserie and due to enhanced name recognition as the
Company opens additional Restaurants in the San Antonio area although there can
be no such assurance. The Company expects that most new Restaurants will be in
free-standing facilities with drive-through windows.
Costs and Expenses. Cost of food and paper improved to 36.3% of restaurant
revenues for the year ended December 31, 1995, as compared to 43.3% for 1994.
The improvement in gross margins resulted primarily from efficiencies in food
preparation as the restaurant matured following the initial opening in January
1994.
Restaurant salaries, benefits, occupancy and related expenses, and
operating expenses include all other restaurant level operating expenses, the
major components of which are direct and indirect labor, payroll taxes and
benefits, operating supplies, rent, advertising, repairs and maintenance,
utilities and other occupancy costs. The combined total of these expenses was
$277,646, or 123% of restaurant revenues and $320,935, or 132% of restaurant
revenues for 1995 and 1994, respectively. A substantial portion of these costs
are fixed or indirectly variable and therefore were disproportionate to
restaurant revenues for both periods. The decrease in these expenses as a
percentage of restaurant revenues was due to improved cost controls implemented
during the fourth quarter of 1994.
General and administrative expenses increased $369,964, or 187% in 1995 as
compared to 1994 primarily due to the establishment of the Company's corporate
offices and expenses associated with the Company's financing, franchising and
expansion activities. In 1995, these expenses included salaries, benefits and
contract services (29%), professional fees and Offering expenses (39%), travel
related expenses (15%), advertising and promotion (6%), and other general and
administrative expenses (11%).
Preopening expenses of $59,363 in 1995 consisted primarily of lease costs
for maintaining a restaurant site for future development in Houston, Texas.
Preopening expenses of $25,783 in 1994 consisted of certain expenses incurred in
connection with the opening of the San Antonio restaurant.
Interest and debt discount expense of $140,497 for 1995, relates to the
issuance of $1,074,500 face amount of 10% Bridge Notes, from December 1994 to
November 1995, and included $87,659 of amortized issue discount. Interest
expense of $29,063 in 1994 relates to a note payable with an affiliate.
Net Loss. The Company incurred a net loss of $924,483 for 1995 as compared
to $494,024 for 1994. The increase in net loss in 1995 was primarily the result
of significantly higher general and administrative expenses and interest
expense, which offset the sale of an area development license and slightly
improved restaurant operating results.
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Liquidity and Capital Resources
The Company has incurred losses from operations since inception and as of
October 6, 1996, has an accumulated deficit of $2,946,273. The Company is not
currently generating sufficient revenues from operations to meet its cash
requirements. Management anticipates that the Company must open at least four
additional restaurants to generate a positive cash flow, although there can be
no such assurance. The Company estimates it will require up to one year to
develop and open four additional Restaurants. The ability of the Company to
alleviate its working capital deficit and fund costs associated with its
operations and expansion plans is dependent upon the successful 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, for general and administrative expenses (including
officers' salaries) and to fund costs associated with the promotion of its
franchise program. 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.
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's expansion plans are dependent upon completion of the
Offering. 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 will enable it to maintain its current
operations for at least 12 months.
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BUSINESS
Introduction
The Company owns and operates and intends to franchise quick service
restaurants featuring marinated wood-roasted rotisserie chicken, oak roasted
turkey breast, roast ham, meatloaf, an assortment of sandwiches and other fresh
homestyle food items under the name "Harvest Rotisserie." Harvest Rotisserie
restaurants (sometimes referred to as the "Restaurant(s)") emphasize rotisserie
roasted chicken, turkey and fresh homestyle side dishes consistent with what the
Company believes to be (i) an increased consumer demand for take-home prepared
foods, (ii) an emphasis on lower fat foods such as chicken and turkey, and (iii)
the popularity of homestyle cooking. Harvest Rotisserie side dishes include cold
dishes such as coleslaws and salads and hot dishes such as baked beans,
stuffing, corn on the cob, 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 two restaurants in San Antonio, Texas, one
operated under the Harvest Rotisserie name and the other operated under the name
"Cluckers." The Cluckers restaurant is used by the Company as both a training
facility and a public restaurant and is expected to be relocated and converted
to a Harvest Rotisserie restaurant in 1997. The Company has also executed leases
or acquired property to develop six additional Restaurants in San Antonio,
Houston and Corpus Christi, Texas. The Company has not yet sold any franchises
or executed any franchise agreements or area development agreements.
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
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name in Mexico and applied for trademarks to use the Cluckers name and logos in
the United Kingdom, Canada, Singapore and Malaysia.
The Company is licensed to use the Cluckers name only in Texas and
internationally, and is obligated to pay a license fee of 2% of gross sales
applicable only to its Cluckers restaurants in Texas for the first 10 years and
1% of gross sales thereafter. No such license fees are required for Restaurants
outside the United States. In February 1995 and July 1995, the Company formed
Cluckers Restaurants, Inc. and Harvest Restaurants, Inc., wholly-owned Texas
corporate subsidiaries, to act as franchisors for the Company's Cluckers and
Harvest Rotisserie restaurants.
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.
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 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.
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
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meals include a variety of entrees such as rotisserie roasted chicken, oak
roasted turkey, roast ham and meatloaf customer-selected side dishes and
desserts. Complete meals 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-through 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 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 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. If the Company is unable to locate
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 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 following
criteria. The Company will
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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. Individual 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 which are significantly different than the prospective agreements
described herein.
Current Operations
The following discussion describes the current operations of the Company's
San Antonio Harvest Rotisserie restaurant as well as the proposed operations of
future Harvest Rotisserie restaurants. The Company's Cluckers Restaurant in San
Antonio is primarily used as a training facility and is expected to be converted
to a Harvest Rotisserie restaurant in 1997.
All Restaurants the Company develops or franchises will prominently display
a rotisserie within customer view. The location of the rotisserie coupled with
the flames emanating from the hardwood 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 will
offer inside seating and takeout service, will range in size from approximately
1,800 to 3,500 square feet and will have drive-through windows and seating
capacities for approximately 45 to 70 diners. The San Antonio Harvest Rotisserie
restaurant consists of 2,450 square feet, seats approximately 55 diners and is
located in a free standing building. 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. 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
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necessary approvals and permits have been obtained approximately 60 to 180 days
are required to complete construction and open the Restaurant.
The designs of the Restaurants are flexible and may be adapted to local
architectural styles and existing buildings with varying floor plans and
configurations. The Company intends to 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 is 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.
Restaurant Expansion
The Company intends to open as many Restaurants as its capital will permit.
The amount of capital required will depend in part on whether the developed
Restaurants are Company- owned, or franchised restaurants. The number of
Restaurants opened will also depend upon, among other things, market acceptance
of the Company's Restaurant concept, the hiring of skilled management and other
personnel, the availability of suitable locations, the general ability to
successfully manage growth (including monitoring restaurants, controlling costs
and maintaining effective quality controls), the availability of adequate
financing, and its ability to attract and retain qualified franchisees. To date
the Company has opened two Restaurants and has not entered into any area
development agreements or franchise agreements.
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 $350,000 to $550,000 per
Restaurant (depending upon the size and location of the Restaurant and the
amount
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of leasehold improvements required) and will average approximately $450,000 per
Restaurant. If the Company elects to purchase the land and/or building, the
development costs will be significantly higher.
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 will conduct regular inspections of its Restaurants to
determine whether the Restaurants meet applicable quality, service and
cleanliness standards, will work with franchisees to improve substandard
performance or any items of non-compliance revealed in the course of its
inspection and may terminate any franchisee who does not comply with such
standards. The Company believes that maintaining superior food quality, a clean
and pleasing environment and excellent customer service is critical to the
reputation and success of its Restaurants and intends to act aggressively to
enforce applicable contractual requirements. Franchisees could contest such
terminations which would cause the Company to incur potentially significant
legal expenses.
Area Development Agreements
The Company has not executed any 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 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
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enter into a franchise agreement under which the area developer would become the
franchisee for the specific Restaurant to be developed at the site.
Failure to meet development schedules or other breaches of the area
development agreement would lead to termination of the limited exclusivity
provided by the 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 initially due March 30, 1996 and
subsequently extended to September 30, 1996. Prior to September 30, 1996, the
Company refunded $10,000 of the deposit, cancelled the $30,000 promissory note
and reduced the number of Restaurants required to be developed under the
agreement from ten Restaurants to two Restaurants. The developer is under no
obligation to develop the one Restaurant in Singapore.
In February 1996, the Company executed a nonbinding letter of intent to
sell area development rights to a third party pursuant to which the third party
would have the right but not the obligation to open at its expense up to 50
Harvest Rotisserie restaurants in the Baltimore, Maryland area over a five-year
period. No area development agreement has yet been negotiated or signed with the
third party and there can be no assurance that any of these Restaurants will be
developed. Negotiations with two other parties who previously expressed an
interest in area development agreements for Restaurants to be located in Austin,
Texas, McAllen, Texas and San Francisco, California were terminated. Although
the Company continues to negotiate with a number of entities, there can be no
assurance that the Company will execute any area development agreements in the
future.
Marketing
The Company currently markets its two San Antonio 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 to include additional use of
print media, together with radio and television spots if the Company is
successful in opening additional Restaurants. 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
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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
Kentucky Fried Chicken 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 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, trademark and service mark
("MARKS"). There can be no assurance that the Company will obtain sufficient
protection for its Harvest Rotisserie Marks or, that it will have the financial
resources to enforce or defend its Marks. The Company has the exclusive right in
Texas to use the Cluckers name, trademark and service mark which have been
registered with the PTO. In addition, the Company has registered the Cluckers
name
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in Mexico and has applied to register the Cluckers name (or, in certain cases,
the name in connection with additional words or graphics) in the United Kingdom,
Canada, Singapore and Malaysia.
Regulation
The Company's Restaurants must comply with federal, state and local
government regulations applicable to consumer food service businesses generally,
including those relating to the preparation and sale of food, minimum wage
requirements, overtime, working and safety conditions, mandated health insurance
coverage and citizenship requirements, as well as regulations relating to
zoning, construction, health, business licensing and employment. The Company
believes that it is in material compliance with these provisions.
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 three executive officers, six salaried employees and
approximately 40 Restaurant employees. The Company believes that its relations
with its employees are satisfactory.
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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 opened one Cluckers and one Harvest Rotisserie restaurant in
September 1993 and November 1996, respectively. Following its IPO, the Company
cancelled 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 two current and six planned Restaurants are
described below. The Company expects that all six planned Restaurants will be
Company-owned and operated and will open in 1997.
Form of Lease Monthly
Location Ownership Expiration Rent
Fredsburg Road Building Lease August 1998 $2,554
San Antonio, TX(1)
Walzem Road Building Lease February 2006 $2,700
San Antonio, TX
Tezel Road(2) Real Estate Not Applicable Not Applicable
San Antonio, TX Owned
Hwy 281/Loop 1604(2) Ground Lease February 2022 $4,500
San Antonio, TX
DeZavala Road(2) Ground Lease May 2027 $5,000
San Antonio, TX
South Braeswood Road Building Lease January 2004 Greater of $3,000
Houston, TX or 5% of gross
sales
4620 Broadway Building Lease January 2002 $4,900
San Antonio
South Padre Island Drive Building Lease November 1999 $5,000
Corpus Christi, TX(3)
(1) The Company plans to relocate and convert its Cluckers restaurant to a
Harvest Rotisserie restaurant in 1997.
(2) Sites substituted for previous sites.
(3) In February 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 is currently
converting the property to a Harvest Rotisserie restaurant. The restaurant
is expected to open in February 1997.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the Company's
executive officers and directors:
Officer or
Name Age Office Director Since
William J. Gallagher(1)(2) 57 Chairman of the Board of 1993
Directors and Chief
Executive Officer
Larry F. Harris 37 President, Chief Operating 1996
Officer and Director
Sam Bell Steves Rosser 33 Vice President - Development, 1993
Treasurer and Director
Michael M. Hogan(1)(2) 48 Director 1996
Theodore M. Heesch(1)(2) 60 Director 1996
Joseph Fazzone 35 Chief Financial Officer 1997
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
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 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.
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<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 has been President of Jagbanc Capital Ltd., a merchant
bank headquartered in San Antonio, Texas since September 1994. From February
1991 to September 1994, Mr. Gallagher was the founder and then Chairman and CEO
of WaterMarc Food Management, Inc., which operated 32 Marcos Mexican
Restaurants, Billy Blues Barbecue Grills, Longhorn Cafes and BBQ Pete's
restaurants and sold Chris' Pitts and Billy Blues Bar-B-Q sauce. From February
1990 until September 1992, Mr. Gallagher was a Vice President at Kemper
Securities. Prior to 1990, Mr. Gallagher founded or co-founded several companies
including Sunny's National Stores (a 150-unit convenience store chain in Texas),
American Drive-Inn (an 18-unit drive-in restaurant chain in Houston, Texas) and
the Guadalupe Valley Winery in New Braunfels, Texas. Mr. Gallagher also served
as a director of CWRC from June 1993 to November 1994. He is the Company's
Chairman and 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 June 1994 to September 1996 he was Chief Operating Officer
for a Monterey Pasta Company franchisee. From June 1992 to June 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 40-week period ended October 6, 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
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<PAGE>
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.
Significant Employees
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.
Manuel P. Ortiz has been the Company's Director of Operations since
November 1996. He managed and co-owned the Country Fair restaurant from 1990 to
1992, and was managing partner of a Boston Market restaurant 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.
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Executive Compensation
The following table sets forth certain information concerning compensation
paid to the Company's Chief Executive Officer for the years ended December 31,
1995 and 1994.
Summary Compensation Table
<TABLE>
<CAPTION>
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 1995 30,750 0 0 0 0
Chief Executive
Officer, President
and Director
William J. Gallagher 1995 59,211 0 0 0 0
Chairman of the
Board and
Director
</TABLE>
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 options to purchase 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 does not have an
employment agreement with the Company and accordingly, the Company does not
expect to negotiate separation compensation.
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
39
<PAGE>
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
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<PAGE>
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. As of the date of this Prospectus, options to
purchase 215,000 shares have been granted under the Plan (175,000 of which have
vested) to the Company's executive officers and directors as follows:
<TABLE>
<CAPTION>
Number of Number of Exercise
Name Options Granted Options Vested Price Expiration Date
---- --------------- -------------- ----- ---------------
<S> <C> <C> <C> <C>
William J. Gallagher 100,000 100,000 $6.00 September 2001
Larry F. Harris 40,000 -0- 6.00 September 2001
Theodore M. Heesch 25,000 25,000 6.00 September 2001
Michael M. Hogan 25,000 25,000 6.00 September 2001
Joseph Fazzone 25,000 25,000 6.00 January 2002
------- -------
Totals 215,000 175,000
</TABLE>
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of October 6, 1996
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 Percent of
Common Common Stock
Name Stock Owned Owned
William J. Gallagher(1)(2) 146,667 6.6%
Larry F. Harris(3) -0- --
Sam Bell Steves Rosser(1) 66,666 3.2%
Michael M. Hogan(4) 265,000 12.4%
Theodore M. Heesch(5) 25,000 1.2%
JEB Investment Company(6) 240,000 11.4%
All officers and directors 503,333 22.3%
as a group (6 persons)(2)(4)(5)(6)(7)
- ----------
(1) Messrs. Rosser, 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 to purchase up to 100,000 shares of Common Stock at
$6.00 per share.
(3) Mr. Harris has been granted options to purchase 40,000 shares at $6.00 per
share, none of which have vested.
(4) Represents 240,000 shares owned by JEB Investment Company of which Mr.
Hogan is the President and a principal stockholder together with stock
options to purchase up to 25,000 shares of Common Stock at $6.00 per share.
(5) Represents stock options to purchase up to 25,000 shares of Common Stock at
$6.00 per share.
(6) Michael M. Hogan, a director of the Company, is the President and a
principal (and the controlling) stockholder of JEB Investment Company.
(7) Includes stock options to purchase up to 25,000 shares of Common Stock at
$6.00 per share granted to Joseph Fazzone, the Company's Chief Financial
Officer.
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<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
totalling approximately $42,000, and $63,430 of accrued interest, into 240,000
shares of the Company's Common Stock, (valued at $2.50 per share by the
Company's Board of Directors), which shares were subsequently sold by WaterMarc
to JEB Investment Company ("JEB") for $1,800,000 payable by JEB in the form of a
promissory note secured by the 240,000 shares, bearing interest at 9% per annum
and payable June 30, 1996. In September 1996, WaterMarc reduced the principal
amount of the promissory note due to it from JEB to $600,000. In December 1996,
WaterMarc foreclosed upon the 240,000 shares held by JEB and has advised the
Company it intends to sell the shares immediately. 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
43
<PAGE>
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.
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.
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 due September 30,
1996), a 5% royalty and a 4% advertising fee on gross revenues generated from
the Cluckers restaurants. The license was converted to apply to Harvest
Rotisserie restaurants in March 1996. Prior to September 1996, the Company
refunded $10,000 of the deposit, cancelled 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.
44
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 10,000,000 shares of $.01 par value
Common Stock. At October 6, 1996, there were 2,108,750 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 1,000,000
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, when, as and if declared by the Board of Directors out of funds at the
time legally available therefor, dividends at the quarterly rate of $_____ 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 __________, 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 NASDAQ
45
<PAGE>
on the last day of the calendar quarter. Fractional shares will be paid in cash.
This Prospectus covers any Common Stock issued as a Common Stock dividend on the
Preferred Stock.
Redemption. The Preferred Stock may not be redeemed by the Company until
two years from the date hereof. Any shares of Preferred Stock outstanding
thereafter are redeemable for cash, in whole or in part, at any time, at the
option of the Company, at 110% of the bid price per share of the Preferred Stock
on NASDAQ for the 20 trading days prior to the redemption date.
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 one year from the date hereof
the closing price for the Preferred Stock, as quoted on NASDAQ or any national
securities exchange, exceeds $15.00 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 have the right, at the
holder's option at any time after one year 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.
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,
and no more, 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
46
<PAGE>
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
required by law. 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.
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 NASDAQ 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.
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<PAGE>
The shares of Common Stock issuable on 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 issued 298,800 common stock purchase warrants each
exercisable at $2.50 per share until December 1997, 249,480 of which were
exercised subsequent to October 6, 1996. The Company is required to register the
249,480 shares of Common Stock underlying the subject warrants by August 10,
1997.
Stock Transfer and Warrant Agent
Corporate Stock Transfer, Inc., Denver, Colorado, is the stock transfer
agent and IPO 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.
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.
48
<PAGE>
In the case of an action by or in the right of the Company, indemnification is
available if such person acted in good faith and in a manner that he or she
reasonably believed was in or not opposed to the Company's best interests,
except as regards a person adjudged to be liable to the Company, unless a court
shall determine that such person is fairly and reasonably entitled to indemnity
for certain expenses.
Insofar as the indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has 2,108,750 shares of Common Stock outstanding as of October
6, 1996 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 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 249,480 shares underlying common stock
purchase warrants exercised after October 6, 1996, 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 500,000 of such shares until August 1997
except with the written consent of the Representative. The remaining 240,000
shares are also subject to a lockup agreement restricting sale through August
1997 executed by JEB Investment Company ("JEB"). However, the shares were
subsequently foreclosed upon by WaterMarc and the JEB lockup 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.
49
<PAGE>
UNDERWRITING
The Underwriters named below, acting through Global Equities Group, Inc. as
the lead managing underwriter (the "Representative") and __________ 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 from the Company in the amounts set forth below:
Shares of
Underwriter Preferred Stock
Global Equities Group, Inc.
----------
Total 500,000
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the securities offered hereby, if any are purchased. The Company
has been advised by the Representative that the Underwriters propose to offer
the Preferred Stock to the public initially at the Offering price set forth on
the cover page of this Prospectus, and to selected dealers, including
Underwriters, at such price less a concession in an amount to be determined by
the Representative. The Underwriters will purchase the Preferred Stock
(including the Preferred Stock subject to the Overallotment Option) offered
hereby at a discount equal to 10% of the public Offering price, or $6.75 per
share of Preferred Stock.
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 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 Preferred Stock 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 $12.00 per share. The Representative's Warrants are
exercisable for a period of four years beginning one year from the date of this
Prospectus. The Representative's Warrants are non-transferable for a period of
one year following the date of this Prospectus, except to any of the
Underwriters or to any individual who is either a partner or an officer of an
Underwriter or by operation of law or by will or the laws of descent and
distribution. The holders of the Representative's Warrants will have, in that
capacity, no voting, dividend or other shareholder rights. Any profit realized
by the Representative on the sale of the securities issuable upon exercise of
the Representative's Warrants may be deemed to be additional underwriting
compensation.
The Company has granted the holders of the Representative's Warrants and
the underlying Preferred Stock certain rights with respect to the registration
of the Preferred Stock underlying the Representative's Warrants under the
Securities Act of 1933, as amended (the
50
<PAGE>
"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 $12,000 per months of which $60,000 was paid for
the first five months of services under the agreement.
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
51
<PAGE>
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. The Preferred Stock price was arbitrarily determined through negotiations
between the Company and the Representative. The principal factors considered in
pricing the Preferred Stock were the current price of the Common Stock,
Company's current and anticipated revenues and earning, its overall business
prospects and the general condition of the securities markets at the time of the
Offering.
LEGAL MATTERS
Gary A. Agron, Esq., Englewood, Colorado, has represented the Company in
connection with the Offering. Mound, Cotton & Wollan, New York, New York, has
acted as counsel for the Representative in connection with the Offering.
EXPERTS
The financial statements of the Company for the years ended December 31,
1995 and 1994, and the period June 18, 1993 (Inception) to December 31, 1993,
included herein, have been audited by Akin, Doherty, Klein & Feuge, P.C.,
independent certified public accountants. The financial statements have been so
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the 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 Stree, 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.
52
<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............................ 3
Prospectus Summary............................... 4
Risk Factors..................................... 9
Price Range of Common Stock...................... 17
Use of Proceeds.................................. 17
Capitalization................................... 18
Dividend Policy.................................. 19
Selected Financial Data.......................... 20
Management's Discussion and Analysis
of Financial Condition and
Results of Operations........................... 22
Business......................................... 26
Management....................................... 36
Principal Stockholders........................... 42
Certain Transactions............................. 43
Description of Securities........................ 45
Shares Eligible for Future Sale.................. 49
Underwriting..................................... 50
Legal Matters.................................... 52
Experts.......................................... 52
Additional Information........................... 52
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
$10.00 per share
PROSPECTUS
GLOBAL EQUITIES GROUP, INC.
__________, 1997
<PAGE>
CluckCorp International, Inc.
Contents
December 31, 1995
Audited Financial Statements Page
Report of Independent Certified Public Accountants..... F-1
Balance Sheets ........................................ F-2
Statements of Operations .............................. F-3
Statements of Stockholders' Equity (Deficit) .......... F-4
Statements of Cash Flows .............................. F-5
Notes to Financial Statements ......................... F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
CluckCorp International, Inc.
San Antonio, Texas
We have audited the accompanying balance sheets of CluckCorp International, Inc.
as of December 31, 1995 and 1994, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years ended 1995 and
1994, and the period of inception, June 18, 1993 to December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CluckCorp International, Inc.
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years ended 1995 and 1994, and the period of inception, June 18,
1993 to December 31, 1993, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred net losses of $924,483, $494,024 and $147,035 during the
years ended December 31, 1995 and 1994, and the period of inception, June 18,
1993 to December 31, 1993 and as of December 31, 1995, the Company's current
liabilities exceeded its current assets by $876,097 and had a deficit in
stockholders' equity of $561,635. These factors, among others, as discussed in
Note B to the financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/Akin, Doherty, Klein & Feuge, P.C.
- -------------------------------------
Akin, Doherty, Klein & Feuge, P.C.
San Antonio, Texas
March 15, 1996
F-1
<PAGE>
CluckCorp International, Inc.
Balance Sheets
<TABLE>
<CAPTION>
October 6, December 31,
1996 1995 1994
----------- ----------- -----------
ASSETS (Unaudited)
<S> <C> <C> <C>
Current Assets
Cash ................................................. $ 2,773,717 $ 126,447 $ 42,711
Inventories .......................................... 3,654 5,044 2,998
Prepaid expenses ..................................... 400 119,364 1,645
Deferred loan costs .................................. -- 24,710 --
Note receivable from stockholder ..................... 30,000 40,000 --
----------- ----------- -----------
Total Current Assets ............................ 2,807,771 315,565 47,354
Property and equipment, net .............................. 466,591 150,868 174,750
Other Assets
Intangible property rights, net of amortization
of $148,554, $99,875 and $59,925.................... 268,126 299,625 339,575
Deposits ............................................. 21,766 25,007 19,504
Other assets ......................................... 55,158 34,780 5,203
----------- ----------- -----------
345,050 359,412 364,282
----------- ----------- -----------
$ 3,619,412 $ 825,845 $ 586,386
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Bridge notes payable, net of unamortized discount
of $ -0-, $133,523 and $ -0- ....................... $ -- $ 940,977 $ 89,000
Accounts payable, trade .............................. 167,142 161,642 83,827
Accrued liabilities .................................. 48,644 89,043 33,822
Advances from stockholder ............................ -- -- 16,889
Note payable to bank ................................. 200,000 -- --
----------- ----------- -----------
Total Current Liabilities ....................... 415,786 1,191,662 223,538
Commitments and contingencies ............................ -- -- --
Common stock subject to rescission, 118,750 shares
in 1996 and 57,750 shares in 1995 ....................... 405,702 195,818 --
Stockholders' Equity (Deficit)
Preferred stock - $1 par value, 5,000,000 shares
authorized, no shares issued or outstanding ..... -- -- --
Common stock - $.01 par value, 10,000,000 shares
authorized, 1,990,000 shares issued and
outstanding in 1996, and 990,000 in 1995 and 1994 19,900 9,900 9,900
Additional paid - in capital ......................... 5,724,297 994,007 994,007
Accumulated deficit .................................. (2,946,273) (1,565,542) (641,059)
----------- ----------- -----------
Total Stockholders' Equity ...................... 2,797,924 (561,635) 362,848
----------- ----------- -----------
$ 3,619,412 $ 825,845 $ 586,386
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
CluckCorp International, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Period of
Inception
June 18, 1993
Forty Weeks Ended Year Ended to
October 6, October 8, December 31, December 31,
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Restaurant ........................ $ 157,827 $ 184,997 $ 226,678 $ 243,988 $ --
Area development fee, stockholder . -- 50,000 50,000 -- --
----------- ----------- ----------- ----------- -----------
157,827 234,997 276,678 243,988 --
Costs and Expenses
Cost of food and paper ............ 68,624 67,068 82,171 105,650 --
Restaurant salaries and benefits .. 87,846 94,336 127,400 146,677 --
Occupancy and related expenses .... 46,426 44,899 63,605 67,611 --
Operating expenses ................ 51,595 61,349 86,641 106,647 --
General and administrative expenses 718,754 362,974 567,605 197,641 49,883
Preopening expenses ............... 63,044 31,862 59,363 25,783 42,514
Depreciation and amortization ..... 73,165 44,812 73,879 58,940 20,271
----------- ----------- ----------- ----------- -----------
Total costs and expenses ..... 1,109,454 707,300 1,060,664 708,949 112,668
----------- ----------- ----------- ----------- -----------
Loss from operations .................. (951,627) (472,303) (783,986) (464,961) (112,668)
Other income (expense)
Interest income ..................... 22,392 -- -- -- --
Interest expense and debt
discount expense .................. (451,496) (44,806) (140,497) (29,063) (34,367)
----------- ----------- ----------- ----------- -----------
(429,104) (44,806) (140,497) (29,063) (34,367)
----------- ----------- ----------- ----------- -----------
Net Loss .............................. $(1,380,731) $ (517,109) $ (924,483) $ (494,024) $ (147,035)
=========== =========== =========== =========== ===========
Net loss per common share ............. $ (1.00) $ (.43) $ (.75) $ (.49) $ (.21)
=========== =========== =========== =========== ===========
Weighted average number of common
and common equivalent shares
outstanding ......................... 1,386,661 1,216,287 1,224,531 1,005,107 703,244
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
CluckCorp International, Inc.
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
----------------------- Paid-In Accumulated Equity
Shares Amount Capital (Deficit) (Deficit)
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
on June 18, 1993 .................... 200,000 $ 2,000 $ 3,000 $ -- $ 5,000
Issuance of common stock .............. 340,000 3,400 309,100 -- 312,500
Net loss for the period ............... -- -- -- (147,035) (147,035)
--------- ----------- ----------- ----------- -----------
Balance at December 31, 1993 .......... 540,000 5,400 312,100 (147,035) 170,465
Issuances of common stock ............. 210,000 2,100 494,150 -- 496,250
Exchange of common stock for
reduction in obligations to affiliate 240,000 2,400 187,757 -- 190,157
Net loss for the year ................. -- -- -- (494,024) (494,024)
--------- ----------- ----------- ----------- -----------
Balance at December 31, 1994 .......... 990,000 9,900 994,007 (641,059) 362,848
Net loss for the year ................. -- -- -- (924,483) (924,483)
--------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 .......... 990,000 9,900 994,007 (1,565,542) (561,635)
Issuance of common stock and
warrants (unaudited) ................. 1,000,000 10,000 4,730,290 -- 4,740,290
Net loss for the period (unaudited) ... -- -- -- (1,380,731) (1,380,731)
--------- ----------- ----------- ----------- -----------
Balance at October 6, 1996 (unaudited) 1,990,000 $ 19,900 $ 5,724,297 $(2,946,273) $ 2,797,924
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
CluckCorp International, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Period of
Inception
June 18, 1993
Forty Weeks Ended Year Ended to
October 6, October 8, December 31, December 31,
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net loss for the period ................. $(1,380,731) $ (517,109) $ (924,483) $ (494,024) $ (147,035)
Adjustments to reconcile net loss
to net cash used in operations:
Depreciation and amortization ...... 73,165 44,812 73,879 58,940 20,271
Common stock issued for services
and expenses .................... -- -- -- 29,063 17,500
Amortization of bridge note discount 367,115 14,362 87,659 -- --
Loss on forfeited deposits ......... -- -- 17,338 -- --
Changes in operating assets and
liabilities:
Inventories .................... 1,390 (3,175) (2,046) (2,998) --
Prepaid expenses ............... 118,964 (116,553) (117,719) (1,645) --
Other current assets ........... 34,748 (55,465) (64,710) -- --
Accounts payable and accruals .. (34,899) 90,140 133,037 117,649 34,367
----------- ----------- ----------- ----------- -----------
(820,248) (542,988) (797,045) (293,015) (74,897)
Investing Activities
Purchases of property and equipment ..... (350,313) (1,627) (5,071) (97,408) (95,502)
Increase in deposits and other assets ... (24,213) (57,442) (57,395) (18,210) (7,623)
----------- ----------- ----------- ----------- -----------
(374,526) (59,069) (62,466) (115,618) (103,125)
Financing Activities
Net proceeds from sale of common stock
and warrants .......................... 4,740,290 -- -- 496,250 300,000
Net proceeds from sale of common stock
subject to rescission ................. 209,884 70,976 195,818 -- --
Proceeds from issuance of bridge notes
payable, net of discount ............. 376,370 546,825 764,318 89,000 --
Proceeds from bank borrowings ........... 200,000 -- -- -- --
Advances from stockholder ............... -- -- -- 22,889 --
Advances from affiliate ................. -- -- -- 42,227 --
Repayments of stockholder advances ...... -- (11,000) (16,889) (6,000) --
Repayments of obligations to affiliate .. -- -- -- (315,000) --
Repayments of bridge notes payable ...... (1,684,500) -- -- -- --
----------- ----------- ----------- ----------- -----------
3,842,044 606,801 943,247 329,366 300,000
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash ............. 2,647,270 4,744 83,736 (79,267) 121,978
Cash at beginning of period ................. 126,447 42,711 42,711 121,978 --
----------- ----------- ----------- ----------- -----------
Cash at End of Period ....................... $ 2,773,717 $ 47,455 $ 126,447 $ 42,711 $ 121,978
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: CluckCorp International, Inc. ("CluckCorp" or the "Company") was
organized in the State of Texas on June 18, 1993, and is an operator and
developer of a quick service restaurant concept. The Company currently operates
one Cluckers restaurant in San Antonio, Texas which opened in January 1994. The
restaurant provides high quality quick service food featuring marinated
oak-roasted rotisserie chicken with a variety of homemade side dishes.
The Company incorporated two wholly-owned subsidiaries during 1995, Cluckers
Restaurants, Inc. and Harvest Restaurants, Inc., to act as franchisors for the
Company's restaurants. Neither subsidiary had any operations during 1995.
Cash and Cash Equivalents: The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market and consist primarily of restaurant food and paper.
Property and Equipment: Property and equipment are stated at cost. Depreciation
is provided using the straight-line method over the estimated useful lives of
the respective assets (generally seven years for furniture, fixtures and
equipment and five years for leasehold improvements), or applicable lease terms,
if less. Maintenance and repairs are charged to expense as incurred, while
improvements which increase the value of the property and extend the useful
lives are capitalized.
Intangible Property Rights: The Company obtained under an agreement with
Cluckers Wood Roasted Chicken, Inc. (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 years ended December 31, 1995 and 1994, and $19,975
for the period of inception, June 18, 1993 to December 31, 1993.
Revenue Recognition: Revenue from restaurant and product sales are recognized in
the period in which food and beverage products are sold. Revenue from
nonrefundable area development fees is recognized when all material services or
conditions relating to the area development sale have been substantially
performed or satisfied by the Company.
Preopening Costs: Expenses incurred in connection with restaurant openings
(principally the costs of supplies and staff training) and in connection with
acquiring site locations for planned future restaurants are charged to expense
as incurred.
Income Taxes: In accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", deferred tax assets and liabilities are
recognized for temporary differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements. A valuation
allowance is provided against net deferred tax assets when realization is
doubtful.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements: The unaudited financial statements as of October
6, 1996 and October 8, 1995, and for the forty week periods then ended, 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.
F-6
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
NOTE B - UNCERTAINTIES
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. However, the Company has sustained substantial
operating losses since its inception. In addition, operations at current levels
will not generate working capital sufficient to meet future operating
requirements. These factors raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not reflect any
adjustments that might result from the outcome of this uncertainty. The
Company's continuation as a going concern is dependent upon its ability to
obtain additional capital or financing to fund the development of new
restaurants and a franchising program, and to achieve profitable operations.
Management plans include obtaining additional capital or financing through
either public or private offerings. Management also intends to concentrate
efforts at bringing its current operations to profitability.
In March, 1996, the Company issued an additional $610,000 of bridge notes
exclusive of offering costs of $61,000, through a private placement, and entered
into a letter of intent dated in February, 1996 with an investment banking firm
for the purpose of underwriting an initial public offering of the Company's
securities. See Note K.
NOTE C - BRIDGE NOTES PAYABLE
As of December 31, 1995 and 1994, the Company had bridge notes payable
outstanding of $940,977 and $89,000 (net of unamortized discount of $133,523 and
$-0-), respectively.
Between December 1994 and November 1995, the Company issued a total of
$1,074,500 of unsecured promissory notes ("Bridge Notes"), exclusive of $93,435
of offering costs. The bridge notes bear interest at 10% per annum payable at
maturity, due the earlier of six months from the date of issuance, or upon the
closing of a future public financing which results in cumulative proceeds of at
least $1,000,000. The notes were issued to individuals in three separate private
offerings as follows; (i) $497,000 completed in May 1995, (of which $89,000 was
issued in December 1994), originally due November 1995 and extended to May 1996,
(ii) $225,000 in August 1995, originally due February 1996 and extended to May
1996, and (iii) $352,500 in November 1995, due May 1996.
As additional consideration for the $497,000 bridge notes, the Company issued to
the investors 198,800 common stock purchase warrants, with each warrant
entitling the holder to purchase one share of the Company's common stock at
$2.50 per share until December 31, 1997. Management valued the common stock of
the Company at $2.50 per share during the period of time the bridge note was
funded, as an independent appraisal of the common stock was not obtained.
Accordingly, no allocation of the note proceeds to the warrants is applicable.
As additional consideration for advancing the remaining $225,000 of bridge notes
in August 1995 and $325,500 of bridge notes in November 1995, the Company issued
to the investors an aggregate of 57,750 shares of its common stock. Management
valued the common stock of the Company at $3.83 per share during the period of
time the bridge notes were funded, as an independent appraisal of the common
stock was not obtained. The gross proceeds and offering costs were allocated
between the bridge notes and the common stock in accordance with their relative
fair values. The discount resulting from the difference between the stated value
of the bridge notes and their determined fair values is reported as a direct
deduction to the amount of the bridge notes and is amortized as interest expense
over the stated life of the bridge notes.
During 1995, $87,659 of the discount was amortized to interest expense.
The Company's weighted-average interest rate (interest and amortization of
discount) on it short-term borrowings was 28% in 1995 and 10% in 1994.
F-7
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
NOTE D - ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
1995 1994
------- -------
Accrued payroll and related liabilities $ 6,874 $27,907
Accrued interest payable .............. 51,758 --
Accrued property lease payments ....... 29,500 --
Other accrued liabilities ............. 911 5,915
------- -------
$89,043 $33,822
======= =======
NOTE E - OPERATING LEASES
The Company conducts all its operations and maintains its administrative offices
in leased facilities. The San Antonio restaurant lease has a five year term with
renewal clauses for an additional ten years. This lease requires the Company to
pay for common area maintenance charges and other expenses. The Company also has
entered into two ten year lease agreements for facilities in Houston and San
Antonio, Texas which the Company intends to develop as restaurants in the
future. The Company also leases certain equipment under non-cancelable operating
leases having terms expiring at various dates through 1997. Rental expense under
operating lease agreements was $120,262, $69,234 and $-0- for the periods ended
December 31, 1995, 1994 and 1993, respectively.
Future minimum lease payments are as follows:
Years Ended December 31 Amount
----------------------- ------
1996 $ 109,094
1997 104,711
1998 90,078
1999 67,200
2000 68,200
Thereafter 309,600
---------
Total future minimum payments $ 748,883
=========
The Company has also entered into non-binding leases for four additional
restaurant site locations, with lease terms ranging from 5 to 10 years. If
consummated, the leases will require aggregate annualized lease payments
beginning at approximately $150,000 per year and increasing over the lease term.
F-8
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
NOTE F - FEDERAL INCOME TAXES
Deferred income taxes resulted from the following temporary differences and loss
carryforwards at December 31:
1995 1994
----------- -----------
Deferred tax asset - loss carryforwards . $ 1,565,542 $ 641,059
=========== ===========
Net deferred tax asset at expected rates $ 532,284 $ 271,960
Less valuation allowance ................ (532,284) (271,960)
----------- -----------
Deferred tax asset allowed $ -- $ --
=========== ===========
The Company has not recorded any income tax expense (benefit) since its
inception. The Company's tax operating loss carryforwards are available for
utilization against taxable income and expire in various amounts from 2008
through 2010.
NOTE G - STOCKHOLDERS' EQUITY
Reverse Common Stock Split: On July 17, 1995, the Board of Directors authorized
a five-for-two reverse common stock split. All references to number of shares
and to stock warrants as well as per share information have been adjusted to
reflect the stock split on a retroactive basis.
Preferred Stock: The Company has authorized 5,000,000 shares of $1 par value
preferred stock, none of which is issued or outstanding. Dividend rates,
conversion rights, redemption and voting rights and liquidation rates have not
been set by the Board of Directors.
Sales and Issuances of Common Stock and Warrants: On June 18, 1993, the Company
issued a total of 200,000 shares of common stock to its President and
Co-Chairmen of the Board of Directors for $5,000. The Company also exchanged
100,000 shares of its common stock for services valued at $12,500 and charged
this amount to expense in the accompanying statement of operations in 1993.
Subsequently in 1993, the Company sold 240,000 shares of its common stock to
seven investors for $300,000 in a private transaction.
In April 1994, the Company sold 100,000 units of its securities to seven
investors for $250,000 in a private transaction. Each unit consisted of one
share of common stock and one warrant to purchase an additional share of common
stock for $2.50 per share through April 1996.
In August 1994, the Company sold 110,000 shares of its common stock to a group
of investors for $246,250, net of offering costs of $28,750, in a private
transaction. In connection with this sale, the Company issued warrants to the
placement agent to purchase a total of 30,480 shares of common stock for $2.50
per share exercisable through December 31, 1996.
In December 1994 and May 1995, the Company issued 35,600 and 163,200 warrants,
respectively, in connection with the issuance of bridge notes to purchase a
total of 198,800 shares of common stock for $2.50 per share, exercisable through
December 31, 1997.
In August and November 1995, the Company issued 22,500 and 32,250 shares of its
common stock, respectively, in connection with the issuance of bridge notes.
F-9
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
NOTE G - STOCKHOLDERS' EQUITY - Continued
Common Stock Subject to Recission: In connection with the sale of $1,187,500 of
Bridge Notes and the issuance of 118,750 shares of Common Stock to the bridge
lenders between August 1995 and March 1996, the Company may not have established
an adequate basis to claim the private placement exemption by virtue of the fact
that sales of these securities were made after the filing of the Registration
Statement. If the Company is unable to establish such a basis, these
transactions could be considered integrated with the offering, subjecting the
Company to potential liability for sales of unregistered securities. If such an
assertion were made an upheld, the Company would otherwise be required to
rescind the issuance of the Bridge Notes and the Common Stock, return the
principle amount to the Bridge Notes together with interest and possibly other
damages. However, under the terms of the Bridge Notes, the Company is required
to repay the Bridge Notes plus accrued interest on the closing of the offering.
Nevertheless, the Company could be liable for a claim by the bridge lenders in
connection with the issuance of the 118,750 shares of Common Stock to them at 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. No bridge lender
has asserted any claim for rescission or damages, nor is the Company aware of
any bridge lender who intends to do so.
As a result of the contingency related to the issuance of the 118,750 shares of
Common Stock, the Company has classified such stock as temporary equity.
Stock Option Plan: In July 1994, the Company adopted a stock option plan which
provides for the granting of either incentive stock options or non-qualified
stock options. Options can be issued to officers, employees, directors and
outside consultants; however, incentive stock options are issuable only to
eligible officers and employees. The Company has reserved a total of 250,000
shares of common stock for the plan. In March, 1995 options for the purchase of
80,000 shares of common stock at $2.50 per share were granted to the Company's
Chief Executive Officer. The options vest 20% per year, commencing on the date
of grant and expire March 31, 2000. The options were issued at the fair market
value of the Company's common stock on date of grant and as determined by
management, as an independent appraisal of the Company was not obtained. No
compensation expense was recorded in connection with the options granted.
F-10
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
NOTE G - STOCKHOLDERS' EQUITY - Continued
Warrants and Options: The following is a summary of warrant and option activity,
after giving effect to the July 17, 1995 reverse stock split:
<TABLE>
<CAPTION>
Warrants/ Exercise
Options Price Expiration
------- ----- ----------
<S> <C> <C> <C>
Issued in April 1994 in conjunction with
private sale of common stock (warrants) 100,000 $ 2.50 December 31, 1997
Issued in August 1994 in conjunction with
private sale of common stock (warrants) 30,480 2.50 December 31, 1997
Issued in December 1994 in conjunction
with bridge notes (warrants) ........... 35,600 2.50 December 31, 1997
-------
Outstanding at December 31, 1994 ..... 166,080
Issued in May 1995 in conjunction with
bridge notes (warrants) ................ 163,200 2.50 December 31, 1997
Granted and vested under stock option plan
to Company officer (options) ........... 16,000 2.50 March 31, 2000
-------
Outstanding at December 31, 1995 ..... 345,280
=======
</TABLE>
F-11
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
NOTE H - RELATED PARTY TRANSACTIONS
In June 1993, the Company received franchise and development rights, valued at
$399,500 (the affiliate's historical cost basis as determined by generally
accepted accounting principles) by assignment from an affiliated company
(CluckCorp's current Chairman and majority stockholder was formerly the Chairman
and majority stockholder of the affiliate) for a convertible promissory note,
payable at the option of the Company in cash or common stock. The affiliate
initially acquired these franchise and development rights directly from Cluckers
Wood Roasted Chicken, Inc. ("CWRC"). In 1994, the Company also received advances
from the same affiliate of $42,227, repaid $315,000 of the obligations and
issued 240,000 shares of common stock in exchange for full settlement of the
remaining obligations to the affiliate, including $63,430 of accrued interest.
In 1994, the Company received advances from its Chairman totaling $22,889, and
subsequently repaid $6,000 of this amount in 1994 and repaid the remaining
balance of $16,889 in 1995.
In March 1995, the Company entered into an employment agreement with its Chief
Executive Officer (CEO) effective through December 31, 1995. After December 31,
1995, the Company and the CEO agreed to negotiate a new employment agreement
with an effective date to coincide with the Company's proposed initial public
offering of common stock. Annual compensation under the new agreement is
expected to be approximately $100,000 per year.
In March 1995, the Company entered into an area development agreement with a
stockholder of the Company for the exclusive license to develop up to ten
restaurants in Singapore over a 20-year period. The fee under the area
development agreement was $50,000, of which the Company had received $10,000 as
of December 31, 1995, and a second $10,000 payment was received on March 6,
1996. A non-interest bearing unsecured promissory note initially due March 30,
1996 has been extended to September 30, 1996. The license fee is nonrefundable
and the Company has no significant future commitments or obligations under the
area development agreement.
On August 10, 1995, the Company entered into a five year employment agreement
with its Chairman. Annual compensation is fixed at the larger of $75,000 or 20%
of all franchise and area development fees paid to the Company, together with 5%
of all royalty fees received by the Company under any franchise agreements and
area development agreements executed during the Chairman's employment.
NOTE I - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The Company has not paid any interest or taxes for the periods ended December
31, 1995, 1994 and 1993.
During the period ended December 31, 1993, the Company received franchise and
area development rights, valued at $399,500, for the issuance of a convertible
note payable to an affiliate and payable at the option of the Company in cash or
common stock.
During the year ended December 31, 1994, the Company exchanged 240,000 shares of
common stock for a reduction in its remaining obligations due an affiliate of
$190,157.
F-12
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
NOTE J - LOSS PER SHARE
Loss per common and common equivalent share are computed by dividing net loss by
the weighted average number of shares outstanding during each period. Warrants
and options outstanding are assumed to be outstanding for all periods presented,
using the treasury stock method.
Loss per common share is calculated as follows:
<TABLE>
<CAPTION>
Period of
Forty Weeks Ended Year Ended inception and
October 6, October 8, December 31, December 31,
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net loss ................... $(1,380,731) $ (517,109) $ (924,483) $ (494,024) $ (147,035)
=========== =========== =========== =========== ===========
Weighted average number
of share outstanding ..... 1,386,661 993,043 1,001,287 781,863 480,000
Common stock equivalents due
to assumed exercise of
options and warrants ..... -- * 223,244 223,244 223,244 223,244
----------- ----------- ----------- ----------- -----------
1,386,661 1,216,287 1,224,531 1,005,107 703,244
=========== =========== =========== =========== ===========
Net loss per common share .. $ (1.00) $ (.43) $ (.75) $ (.49) $ (.21)
=========== =========== =========== =========== ===========
</TABLE>
* Subsequent to the Company's initial offering of Common Stock, warrants and
options are not considered common stock equivalents as their effect is
anti-dilutive.
F-13
<PAGE>
CluckCorp International, Inc.
Notes to Financial Statements
December 31, 1994
NOTE K - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
October 6, December 31,
1996 1995 1994
--------- --------- ---------
(Unaudited)
Construction in progress ........ $ 318,426 $ -- $ --
Furnture, fixtures and equipment 110,037 78,150 77,080
Leasehold improvements .......... 115,830 115,830 115,830
--------- --------- ---------
544,293 193,980 192,910
Less accumulated depreciation ... (77,702) (43,112) (18,160)
--------- --------- ---------
Property and equipment, net . $ 466,591 $ 150,868 $ 174,750
========= ========= =========
NOTE L - SUBSEQUENT EVENTS
In February, 1996, the Company entered into a letter of intent with an
investment banking firm for the purpose of underwriting an initial offering of
the Company's common stock. The offering will be for two types of securities (i)
1,000,000 shares of common stock at an initial public offering price of $5.50
per share and (ii) 2,000,000 warrants at an initial public offering price of
$0.125 per share, with each warrant allowing for the purchase of one share of
common stock at $4.00 per share, exercisable 12 months after the effective date
of the offering.
In March, 1996, the Company borrowed an additional $610,000, exclusive of
offering costs of $61,000, through the issuance of unsecured bridge notes
payable to individuals. The bridge notes bear interest at 10% payable at
maturity, and are due the earlier of September 1996, or upon the closing of the
offering. As additional consideration for the loans, the Company issued 500
shares of common stock for each $5,000 of bridge notes for a total of 61,000
shares of common stock. Management valued the common stock of the Company at
$3.83 per share, as an independent appraisal of the common stock was not
obtained. The gross proceeds and offering costs were allocated between the
bridge notes and the common stock in accordance with their relative fair values.
F-14
<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
II-1
<PAGE>
the power to indemnify him against such liability under the provisions of this
Article Eleven or the Act."
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..................... $ 3,818
NASD Filing Fee.......................... 1,760
Blue Sky Filing Fees..................... 10,000
Blue Sky Legal Fees...................... 20,000
Printing Expenses........................ 40,000
Legal Fees and Expenses.................. 100,000
Accounting Fees.......................... 30,000
NASDAQ SmallCap Application.............. 10,000
Transfer Agent and Certificates.......... 2,000
Miscellaneous Expenses................... 32,422
--------
TOTAL.................................... $250,000
(1) Does not include the Representative's commissions and fees of $975,000
($1,121,250 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 totalling
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
at any time
II-3
<PAGE>
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
1.18 Form of Selling Group Agreement (To be filed by
amendment)
1.19 Form of Representative's Warrant (To be filed by
amendment)
1.20 Form of Agreement Among Underwriters (To be filed
by amendment)
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)
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
10.27 Ground Lease (Harvest Rotisserie - Dezavala)
10.28 Ground Lease (Harvest Rotisserie - Herzberg)
10.29 Consulting Agreement with the Representative
10.30 Building Lease (Harvest Rotisserie - Corpus
Christi) (To be filed by amendment)
10.31 Building Lease (Harvest Rotisserie - San Antonio)
23.09 Consent of Akin, Doherty, Klein & Feuge, P.C.
23.10 Consent of Gary A. Agron, Esq., (See 5.02, above)
(1) Incorporated by reference to the Registrant's definitive Registration
Statement File No. 33-95796 declared effective on July 9, 1996.
ITEM 28. Undertakings.
The Registrant hereby undertakes that:
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(b) Subject to the terms and conditions of Section 13(a) of the Securities
Exchange Act of 1934, it will file with the Securities and Exchange Commission
such supplementary and
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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.
(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.
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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 February 3, 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 February 3, 1997
- ------------------------------ Directors and Chief Executive
William J. Gallagher Officer
By: /s/ Larry F. Harris President and Director February 3, 1997
- ------------------------------
Larry F. Harris
By: /s/ Sam Bell Steves Rosser Vice President - Development, February 3, 1997
- ------------------------------ Treasurer and Director
Sam Bell Steves Rosser
By: /s/ Michael M. Hogan Director February 3, 1997
- ------------------------------
Michael M. Hogan
By: /s/ Theodore M. Heesch Director February 3, 1997
- ------------------------------
Theodore M. Heesch
By: /s/ Joseph Fazzone Chief Financial Officer and February 3, 1997
- ------------------------------ Principal Accounting Officer
Joseph Fazzone
<PAGE>
CLUCKCORP INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit No. Title
1.17 Form of Underwriting Agreement
5.02 Opinion of Gary A. Agron, Esq., regarding legality of
the Preferred Stock (includes Consent)
10.27 Ground Lease (Harvest Rotisserie - Dezavala)
10.28 Ground Lease (Harvest Rotisserie - Herzberg)
10.29 Consulting Agreement with the Representative
10.31 Building Lease (Harvest Rotisserie - San Antonio)
23.09 Consent of Akin, Doherty, Klein & Feuge
23.10 Consent of Gary A. Agron, Esq., (See 5.02, above)
EXHIBIT 1.17
UNDERWRITING AGREEMENT
CLUCKCORP INTERNATIONAL, INC.
500,000 Shares of ______%
Convertible Redeemable Preferred Stock
(Liquidation Preference $10.00 per Preferred Security)
January 27, 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"). 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 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.
1. Representations, Warranties and Agreements of the Company and the
Principal Stockholder. The Company and JEB Investment Company (the "Principal
Stockholder"), jointly and severally, represent, warrant and agree that:
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(a) A registration statement on Form SB-2 (No. 33_______), 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 this Agreement,
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<PAGE>
"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" means the
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<PAGE>
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
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<PAGE>
effective date (as to the 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 to conduct the
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<PAGE>
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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<PAGE>
(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
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<PAGE>
or body is 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,
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<PAGE>
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; 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
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<PAGE>
and who have delivered the initial letter referred to 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
-10-
<PAGE>
therein by reference as permitted by the Rules and Regulations.
(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 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 the Registration statement and in
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<PAGE>
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 the
Firm Stock 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 Option Stock. Such option is granted solely for the
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<PAGE>
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 which
represents the public offering price of $10.00 per share 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.
3. Offering of Stock by the Underwriters. Upon authorization by the
Representative of the release of the Firm Stock, the several Underwriters
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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 mane of _______________as
nominee for DTC. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Company shall make the certificates
representing the Option Stock available for inspection by the Representative in
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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 at an aggregate purchase price of
$____________. Each Underwriters' Warrant shall entitle the owner thereof to
purchase one Preferred Stock of the Company at an exercise price of $12.00. The
Preferred Stock shall be similar in all respects to the Preferred Stock sold to
the public. Such Underwriters' Warrants are to become exercisable upon the
expiration of one year from the Effective Dte, 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
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
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<PAGE>
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 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
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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)
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
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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 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
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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: (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
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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 or Preferred Stock 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 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
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by any person of), directly or indirectly, any shares of Common Stock
(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 (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), directly or indirectly, any shares of Common
Stock 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
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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 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
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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 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
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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
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
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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). 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
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and disbursements, and the Underwriters shall reimburse the Company if and to
the extent that such expenses are less than the $_____________ previously
advanced amount with respect to such expenses. The non-accountable expense
allowance shall be payable to the Underwriters based on their pro rata
participation in the offering which is _________(__%) to Global and
__________(__%) to ________.
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:
(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.
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(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. (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
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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 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
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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;
(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;
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(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, 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
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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, 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;
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(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 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
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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 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
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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
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
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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.
(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;
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(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 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
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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 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
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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 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
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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 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.
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(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 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 at a fee of
$12,000 per month.
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(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 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.
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(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, 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.
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(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
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 shall be such) 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.
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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 and the Principal Stockholder, jointly and severally,
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 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
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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 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
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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 and the Principal Stockholder 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 misconduct. The
foregoing indemnity agreement is in addition to any liability which the
Company or the Principal Stockholder 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
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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
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,
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<PAGE>
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 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
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<PAGE>
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 or
the Principal Stockholder under this Section 10 if, in the reasonable
judgment of the Representative, it is advisable for the Representative and
those Underwriters, officers, 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 and the
Principal Stockholder. 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
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<PAGE>
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.
(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
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<PAGE>
as shall be appropriate to reflect the relative benefits received by the
Company, the Principal Stockholder and the Selling Stockholders 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 and the Principal Stockholder 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 and the Principal Stockholder 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
(before deducting expenses) received by the Company and the Principal
Stockholder 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
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<PAGE>
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, the Principal Stockholder, 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. For purposes
of the preceding two sentences, the net proceeds deemed to be also for the
benefit of the Principal Stockholder and information supplied by the
Company shall also be deemed to have been supplied by the Principal
Stockholder. The Company, the Principal Stockholder, 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 Section 10(e), any legal or other
expenses reasonably incurred by such indemnified party in connection with
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<PAGE>
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.
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<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
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<PAGE>
elect to 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
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<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 and the Principal Stockholder 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 the
Principal Stockholder 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 that (A) the representations,
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<PAGE>
warranties, indemnities and agreements of the Company and the Principal
Stockholder 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 the Principal Stockholder, 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
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<PAGE>
and (b) "subsidiary" has the meaning set forth in Rule 405 of the Rules and
Regulations.
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 among the Company, the
Principal Stockholder, and the Underwriters, please indicate your acceptance in
the space provided for the purpose below.
Very truly yours,
CLUCKCORP INTERNATIONAL, INC.
By_____________________________
President
JEB INVESTMENT COMPANY
------------------------------
Michael M. Hogan
Accepted:
GLOBAL EQUITIES GROUP, INC.
By_____________________________
Michael Christ, President
For itself and as Representative of the several Underwriters named in Schedule 1
hereto
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SCHEDULE 1
Number of Shares
Underwriters of Firm Stock
Global Equities Group, Inc........................................
Co- Manager
Syndicate Member A................................................
Syndicate Member B................................................
Syndicate Member C................................................
Total...........................................500,000
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EXHIBIT 5.02
February 3, 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") 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.
February 3, 1997
Page 2
Based upon the foregoing and in reliance thereon, it is our opinion that
the Preferred Stock and any Common Stock issuable upon conversion of the
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 offereing described in the Registration Statement, be duly 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 10.27
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") between DEZAVALA 31 JOINT VENTURE, a
Texas joint venture (hereinafter called "Landlord"), and CLUCKCORP
INTERNATIONAL, INC, a Texas corporation (hereinafter called "Tenant").
1. Premises and Term.
a. Premises. Subject to the terms of this Lease, Landlord hereby leases to
Tenant, and Tenant hereby leases from Landlord, (i) a portion of that certain
4.489 acre parcel of real property (the "Property") located in the City of San
Antonio, Bexar County, State of Texas, the portion being leased to Tenant being
shown crosshatched on Exhibit "B" attached hereto and made a part hereof (the
"Tenant's Portion"), together with (ii) the building and other improvements to
be erected by Tenant thereon in accordance with the Plans and Specifications
described in Paragraph 2 of this lease (the "Improvements"), and (iii) a
non-exclusive right to utilize a detention pond to be constructed on the
Property by Landlord pursuant to a Water Pollution Abatement Plan covering the
Property including Tenant's Portion thereof (the "Detention Pond") the Tenant's
Portion, the Improvements and the Detention Pond being hereinafter referred to
as the "Premises"). Landlord shall provide at its expense a current survey and
legal description of the Property and Tenant's Portion thereof within thirty
(30) days from date hereof, and such survey and legal description, when approved
by Landlord and Tenant, shall be incorporated as Exhibit "A" to this Lease.
b. Primary Term and Rent Commencement Date. Tenant shall lease the Premises
for a primary term commencing on the date of this Lease as set forth in
Paragraph 38(a) hereof and expiring one hundred eighty (180) months after the
"Rent Commencement Date," as hereinafter defined. The "Rent Commencement Date"
of this Lease, and Tenant's obligation to begin paying rent under this Lease
shall be one hundred twenty (120) days from the date of this Lease as set forth
in Paragraph 38(a) hereof.
c. Renewal Options. As long as Tenant remains current in its obligations
under this Lease and is not in default hereunder. Tenant shall have the option
to extend the terms of this Lease for three (3) consecutive renewal terms of
five (5) years each (the "Renewal Options"), provided that Tenant gives written
notice of its exercise of the respective option at least six (6) months prior to
the expiration of the then existing term. Each renewal term shall be upon the
same terms and conditions as stated in this Lease (except for free rent and
other initial obligations of Landlord), it being agreed, however, that (i)
Tenant shall have no further right of renewal after the third (3rd) renewal
term, and (ii) that the rental increases specified in Paragraph 3(c) hereof will
be applicable.
2. Construction.
a. Landlord authorizes Tenant to enter upon the property to determine that
such utilities as Tenant requires for Tenant's use are located on the property
or may be extended to the property in an economical manner, in Tenant's sole
discretion. Should utility extensions be required to serve Tenant's use Tenant
shall make such utility extensions at Tenant's sole cost and expense. If Tenant
exercises its right to provide such utility facilities, then, to the extent that
Landlord owns any of the property adjacent to the Property, and so long as the
same will not interfere with any detention basins required under any T.N.R.C.C.
Water Pollution Abatement Plans, Landlord agrees to grant to Tenant, or the
appropriate municipal agency providing utilities, a utility easement located
within a building set back line on such adjacent property for the purpose of
bringing the utility facilities to the Property and a construction easement on
the adjacent property to the extent necessary to cause the utility facilities to
be extended to the Property. If Tenant elects not to extend such utilities and
notifies Landlord in writing within sixty (60) days of the date of this lease,
Tenant may cancel this lease and receive a full refund of any moneys deposited
with Landlord.
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b. Tenant shall construct or cause to be constructed, at Tenant's sole cost
and expense, the Improvements upon the Property, in accordance with the final
detailed plans and specifications ("Plans and Specifications") and the detailed
site plan ("Site Plans") each to be prepared forthwith by Tenant and delivered
to Landlord not later than thirty (30) days prior to the Rent Commencement Date
for Landlord's approval. Approval by Landlord shall not be unreasonably
withheld. Landlord shall promptly approve or specify in detail any deficiencies
in the proposed Plans and Specifications and Site Plan; and in the event of
Landlord's good faith disapproval, Tenant shall in good faith attempt to remedy
all deficiencies reasonably specified by Landlord. If Landlord fails to specify
its objections in detail by written notice delivered to Tenant within fifteen
(15) days after the date of Tenant's delivery to Landlord of the proposed Plans
and Specifications and Site Plan, Landlord's approval shall be deemed to have
been given. Upon approval by Landlord, two or more sets of the final approved
Plans and Specifications and Site Plan shall be signed by both parties and shall
be deemed incorporated into this Lease.
c. Promptly after the signing of the Plans and Specifications and Site Plan
by both parties, Tenant shall request bids from general contractors for the
purpose of constructing the Improvements in accordance with such Plans and
Specifications and Site Plan. Upon receipt of bids. Tenant shall approve a
general contractor from the bidders, and Tenant shall execute a construction
contract with such contractor upon terms satisfactory to Tenant for construction
of such Improvements on the Premises, such contract including performance and
payment bonds with Landlord named as a co-insured.
d. Tenant's construction work shall commence no later than thirty (30) days
after the "180 day Deadline" as defined in Paragraph 25b hereof. After the
commencement of Tenant's construction work, Tenant shall use its best efforts to
have the work completed promptly and strictly in accordance with the approved
Plans and Specifications and Site Plan, but in no event later than one hundred
eighty (180) days after commencement of construction.
e. Landlord and Tenant agree that although Landlord will be the owner of
the Premises (including reversion rights to the Improvements after the
conclusion of this Lease), Tenant shall nevertheless be responsible for (i) the
payment or other release of all claims by contractors and subcontractors and
(ii) all maintenance, repair and replacements during the term of this Lease.
f. Landlord hereby permits Tenant to retain, during the term of this Lease,
all warranties and guarantees pertaining to Improvements and equipment erected
or installed upon the Premises. In the event of termination of this Lease when
any warranties or guarantees are still applicable, Tenant hereby assigns to
Landlord effective as of the date of termination all such warranties and
guaranties pertaining to the Improvements (including, without limitation, all
heating and air conditioning equipment installed upon the Premises, but not
including Tenant's kitchen equipment, furniture or inventory).
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<PAGE>
3. Minimum Rent.
a. As shown in the chart set out below in this paragraph, during the first
five years of the term of this Lease Tenant shall pay to Landlord minimum rental
(the "Minimum Rent") for the Premises at the rate of Sixty Thousand Dollars
($60,000.00) per annum, payable in monthly installments, in advance, of Five
Thousand Dollars ($5,000.00) per month. At the conclusion of the first five-year
period during the term of this lease, and at the conclusion of the second
five-year period during the term of this Lease, the Minimum Rent shall escalate
in accordance with the following chart.
Years of Lease Term Annual Rental Monthly Rental
1-5 $60,000.00 $5,000.00
6-10 $69,552.00 $5,796.00
11-15 $80,629.00 $6,719.00
b. The first two (2) monthly payments of Minimum Rent shall be deposited
with Landlord in advance upon Lease execution, and shall be applied to Tenant's
first two (2) monthly rental payments due commencing on the Rent Commencement
Date (provided the Tenant's special conditions described in Paragraph 25 have
been satisfied). Subsequent monthly installments shall be due and payable on or
before the first day of each succeeding calendar month during the term of this
lease, commencing on the 180th day of this Lease. Rent for any fractional month
at the beginning or the end of the term of this Lease, as well as during any
month in which a rent escalation date occurs, shall be prorated.
c. Renewal Term Rental. At the conclusion of the first fifteen (15) year
period during the term of this Lease, in the event Tenant exercises its first
Renewal Option, the Minimum Rent shall be adjusted (with additional subsequent
adjustments in the event Tenant exercises its additional Renewal Options, on the
commencement of each renewal term) ("Adjustment Date") according to the
following formula. The Minimum Rental shall be adjusted on each Adjustment Date
for inflation as measured by the "United States City Average (all Urban
Consumers)--All items" index of the Consumer Price Index (Base year 1982-1984
=100) published by the Bureau of Labor Statistics, United States Department of
Labor ("CPI"). In no event shall any adjustment cause the Minimum Rent hereunder
to be reduced below the Minimum Rent in effect at the conclusion of the fifteen
(15) year Primary Term of this Lease.
d. The adjustment shall be made as follows: The original Minimum Rent
payable hereunder on the Rent Commencement Date shall be multiplied by a
fraction ("CPI Adjustment Fraction") to determine the rent payable from and
after the pertinent Adjustment Date. The numerator of the CPI Adjustment
Fraction shall be the CPI for the month four (4) months prior to the month of
the Adjustment Date (or the most recent month for which the CPI is available if
the CPI for the fourth (4th) preceding month is not then available). The
denominator of the CPI Adjustment Fraction shall be the CPI for the month four
(4) months prior to the Rent Commencement Date (or the most recent preceding
month for which the CPI is available if the CPI for the fourth (4th) month
preceding the Rent Commencement Date is not available).
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e. If the CPI called for by the CPI Adjustment Fraction becomes unavailable
to the public because its publication is discontinued, or otherwise, or if the
format of it has changed so that this calculation is no longer possible, then
another substantially comparable index shall be substituted in the formula by
agreement of the parties. If the parties cannot agree on a substitute index,
then the substitute index shall be selected by a committee composed of three (3)
independent certified public accountants, one selected by Landlord, one selected
by Tenant, and one selected by the two certified public accountants.
4. Use.
a. Subject to the provisions of Paragraph 4b, Tenant shall be authorized to
use the Premises for the operation of a restaurant, or for any other use
allowable, as of the date of this lease, under the B-2 zoning designation of the
City Code of San Antonio.
b. In no event shall the use of the Premises, now or in the future, nor the
design or construction (or any future alterations) of the Improvements be such
to violate the parking requirements of the City of San Antonio, Texas, or
restrictions, if any, attached as an exhibit to this Lease.
c. Tenant shall not permit any objectionable noises or odors to emanate
from the building which is a part of the Improvements (other than normal noises
and odors associated with a restaurant); nor take any other action which would
constitute a nuisance; nor permit any unlawful or immoral practice to be carried
on or committed on the Premises.
d. Tenant shall procure at its sole expense any permits and licenses
required for the transaction of business in the Premises and otherwise comply
with all applicable laws, ordinances and governmental regulations.
S. Utility Charges.
a. Except as otherwise provided herein regarding the cost of making
utilities available to the Premises, Tenant shall pay all charges incurred for
any utility services used by Tenant on the Premises (including hook-up or tie-in
charges). Landlord shall not be liable for any interruption whatsoever in
utility service, unless the same is caused by Landlord's gross negligence.
6. Taxes and Assessments.
a. Tenant agrees that after the Rent Commencement Date of this Lease,
Tenant shall pay as additional rent (and hold Landlord harmless from), before
they become delinquent all taxes (both real and personal), assessments (both
general and special), and governmental charges of any nature whatsoever, levied
upon or assessed against the Premises. Tenant's obligations under this paragraph
shall be prorated for the partial years during which the Rent Commencement Date
and the termination date occur. Tenant shall deliver to Landlord receipts or
other reasonably satisfactory evidence of payment of all such taxes, assessments
and governmental charges so paid by Tenant within thirty (30) days of due date.
It is agreed, however, that Tenant may, at its sole cost and expense, after
giving prior written notice to Landlord, dispute and contest the same, and in
such cases, such disputed item need not be paid until finally adjudged to be
valid; provided, however, that Tenant must post an appropriate bond or take
another measure necessary to keep the Premises free of tax liens. At the
conclusion of such contest, Tenant shall pay the items contested to the extent
that they are held valid, together with all terms, court costs, interest,
penalties and other expenses relating thereto.
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b. Notwithstanding anything hereinabove to the contrary, if at any time
during the term of this Lease any assessment (either general or special) is
levied upon or assessed against the Property or any part thereof, and such
assessment is payable in installments (without special hearing or legal action),
Tenant shall be liable for installments during Tenant's tenancy under this
Lease.
7. Insurance.
a. Tenant, at its own sole cost and expense, shall keep the Premises
insured in the amount of not less than the greater of (i) the amount necessary
to prevent co-insurance, or (ii) eighty percent (80%) of the insurable
replacement value thereof. Such policies shall provide for insurance coverage
against such risks as are included under the so-called "all risk" fire and
extended coverage, with additional coverage of vandalism and malicious mischief
and with replacement cost coverage.
b. Tenant shall, throughout the term hereof, at its sole cost and expense,
provide and keep in force comprehensive public liability (including, without
limitation, contract coverage) and property damage insurance in the amount of
not less than $500,000 in respect to destruction or damage to property, and in
the amount of not less than $2,000,000 in respect of injury or death to any one
person, and in the amount of not less than $2,000,000 in respect to any one
accident or disaster, protecting Landlord and any mortgagee of Landlord, as well
as Tenant, against liability to any person whomsoever based upon or arising out
of or in connection with Tenant's use of the Premises.
c. Renewals thereof as required shall be delivered to Landlord at least
fifteen (15) days (up to thirty (30) days, if permitted under the terms of
Tenant's insurance policies) prior to expiration. All policies or certificates
shall be endorsed to prohibit any change or cancellation without at least
fifteen (15) days' advance written notice to Landlord and any mortgagee.
d. All insurance policies required to be maintained by Tenant hereunder
shall be with responsible insurance companies, authorized to do business in the
state where the Premises are located if required by law, and shall name Landlord
and any mortgagee of Landlord, as a loss payee or an additional insured, as
appropriate.
e. In the event of any termination or expiration of this Lease, any and all
insurance proceeds pertaining to a casualty affecting the Building and/or other
Improvements located on the property shall be allocated between Landlord and
Tenant as follows: first, to Tenant to the extent of all insurance proceeds
attributable to Tenant's personal property insurance; then, to Tenant to extent
of its undepreciated cost for such Improvements made to the Property (as
reflected on Tenant's federal income tax returns) and then, the remainder to
Landlord.
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8. Payment of Taxes Assessment and Insurance by Landlord.
a. If Tenant should fail to make any payments required to be paid by Tenant
pursuant to this Lease, then, in addition to any other remedies provided herein,
Landlord may, if it so elects (and after thirty (30) days written notice to
Tenant), pay such taxes, assessments and governmental charges or insure such
buildings and Improvements and pay the premiums therefor. Any sums so paid by
Landlord shall bear interest at the maximum legal contract rate, shall be deemed
to be additional rental owing by Tenant to Landlord and shall be paid with the
next due installment of rent.
9. Repairs.
a. Tenant shall take good care of the Building, the parking areas, private
drives, sidewalks and all other Improvements on the Premises, throughout the
term of this Lease, and shall keep them in good condition, subject to ordinary
wear and tear, and free from waste or nuisance of any kind. Tenant shall make
repairs to such Building, parking areas, private drives, sidewalks and
improvements at its sole cost and expense; and Landlord shall not be called upon
to make any improvements or repairs of any kind during the term of this Lease.
Tenant further agrees that it shall care for the landscaping, if any, on the
Property (including, to the extent applicable, the mowing of grass, care of
shrubs, watering and other landscaping requirements) during the term of this
Lease. At the end or other termination of this Lease, Tenant shall deliver up
the Premises with the Building, parking areas, private drives, sidewalks and
improvements located thereon, in good repair and condition, loss by fire or
other casualty or act of God, and ordinary wear and tear excepted.
10. Alterations.
a. Tenant shall have the right to make any non-structural interior
alterations, additions, or improvements to the Building as Tenant deems
reasonable, in its sole discretion, in connection with requirements of Tenant's
business without the prior written consent of Landlord and without the payment
of any additional rent, provided that such alterations, additions or
improvements shall not reduce the value of the Premises. All other changes,
including color or other exterior building changes, must be submitted to
Landlord for Landlord's prior written approval (not to be unreasonably
withheld); and even with regard to changes permitted by the immediately
preceding sentence, if the change either (i) costs more than $25,000.00 or (ii)
is a mechanical change, then in either such event Tenant will provide Landlord
with written notice, accompanied by informational copies of the plans and
specifications of all such changes. Except as provided in Paragraph 11 below,
all alterations, additions and improvements which may be made or installed upon
the Premises shall remain upon and be surrendered with the Premises and become
the property of Landlord at the termination of this Lease, unless Landlord
requests the removal of alterations or additions, in which event Tenant shall
remove the same and restore the Premises to their original condition at Tenant's
expense, reasonable wear and tear excepted.
11. Equipment. Fixtures and Signs on Premises.
a. Tenant shall have the right, at Tenant's sole cost, to erect, install,
maintain, and operate on the Premises such equipment, trade and business
fixtures, and signs as Tenant may deem advisable (subject to the provisions of
this paragraph) and such shall not be deemed to be part of the Premises, but
shall remain the property of Tenant. All such installation shall be effected in
compliance with applicable governmental laws, ordinances and regulations and
shall not materially injure or deface the building and other improvements.
Tenant shall submit to Landlord for Landlord's approval, drawings of the signs
which Tenant intends to install on the Premises, together with its plans and
specifications (with Landlord's approval not to be unreasonably withheld). At
any time during the term of this Lease, Tenant shall have the right to remove
its equipment, fixtures, signs and other personal property from the Premises
provided (i) that Tenant is not then in default, and (ii) that Tenant shall
repair any damage to the building and/or improvements resulting from such
removal. At any time within the final one hundred twenty (120) days of the term
of this Lease Landlord may place a reasonable "For Lease" (or comparable
language) sign on the Premises.
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12. Pylon Sign.
a. Landlord agrees that, subject to applicable governmental regulations,
Tenant shall have the right to install and maintain one free-standing pylon sign
advertising Tenant's business, provided that such sign fully complies with
Landlord's prior approval (with Landlord's approval not to be unreasonably
withheld), and all applicable codes, laws and regulations. Tenant shall be
required to secure Landlord's prior written consent to relocation or alteration
of the pylon sign, such consent not to be unreasonably withheld.
13. Damage by Fire or Other Casually.
a. If the Improvements on the Property should be damaged or destroyed by
fire, tornado, or other casualty, Tenant shall give prompt written notice
thereof to Landlord.
b. If during the last two years of the Primary Term of this Lease, the
building situated upon the Premises should be totally destroyed by fire,
tornado, or other casualty, or if during such two-year period or renewal term it
should be so damaged that rebuilding or repairs cannot be completed within one
hundred eighty (180) days after the date of such damage, this lease shall, at
the option of Tenant (to be exercised by written notice delivered to Landlord
within forty-five days after the occurrence of the casualty), terminate and the
rent shall be abated during the unexpired portion of this Lease, effective with
the date of such damage.
c. If the building situated upon the Premises should be damaged by fire,
tornado, or other casualty but not under such circumstances as entitle Tenant to
terminate pursuant to the above subparagraph, or if under such circumstances but
Tenant shall not have elected to terminate this Lease, this Lease shall not
terminate, but Tenant shall, at Tenant's sole cost and expense, proceed with
reasonable diligence to rebuild and repair such building to substantially the
condition in which it existed prior to such damage. The rent payable hereunder
shall in no event abate during the period in which the Premises are
untenantable.
d. Tenant shall not, without Landlord's prior written consent, keep
anything within the Premises for any purpose which invalidates any insurance
policy carried on the Premises. All property kept, stored or maintained within
the Premises by Tenant shall be at Tenant's sole risk.
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e. All insurance proceeds payable by reason of the occurrence of such fire
or other casualty shall be paid to Tenant to be applied first to the cost of
repair or replacement of Tenant's equipment, trade and business fixtures, signs
and other personal property; then, to repair and full replacement of the
improvements, building structure and site collectively, to the Premises within
one hundred eighty (180) days of such casualty or occurrence.
14. Condemnation.
a. If all of the Property--or if less than all, but Tenant reasonably
determines the remaining portion cannot be operated profitably as a
restaurant--shall be acquired by the right of condemnation or eminent domain for
any public or quasi-public use or purpose or sold to a condemning authority
under threat of condemnation, then the term of this Lease shall cease and
terminate as of the date of title vesting in such proceeding (or sale) and all
rentals shall be paid up to that date.
b. In the event of a partial taking or condemnation which takes less than a
substantial portion of the Property and Tenant determines that the remaining
portion can be operated profitably as a restaurant, then Tenant, at Tenant's
sole cost and expense, shall promptly restore the remaining portion to a
condition comparable to its condition at the time of such condemnation less the
portion lost in the taking; and in such event this Lease shall continue in full
force and effect, except that all rentals and other charges due hereunder shall
be reduced in an amount that is fair and equitable under the circumstances (with
any disagreement between Landlord and Tenant on this matter to be resolved by
arbitration pursuant to the rules of the American Arbitration Association for
commercial disputes.
c. In the event of any condemnation, taking or sale as aforesaid, whether
whole or partial, Landlord shall be entitled to receive and retain all awards
agreed upon with the condemning authority or adjudicated in any condemnation
proceedings; except that if the remaining portion shall be restored by Tenant as
herein provided, then Tenant shall first be entitled to recover its expenses
incurred in such restoration out of any such award, and the balance shall be
allocated to Landlord as aforesaid. Termination of this Lease shall not affect
the right of the respective parties to such awards.
15. Liability and Indemnification.
a. Neither party (hereinafter called the "first party") shall be liable to
the other party (hereinafter called the "second party") or to the employees,
agents, patrons or invitees of the second party, or any person whomsoever, for
any injury to person or damage to property on or about the Premises caused by
the negligence or misconduct of the second party, its employees or agents, or of
any other person entering upon the Premises under the express or implied
invitation of the second party; and each party in its capacity of the second
party agrees to indemnify the other party in its capacity as the first party and
hold the first party harmless from any loss, claim, damage, cost or expense
suffered or incurred by the first party by reason of any such damage or injury.
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b. Unless caused by Landlord's gross negligence or willful malfeasance,
Landlord and Landlord's agents and employees shall not be liable to Tenant for
any injury to person or damage to property caused by the Premises becoming out
of repair or by defect in or failure of equipment, pipes or wiring, or broken
glass, or by the backing up of drains, or by gas, water, steam, electricity or
oil leaking, escaping or flowing into the Premises.
16. Assignment and Subletting.
a. Tenant shall not assign this Lease nor sublet the whole or any part of
the Premises without the prior written consent of Landlord, which consent
Landlord will not unreasonably withhold (it being understood that the proposed
assignee's financial condition shall be a basis for such consent) and provided
(i) that no Event of Default has occurred and is continuing at the time of the
request for consent to the sublease or assignment, (ii) that the use to be made
of the Premises by the assignee or sub-tenant is as permitted in this Lease,
(iii) that the assignee or sub-tenant shall assume in writing the performance of
all of the terms, covenants and conditions of this Lease on the part of the
Tenant to be kept and performed, and (iv) that the Tenant shall deliver to the
Landlord within fifteen (15) days prior to the assignment or subletting the
proposed documents relating to such event, along with the proposed form of an
assumption agreement, all such documents to be subject to Landlord's comments
which shall be incorporated therein (with Tenant agreeing to deliver to Landlord
within 15 days after the assignment or subletting, an executed duplicate
thereof, together with a duly executed assumption agreement). Notwithstanding
anything herein to the contrary, without the Landlord's prior written consent
but otherwise subject to the foregoing conditions, (1) Tenant may assign this
Lease or sublet the whole of the Premises to a legal entity which either (A) is
the successor, by merger or otherwise, to all or substantially all of the
Tenant's assets and liabilities, or (B) controls or is controlled by or is under
common ownership and control with the Tenant, and (2) Tenant may sublet a
portion of the Premises to a legal entity under the sole ownership and control
of the Tenant solely for the purpose of such entity obtaining a liquor license
for the Premises, provided that Tenant delivers to Landlord the name of the said
sub-tenant and the names and addresses of its officers, directors and
stockholders. Any such assignment or subletting shall be subject to and upon all
of the terms and provisions of this Lease.
b. No assignment or subletting or collection of rent from the assignee or
sub-tenant shall be deemed to constitute a novation or in any way release the
Tenant from further performance of its obligations under this Lease, and Tenant
shall continue liable under this Lease, with the same force and effect as if no
such assignment had been made.
c. Tenant may mortgage, pledge or otherwise encumber its interest in this
Lease or in the Premises to any financial institution advancing purchase-money
financing for Tenant's operations on the Premises; provided, however, that in
the event of a foreclosure of the interest of such financial institution, the
Premises may be used only in the manner permitted by this Lease.
17. Default.
a. The following events shall be deemed to be "Events of Default" by Tenant
under this Lease Agreement:
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1) Tenant shall fail to pay any installment of rent herein provided as and
when the same shall become due and shall not cure such default within ten
(10) days after written notice thereof is given by Landlord to Tenant
(provided, however, that the requirement of notice and ten (10) days to
cure shall apply only twice in any particular calendar year); or
(2) Tenant shall fail to comply with any term, provision or covenant of this
Lease, other than the payment of rent, and shall not cure such failure
within thirty (30) days after written notice thereof is given by Landlord
to Tenant, provided that if such default cannot reasonably be cured within
thirty (30) days then Tenant shall have an additional reasonable period of
time within which to cure such default so long as Tenant continues
diligently to seek to cure such default; or
(3) Tenant shall become insolvent, or shall make a transfer in fraud of
creditors or shall make an assignment for the benefit of creditors; or
(4) Tenant shall file a petition under any section or chapter of the Federal
Bankruptcy Code, as amended, or under any similar law or statute of the
United States or any state thereof, or Tenant shall be adjudged bankrupt or
insolvent in proceedings filed against Tenant thereunder; or
(5) A receiver or trustee shall be appointed by a court of competent
jurisdiction for all or substantially all of the assets of Tenant.
b. Upon the occurrence of any such Event of Default, in addition to any
other remedy provided herein or at law or equity, Landlord shall have the option
to pursue any one or more of the following remedies without any notice or demand
whatsoever:
(1) Pursue a claim for monetary relief; or
(2) Enforce specific performance of Tenant's obligations; or
(3) Enter upon the Premises, without being liable for prosecution or any claim
for damages therefor, and do whatever Tenant is obligated to do under the
terms of this Lease; and Tenant agrees to reimburse Landlord on demand for
any direct and actual expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease; or
(4) Without terminating this Lease, enter upon and take possession of the
Premises, either privately (without breaching the peace) or with a court
order, and expel or remove Tenant and other persons who may be occupying
the Premises or any part thereof, without being liable for prosecution of
any claim for damages therefor, and relet the Premises, as Tenant's agent
and receive the rent therefore; and Tenant agrees to pay Landlord on demand
any deficiency as it accrues that may arise by reason of such reletting; or
(5) Terminate this Lease, in which event Tenant shall immediately surrender the
Premises to Landlord, and if Tenant fails so to do, Landlord may, without
prejudice to any other remedy which it may have for possession or
arrearages in rent enter upon and take possession of the Premises, either
privately (without breaching the peace) or with a court order, and expel or
remove Tenant and any other person who may be occupying the Premises, or
any part thereof, without being liable for prosecution or any claim for
damages thereof; and Tenant agrees to pay to Landlord on demand the amount
of all direct and actual loss and damage which Landlord may suffer by
reason of such termination, whether through inability to relet the Premises
on satisfactory terms or otherwise.
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c. Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies provided by law
or equity, nor shall pursuit of any remedy herein provided constitute a
forfeiture or waiver of any rent due to Landlord hereunder or of any damage
accruing to Landlord by reason of the violation of any of the terms, provisions
and covenants herein contained. Forbearance by Landlord to enforce one or more
of the remedies herein provided upon the occurrence of an Event of Default shall
not be deemed or construed to constitute a waiver of such default.
18. Inspection by Landlord.
a. Upon prior reasonable notice, Landlord and Landlord's agents and
representatives shall have the right to enter upon and inspect the Premises at
any time during normal business hours, provided only that such inspection shall
not unreasonably interfere with Tenant's business.
19. Covenant of Title and Quiet Enjoyment.
a. Landlord covenants that it is the owner in fee simple of the Premises
and it alone has the full right to lease the Premises for the term set out
herein. Landlord warrants that Tenant, on paying the rent and performing its
obligations, shall peaceably and quietly hold and enjoy the Premises for the
term of this Lease and any Renewal Term thereof without any hindrance,
molestation or ejection by the Landlord, its successors or assigns, or those
claiming through them.
20. Holding Over by Tenant.
a. Should Tenant or any successor in interest of Tenant or any assignee,
sublessee or licensee of Tenant hold over the Premises or any part hereof after
the expiration of this Lease unless otherwise agreed in writing, such holdover
shall constitute and be construed as a tenancy from month to month only, with a
monthly Minimum Rent equal to 150% of the Minimum Rent for the month immediately
preceding the expiration of the applicable term, but otherwise upon the same
terms and conditions hereof.
21. Notice and Payments.
a. All rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at the address hereinbelow set forth or
at such other address as Landlord may specify from time to time by written
notice delivered in accordance herewith;
b. All payments required to be made by Landlord to Tenant hereunder shall
be payable to Tenant at the address hereinbelow set forth, or at such address as
Tenant may specify from time to time by written notice delivered in accordance
herewith;
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c. Any notice or document required or permitted to be given or delivered
hereunder shall be deemed to be given or delivered whether actually received or
not when deposited in the United States mail, postage prepaid, certified or
registered mail, return receipt requested, addressed to the parties hereto at
the respective addresses set forth below, or at such other addresses as they
have theretofore specified by written notice delivered in accordance herewith:
LANDLORD TENANT
DeZavala 31 Joint Venture CluckCorp International, Inc.
c/o Leo Perron 1250 N. E. Loop 410, Suite 335
1250 N.E. Loop 410, Suite 930 San Antonio, TX 78209
San Antonio, TX 78209 ATTN: Mr. Steves Rosser
If and when included within the term Landlord, as used in this instrument,
there is more than one person, firm or corporation, all shall jointly arrange
among themselves for their joint execution of such a notice specifying some
individual at some specific address for receipt of notice and payment to
Landlord; if and when included within the term "Tenant", as used in this
instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address for receipt of notices and
payments to Tenant. All parties included within the terms Landlord and Tenant,
respectively, shall be bound by notices given in accordance with the provisions
of this Paragraph 21 as if each had received such notice.
22. Force Majeure.
a. The time for performance by Landlord or Tenant of any term, condition or
covenant of this Lease (other than the Tenant's obligation to pay rent) shall be
deemed extended by time lost due to delays resulting from acts of God, strikes,
unavailability of building materials, civil riots, floods, other unusually
inclement weather (but not including seasonally inclement weather), national or
labor restrictions by governmental authority, and any other cause not within the
control of the Landlord or Tenant, as the case may be.
23. Waiver of Subrogation.
a. Landlord and Tenant agree and covenant that neither shall be liable to
the other for loss arising out of damage to or destruction of the Premises or
contents thereof when such loss is caused by any perils included within the
State of Texas standard fire and extended coverage insurance policy. Inasmuch as
the above mutual waivers will preclude the assignment of any aforesaid claim by
way of subrogation (or otherwise) to an insurance company (or any other person),
Landlord and Tenant severally agree immediately to give to each insurance
company which has issued to it policies of insurance, written notice of the
terms of said mutual waivers, and to have said insurance policies properly
endorsed, if necessary, to prevent the invalidation of said insurance coverages
by reason of said waivers.
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24. Recording.
a. A short-form memorandum of this Lease (setting forth the primary term of
this Lease and such other provisions hereof as Landlord or Tenant shall
reasonably deem to be necessary to record in order to preserve its rights) shall
be executed, acknowledged and recorded at Landlord's or Tenant's option. The
requesting party agrees to provide the other party with an executed duplicate of
such short-form memorandum upon written request.
25. Landlord's and Tenant's Special Conditions.
a. Water Pollution Abatement Plan and Detention Pond Construction. Landlord
and Tenant have agreed to utilize the engineering services of Pape-Dawson
Consulting Engineers for the purposes of preparing a plat for the Tenant's
Portion, and for the purpose of preparing a Water Pollution Abatement Plan
("WPAP") for the Property. It is anticipated that the WPAP will provide for a
Detention Pond to be located on the Property, which Detention Pond will be
designed to service the Tenant's Portion as well as other tenants and/or
landowners now or hereafter owning or leasing land located within the Property.
Landlord hereby grants to Tenant a license and easement to enter on the Property
in order to complete construction of the Detention Pond in accordance with the
plan designed by Pape-Dawson Consulting Engineers. Tenant shall have a
non-exclusive right to utilize the Detention Pond during the term of this Lease
in order to secure WPAP approval from the Texas Natural Resources Conservation
Commission, ("TNRCC") and from the City of San Antonio, for plat approval.
Landlord and Tenant have agreed that Tenant shall pay, as additional rent, a
portion of the costs and expenses incurred by Landlord in securing approval of
the WPAP, filing fees, engineering expenses, construction costs, and ongoing
maintenance expenses associated with the Detention Pond. Those costs shall be
allocated between Landlord and Tenant as follows:
(i) Filing fee with TNRCC: to be split on a 50/50 basis between Landlord
and Tenant. Landlord and Tenant shall each pay their portion of the
filing fee as soon as they are notified by Pape-Dawson Consulting
Engineers that they are ready to file the WPAP with the TNRCC.
(ii) Construction costs and engineering fees: Tenant shall bear the
construction costs and the engineering fees which would normally be
incurred by Tenant in building and designing a detention pond for
utilization solely by Tenant, with Landlord bearing any excess
engineering fees and construction costs needed to design and build a
larger detention pond for utilization by third party tenants and/or
owners of land within the Property other than Tenant, such amount to
be determined by Pape-Dawson. Landlord and Tenant shall each pay their
respective share of such construction costs and fees promptly as such
fees are incurred.
(iii) Tenant shall reimburse Landlord for Tenant's pro-rata portion of the
ongoing maintenance expenses incurred by Landlord in conjunction with
maintaining the Detention Pond in accordance with standards required
by the WPAP approved by the TNRCC, such amount to be allocated to
Tenant based upon the ratio of Tenant's Portion of the Property, as it
compares to the total amount of developed land within the Property
that is either leased or sold to third party users by Landlord. In
other words, Tenant shall bear all of the ongoing maintenance costs of
the Detention Pond until such time, if ever, that other portions of
the Property are sold or leased to third party users by Landlord. As
other portions of the Property are sold or leased by Landlord to third
party users, those third party users shall be allocated a pro-rata
share of the ongoing maintenance costs as a common area maintenance
fee. Landlord shall invoice Tenant on an annual basis for Tenant's
pro-rata share of such costs, and Tenant shall pay such amounts as
additional rent within thirty (30) days from the date of invoice by
Landlord. Tenant shall have the right to review Landlord's books and
records in order to audit the allocations being made to Tenant.
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b. Anything herein to the contrary notwithstanding, it is expressly
understood and agreed that Tenant shall be entitled to terminate this Lease by
written notice delivered to Landlord on or before one hundred eighty (180) days
after Lease execution (the "180 day Deadline"), in the event Tenant has been
unable to cause the Premises to be platted as a separate lot with an approved
Water Pollution Abatement Plan issued by the Texas Natural Resources
Conservation Commission, and zoned for use as a restaurant. Landlord shall
cooperate with Tenant to provide such site plan engineering information as is
reasonably necessary to secure Water Pollution Abatement Plan approval. Tenant
agrees to use Tenant's best efforts to obtain approval of Tenant's Water
Pollution Abatement Plan and plat. Landlord agrees to reimburse Tenant for all
costs incurred by Tenant in securing such plat other than for sewer and water
impact fees; provided, that (1) Tenant does not terminate this Lease within the
180 day Deadline and (2) Landlord's reimbursement obligation shall be capped at
$3,500.00.
c. Anything herein to the contrary notwithstanding, it is expressly
understood and agreed that Tenant shall be entitled to terminate this Lease by
written notice delivered to Landlord on or before sixty (60) days after Lease
execution for any of the following reasons, as determined by Tenant in its sole
discretion:
1. The results of a soil and engineering test to be conducted by
Tenant on the Property shall be unacceptable to it in light of the nature
of the Improvements to be constructed thereon;
2. Tenant shall not have received evidence satisfactory to it that all
utility service connections are available for hook-up within a utility
right-of-way along a boundary of the Property with capacities sufficient
for Tenant's intended use thereof;
3. Tenant shall not have obtained, or received evidence satisfactory
to it that (i) it will be able to obtain, from the appropriate governmental
authorities, all permits and licenses necessary for the construction and
operation of the Improvements, or (ii) evidence that the property is zoned
for use as a restaurant or (iii) that Landlord has approved Tenant's plans
and specifications, Site Plan and/or pylon sign;
4. Tenant shall not have received from Landlord's engineer an
acceptable survey of the Property disclosing no objectionable easement,
right-of-way, encroachment, conflict, drainage feature, protrusion or other
state of facts affecting the Property; and
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5. Tenant shall not have obtained evidence satisfactory to it that the
condition of Landlord's title to the Property is acceptable.
d. Tenant's failure to deliver to Landlord a written termination notice
prior to the 180 day Deadline (with respect to maters described in Paragraph
25(b), or within sixty (60) days from Lease execution (with respect to matters
described in Paragraph 25(c) shall conclusively be deemed to constitute a waiver
of Tenant's termination right in this Paragraph 25.
e. Landlord shall have the right to terminate this Lease and refund (1) the
two (2) month's advanced payment of minimum rent deposited with Landlord by
Tenant, and (2) one-half (1/2) of the Tenant's costs incurred in securing the
plat (other than for sewer and water impact fees) provided, that Landlord's
reimbursement obligation for such platting costs under this Paragraph 25(e)
shall be capped at $1,750.00 on or before the expiration of ninety (90) days
from date hereof if Landlord has not yet obtained a B-3 zoning classification on
Landlord's adjacent 2 1/2 acres on terms and conditions acceptable to Landlord.
Upon such termination, Landlord shall not have any further duties or obligations
other than expressly set forth in this Paragraph 25(e).
26. Gender and Number.
a. Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, and vice versa, unless the context otherwise requires.
27. Binding Effect.
a. The terms, provisions, covenants and conditions contained in this Lease
shall apply to, inure to the benefit of and be binding upon the parties hereto
and upon their respective heirs, legal representatives, successors in interest
and assigns, except as otherwise herein expressly provided.
28. Entire Agreement.
a. This Lease contains all the agreements and conditions made between the
parties hereto and may not be modified orally or in any other manner than by an
agreement in writing signed by the parties hereto to their respective successors
in interest.
29. Captions.
a. The captions used herein are for convenience only and shall not be
deemed to amplify, limit or otherwise construe the terms hereof in any way.
30. Terms Held Invalid.
a. If any provision of this Lease should be held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this Lease shall not be affected thereby.
31. Attorney's Fees.
a. If on account of any breach or default in any obligations hereunder,
either party shall employ an attorney to enforce or defend any of that party's
rights or remedies hereunder, the parties agree that the non-prevailing party
shall pay any reasonable attorney's fees incurred by the prevailing party in
such connection.
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32. Subordination.
Tenant accepts this Lease subject and subordinate to any mortgage, deed of
trust or other lien presently existing upon the Premises and to any renewals and
extensions thereof; provided that Tenant and holder of said mortgage, deed of
trust or other lien now or hereafter existing shall have executed and delivered
a non-disturbance agreement reasonably acceptable to said lien holder and
Tenant. Tenant further agrees that any such mortgagee shall have the right at
any time to subordinate such mortgage, deed of trust or other lien to this
Lease. Landlord is hereby irrevocably vested with full power and authority to,
upon execution of a non-disturbance agreement as set forth above, subordinate
this Lease to any mortgage, deed of trust or other lien hereafter placed upon
the Premises, and Tenant agrees upon demand to execute such further instruments
subordinating the Lease upon the express condition that this Lease shall be
recognized by the mortgagee by the execution of a non-disturbance agreement
acceptable to Tenant and mortgagee, and that the rights of Tenant shall remain
in full force and effect during the term of this Lease so long as Tenant shall
continue to perform all of the covenants and conditions of this Lease. At any
time when there is outstanding a mortgage, deed of trust or similar security
instrument covering Landlord's interest in the Premises of which Tenant has been
given written notice, Tenant may not exercise any remedies for default by
Landlord hereunder unless and until the holder of the indebtedness secured by
such mortgage, deed of trust or similar security instrument shall have received
written notice of such default and a reasonable time for curing such default
shall thereafter have elapsed.
33. Estoppels.
a. Tenant agrees that it will from time to time upon request by Landlord,
but no more than twice in any one calendar year, execute and deliver to Landlord
a written statement addressed to Landlord (or to a party designated by
Landlord), which statement shall identify Tenant and this Lease, shall certify
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as so modified),
shall confirm that Landlord is not in default as to any obligations of Landlord
under this Lease (or if Landlord is in default, specifying any default), and
shall contain such other information or confirmations as Landlord may reasonably
require.
34. Mechanic's Liens.
a. Tenant shall have no authority, express or implied, to create or place
any lien or encumbrance of any kind or nature whatsoever upon, or in any manner
to bind, the interest of Landlord in the Premises or to charge the rentals
payable hereunder for any claim in favor of any person dealing with Tenant,
including those who may furnish materials or perform labor for any construction
or repairs, and each such claim shall affect and each lien shall attach to, if
at all, only the leasehold interest granted to Tenant by this instrument. Tenant
covenants and agrees that it will pay or cause to be paid all sums legally due
and payable by it on account of any labor performed or materials furnished in
connection with any work performed on the Premises on which any lien is or can
be validly and legally asserted against its leasehold interest in the Premises
or the improvements thereon and that it will save and hold Landlord harmless
from any and all loss, cost or expense based on or arising out of asserted
claims or liens against the leasehold estate or against the rights, title and
interest of the Landlord in the Premises or under the terms of this Lease.
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35. No Joint Venture.
a. Nothing herein contained shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent or partnership or of joint venture between parties hereto, it being
understood and agreed that neither the method of computation of rent, nor any
other provisions contained herein, nor any acts of the parties hereto, shall be
deemed to create any relationship between the parties hereto other than the
relationship of landlord and tenant.
36. Subordination of Landlord's Lien.
a. Landlord agrees that it will subordinate its landlord's lien, whether
present or future, whether constitutional, statutory or contractual, or claims
against any of Tenant's fixtures and personal property (including but not
limited to Tenant's equipment, furniture, fixtures, inventory and merchandise),
to the security interest of Tenant's suppliers and institutional financial
sources, provided that (i) the form of subordination is acceptable to Landlord
in its reasonable discretion, and (ii) in no event shall this paragraph be
construed to require Landlord to subordinate its fee interest.
37. Brokers.
Tenant represents and warrants that it has not contracted with any broker
or agent, and has not represented to any broker or agent that Landlord will pay
such broker or agent, in connection with the negotiation or execution of this
Lease, other than Tenant's broker, Michael Gulley of Hardy & Company. Landlord
agrees that if and when this Lease has been executed and provided Tenant has not
canceled this Lease within the 180 day Deadline as set forth above, then
Landlord shall owe Hardy & Company an aggregate commission equal to $19,433.00
(being three percent (3%) of the annual rental being paid by Tenant over ten
(10) years), such commission being payable in two one-half installments, as
follows: one-half upon expiration of Tenant's right to terminate within the 180
day Deadline described in Paragraph 25(b) hereof, and the other half upon
Tenant's move into the Premises with a Certificate of Occupancy for the
completed building in place. Tenant shall have no obligation or responsibility
to pay a commission to Hardy & Company, nor any other broker's commission
arising as a consequence of the negotiation and consummation of this Lease,
except to the extent of any misrepresentation by Tenant in the first sentence of
this paragraph; and except to the extent of any such misrepresentation by
Tenant, Landlord agrees to indemnify Tenant and hold Tenant harmless for any
such claims or demands. Tenant agrees to indemnify Landlord and hold Landlord
harmless from any other claims for brokerage commission arising by, through or
under Tenant.
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38. Date of Lease
a. This Lease shall be dated as of the latest date accompanying a signature
below.
Date of Execution: LANDLORD:
DEZAVALA 31 JOINT VENTURE
December 1, 1996
(Landlord) By: /s/ Leo F. Perron Jr.
---------------------
Name: Leo F. Perron Jr.
Its: General Partner
TENANT:
CLUCKCORP INTERNATIONAL, INC.
December 1, 1996
(Tenant) By: /s/ Steves Rosser
-----------------
Name: Steves Rosser
Its: Vice President - RE
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EXHIBIT "A"
Legal description of Property
<PAGE>
EXHIBIT "B"
Site Plan of the Property and Tenant's Portion
EXHIBIT 10.28
GROUND LEASE AGREEMENT
BY AND BETWEEN
HERZBERG FAMILY PARTNERS, LTD.,
OAK TRAIL INVESTMENT CORP.
DICKSON FAMILY INVESTMENTS, LTD.
AND
CLUCKCORP INTERNATIONAL, INC.
D/B/A HARVEST ROTISSERIE RESTAURANT
AUGUST 1, 1996
<PAGE>
GROUND LEASE AGREEMENT
TABLE OF CONTENTS
Page
1. CERTAIN DEFINITIONS ..................................................... 1
2. DEMISE .................................................................. 3
3. TERM .................................................................... 3
4. RENT .................................................................... 3
(a) Base Rent ..................................................... 3
(b) Late Charge ................................................... 4
(c) Additional Rent ............................................... 4
(d) Co-Ownership Agreement Costs .................................. 4
(e) All Sums Rent ................................................. 4
(f) Security Deposit .............................................. 4
5. SURVEY AND TITLE COMMITMENT ............................................. 5
6. CONSTRUCTION ............................................................ 5
(a) Delivery of the Premises ...................................... 5
(b) Permitted Exceptions ......................................... 6
(c) Construction of Building and Signs ............................ 6
7. ALTERATIONS ............................................................. 9
(a) Prohibited Alterations ....................................... 9
(b) Guidelines for Alterations ................................... 9
(c) Plans and Specifications ..................................... 9
8. MECHANICS' AND MATERIALMEN'S LIENS ...................................... 9
9. USE, MAINTENANCE AND OCCUPANCY OF PREMISES ............................. 10
(a) Permitted Use ............................................... 10
(b) Prohibited Uses ............................................. 10
(c) Maintenance ................................................. 10
(d) Abandonment ................................................. 11
10. UTILITIES ............................................................. 11
11. TAXES AND ASSESSMENTS ................................................. 11
(a) Real Estate Taxes ........................................... 11
(b) Indemnification ............................................. 12
(c) Notice and Payment .......................................... 12
(d) Contest ..................................................... 12
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12. INSURANCE ............................................................. 13
(a) Lessee's Insurance .......................................... 13
(b) Builders Risk Insurance ..................................... 15
(c) Waiver of Subrogation ....................................... 15
13. HAZARDOUS SUBSTANCES .................................................. 15
(a) Hazardous Substance ......................................... 15
(b) Hazardous Substances on Premises Prohibited ................. 16
(c) Compliance with Toxic Waste Laws ............................ 16
(d) Clean Up and Mitigation ..................................... 17
(e) Indemnity ................................................... 15
(f) Lessor's Right of Entry ..................................... 18
(g) Grease Traps ................................................ 19
14. INDEMNITY ............................................................. 19
(a) Lessee's Duty to Indemnify .................................. 19
(b) Lessor's Duty to Indemnify .................................. 20
(c) Defense of Claims ........................................... 20
(d) Limitations ................................................. 21
15. LESSEE'S RESTAURANT EQUIPMENT ......................................... 21
16. COMPLIANCE WITH LAWS .................................................. 21
17. ASSIGNMENT-SUBLEASING BY LESSEE ....................................... 21
18. ASSIGNMENT BY LESSOR .................................................. 22
19. HOLDOVER .............................................................. 22
20. ESTOPPEL CERTIFICATE .................................................. 22
(a) Lessee Estoppel Certificate ................................. 22
21. DESTRUCTION ........................................................... 22
(a) Lessee's obligations ......................................... 22
(b) Time for Repairs ............................................. 23
(c) Late Term Casualty ........................................... 23
22.1 CONDEMNATION ......................................................... 23
(a) Definitions .................................................. 23
(b) Partial Taking ............................................... 24
(c) Significant Taking ........................................... 25
(d) Total Taking ................................................. 25
(e) Notice of Taking ............................................. 26
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23. WARRANTY OF TITLE ..................................................... 26
24. NOTICES ............................................................... 27
25. QUIET ENJOYMENT ....................................................... 27
26. COMMISSIONS ........................................................... 27
27. REMEDIES .............................................................. 28
(a) Events of Default ............................................ 28
(b) Lessor's Remedies ............................................ 29
(c) Events of Default By Lessor and Lessee's Remedies ............ 31
(d) Attorney's Fees .............................................. 31
(e) Waiver ....................................................... 31
(f) Lessor Right to Cure Certain Potential Defaults .............. 31
28. RIGHT OF FIRST REFUSAL ................................................ 32
(a) Grant of Right of First Refusal .............................. 32
(b) Exercise of Right of First Refusal ........................... 32
(c) Limitation on Applicability .................................. 33
29. MEMORANDUM OF LEASE ................................................... 33
30. ENTIRETY-EXECUTION-SUCCESSION ......................................... 33
31. LIMITATION OF LESSOR'S LIABILITY ...................................... 33
32. EXECUTION DEADLINE .................................................... 33
33. SUBORDINATION ......................................................... 34
EXHIBIT A - Description of Land and Plat
EXHIBIT B - Memorandum of Lease
EXHIBIT C - Addendum
iii
<PAGE>
GROUND LEASE AGREEMENT
THIS IS A GROUND LEASE, entered into to be effective August, 1, 1996
("Effective Date"), between HERZBERG FAMILY PARTNERS, LTD., OAK TRAIL INVESTMENT
CORP., AND DICKSON FAMILY INVESTMENTS, LTD. (herein called "Lessor," whether one
or more), and CLUCKCORP INTERNATIONAL, INC. d/b/a HARVEST ROTISSERIE RESTAURANT
(herein called "Lessee"):
1. CERTAIN DEFINITIONS.
(a) "Affiliate" of Lessee means (i) any Business Entity Controlled by
Lessee; or (ii) any Business Entity which is the successor by merger or
otherwise to all or substantially all of Lessee's assets and liabilities
including, but not limited to, any merger or acquisition pursuant to any public
offering or reorganization to obtain financing and/or growth capital.
(b) "Approved Conceptual Plans" means the preliminary site plan,
landscaping plan, building floor plan and other plans for the Premises which are
approved by Lessor, which approval shall not be unreasonably withheld. Lessee
shall submit such plans to Lessor within forty-five (45) days following the
Effective Date. In the event that Lessor has not approved in writing such
conceptual plans within seventy-five (75) days after the Effective Date, then
Lessor or Lessee may thereafter terminate this Lease by written notice to
Lessee, or Lessor as the case may be provided, however, if the conceptual plans
are subsequently approved by Lessor, the right of Lessor to terminate the Lease
as provided herein shall forever terminate and be void and the conceptual plans
shall conclusively be deemed to have been approved by Lessor as required herein.
If Lessor or Lessee terminates the Lease pursuant to this Paragraph, neither
party shall be deemed to have any or liability to the other in respect to this
Lease or the Site.
(c) "Bankruptcy Code" means Title 11 of the United States Code or any
successor thereto hereinafter enacted.
(d) "Building" means a "Harvest Rotisserie" restaurant, containing
approximately 2,500 square feet of floor area, with exterior lighting and
landscaping associated therewith, to be constructed by Lessee on the Site in
accordance with Paragraph 6(c), and any alterations thereto, as may be permitted
by this Lease.
(e) "Business Days" means any weekday on which national banks may be
lawfully open for business.
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(f) "Business Entity" means any individual, joint venture, partnership,
corporation, trust or other entity or association.
(g) "Co-Ownership Agreement" shall mean that certain CoOwnership Agreement
executed July 15, 1996 and recorded in Volume ___, Page _ of the Official Public
Records of Real Property of Bexar County, Texas. "Co-Ownership Property" shall
mean all of the real property described in and subject to the Co-Ownership
Agreement.
(h) "Commencement Date" means the Rental Commencement Date as defined in
Paragraph 4(a).
(i) "Control" means with respect to a Business Entity that is a
corporation, the right to exercise, directly or indirectly, more than 50k of the
voting rights attributable to the shares of the controlled corporation, and,
with respect to a Business Entity that is not a corporation, the right to
consent to or approve significant decisions relating to the management or
policies of the controlled Business Entity. The definition of Control shall
include, and be adapted as the context requires to include, the term
"Controlling" and "Controlled".
(j) "Discount Rate" shall mean, on the date in question, the rate per annum
of treasury notes having a maturity equivalent to the date of expiration of the
then current Lease term.
(k) "Effective Date" shall mean August 1, 1996.
(1) "Fiscal Year" shall mean October 1 through September 30 of each
calendar year during the term of this Lease and any extension hereof.
(m) "Lease Year" means a period of one calendar year; provided, however, if
the Commencement Date is not January 1, the first Lease Year shall be a partial
lease year that commences at 12:00 a.m. on the Commencement Date and shall end
at midnight on December 31 of the year in which the Commencement Date occurs.
(n) "Permitted Exceptions" means the Co-Ownership Agreement described in
Paragraph 1(g), and such other matters as affect title to the Site as reflected
on the Title Commitment and Survey to be obtained by Lessee in accordance with
Paragraph 5.
(o) "Personal Property" means all furniture, fixtures, and equipment,
including without limitation, cooking, refrigeration, and dishwashing machinery,
bar equipment, cash registers, computers, and other property owned by Lessee now
or hereafter located on the Premises necessary for and used by Lessee in the
operation of the business prescribed in Paragraph 9. Lessee's Property shall
exclude any and all Leasehold improvements, HVAC equipment, duct work and
fixtures, plumbing and plumbing fixtures, and electrical wiring and electrical
fixtures.
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(p) "Prime Rate" means the rate of interest being charged on the date in
question by The Frost National Bank (or its legal successor) as its "prime rate"
to its commercial customers.
(q) "Site", which term is also referred to herein as "Premises", means that
certain tract or parcel of real property containing approximately 37,180 square
feet lying and being situated in Bexar County, Texas, which land is described in
Exhibit A attached hereto and made a part hereof for all purposes.
2. DEMISE.
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor the
following described land situated on Loop 1604 west of U.S. Highway 281 N in the
City of San Antonio, County of Bexar and the State of Texas, to wit:
An approximately 37,180 square foot tract of land as outlined in red on the
plat attached hereto as Exhibit A
together with all rights, privileges and appurtenances thereto, hereinafter
collectively called "Premises."
3. TERM.
The Commencement Date of the primary term of this Lease ("Primary Term")
shall be the Rental Commencement Date (as hereinafter defined) and shall end at
the expiration of one hundred and twenty (120) months after said Commencement
Date.
Provided that Lessee is not in default in its obligations under this Lease
either at the time the extension option is exercised or on the commencement date
of the respective extension period and Lessee is then open and operating a
restaurant on the Premises, Lessee shall have the right to extend this Lease for
three additional periods ("Extension Periods") of five (5) years each, on the
same covenants and conditions as herein provided, except Base Rent which shall
increase as provided below, which options Lessee may exercise by giving Lessor
written notice at least one hundred eighty (180) days prior to the expiration of
the primary term or the then-current extension period, as the case may be. If
Lessee does not have or does not exercise any then-current option to extend,
this Lease shall terminate at the expiration of the Term then in effect.
4. RENT.
(a) Base Rent. Lessee shall pay as base rent during the first five years of
the Primary Term hereof annual rent of $54,000.00 per year, payable in monthly
installments of Four Thousand Five Hundred Dollars ($4,500.00) each, payable in
advance on or before the first day of the month by check payable to Lessor. Rent
for any period less than a calendar month shall be prorated. Base rent during
the remainder of the Primary Term and Extension Periods shall increase according
to the following rent schedule:
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<PAGE>
Primary Term, Years 6 through 10: $60,000.00 ($5,000.00/mo.)
First Extension Period: $69,000.00 ($5,750.00/mo.)
Second Extension Period: $79,344.00 ($6,612.00/mo.)
Third Extension Period: $91,200.00 ($7,600.00/mo.)
Rent shall commence on the date ("Rental Commencement Date") which is ninety
(90) days following the Effective Date.
(b) Late Charge. In the event that Lessee shall fail to pay any portion of
any installment of Monthly Rent on the date which is ten (10) days after the day
on which such installment is due, there shall be added to such unpaid amount a
late charge of five percent (5%) of the amount owed, in order to compensate
Lessor for the extra administrative expenses incurred. In addition, from and
after the date which is thirty (30) days after the due date the total amount
then due shall bear interest at the rate (the "Default Rate") which is lesser of
(a) the Prime Rate plus seven percent (7%) , or (b) the highest lawful rate,
until paid.
(c) Additional Rent. All taxes, insurance premiums, and all sums,
liabilities, obligations, and other amounts which Lessee is required to pay or
discharge pursuant to this Lease, in addition to Base Rent, together with any
interest, penalty, or other sum which may be added for late payment thereof,
shall constitute additional rent hereunder ("Additional Rent"). So long as
Lessee is not then in default hereunder, Lessee may pay Additional Rent directly
to the person entitled thereto.
(d) Co-Ownership Agreement Costs. Lessee shall he responsible for payment
of the share of costs attributable to the Premises of owning, operating and
maintaining the adjoining roadway ("Roadway") and a pylon sign and other
expenses pursuant to the Co-Ownership Agreement.
(e) All Sums Rent. Notwithstanding anything contained in this Lease to the
contrary, all amounts payable by Lessee to or on behalf of Lessor under this
Lease, whether or not expressly denominated as rent, shall constitute rent for
the purposes of Section 502(b)(6) (or any comparable successor provision) of the
Bankruptcy Code and for all other purposes.
(f) Security Deposit.
(1) On the Effective Date, Lessee agrees to deposit with Lessor, as a
"Security Deposit", the sum of Four Thousand Five Hundred and No/100
Dollars ($4,500.00). Said Security Deposit shall be held by Lessor without
liability for interest as security for the faithful performance by Lessee
of all the terms of this Lease by Lessee to be observed and performed, and
may be applied by Lessor in only satisfaction of any or all of Lessee's
obligations hereunder in the event of a default by Lessee. Notwithstanding
the foregoing, provided that Lessee is not in default as of the one hundred
nineteenth (119th) month of the Primary Term of this Lease, the Security
Deposit shall he applied toward the Base Rent due for the one hundred
twentieth (120th) month of the Primary Term, and thereafter, no Security
Deposit will be due or owing by Lessee.
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(2) Lessor shall deliver the Security Deposit to the purchaser of
Lessor's interest in the Premises, in the event that such interest be sold,
and thereupon Lessor shall be discharged from any further liability with
respect to the Security Deposit, and this provision shall also apply to any
subsequent transferees.
5. SURVEY AND TITLE COMMITMENT.
Within thirty (30) days following the Effective Date Lessor shall deliver
to Lessee (i) a survey ("Survey") of the site by a registered engineer or
licensed surveyor, and (ii) a title commitment ("Title Commitment") relating to
the Premises. Lessee shall have a period of ten (10) days commencing on the date
of its receipt of the Survey and Title Commitment, whichever is the later, to
examine the title and survey ("Title Inspection"). If Lessee objects to any such
matters Lessee shall deliver written notice to Lessor of all objections it may
have based on its Title Inspection within such ten (10) day period. Lessor shall
have ten (10) days after receipt of such notice to cure any or all of Lessee's
objections, based on its Title Inspection ("Cure Period"), provided that Lessor
is not obligated to cure any such objections. If Lessor does not cure said
objections within the Cure Period, then Lessee may terminate this Lease by
written notice to Lessor within five (5) days following the expiration of
Lessor's Cure Period. Failure by Lessee to terminate this Lease within the time
specified herein shall constitute Lessee's waiver of objection to all matters
reflected in the Title Commitment and Survey. Any exceptions reflected in the
Title Commitment to which Lessee does not object or which are waived by Lessee
shall be deemed Permitted Exceptions. Lessor shall have no obligation to provide
to Lessee any response to Lessee's objections on or before the expiration of
such five (5) day period, and Lessor's failure to respond to any such objections
shall in no way constitute an express or implied agreement to cure such
objections or to lease the Premises free and clear of those or any other matters
to which Lessee has objected.
6. CONSTRUCTION.
(a) Delivery of the Premises. Lessee hereby accepts the Premises from
Lessor (i) in its "AS IS", "WHERE IS" condition without any representation or
warranty by Lessor and with all faults, and (ii) subject to any facts which an
accurate survey or physical inspection of the Premises may show, and to all
applicable laws and legal requirements. Lessee acknowledges that Lessor does not
have any obligation to perform any site work, repairs, tenant improvement work,
finish-out work or other renovation or other work whatsoever and that Lessee
shall be responsible for all site work, site investigations, utility
connections, and improvements. The acceptance of the survey and title commitment
pursuant to Paragraph 5 herein by Lessee shall be conclusive evidence that
Lessee has inspected the Premises and is thoroughly familiar with its condition,
including, without limitation, availability of utilities, and Lessee hereby
accepts the Premises as being in good and satisfactory condition and suitable
for Lessee's intended purposes. Lessor shall be under no obligation whatsoever
to undertake any repairs or maintenance of any kind with respect to the
Premises. In the event of any defect or deficiency of any nature in the Premises
or any fixture or other item constituting a portion thereof, whether patent or
latent, Lessor shall have no responsibility or liability with respect thereto.
THE PROVISIONS OF THIS PARAGRAPH 6 HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A
COMPLETE EXCLUSION AND NEGATION BY LESSOR OF, AND LESSEE DOES HEREBY DISCLAIM,
ANY AND ALL WARRANTIES BY LESSOR, EXPRESS OR IMPLIED, WHETHER ARISING PURSUANT
TO THE UNIFORM COMMERCIAL CODE OR ANOTHER LAW NOW OR HEREAFTER IN EFFECT OR
OTHERWISE.
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(b) Permitted Exceptions. Lessee hereby accepts the Premises subject to the
matters reflected in the Title Commitment and Survey and to the Co-Ownership
Agreement.
(c) Construction of Building and Signs.
(1) Promptly after receipt of an appropriate building permit for
construction of improvements on the Site substantially in accordance with
the Approved Conceptual Plan (which Lessee agrees that Lessee shall use
Lessee's reasonable and prudent efforts to obtain promptly after execution
of this Lease), at Lessee's sole cost and expense, Lessee shall commence
and diligently pursue the construction of the Building, including
landscaping, parking and related amenities, in substantial accordance with
the Approved Conceptual Plans, and install therein all Personal Property
deemed necessary or appropriate for operation of the business prescribed in
Paragraph 9 in the Premises.
(2) Lessee will use Lessee's reasonable and prudent efforts to procure
the approval of the final plans and specifications by any and all federal,
state, municipal, and other governmental authorities, offices, and
departments having jurisdiction in the matter, to the extent required.
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(3) At least fifteen (15) days prior to commencement of construction
of the Building, Lessee shall provide Lessor with the name of its intended
general contractor.
(4) Lessee shall substantially complete the Building and all other
improvements reflected in the Approved Conceptual Plan (the date of such
substantial completion being referred to as the "Completion Date") in
accordance with the final plans and specifications developed from the
Approved Conceptual Plans on or before the date (the "Completion Deadline
Date") which is three hundred sixty (360) days after the date that Lessee
obtains final platting approval from the appropriate governmental agencies.
(5) Lessee will erect the Building, in a good, and workmanlike manner
in substantial accordance with the formal plans and specifications
developed from the Approved Conceptual Plans, and with all provisions of
law and any and all permits and authority required by any ordinance, law,
or public regulations or by any authority at that time having jurisdiction
over the Premises and in accordance with the requirements of any public
body having similar lawful jurisdiction. The Building will, when completed,
comply with all applicable laws and regulations, federal, state, and
municipal, and upon such completion Lessee will obtain and (if not
previously delivered) deliver to Lessor a photocopy of all certificates of
occupancy.
(6) Upon completion of the Building, Lessee will obtain all
certificates and licenses including but not limited to a certificate of
occupancy and such other permits as may be necessary to permit Lessee to
use the Premises for the Permitted Use. At all times before, during, and
after construction, the Premises shall be free from any and all mechanics'
and other liens (other than liens on Lessee's personal property), charges,
and claims for the payment of money or otherwise, chattel mortgages,
conditional bills of sale, violations, and other encumbrances of any and
all kinds, nature, and description, growing out of or connected with the
construction of the Building.
(7) Lessee shall, promptly upon written request delivered to Lessee by
Lessor, provide Lessor with copies of all building and temporary or final
certificates of occupancy or similar documents relating to the Premises.
(8) As soon as is reasonably practicable after completion of the
Building, and in any event prior to the date that Lessee opens any portion
of the Premises for business, Lessee shall furnish Lessor with a full set
of the final construction plans and specifications (together with a
statement from Lessee's architect of material changes, if any, from the
Approved Conceptual Plans).
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(9) The submittal to Lessor of the Approved Conceptual Plans and/or
the final construction plans and specifications for the Building or any
other action taken by Lessor with respect thereto under the provisions of
this Lease shall not constitute an opinion or representation by Lessor as
to the sufficiency of said plans and specifications nor impose any present
or future liability or responsibility upon the Lessor.
(10) Pursuant to the Co-Ownership Agreement, Lessee shall also (i)
construct a roadway upon a portion of certain property which abuts the
Premises and (ii) a fence substantially the same as the existing fence
along the southerly boundary of the Premises abutting the roadway, which
roadway and fence shall be completed upon completion of construction of the
Building on the Premises.
(11) Lessee shall be entitled to erect building signs and a pylon
sign, in such number, height, location and design as are set out in the
Approved Conceptual Plans, subject to the requirements of all applicable
federal, state, municipal, or governmental authorities. In addition, Lessee
shall have the right at Lessee's sole expense to erect one approximately
ten foot (10)' by ten foot (10)' sign panel on the second position on that
certain Pylon Sign described in Section 6 of the Co-Ownership Agreement.
(12) Such improvements made by Lessee shall remain the property of
Lessee during the Term; however, upon termination of this Lease, regardless
of how such termination is brought about (other than default by Lessor),
the Building and other improvements on the Premises shall at once become
the absolute property of the Lessor without payment of any kind therefor.
Provided that Lessee is not in default hereunder, Lessee shall have the
right, but not the obligation, to remove, prior to the termination of this
Lease, any of Lessee's personal property, equipment, trade fixtures,
furniture, and sign faces which may be located on the Premises, provided
that Lessee shall repair any and all damage to the Premises resulting from
such removal. Lessee, at its own expense, shall procure all necessary
permits from applicable governmental agencies authorizing the erection and
operation of a restaurant on the Premises. If necessary, Lessor will join
with and assist Lessee in acquisition of such permits, at no cost or
liability to Lessor.
(d) Notwithstanding anything to the contrary stated herein, in the event
Lessee is unable to obtain plat approval (including approval of a Water
Pollution Abatement Plan) and required building permits on terms acceptable to
Lessee in its sole and exclusive discretion within ninety (90) days following
Lessor's approval of the Conceptual Plans pursuant to Section 1(b) herein, then
Lessee may terminate this Lease without further obligation to Lessor. Lessee's
right to terminate pursuant to this Section 6(d) shall terminate on the date
Lessee commences construction of improvements on the Site.
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7. ALTERATIONS.
(a) Prohibited Alterations. Unless Lessee shall have obtained the prior
written consent of Lessor, which consent shall not be unreasonably withheld,
after completion of construction of the Building in accordance with Paragraph 6,
Lessee shall not make any alterations, improvements, modifications, or additions
to the Premises, other than those required by any applicable law, that would
cause the improvements to be substantially different from the Approved
Conceptual Plan.
(b) Guidelines for Alterations. Any alterations, additions, substitutions
or replacements performed pursuant to this Paragraph 7, or pursuant to those
required by any applicable law, (i) shall be performed in a good and workmanlike
manner, (ii) shall not violate any term of any agreement or restriction to which
the Premises are subject, (iii) shall be expeditiously completed in compliance
with all laws, ordinances, rules, regulations and requirements applicable
thereto, and (iv) shall be in conformity with the exterior of the Building as
depicted in the Approved Conceptual Plans or otherwise as may be approved by the
Lessor in writing. Lessee shall promptly pay all costs and expenses of each such
addition, alteration, substitution or replacement, discharge all liens arising
therefrom and procure and pay for all permits and licenses required in
connection therewith. Any such alteration, improvement, modification, or fixture
which is installed by Lessee on the Premises and which is in any permanent
manner attached to the floors, walls or ceilings shall remain upon the Site when
the Premises are surrendered, by Lessee.
(c) Plans and Specifications. Promptly upon completion of any alterations,
Lessee shall furnish Lessor copies of all plans and specifications available to
Lessee for the alteration work performed. Lessee shall notify Lessor upon
completion of any alterations, improvements, modifications, or additions and
Lessor may inspect same for workmanship and compliance with any approved plans
and specifications.
8. MECHANICS' AND MATERIALMEN'S LIENS.
Notwithstanding anything in this Lease to the contrary, Lessee will not
create or permit to remain beyond the period hereinafter provided, and will
discharge in the manner hereinafter provided, any mechanics or materialmen lien
(being the liens of mechanics, laborers, artisans, or materialmen for work or
materials done or furnished in connection with the Premises or Personal
Property), encumbrance, or other charge upon the Premises or Personal Property
or any part thereof, upon Lessor's interest therein, or upon Lessee's leasehold
interest; provided, however, should any such lien be filed against the Premises
or Personal Property or the leasehold estate created by this Lease, Lessee
shall, within thirty (30) days after the filing of such lien (but in any case
not later than 15 days prior to the date that any such lienholder may foreclose
such lien), either discharge and cancel the lien of record or post a bond or
furnish other security satisfactory to Lessor (in connection with which Lessee
may contest any claims of any persons who have provided, or alleged to have
provided, work to the Premises or Personal Property) in favor of Lessor. NOTICE
IS HEREBY GIVEN THAT LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR,
SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO Lessee, OR TO ANYONE
HOLDING THE PREMISES OR ANY PART THEREOF THROUGH OR UNDER Lessee, AND THAT NO
MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH
TO OR AFFECT THE INTEREST OF LESSOR IN AND TO THE PREMISES OR ANY PART THEREOF.
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9. USE, MAINTENANCE, AND OCCUPANCY OF PREMISES.
(a) Permitted Uses. Subject to the restrictions herein, Lessee shall have
the right to use the Premises for the operation of a restaurant selling roasted
chicken or any lawful retail use which is normally found in the highest class of
shopping centers, malls and retail areas in San Antonio, Texas which does not
conflict with a covenant in existence or constitute a use in existence on
another portion of the Co-Ownership Property on the date Lessor receives notice
of Lessee's proposed use. Lessee agrees to give Lessor written notice thirty
(30) days prior to any change in use. Lessor hereby specifically disclaims any
warranty, guaranty, or representation concerning whether any specific use
(including without limitation the sale of alcoholic beverages) would be in
compliance with applicable laws, ordinances, rules or regulations.
(b) Prohibited Uses. Lessee shall not be permitted to use the Premises for
any use or operation which is obnoxious to or out of harmony with the
development or operation of the CoOwnership Property, including, but not limited
to, any nuisance, the use of any building as a warehouse, an assembly hall,
distillation operation, mobile home or trailer park, the drilling for and/or
removal of subsurface substances, veterinary clinic where animals are kept
overnight, pet store, mortuary or funeral home, automobile body or repair shop,
flea market, cafeteria, bowling alley, skating rink, pool hall, billiard parlor,
game room, movie theatre, gym, health club or spa, school, saloon, cocktail
lounge or nightclub (including a restaurant which derives more than twenty
percent (20%) of its annual gross revenues from the sale of alcoholic
beverages), dance hall, adult book store, or other place of public or private
amusement.
(c) Maintenance. Lessee shall keep the Premises including all improvements
located therein maintained in good condition and repair, clean and free of
rubbish and other hazards. Such maintenance shall include, but not be limited
to, the following:
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(1) Maintaining, repairing and resurfacing, when necessary, all paved
surfaces in a level, smooth and evenly covered condition with the type of
surfacing material originally installed or such substitute as shall in all
respects be equal or superior in quality, use, and durability; and
restriping, when necessary;
(2) Removing all snow, papers, debris, filth and refuse and thoroughly
sweeping the area to the extent reasonably necessary to keep the area in a
clean and orderly condition;
(3) operating, maintaining, repairing and replacing, when necessary,
such artificial lighting facilities as shall be reasonably required;
(4) Maintaining all landscaped areas, and replacing shrubs and other
landscaping as is necessary; and
(5) Maintaining, repairing and replacing, when necessary, all storm
drains, sewers and other utility lines and facilities which exclusively
serve the Premises and are not dedicated to the public or conveyed to any
public or private utility which are necessary for the operation of the
improvements.
(d) Abandonment. If Lessee shall cease to continuously operate a business
on the Premises or abandon, vacate, or surrender the Premises or be dispossessed
by process of law or otherwise, Lessee shall nevertheless continue to perform
all of its duties and obligations under this Lease, including but not limited
to, its obligations to pay Rent pursuant to Section 4 and its obligations to
maintain the Premises set forth in this Section 9.
10. UTILITIES.
Lessee shall pay all public utility charges and maintenance expenses for
utility services to the Premises, including heat, water, sewer, electricity,
telephone and other utility services on the Premises during the term of this
Lease.
11. TAXES AND ASSESSMENTS.
(a) Real Estate Taxes. In addition to the base rent, Lessee, as further
consideration for this Lease, shall pay or cause to be paid and discharged all
real property taxes which may be levied on or assessed against the Premises and
all interest therein to the extent such taxes are attributable to the Term
following the Rental Commencement Date. Notwithstanding the foregoing, Lessee
shall not be responsible for the payment of any tax attributable to the rent
paid by Lessee hereunder nor any of Lessor's income or capital gain taxes, and
Lessor shall indemnify and hold harmless Lessee from and against any liability
therefor, except to the extent any tax on rent is in the substitution for real
property taxes assessed against the Premises. Lessor and Lessee acknowledge that
the Premises are presently taxed as a part of a larger parcel. Upon execution of
this Lease, Lessor shall submit such applications as may be necessary to the
applicable governmental authorities to request that the Premises be taxed as a
separate parcel.
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(b) Indemnification. So long as the Premises are assessed as a separate tax
parcel, Lessee agrees to protect and hold harmless Lessor from liability for any
and all such taxes, assessments and charges for which Lessee is responsible,
together with any interest, penalties or other sums thereby imposed, and from
any sale or other proceeding to enforce payment thereof.
(c) Notice and Payment. Lessor shall provide Lessee with copies of all tax
statements and assessments affecting the Premises within twenty (20) days of
Lessor' s receipt thereof. Lessee agrees to pay all such foregoing taxes,
assessments and charges, including any penalties or interest associated
therewith, for which Lessee is responsible not less than fifteen (15) days prior
to the date of delinquency thereof, subject to subparagraph (d) below, and to
deliver to Lessor copies of all such payments promptly upon payment thereof.
However, in the event the Premises are not taxed separately, Lessee shall pay
Lessee's share of the annual taxes in an amount equal to one-twelfth (1/12) of
Lessor's good faith estimate of the Lessee's proportionate share of the taxes
for the upcoming Lease Year, such 1/12 amount to be payable monthly at the same
time that Rent is due hereunder for that month. Lessor reserves the right from
time-to-time to modify such good faith estimate based upon the actual taxes.
Within sixty (60) days following the end of each Lease Year, Lessor shall
furnish Lessee with a statement showing the total taxes for the Lease Year just
expired, the amount of Lessee's share of such taxes, and the payments made by
Lessee during such Lease Year. If Lessee's share for such taxes for such Lease
Year shall exceed the Lessee's payments so made, Lessee shall pay to Lessor the
difference within twenty (20) days after receipt of said statement. If Lessee's
payments shall exceed Lessee's share of such taxes as shown on such statement,
Lessee shall he entitled to offset the excess against the Rent payments next
thereafter becoming due, if any, or receive an immediate refund from Lessor with
respect to the last Lease Year of the Term.
(d) Contest. In the event the Premises are separately assessed for tax
purposes, Lessee shall have the first and prior right to contest the amount or
validity of real property taxes and assessments pertaining to the Premises by
appropriate administrative and legal proceedings brought either in its own name,
Lessor's name or jointly with Lessor, as Lessee may deem appropriate, by counsel
selected and engaged by Lessee; provided, however, that in the event Lessee
involves Lessor in any such proceeding, Lessee shall reimburse Lessor for its
reasonable out-of-pocket expenses associated therewith. In such event, Lessor
shall execute and deliver to Lessee whatever documents may be necessary or
proper (subject to Lessor's approval, not to be unreasonably withheld or
delayed) to permit Lessee to so contest real property taxes or which may be
necessary to secure payment of any refund which may result from any such
proceedings. Any such proceedings shall be undertaken at the sole cost and
expense of Lessee and any refund resulting therefrom shall belong solely to
Lessee. So long as Lessee is not in default hereunder, under no circumstances
shall Lessor take any action to contest the amount or validity of real property
taxes and assessments affecting the Premises without Lessee's prior written
consent.
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12. INSURANCE.
(a) Lessee's Insurance. Commencing on the Effective Date and continuing
throughout the Term of this Lease, Lessee shall maintain insurance in accordance
with the following:
(1) Lessee shall, at its sole cost and expense, obtain and maintain
(i) insurance upon and relating to the Site, Building, Personal Property by
"broad peril" form of insurance policy(ies) in amounts equal to 100% of the
full insurable replacement value of the Building and Personal Property,
such insurance policies to contain a "Replacement Cost Endorsement", and
(ii) if not included in the broad peril policy described above, insurance
covering the Personal Property in an amount equal to 100% of the original
replacement value, in such form as may be reasonably required by Lessor.
All such policies of insurance shall insure Lessee, and shall, as
applicable, have a deductible that is no greater than $10,000.
(2) Lessee shall, at its sole cost and expense, obtain and maintain a
(i) commercial general liability insurance, in the standard form approved
by the Texas State Board of Insurance, insuring Lessor, Lessor's mortgagee,
and Lessee against all claims, demands, or actions arising out of or in
connection with injury to or death of a person or persons and for damage to
or destruction of property occasioned by or arising out of or in connection
with the use or occupancy of the Site and Building, or by the condition of
the Site and Building, the limits of such policy or policies to be in an
amount not less than (A) $2,000,000 in, general aggregate, (B) $2,000,000
in respect of products completed operations aggregate, (C) $1,000,000
personal and advertising injury limit, (D) $1,000,000 per occurrence limit,
and (E) $50,000 fire damage limit, or with such other limits as may be
commercially reasonable; (ii) a business automobile policy or policies
extending to all owned, non-owned, hired, and borrowed automobiles, the
limits of such policy or policies to he in an amount not less than
$1,000,000, or with such other greater limits as may be commercially
reasonable, (iii) workers' compensation insurance, the limits of such
policy or policies to be in an amount not less than $500,000 in respect of
bodily injury by accident, $500,000 in respect of bodily injury by disease,
or with such other amounts as may be commercially reasonable, and (iv) such
other coverage as may be commercially reasonable, with Lessor and Lessor's
mortgagee named as an additional insured (as to the commercial general
liability and business automobile policies) and as beneficiary of the Texas
waiver of right to recover from others endorsement (with respect to the
workers' compensation policy).
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(3) Lessee shall carry business interruption insurance covering rental
for not less than twelve (12) months of the aggregate of Monthly Rent.
(4) Lessee shall use reasonable efforts to cause all policies of
insurance required by the terms of this Lease to contain an endorsement or
agreement by the insurer that any loss shall be payable in accordance with
the terms of such policy notwithstanding any act or negligence of Lessor
which might otherwise result in forfeiture of said insurance and the
further agreement of the insurer waiving all rights of setoff, counterclaim
or deductions against Lessor. Lessee shall notify Lessor in writing in the
event Lessee is unable to obtain such endorsement or agreement. All
policies of insurance shall be issued by an insurance company or companies
having a General policyholder's rating of not less than B and a financial
rating of Class VII as stated in the most current available Best's
insurance reports (or comparable rating service if Best' s reports are not
currently being published), licensed to do business in the State of Texas.
All policies of insurance shall be in form and substance reasonably
satisfactory to Lessor. Lessee shall deliver to Lessor originals or copies
of all policies of required insurance. Thirty (30) days prior to the
expiration of each of the policies required hereunder, Lessee shall furnish
Lessor with certificate of insurance in force or replacement coverage and
meeting the standards hereinabove provided, all as required by this Lease.
All such policies shall contain a provision that such policies will not be
canceled or materially amended, including any reduction in the scope or
limits of coverage, without ten (10) days' prior written notice to Lessor
and Lessor's mortgagee, if any. In the event Lessee fails to maintain, or
cause to be maintained, or deliver and furnish to Lessor certified copies
of policies of insurance required by this Lease, Lessor may procure such
insurance for the benefit only of Lessor for such risks covering Lessor's
interests, and Lessee will pay all premiums thereon within thirty (30) days
after demand by Lessor. In the event Lessee fails to pay such premiums (or
reimburse Lessor) upon demand the amount of all such premiums shall bear
interest at the least of the Prime Rate plus seven percent (7%) per annum,
or at the maximum rate of interest permitted by law from time to time.
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(b) Builders Risk Insurance. While any part of the Site, Building, and
Personal Property is being developed or altered, Lessee shall maintain builder's
risk or all risk-property insurance equal to the full replacement value of the
Building and Personal Property.
(c) Waiver of Subrogation. Notwithstanding anything contained in this Lease
to the contrary, each party hereto hereby waives any and every claim which
arises or may arise in its favor and against the other party hereto, or anyone
claiming through or under them, by way of subrogation or otherwise, during the
term for any and all loss of, or damage to, any of its property (whether or not
such loss or damage is caused by the fault or negligence of the other party or
anyone for whom such other party may be responsible), which loss or damage is
covered, or is required by this Lease to be covered, by valid and collectible
fire and extended coverage insurance policies. Such waivers shall be in addition
to, and not in limitation or derogation of, any other waiver or release
contained in this Lease with respect to any loss or damage to property of the
parties hereto.
13. HAZARDOUS SUBSTANCES.
(a) Hazardous Substance. For purposes of this Paragraph 13, "Hazardous
Substance" means any substance, matter, material, waste, or pollutant, the
generation, storage, disposal, handling, release (or threatened release),
treatment, discharge, or emission of which is regulated, prohibited, or limited
under: (i) the Resource Conservation and Recovery Act, as amended by the
Hazardous and Solid Waste Amendments of 1984, as now or hereafter amended
("RCRA") (42 U.S.C. Sections 6901 et seq.), (ii) the Comprehensive Environmental
Response, Compensation and Liability Act, as amended by the Superfund Amendments
and Reauthorization Act of 1986, as now or hereafter amended ("CERCLA") (42
U.S.C. Sections 9601 et seq.) (iii) the Clean Water Act, as now or hereafter
amended ("CWA") (33 U.S.C. Sections 1251 et seq.), (iv) the Toxic Substances and
Control Act, as now or hereafter amended ("TSCA") (15 U.S.C. Sections 2601 et
seq.), (v) the Clean Air Act, as now or hereafter amended ("CAA") (42 U.S.C.
Sections 7401 et seq.), (RCRA, CERCLA, CWA, TSCA and CAA are collectively
referred to herein as the "Federal Toxic Waste Laws"), (vi) any local, state or
foreign law, statute, regulation, or ordinance analogous to any of the Federal
Toxic Waste Laws, and (vii) any other federal, state, local, or foreign law
(including any common law), statute, regulation, or ordinance regulating,
prohibiting, or otherwise restricting the placement, discharge, release,
threatened release, generation, treatment, or disposal upon or into any
environmental media of any substance, pollutant, or waste which is now or
hereafter classified or considered to be hazardous or toxic. All of the laws,
statutes, regulations and ordinances referred to in subsections (vi) and (vii)
above, together with the Federal Toxic Waste Laws are collectively referred to
herein as "Toxic Waste Laws". The term "Hazardous Substances" shall also
include, without limitation, (a) gasoline, diesel fuel, fuel oil, motor oil,
waste oil, and any other petroleum hydrocarbons, including any additives or
other byproducts associated therewith, excluding, however, asphalt and related
products used in the construction of parking areas and flatwork on the Site, (b)
asbestos and asbestos-containing materials in any form, (c) polychlorinated
hiphenyls, and (d) any substance the presence of which on the Premises by virtue
of its chemical composition: (x) requires reporting or remediation under any
Toxic Waste Law; (y) causes or threatens to cause a nuisance on the Premises or
poses or threatens to pose a hazard to the health or safety of persons on the
Premises; or (z) which, if it emanated or migrated from the Premises, could
constitute a trespass, nuisance or health or safety hazard to persons on
adjacent property.
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(b) Hazardous Substances on Premises Prohibited. Lessee shall not conduct,
permit, or authorize the manufacturing, emission, generation, transportation,
storage, treatment, or disposal at the Premises, of any Hazardous Substance
without prior written authorization by Lessor, except for small quantities which
are routinely utilized in connection with restaurant related uses, all of which
are to be stored, used, handled, and disposed of in full compliance with all
Toxic Waste Laws and none of which require any special licenses or permits for
their storage or use, except for special licenses or permits for such storage or
use incident to the operation of a restaurant with related bar and/or cocktail
lounge. Lessor shall have the right to withhold its authorization for any
reason, or without cause, in its sole and absolute discretion. Nothing contained
herein shall be construed as imposing upon Lessee any responsibility for any
Hazardous Substances located in, on, or under the Site on or prior to the
Effective Date (the "Pre-Existing Conditions"). Lessee agrees to notify Lessor
in writing of any Pre-Existing Conditions disclosed in any reports or studies
undertaken by Lessee and furnish copies of such reports or studies to Lessor
promptly after completion of such reports or studies.
(c) Compliance with Toxic Waste Laws.
(1) Lessee shall, at its sole cost and expense, comply with all
applicable Toxic Waste Laws, provided that nothing contained herein shall
be construed as imposing upon Lessee any responsibility for compliance with
applicable Toxic Waste Laws in respect of Pre-Existing Conditions.
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(2) Lessee shall promptly provide Lessor with copies of all written
communications, permits, reports, sampling results, or agreements with
and/or from any governmental authority or agency (federal, state, local, or
foreign) or any Business Entity relating in any way to the presence,
release, threatened release, placement on or in the Premises, or the
manufacturing, emission, generation, transportation, storage, treatment,
handling or disposal at or from the Premises, of any Hazardous Substance,
including without limitation, the improper or unpermitted discharge of any
substance into the local publicly owned water treatment facility (if any).
(3) If Lessor reasonably believes that Lessee has not complied or is
not complying with any applicable Toxic Waste Laws, rules or permits
relating in any way to the presence of Hazardous Substances on the
Premises, upon not less than thirty (30) days prior written request by
Lessor, Lessee shall conduct and provide Lessor with the results of
appropriate tests of air, water, or soil to demonstrate that Lessee
complies with all applicable Toxic Waste Laws, rules or permits relating in
any way to the presence of Hazardous Substances on the Premises. If the
results of such tests demonstrate that Lessee substantially complies or
that such non-compliance is in respect of Pre-Existing Conditions, Lessor
shall reimburse Lessee for the reasonable cost of such tests within thirty
(30) days after delivery to Lessor of paid invoices therefor.
(4) If Lessor reasonably believes that Lessee has not complied or is
not complying with any applicable Toxic Waste Laws, rules or permits
relating in any way to the presence of Hazardous Substances on the
Premises, and Lessor has requested and Lessee has failed, within thirty
(30) days after written request therefor by Lessor, to furnish Lessor with
results of appropriate tests described in Paragraph 13(c)(3) , then,
subject to the provisions of Paragraph 13(f) below, Lessor and its agents
and employees shall have the right to enter the Premises and/or conduct
appropriate audits or evaluations (including, without limitation, soil
and/or surface or groundwater sampling) for the purpose of ascertaining
that Lessee complies with this Paragraph 13. Any such entry and audits or
evaluations shall be done in a manner reasonably intended to minimize
interference with Lessee's normal business operations and upon not less
than two (2) days prior written notice. Lessor shall indemnify Lessee from
any damage to Lessee's property, liability and reasonable expenses caused
by such entry, excluding damage resulting from the gross negligence or
willful misconduct of Lessee.
(d) Clean up and Mitigation. If the presence, release, threat of release,
placement on or in the Premises, or the generation, transportation, storage,
treatment, or disposal at or from the Premises of any Hazardous Substance that
is not a Pre-Existing Condition (a) gives rise to liability (including, but not
limited to, a response action, remedial action, removal action, or enforcement
action) under the Toxic Waste Laws, or any common law theory based on nuisance
or strict liability, (b) causes or is deemed by applicable governmental
regulatory authorities to cause or contribute to a public health threat or harm,
or (c) pollutes or threatens to pollute the environment, Lessee shall promptly
take any and all remedial, removal, or other action required by any Governing
Agencies or by any order of a court or arbitration panel to clean up or
remediate the Premises, mitigate exposure to liability arising from such
Hazardous Substance, as required by law, or cease taking or cause requisite
corrective action(s) to he taken to preclude any or further (as the case may be)
adverse environmental effects, regulatory enforcement actions or civil or
criminal actions or proceedings. If a violation of the Toxic Waste Laws other
than in respect of Pre-Existing Conditions occurs during the term of this Lease,
Lessee shall promptly take any and all remedial, removal, or other actions
required by such regulatory authorities to correct the violation.
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(e) Indemnity. Notwithstanding anything contained herein to the contrary,
Lessee shall indemnify and hold harmless Lessor from any and all liability,
reasonable costs, reasonable expenses, reasonable attorneys, fees, reasonable
remedial or response costs, reasonable investigatory costs, and similar
reasonable expenses arising out of or otherwise attributable to any offsite
disposal by, on behalf of, or otherwise arranged for Lessee of any materials,
including, without limitation, wastes, liquids, semi-solids, and refuse (whether
or not deemed or determined to constitute a Hazardous Substance). Such indemnity
obligation shall not be subject to any termination or expiration.
(f) Lessor's Right of Entry. Lessor shall have the right but not the
obligation, prior or subsequent to an event of default without in any way
limiting Lessor's other rights and remedies under this Lease, to enter onto the
Premises or to take such other actions as it deems reasonably necessary or
advisable to clean up, remove, resolve or minimize the impact of, or otherwise
deal with, any Hazardous Substances or a violation of Toxic Waste Laws at the
Premises. If such entry has been made necessary by the failure of Lessee to
perform its obligations under other sections of this Paragraph 13, Any entry on
the Premises or other action taken by Lessor must be done in a manner so as not
to unreasonably interfere with Lessee's business at the Premises as prescribed
by this Lease. If such entry has been made necessary by the failure of Lessee to
perform its obligations under other portions of this Paragraph 13 All reasonable
costs and expenses paid or incurred by Lessor in the exercise of any such rights
except in respect of Pre-Existing Conditions as otherwise specified herein shall
be payable by Lessee within thirty (30) days after demand.
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(g) Grease Traps. Lessee shall maintain such written records as are
required by any applicable rules of any Governing Agencies for each Lease Year
(including, without limitation, originals or copies of invoices of all third
parties involved in any manner with grease traps located at the Premises) of the
date of each clean out of contents of grease traps at the Premises and the
method of disposition thereof and, to the extent such disposition is by off site
disposal rather than microbiotic process, all reports, invoices, and other
written materials pertaining to such off site disposition. Lessee shall make
such records available for review by Lessor on request and shall furnish a
complete set of records for the Lease Year in question to Lessor within thirty
(30) days after the end of each Lease Year or on expiration or earlier
termination of each Lease Year.
14. INDEMNITY.
(a) Lessee's Duty to Indemnify. Lessee shall indemnify, protect and save
Lessor, its successors and assigns, partners, shareholders, trustees, directors,
employees, agents and officers ("Lessor Indemnified Parties"), harmless from and
against, and shall reimburse such parties for, all liabilities, obligations,
losses, claims, damages, penalties, costs, charges, judgments and expenses
including without limitation, reasonable attorneys' fees and expenses which may
be imposed upon or incurred or paid by or asserted against such Lessor
Indemnified Parties by reason of or in connection with any of the following
occurring during the term of this Lease (except to the extent caused by the
gross negligence or willful misconduct of such Lessor Indemnified Parties):
(1) any accident, injury, death or damage to any person or property
occurring in, on or about the Premises or any portion thereof;
(2) all construction and any changes, alterations, repairs and
anything done in, on or about the Premises or any part thereof in
connection with such changes, alterations and repairs;
(3) the use, non-use, occupation, condition, operation, maintenance or
management of the Premises or any part thereof;
(4) any negligent act on the part of Lessee or any of its agents,
contractors, servants, employees, space tenants, licenses or invitees;
(5) performance of any labor or services or the furnishing of any
materials or other property in respect of the Premises or any part thereof;
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(6) any violation by Lessee (or by any agent, contractor, or licensee
then upon or using the Premises) of any provision of this Lease, including,
but not limited to, Paragraph 13 hereof, or any breach of any law,
regulation, or ordinance by Lessee or its agents, customers, invitees,
concessionaires, contractors, servants, vendors, materialmen, or suppliers;
or
(7) the condition of the Premises, or of any buildings or other
structures now or hereafter situated thereon, or the fixtures or personal
property thereon or therein.
(b) Lessor's Duty to Indemnify. Lessor shall indemnify, protect and save
Lessee, its successors and assigns, partners, shareholders, trustees, directors,
employees, and officers ("Lessee Indemnified Parties"), harmless from and
against, and shall reimburse such parties for, all liabilities, obligations,
losses, claims, damages, penalties, costs, charges, judgments and expenses
including without limitation reasonable attorneys, fees and expenses which may
be imposed upon or incurred or paid by or asserted against such Lessee
Indemnified Parties by reason of or in connection with the gross negligence or
willful misconduct of Lessor, its successors and assigns, partners,
shareholders, trustees, directors, employees, agents and officers occurring
during the term of this Lease.
(c) Defense of Claims. In case any action or proceeding is brought against
Lessor or Lessee, as the case may be, or any of such Lessor or Lessee
Indemnified Parties by reason of any claim or occurrence mentioned in this
Paragraph 14, such party (herein referred to collectively as the "Indemnified
Party") shall promptly notify the other party in writing thereof, and the other
party shall at such other party's expense resist and defend such action or
proceeding, in the Indemnified Parties' names, if necessary, by a counsel
designated by such party and approved by the Indemnified Party, which approval
shall not be unreasonably withheld or delayed; provided, however, that any
failure of any such parties to give such notice to the other party shall not
affect Lessor's or Lessee's obligations of indemnification contained in this
Lease unless such failure materially and adversely affects the other parties
liability hereunder. The terms and provisions of this Paragraph 14 shall not in
any way be affected by the absence of insurance covering such occurrence or
claim or by the failure or refusal of any insurance company to perform any
obligation on its part. Neither Lessor nor such parties shall be liable to
Lessee or to Lessee's officers, shareholders, directors, employees, subtenants,
patrons, agents, customers or visitors, for any damages to persons or property
caused by any act of negligence of Lessee, its agents or employees, or due to
fire, tornado, or other casualty, or due to Lessee's operation or management of
the Premises, or due to any building on the Premises and appurtenances thereon
being improperly constructed, or being or becoming out of repair.
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(d) Limitations. Notwithstanding anything to the contrary contained herein,
the Indemnities contained in this Paragraph 14 shall automatically expire and
terminate with respect to any Damages or claims at such time that the applicable
statute of limitations or comparable rule or law would bar or otherwise prevent
the assertion of a cause of action by the injured party, and in any event upon
the expiration of four (4) years after the expiration or termination of the
Lease.
15. LESSEE'S RESTAURANT EQUIPMENT.
Lessor recognizes and agrees that the restaurant furniture, trade fixtures,
interior signs, and equipment located on the Premises are the property of Lessee
and are not to automatically become the property of the Lessor upon the
termination hereof, such restaurant furniture, trade fixtures, interior signs
and equipment including by way of example, but not limited to grills, deep
fryers, beverage dispensers, cash registers, tables, chairs, booths, cold
storage facilities, service counters, interior signage, etc. Lessor further
agrees that Lessor's rights in any such furniture, fixtures, interior signs and
equipment shall at all times be subordinate to the rights of Lessee or any other
person or entity who acquires a security interest in same as a result of a
financial transaction with Lessee. Accordingly, Lessor shall upon request by
Lessee execute such reasonable instruments as may be required to subordinate its
statutory landlord's lien to the lien or liens of third party lenders which hold
security interests in the personal property or equipment of Lessee. Lessee does
however recognize and agree that equipment which is an integral part of the
structure, such as air conditioning, and heating equipment, lighting fixtures,
electric switch boxes, plumbing, restroom fixtures, and the like which may be
located on the Premises upon termination hereof shall become the property of
Lessor upon termination hereof. Lessee shall have the right to remove its
furniture, fixtures, interior and exterior signs and equipment from the Premises
prior to the termination of this Lease providing Lessee repairs any damage
caused by such removal.
16. COMPLIANCE WITH LAWS.
Lessee shall comply with all laws, orders and regulations of federal, state
and municipal authorities, applicable to the Premises or to the operation of
business thereon. Lessee, at its expense, shall obtain all licenses or permits
which may be required for the conduct of its business within the terms of this
Lease, or for alterations, improvements, or additions which Lessee may desire to
make, and Lessor, where necessary, shall join with Lessee in applying for all
such permits or licenses.
17. ASSIGNMENT-SUBLEASING BY LESSEE.
Except for an assignment of this Lease to an Affiliate, Lessee may not at
any time assign this Lease or sublease all or any part of the Premises without
the prior written consent of Lessor which consent shall not be unreasonably
withheld or delayed. In the event of any assignment or sublease, Lessee shall
remain primarily liable for the payment and performance of all of the
obligations of the Lessee under this Lease unless otherwise agreed between the
parties. Lessee shall promptly notify Lessor of any such assignment or
subleasing to an Affiliate of Lessee.
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18. ASSIGNMENT BY LESSOR.
Lessor shall have the right to assign this Lease, collaterally or
otherwise, without Lessee's consent. No assignment by Lessor shall alter the
rights of Lessee hereunder, and all of the recitals, terms, covenants, and
conditions of this Lease shall remain in full force and effect upon the
assignment. Upon any assignment by Lessor, Lessee shall be entitled to continue
making rental payments to the assignor unless and until the assignor actually
delivers to Lessee a written notice directing rental payments to thereafter be
made to the assignee.
19. HOLDOVER.
Any holdover by Lessee after any termination of this Lease shall create no
more than a month-to-month tenancy at one hundred twenty-five percent (125%) of
the base rent plus all Additional Rent then in effect, and on all other
applicable conditions herein provided.
20. ESTOPPEL CERTIFICATE.
(a) Lessee Estoppel Certificate. Lessee will, at any time and from time to
time, upon not less than twenty (20) days, prior written request by Lessor,
execute, acknowledge and deliver to Lessor a certificate, certifying that (1)
this Lease is unmodified and in full effect (or setting forth any modifications
and that this Lease is in full effect as modified); (ii) the base rent and
Additional Rent payable and the dates to which the base rent has been paid and
whether Additional Rent and other sums payable hereunder have been paid; (iii)
to the knowledge of Lessee, any default of which Lessee may have knowledge; (iv)
the commencement and expiration dates of this Lease; (v) the amount of any
security or other deposits; (vi) either the Lessee is in possession of the
Premises or who is in possession; and (vii) such other matters as may reasonably
be requested by Lessor. Any such certificate may be relied upon by any mortgagee
or prospective purchaser or prospective mortgagee of the Premises.
21. DESTRUCTION.
(a) Lessee's Obligations. In the event the Premises shall be wholly or
partially damaged or destroyed by fire or other casualty, Lessee shall, at its
own expense, cause such damage to be repaired or restored to the condition of
the Premises which existed immediately prior to such casualty. During the period
of repair or restoration, base rent shall not he reduced, but Lessee may use
proceeds of rent insurance to pay Monthly Rent.
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(b) Time for Repairs. If Lessee is required or elects to repair or restore
such damage or destruction, Lessee shall (i) commence to repair any such damage
or to restore the Premises within thirty (30) days after Lessee elects to repair
or restore such damage or destruction (or, if Lessee is required to repair or
restore such damage or destruction, within sixty (60) days after the date of the
occurrence), and (ii) diligently and continuously prosecute such repairs or
restoration to completion, and (iii) complete such repairs or restoration as
soon as reasonably practicable but in any case within two hundred ten (210) days
after commencement of such repairs or restoration. Provided no event of default
exists hereunder, Lessor shall make proceeds of insurance in respect of such
fire or other casualty available to Lessee. The excess, if any, of the proceeds
of insurance paid as a result of a casualty over the Lessee's actual cost of
restoration, shall be paid in the same manner that the excess Building Award is
paid as provided in Paragraph 22(d).
(c) Late Term Casualty. Notwithstanding anything herein to the contrary, in
the event the Premises shall be destroyed or damaged by fire or other casualty
during the last two (2) years of the Lease Term, to such an extent the Lessee
cannot operate its business therein, then Lessee shall have the option
exercisable by written notice to Lessor within twenty (20) days after the date
of such casualty, to not rebuild or restore the Premises, in which event (i) the
greater of (x) all insurance proceeds received or (y) all insurance proceeds
that would have been received if Lessee carried the insurance required hereby,
shall be paid to Lessor, and (ii) Lessee shall pay to, Lessor the amount of
Lessee's deductible concurrent with the giving of such notice.
22. CONDEMNATION.
(a) Definitions. For purposes of this Paragraph 22, the following terms
shall have the respective meanings set forth below:
(1) "Award" means the amount of any award made, consideration paid, or
damages ordered as a result of a Taking less any reasonable costs in
obtaining such award, such as reasonable legal fees and costs, consultant
fees, appraisal costs.
(2) "Building Award" means the positive difference, if any, between
the Award and the Land Award (as hereinafter defined).
(3) "Date of Taking" means the date upon which title to the Premises,
or a portion thereof, passes to and vests in the condemnor or the effective
date of any order for possession if issued prior to the date title vests in
the condemnor.
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(4) "Land Award" means an amount equal to the positive difference, if
any, between the fair market value of the Site on the date that is one day
before the Date of the Taking and the fair market value of the Site on the
date that is one day after the Date of the Taking.
(5) "Partial Taking" means any Taking which does not constitute a
Significant Taking, provided that nothing contained herein shall preclude
or interfere with the right of Lessee to enter into a lease or other
post-taking agreement with the condemnor for the occupancy or use of the
portion taken after the Date of Taking, so long as such lease or
post-taking agreement does not adversely affect Lessor's rights under the
condemnation proceeding.
(6) "Significant Taking" means a Taking of more than twenty percent
(20%) but less than all of the Premises (measured by land area of the Site
prior to and after the Date of Taking), or a Taking that may have a
material adverse impact on the profitability of the business of Lessee
conducted in the Premises, as reasonably determined by Lessee.
(7) "Taking" means a taking of the Premises or any damage related to
the exercise of the power of eminent domain and including a voluntary
conveyance to any agency, authority, public utility, person, or corporate
entity empowered to condemn property in lieu of court proceedings.
(8) "Total Taking" means the permanent Taking of the entire Premises.
(b) Partial Taking.
(1) In the event of a Partial Taking of the Premises during the term
of this Lease which takes any portion of the Premises, the following shall
occur: (i) the rights of Lessee under this Lease and the leasehold estate
of Lessee in and to the portion of the Premises taken shall cease and
terminate as of the Date of Taking; and (ii) this Lease shall otherwise
continue in full effect, except that base rent shall be reduced as set
forth below (however, percentage rent, Additional Rent or other sums
payable by Lessee hereunder shall continue unreduced notwithstanding any
such Taking). Lessee shall, promptly after any such Taking, at its expense,
repair any damage caused thereby so that, thereafter, the Premises shall
be, as nearly as reasonably possible, in a condition as good as the
condition thereof immediately prior to such Taking. In the event of any
such Partial Taking, and provided that no event of default exists
hereunder, Lessor shall make the Building Award available to Lessee to make
such repair. Any balance of the Building Award remaining after such repairs
have been made shall remain the property of Lessor, and shall, to the
extent previously paid by Lessor to Lessee, be repaid by Lessee to Lessor.
As of the Date of Taking, base rent shall be reduced by the product of the
base rent multiplied by a fraction (the "Rent Reduction Percentage"), the
denominator of which is the total land area of the Site prior to the Taking
and the numerator of which is the total land area of the Site taken in the
Taking.
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(2) In the event of any temporary Partial Taking, Lessee shall be
entitled to the entire Award and there shall be no reduction in base rent,
percentage rent, and Additional Rent.
(c) Significant Taking.
(1) In the event of a Significant Taking of the Premises during the
term of this Lease, after which Lessee in its sole discretion reasonably
determines that Lessee can continue the business prescribed in Paragraph 9
in the Premises, the following shall occur: (i) the rights of Lessee under
this Lease and the leasehold estate of Lessee in and to the portion of the
Premises taken shall cease and terminate as of the Date of Taking; and (ii)
this Lease shall otherwise continue in full effect, except that base rent
shall be reduced as set forth below (however Additional Rent or other sums
payable by Lessee hereunder shall continue unreduced notwithstanding any
such Taking). Lessee shall, promptly after any such Taking, at its expense,
repair any damage caused thereby so that, thereafter, the Premises shall
be, as nearly as possible, in a condition as good as the condition thereof
immediately prior to such Taking. In the event of any such Significant
Taking, Lessor shall, provided no event of default exists hereunder, make
an amount equal to the Building Award available to Lessee to make such
repair. Any balance of the Building Award remaining after such repairs have
been made shall remain the property of Lessor, and shall, to the extent
previously paid by Lessor to Lessee, be repaid by Lessee to Lessor. As of
the date of the Taking, base rent shall be reduced by the Rent Reduction
Percentage.
(2) In the event of a Significant Taking of the Premises during the
term of this Lease, after which Lessee in its sole discretion reasonably
determines that Lessee cannot continue the business prescribed in Paragraph
9 in the Premises, the provisions of Paragraph 22(d) shall apply.
(d) Total Taking. In the event of a Total Taking, the Lessee's leasehold
estate shall terminate as of the Date of Taking and all rights and obligations
of Lessor and Lessee hereunder shall terminate except for the rights and
obligations under this Paragraph 22(d) and that otherwise survive termination of
this Lease. Lessor shall be entitled to any and all proceeds of any Land Award.
So long as Lessee does not pursue or seek a separate condemnation Award with
respect to a Total Taking, the Building Award that relates solely to the Total
Taking of the Building shall be shared between Lessor and Lessee as follows:
Lessee's share of the Building Award shall be equal to (i) the Building Award,
times (ii) a fraction, the numerator of which is the number of Lease Years (or
fraction thereof) remaining in the Primary Term of this Lease or any Renewal
Terms then in effect after the Date of Taking, and the denominator of which is
the total number of Lease Years in the Primary Term of this Lease and in any
Renewal Term then in effect; Lessor shall be entitled to the balance of the
Building Award. Any Award that does not relate solely to the Taking of the Land
or the Building shall be divided between Lessor and Lessee based on their
respective ownership interests. Lessee shall be entitled to any Awards that may
be allowed for Lessee's leasehold estate, trade fixtures, or loss of business,
goodwill, depreciation or injury to and cost of removal of stock-in-trade.
Nothing contained herein shall limit Lessee's pursuit of any separate
condemnation Award to which it may legally be entitled.
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(e) Notice of Taking. Lessor shall immediately notify Lessee of any written
offer from any entity with eminent domain authority to purchase any interest in
the Premises. In any such negotiations or in actions in inverse condemnation,
Lessee shall have the right to participate in such proceedings to establish the
value of its improvements and the compensation to which Lessee is entitled
hereunder. However, Lessor shall have total control of the procedural decisions
in eminent domain proceedings. Lessor agrees not to, without Lessee's consent
request "hardship acquisition" or any other early acquisition which would convey
the right of possession to any portion of the Premises to the condemning
authority prior to the time that it otherwise would be acquired by the
condemning authority. The Lessor shall have exclusive control over the decision
of whether to contest jurisdictional issues in condemnation, Lessor will notify
Lessee of that decision, and Lessee agrees to (1) not appear or contest the
matters of compensation at the Special Commissioner's Hearing, (2) not request
to draw down any part of the Award deposited by the condemning authority in
condemnation prior to final determination by the courts of jurisdictional issues
or the abandonment of jurisdictional issue claims by the Lessor, and (3) not to
file with the court or deliver to the condemning authority any waiver of
jurisdictional claims in order to realign the parties for trial of any
condemnation action.
23. WARRANTY OF TITLE.
Lessor has the Premises under option, and prior to the Commencement Date,
shall own good and indefeasible fee simple title to the Premises, subject only
to the matters contained in the survey and title commitment to be obtained by
Lessee pursuant to Paragraph 5 and the Co-Ownership Agreement described in
Paragraph 4(d). Notwithstanding the foregoing, if due to no fault of Lessor it
does not acquire title to the Premises by the Commencement Date, Lessor shall
have the right to terminate this Lease and reimburse Lessee for its actual out
of pocket expenses which Lessee may suffer by reason of Lessor's failure to
acquire title to the Premises, whereupon neither party shall have any further
rights or liabilities hereunder. If at any time Lessor's title or right to
receive rent hereunder is disputed, or there is a change of ownership of
Lessor's estate by act of the parties or operation of law, Lessee may withhold
rent thereafter accruing until Lessee is furnished proof reasonably satisfactory
to it as to the party entitled thereto.
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24. NOTICES.
Notices hereunder shall be given only by hand delivery, certified letter,
by overnight courier, or otherwise, or telegram, or facsimile together with any
other form of notice provided for herein and shall be deemed given when
received, if hand delivered, or sent by overnight delivery service, or when the
letter (sent certified mail, return receipt requested, addressed as set forth
below) is deposited in the mail or the telegram filed with the telegraph
company, postage or charges prepaid. All notices required or permitted by any
provisions of the Lease shall be directed as follows:
TO LESSOR: HERZBERG FAMILY PARTNERS, LTD.
216 Winding Way
San Antonio, Texas 78232
TO LESSEE: CLUCKCORP INTERNATIONAL, INC.
1250 N.E. Loop 410, Suite 335
San Antonio, Texas 78209
or to such other place as either party shall subsequently notify the other in
writing.
25. QUIET ENJOYMENT.
Lessee, upon paying the rent and performing the covenants and agreements of
this Lease, shall quietly have, hold and enjoy the leased Premises and all
rights granted Lessee in this Lease during the term hereof and extensions
hereto, if any.
26. COMMISSIONS.
Lessor has agreed to pay a brokerage commission to HARDY & COMPANY
("Broker") pursuant to a separate agreement between Lessor and Broker. Lessor
and Lessee acknowledge and agree that neither party has engaged the services of
any real estate broker in connection with this Lease other Broker which
commission shall be paid pursuant to a separate agreement between Lessor and
Broker. Lessee and Lessor shall indemnify and hold the other harmless against
any other commission, payment, interest or participation claimed on account of
this Lease under any alleged agreement or understanding entered into between or
on that party' s behalf with the person or entity claiming the commission,
payment, interest or participation.
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27. REMEDIES.
(a) Events of Default by Lessee. The occurrence of one or more of the
following events shall constitute an event of default pursuant to the terms of
this Lease:
(1) The failure of Lessee to comply with or to observe any terms,
provisions, or conditions of this Lease performable by and obligatory upon
Lessee, excluding the rent and other payment provisions hereof, within
thirty (30) days after written notice by Lessor plus such additional time,
not to exceed an aggregate of ninety (90) days, as is needed to cure the
same so long as Lessee has commenced such cure within such 30-day period
and such cure thereafter is continuously and diligently undertaken by
Lessee;
(2) The failure of Lessee to pay when due any portion of any
installment of Monthly Rent (within ten (10) days after receipt of written
notice thereof by Lessor) or any other monetary charge due from Lessee
hereunder (within ten (10) days after receipt of written notice thereof by
Lessor);
(3) The assignment of this Lease (either directly or collaterally) or
subletting of the Premises, or any part thereof, or other transfer
prohibited by Paragraph 17 by Lessee without the prior written approval of
Lessor;
(4) The taking of Lessee's leasehold estate by execution or other
process of law other than as provided in Paragraph 22;
(5) The judicial declaration of Lessee as a bankrupt or insolvent
according to law;
(6) Lessee shall become insolvent, shall make an assignment for the
benefit of creditors, shall make a transfer in fraud of creditors, shall
generally not be able to pay its debts as they become due, or shall admit
in writing its inability to pay its debts as they become due;
(7) The appointment of a receiver, guardian, conservator, trustee in
involuntary bankruptcy, or similar officer by a court of competent
jurisdiction to take charge of a substantial part of Lessee's property;
(8) The filing of a petition for involuntary bankruptcy or
reorganization of Lessee pursuant to any provision of the Bankruptcy Code
without subsequent dismissal thereof within sixty (60) days;
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(9) The filing by Lessee of a petition for bankruptcy, voluntary
reorganization, or for an arrangement under any provision of the Bankruptcy
Code;
(b) Lessor's Remedies. Upon the occurrence of any events of default
enumerated in Paragraph 27(a) hereof, in addition to the application of the
Security Deposit described in Paragraph 4.f above, Lessor shall have the option
to pursue any one or more of the following remedies without any further notice
or demand whatsoever:
(1) Terminate this Lease by giving notice thereof to Lessee, in which
event Lessee shall immediately surrender the Premises to Lessor and if
Lessee fails so to do, Lessor may, without prejudice to any other remedy
which it may have for possession or arrearages in rent, enter upon and take
possession of the Premises and expel or remove Lessee and any other person
who may be occupying the Premises, or any part thereof, without being
liable for prosecution or any claim of damages therefor, and Lessee hereby
agrees to pay to Lessor on demand the amount of all loss and damage which
Lessor may suffer by reason of such termination, whether through inability
to relet the Premises on satisfactory terms or otherwise, specifically
including, but not limited to (i) all reasonable expenses necessary to
relet the Premises, which shall include the cost of renovating, repairing,
and altering the Premises for a new tenant or tenants, advertisements, and
brokerage fees and (ii) any increase in insurance premiums cause by the
vacancy of the Premises. Nothing contained in this Lease shall limit or
prejudice the right of Lessor to seek and obtain in proceedings under any
section or chapter of the Bankruptcy Code by reason of the termination of
this Lease, an amount equal to the maximum allowed by any statute or rule
of law in effect at the time when and governing the proceedings in which
the damages are to be proved, whether or not the amount be greater, equal
to, or less than the amount of the loss or damages referred to above.
(2) Enter upon and take possession of the Premises and expel or remove
Lessee or any other person who may be occupying the Premises, or any part
thereof, without having any civil or criminal liability therefor, and,
without terminating this Lease, Lessor may (but shall be under no
obligation to) relet the Premises or any part thereof for the account of
Lessee in the name of Lessee or Lessor or otherwise, without notice to
Lessee, for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the term), and
on such conditions (which may include concessions or free rent), and for
such uses as Lessor in its absolute discretion may determine, and Lessor
may collect and receive any rents payable by reason of such reletting.
Lessee agrees to pay Lessor on demand all reasonable expenses necessary to
relet the Premises, which shall include the cost of renovating, repairing,
and altering the Premises for a new tenant or tenants and advertising and
brokerage fees, and Lessee further agrees to pay Lessor on demand any
deficiency that may arise by reason of such relenting. The word
"deficiency" as used herein shall mean the negative difference, if any,
between the average effective monthly rental from all sources received or
to be received by Lessor during the term of any reletting during the
remainder of the term after taking consideration and spreading all
concessions, and the amount of base rent and other amounts payable per
month that Lessor would have received had there been no termination times
the number of months remaining in the term (excluding any extension terms
not exercised). Lessor shall not have any duty or be responsible or liable
for any failure to relet the Premises or any part thereof or for any
failure to collect any rent due upon any such reletting.
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(3) Enter upon the Premises without having any civil or criminal
liability therefor and do whatever Lessee is obligated to do under the
terms of this Lease, and Lessee agrees to reimburse Lessor on demand for
any reasonable expenses which Lessor may incur in thus effecting compliance
with Lessee's obligations under this Lease, and Lessee further agrees that
Lessor shall not be liable for any damages resulting to Lessee from such
action. Lessor shall not have any duty or be responsible or liable for any
failure to relet the Premises or any part thereof or for any failure to
collect any rent due upon any such reletting.
(4) No re-entry or taking possession of the Premises by Lessor shall
be construed as an election on its part to terminate this Lease, unless a
written notice of such intention be given to Lessee by Lessor.
Notwithstanding any such reletting or re-entry to take possession, Lessor
may at any time thereafter elect to terminate this Lease for a previous
then continuing uncured default. No act or thing done by the Lessor or its
agents during the term hereby granted shall be deemed an acceptance of a
surrender of the Premises, and no agreement to accept a surrender of the
Premises shall be valid unless the same he made in writing by Lessor.
(5) Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies herein provided or any other remedies
provided by law or equity, not shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Lessor hereunder or of
any damages accruing to Lessor by reason of the violation of any of the
terms, provisions, and covenants herein contained. Lessor's acceptance of
rent following an event of default hereunder shall not be construed as
Lessor's waiver of such event of default. No waiver by Lessor of any
violation or breach of any of the terms, provisions, and covenants herein
contained shall he deemed or construed to constitute a waiver of any other
violation or breach of any of the terms, provisions, and covenants herein
contained. Forbearance by Lessor to enforce one or more of the remedies
herein provided upon an event of default shall not be deemed or construed
to constitute a waiver of such default.
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(6) If this Lease shall be terminated by Lessor, and thereafter Lessee
shall be liable for any deficiency in rent by way of damages or otherwise,
then the rent, from and after the time of default resulting in such
termination, shall be deemed to be the base rent that Lessor would have
received had there been no termination.
(c) Events of Default by Lessor and Lessee's Remedy. If Lessor shall fail
to perform or comply with any term, provision or covenant of this Lease, and
such failure should continue for a period beyond thirty (30) days after written
notice thereof is given by Lessee to Lessor, then Lessee shall have the right to
cure such default, and Lessor shall reimburse Lessee for all reasonable sums
expended in so curing such default, provided however, that in the event such
failure to comply with this Lease is not capable of being cured within such
thirty (30) day period, Lessor shall have an additional period of sixty (60)
days to cure such failure if Lessor commences to cure such failure within such
thirty (30) day period and proceeds diligently to cure the same within such
sixty (60) day period.
(d) Attorney's Fees. In any case where Lessor or Lessee employs attorneys
to protect or enforce its rights hereunder and prevails, then the non-prevailing
party agrees to pay the other party reasonable attorney's fees incurred by the
prevailing party.
(e) Waiver. Failure on the part of Lessor or Lessee to complain of any
action or non-action on the part of Lessee or Lessor, no matter how long the
same may continue, shall never be deemed to be a waiver by Lessor or Lessee of
any of its respective rights hereunder. Further, it is covenanted and agreed
that no waiver at any time of any of the provisions hereof by Lessor or Lessee
shall be construed as a waiver of any of the other provisions hereof and that a
waiver at any time of any of the provisions hereof shall not be construed as a
waiver at any subsequent time of the same provisions. The consent or approval by
Lessor or Lessee to or of any action by Lessee or Lessor requiring Lessor's or
Lessee's consent or approval shall not be deemed to waive or render unnecessary
Lessor's or Lessee's consent or approval to or of any subsequent similar act by
Lessee or Lessor.
(f) Lessor's Right to Cure Certain Potential Defaults. As to any failure of
Lessee to comply with or to observe any terms, provisions, or conditions of this
Lease performable by and obligatory upon Lessee as described in Paragraph 27
(a), if such failure has not been cured within the thirty-day period
contemplated by Paragraph 27(a)(1), Lessor shall have the right to effect such
cure, and Lessee agrees to reimburse Lessor on demand for any reasonable
expenses which Lessor has incurred in connection therewith.
31
<PAGE>
28. RIGHT OF FIRST REFUSAL.
(a) Grant of Right of First Refusal. Lessor hereby grants to Lessee a right
of first refusal ("Right of First Refusal") to purchase the Premises in
accordance with the terms and conditions of this Paragraph 28.
(b) Exercise of Right of First Refusal. In the event that Lessor at any
time during the term of the Lease, including any extensions thereof, should
receive an offer to purchase the Premises from an unrelated (as to Lessor) third
party on terms, conditions and provisions that Lessor desires to accept, Lessor
shall deliver a written notice to Lessee ("Right of First Refusal Notice")
specifying in detail all of the terms, conditions and provisions of the offer
and including a copy of any documents related thereto. Lessee shall have ten
(10) days following its receipt of the Right of First Refusal Notice in which to
elect to exercise its Right of First Refusal to purchase the Premises on the
same terms, conditions and provisions set forth in the Right of First Refusal
Notice. Lessee shall exercise its Right of First Refusal by notifying Lessor in
writing within such ten (10) day period that Lessee elects to exercise the Right
of First Refusal in accordance with the Right of First Refusal Notice, and
Lessee shall effect any deposit required under said notice within such ten (10)
day period and the deposit shall be non-refundable irrespective of the terms of
the third party offer. Failure by Lessee to so exercise the Right of First
Refusal shall constitute a waiver of Lessee's Right of First Refusal as to that
offer, and Lessor shall thereupon be free to enter into a contract with the
third party submitting the offer on substantially the same terms, conditions and
provisions as were contained in the Right of First Refusal Notice and, upon
closing of such sale of the Premises, Lessee's Right of First Refusal shall
terminate. For the purposes of this Paragraph 28 a contract entered into by
Lessor for a purchase price not ten percent (10%) more or ten percent (10%) less
than the purchase price in the Right of First Refusal Notice shall be deemed to
be on substantially the same terms and conditions of the Right of First Refusal
Notice. Notwithstanding the foregoing, if Lessor does not enter into a contract
with the third party on substantially the same terms, conditions and provisions
as were set forth in the Right of Refusal Notice within ninety (90) days
following the date of the Right of Refusal Notice or, if Lessor does enter into
such contract but the third party does not close its purchase of the Premises
pursuant to the terms, conditions and provisions of the Right of Refusal Notice,
Lessee's Right of First Refusal shall not terminate and shall remain in full
force and effect.
32
<PAGE>
(c) Limitation on Applicability. Notwithstanding anything to the contrary
contained herein, Lessee's Right of First Refusal shall apply only to a sale of
the Premises alone. Lessor shall have the right to sell the Premises together
with any adjoining property owned by Lessor, in which event the Right of First
Refusal shall not apply. If Lessor sells the Premises together with other
adjoining property, the Right of First Refusal shall terminate.
29. MEMORANDUM OF LEASE.
On the Effective Date, Lessor and Lessee shall execute a Memorandum of
Lease, in the form attached hereto as Exhibit "B" for recordation in Bexar
County at the equal expense of both parties.
30. ENTIRETY-EXECUTION-SUCCESSION.
This Lease merges and supersedes all prior negotiations, representations,
and agreements, and constitutes the entire contract between Lessor and Lessee
concerning the leasing of the Premises and the consideration therefor. This
Lease and all options herein shall bind and inure to the benefit of the heirs,
administrators, executors, successors and assigns of Lessor, and the successors
and assigns of the parties hereto. The term "Lessor" as used in this Lease shall
be construed as singular or plural to correspond with the number of persons or
entities executing this instrument as Lessor. If more than one person or entity
executes this instrument as Lessor, his, her, their, or its duties and
liabilities under this Lease shall be joint and several.
31. LIMITATION OF LESSOR'S LIABILITY.
Neither the partners of Lessor, nor their managers, officers, employees or
other agents are personally, corporately or individually liable for any debt,
act, omission or obligation of Lessor hereunder, and Lessee and all persons
having claims against Lessor hereunder agree to look solely to Lessor and the
property of Lessor for the enforcement of their rights hereunder. Additionally,
Lessor' s liability hereunder shall be limited to the period of its ownership of
the Premises, and upon the sale of the Premises to a bona fide third party that
assumes Lessor's obligations under this Lease and written notice of such
conveyance to Lessee, the Lessor so conveying the Premises shall have no further
liability for the obligations of Lessor accruing from and after such sale.
32. EXECUTION DEADLINE.
This Lease Agreement must be executed by the Lessee and returned to Lessor
by August 2, 1996. If not executed and returned to Lessor by said date, this
Lease Agreement shall become null and void and of no further force and effect.
33
<PAGE>
33. SUBORDINATION.
Lessee accepts this Lease subject and subordinate to any recorded mortgage
or deed of trust lien presently existing or hereafter created upon the Premises.
This subordination shall be self-operative without the necessity of the
execution of any further instruments by Lessee, but upon the request of any
present or future mortgagee, Lessor is hereby irrevocably vested with full power
and authority, if it so elects, at any time, to subordinate this Lease to any
mortgage hereafter placed upon the Premises by executing a written subordination
instrument as attorney-in-fact for Lessee, and Lessee further agrees upon demand
to execute any additional instruments subordinating this Lease as Lessor may
request. If the interests of Lessor under this Lease shall be transferred by
reason of foreclosure or other proceedings for enforcement of any first mortgage
or deed of trust lien on the Premises, Lessee shall be bound to the transferee
(sometimes called the "Purchaser") at the option of the Purchaser, under the
terms, covenants and conditions of this Lease for the balance of the term
remaining, including any extensions or renewals, with the same force and effect
as if the Purchaser were Lessor under this Lease, and if requested by Purchaser,
Lessee agrees to attorn to the Purchaser. Notwithstanding the terms above, the
subordination of this Lease to any mortgage, deed of trust or other mortgage
lien hereafter placed upon the Premises shall he contingent upon the holder of
any such lien ("Lienholder") entering into an agreement with Lessee, which shall
provide, inter alia, that so long as there exists no default by Lessee under
this Lease, Lessee's rights under this Lease shall not be terminated, affected,
or disturbed by Lienholder or any purchaser or subsequent owner of the Premises
in the exercise of any of such Lienholder's rights under the Lienholder's
mortgage, deed of trust or other mortgage lien, nor in any other way under this
Lease except in accordance with its terms.
34
<PAGE>
IN WITNESS WHEREOF, the said parties have caused this Lease to be executed
on the day and year first above written.
LESSOR:
HERZBERG FAMILY PARTNERS, LTD.
By: /s/
------------------------
Name:
Its:
OAKTRAIL INVESTMENT CORP.
By: /s/
------------------------
Name: Randy
Its: President
DICKSON FAMILY INVESTMENTS, LTD.
By: /s/ David C. Dickson
------------------------
Name: David C. Dickson
Its: Manager
CLULCKCORP INTERNATIONAL, INC.
By: /s/ Steves Rosser
------------------------
Name: Steves Rosser
Its: Vice-President of Development
35
<PAGE>
EXHIBIT A
Plat is Attached.
The field note description of the Premises will be added
to the Lease prior to the Commencement Date.
<PAGE>
EXHIBIT 10.29
CONSULTING AGREEMENT
THIS AGREEMENT, made this 6th day of November, 1996 by and between
CluckCorp International, Inc. a Texas corporation (the "Company") and Global
Equities Group, Inc., a New York corporation registered to do business as a
broker/dealer and a member of the National Association of Securities Dealers
("NASD") (the "Consultant").
W I T N E S S E T H
WHEREAS, the Consultant is in the business of assisting and consulting
selected business enterprises in certain fields of activities, identified as but
not limited to, obtaining and effectuating desired business relationships,
arranging and underwriting corporate financing, advising on mergers and
acquisitions reorganizations and developing corporate strategy; and
WHEREAS, the Company recognizes the experience and knowledge of the
Consultant and further recognizes that it is in the best interest of the Company
to engage the consulting services of the Consultant; and
WHEREAS, the Company desires to retain the services of the Consultant, and
the Consultant desires to render such services to the Company upon the terms set
forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
<PAGE>
1. Engagement. The Company hereby engages the Consultant, and the
Consultant accepts engagement by the Company, upon the terms and conditions set
forth in this Agreement.
2. Term. The term of this Agreement shall begin on the date hereof and
shall continue until October 31, 1997 unless earlier terminated in accordance
with paragraph 9 herein. This Agreement is renewable for a consecutive term upon
the written confirmation of both parties to this Agreement.
3. Duties. The Consultant will provide the Company with general corporate
advisory services regarding the U.S. capital markets including, but not limited
to, any of the following:
(A) Conduct feasibility study on viability of secondary equity offering
and/or debt offering in U.S.
(B) The implementation of, short-range and ,long-term strategic planning
to fully develop and enhance the Company's assets, resources, products
and services;
(C) The identification, evaluation, structuring, negotiating and closing
of joint ventures, strategic alliances, business mergers and
acquisitions and advice with regard to the ongoing managing and
operating of such acquisitions upon consummation thereof; and
(D) Advice and recommendations regarding corporate financing including the
structure, terms and contents of bank loans, institutional loans,
private debt-funding, mezzanine financing, blind pool financing and
other preferred and common stock equity private or public financing.
2
<PAGE>
4. Consulting Services Compensation. The sole and exclusive compensation of
the Consultant for the duties described in paragraph 3 of this Agreement shall
be a fee of $144,000 payable as follows:
(A) A $60,000 payment payable to the Consultanton November 1, 1996 (the
"Deposit"); and
(B) Seven monthly installment payments payable to the Consultant of $12,000
per month commencing on April 1, 1997 and Payable on the first of each month.
Consultant in providing the foregoing services, shall be responsible for
all out-of-pocket costs, including, without limitation, travel, lodging,
telephone; postage and Federal Express charges. The Consultant shall keep time
records and copies of expenses in connection with this project.
In the event of the termination of this Agreement prior to April 1, 1997,
the Company agrees to pay Consultant for any consulting services already
performed or in process on a prorata basis up to the date of termination with
the balance of the Deposit reimbursed by the Consultant to the Company. The
final payment shall be a proration of the Deposit, to be computed by multiplying
the Deposit amount ($60,000) by a fraction, the numerator of which is the actual
number of days the Consultant was under contract and the denominator which is
150.
3
<PAGE>
In the event of the termination of this Agreement on or after April 1,
1997, the Company agrees to pay Consultant for any consulting services already
performed or in process since the last monthly payment on a pro rata basis. The
final payout shall be a proration of the monthly installment payment that the
Consultant would have received on such next installment date, to be computed by
multiplying the next installment payment by a fraction, the numerator of which
is the actual number of days the Consultant was under contract since the
previous monthly installment period and the denominator of which is 30.
5. Nature of Engagement. The Consultant is being engaged by the Company as
an independent contractor and shall receive a Form 1099 for each tax year
compensation is tendered. Nothing in this Agreement shall be construed so as to
create an employer-employee relationship.
6. Representations and Warranties
A. By the Company
(i) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company
(ii) The person executing this Agreement on its behalf is
duly authorized to do so and this Agreement is binding upon the
parties thereto.
(iii) The Company shall be deemed to have made a continuing
representation of the accuracy of any facts, material information
and data which it supplies to Consultant and acknowledges its
awareness that Consultant will rely on such continuing
representation in disseminating such information and otherwise
performing its advisory functions. consultant in the absence of
notice in writing from the Company, will rely on the continuing
accuracy of material information and data supplied by the
Company.
4
<PAGE>
B. By the Consultant
(i) This Agreement has been duly authorized by all necessary
corporate action on the part of the Consultant.
(ii) The person executing this Agreerqent on its behalf is
duly authorized to do so and this Agreement is binding upon the
parties thereto.
7. Termination.
This Agreement may be terminated by either party on thirty day's notice
(the "Notice Period") in the event that:
A. There is any breach or non-performance by the breaching party of
any of the material terms of this Agreement that has not been cured within
the Notice Period; or
B. Any material interpretation or warranty made herein by the
breaching party is not true or ceases to be true.
5
<PAGE>
C. Notwithstanding the above, the Company agrees to pay the Consultant
for any consulting services already performed or in process pursuant to
Section 4, above.
8. Indemnity
A. Subject to the conditions herein set forth, the Company agrees to
indemnify and hold harmless the consultant and each person, if any, who controls
consultant within the meaning of Section 15 of 1933 Act or Section 20(a) of the
Securities Exchange Act of 1934 against any and all loss, liability, claim,
damage and expenses whatsoever (including but not limited to any and all expense
reasonably incurred in investigating, procuring or defending against any
litigation, commenced or threatened, or any claim) to which any of the aforesaid
parties may become subject, under the 1933 Act or otherwise, insofar as such
loss, liability, claim and expense arise out of or are related or based upon:
(i) any untrue statement of material fact provided by the Company to
the Consultant, relating to any provision or services rendered by the
consultant as provided herein;
(ii) omission by the Company to state in any materials, filings or in
any amendment or supplement thereto provided by the Company to the
Consultant; and
(iii) any misrepresentation by the Company in this Agreement or any
breach of warranty by the Company with respect to this Agreement. The
Company will reimburse Consultant and each such other controlling person
for any legal or other expenses reasonably incurred by them in connection
with investigating or defending such loss, claim, damage, liability, or
action.
6
<PAGE>
9. Notices. Any notice, report or demand required, permitted or desired
under this Agreement shall be sufficient if in writing and delivered by
certified mail, return receipt requested, Federal Express (or similar courier),
telegram or receipted hand delivery at the following addresses (or such other
addresses designated by proper notice):
To the Consultant: Michael Christ
Global Equities Group, Inc.
5 Hanover Square
New York, New York
To the Company: CluckCorp International, Inc.
1250 N.E. Loop 410, Suite 335,
San Antonio, Texas 78209
With a copy to: Gary A. Agron, Esq.
5445 DTC Parkway
Site 320
Englewood, CO 80111
Any notice otherwise shall be deemed given when actually received by the
recipient.
10. Miscellaneous.
(A) Governing Law. The provisions of this Agreement shall be governed by
the laws of the State of New York and the parties agree to submit themselves to
the jurisdiction of the Courts of New York and this Agreement shall be binding
and shall inure to the benefit of each Exchange and their respective successors.
No person other than the Exchanges shall be entitled to claim any right or
benefit under this Agreement.
7
<PAGE>
(B) Waiver. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate as a waiver of any other breach of any
provision of this Agreement by any party.
(C) Entire Agreement. This instrument contains the entire agreement of the
parties concerning engagement and may not be changed or modified except by
written agreement duly executed by the parties hereto.
(D) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors, heirs,
personal representatives and assigns.
(E) Day(s). Reference in this Agreement to "day" or "days" refers to
calendar days, but if a referenced date falls on a Saturday, Sunday or federal
holiday, it will be deemed to fall on the next calendar day that is not a
Saturday, Sunday or federal holiday.
(F) Confidentiality. Except as may otherwise be required by law, the
provisions of this Agreement shall remain strictly confidential. To the extent
permitted by law, the Board of Directors of the Company shall ensure that no
person other than members of the Board of Directors of the Company and
appropriate officers of the Company are made aware of the terms of this
Agreement. In addition, neither the Company nor the Consultant shall, either
directly or indirectly through their respective employees, planners, joint
ventures, agents, or any other person, disclose, communicate, disseminate or
otherwise breach the confidentiality of all or any provisions of this Agreement,
without the express written consent of both parties to this Agreement.
8
<PAGE>
(G) Specific Performance. Strict compliance shall be required with each and
every provision of this Agreement. The parties hereto agree that breach of this
Agreement shall result in irreparable damage, and that specific performance of
these obligations may be obtained.
(H) Additional Documents. The Company agrees to execute such other
documents and agreements to effect the purposes of this Agreement, as the
Consultant may request from time to time.
(I) Assignment. The obligations of the parties under this Agreement shall
not be assigned without the written consent of the parties.
(J) Counterparts. This Agreement may be executed in counterparts, and all
counterparts will be considered as part of one agreement binding on all parties
to this Agreement.
(K) Severability. If any term, condition or provision of this Agreement or
the application thereof to any party or circumstances shall, at any time or to
any extent, be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, condition or provision to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, condition and provision of their Agreement
shall be valid and enforceable to the fullest extent permitted by law.
9
<PAGE>
(L) Dispute Procedure. Any dispute, controversy or claim arises out of, or
in connection with this Agreement shall be settled by binding arbitration in
accordance with the rules of the American Arbitration Association then in
effect. The arbitration shall be conducted on an expedited basis in the New York
area by an independent arbitrator selected by the American Arbitration
Association. The arbitration shall be subject to, and the arbitrator shall have
the powers and rights afforded by, the rules of the American Arbitration
Association. The decision of such arbitrator, including any award of attorney's
fees and costs, may be entered into any court with jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set above written.
CLUCKCORP INTERNATIONAL, INC.
By: /s/ D. W. Gibbs
--------------------
Name: D. W. Gibbs
Title: President
By: /s/ William G. Gallager
---------------------------
Name: William G. Gallager
Title: Chairman of the Board of Directors
GLOBAL EQUITIES GROUP, INC.
By: /s/ Michael Christ
----------------------
Michael Christ, President
10
<PAGE>
ANNOUNCEMENT TO WARRANT HOLDERS
All holders of warrants which expire on December 31, 1997 are subject to a new
exercise opportunity that has recently been approved by the Board of Directors.
If, as a warrant holder, you elect to exercise your warrants prior to the close
of business January 15, 1997, the company has agreed to give you piggy back
registration rights on the stock underlying the warrants at any time that we
file a registration statement following your exercise on January 15, 1997. It is
currently contemplated that we will be filing a registration statement on or
after January 15, 1997 thus your stock would be included * in this registration.
Should you exercise and elect not to be included in the January registration or
should this registration be postponed or not become effective, you will have
demand registration rights at any time after July 9, 1997. If you do not elect
to exercise your warrants on or before January 15, 1997 and take advantage of
this offer, your warrants will expire on December 31, 1997 and if you elect to
exercise your warrants without taking advantage of this opportunity, you will
not be able to sell the warrants except under Rule 144 which would normally
prevent a public sale until two years following the date of exercise.
* All shares that will be registered under these terms and conditions will have
a lockup provision until August 10, 1997.
<PAGE>
EXHIBIT 10.31
REAL PROPERTY LEASE
THIS REAL PROPERTY LEASE ("Lease") is made and entered into as of the
latest date of execution by the parties hereto, by and between NANCY GLASS WEST
("Landlord"), and CLUCKCORP INTERNATIONAL, INC. ("Tenant"). For good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the real property and all improvements thereupon ("Premises"),
situated in the City of Alamo Heights, County of Bexar, and State of Texas, and
commonly referred to as 4620 Broadway, and as more particularly described on
Exhibit "A" attached hereto. Tenant will use the Premises in accordance with the
provision regarding Use, below.
2. TRIPLE NET LEASE. This is a triple net Lease. Tenant, in addition to the
payment of "Rent" (as hereinafter defined) shall also pay and be responsible for
all taxes, insurance, repairs and maintenance relating to the Premises.
3. TERM, COMMENCEMENT DATE.
a. Term. The term of this Lease ("Term") shall consist of the "Primary
Term" and may include one or more "Option Terms."
b. Primary Term. The primary term of this Lease ("Primary Term") shall be
ten (10) years. The Primary Term shall commence on the "Effective Date" (as
hereinafter defined) and shall end at 12: 01 A.M. on the date which is ten (10)
years after the Effective Date.
c. Option Terms. The Tenant shall have two (2) rights to extend the Term of
this Lease for two (2) separate five (5) year terms ("First Option Term" and
"Second Option Term", respectively, or sometimes an "Option Term"). The First
Option Term shall commence immediately upon expiration of the Primary Term, if
at all. The Second Option Term shall commence immediately upon the expiration of
the First Option Term, if at all. The First Option Term must be exercised by the
Tenant sending written notice of the exercise of this option to the Landlord,
not more than one hundred twill (120) days nor less than sixty (60) days prior
to the expiration of the Primary Term. The First Option Term shall end at 12:01
A.M. on the date which is five (5) years after the expiration of the Primary
Term. The Second Option Term must be exercised by the Tenant sending written
notice of the exercise of this option to the Landlord, not more than one hundred
twenty (120) days nor less than sixty (60) days prior to the expiration of the
First Option Term. These rights and options are wholly conditioned and
contingent upon (i) the Tenant not being in default beyond the applicable cure
periods under this Lease upon the exercise of an option, (ii) the Premises being
maintained in good condition by Tenant, normal wear and tear excepted, (iii) in
addition to the conditions above, the Second Option Term is conditioned and
contingent upon the exercise of the First Option Term.
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<PAGE>
d. Effective Date. The term "Effective Date" shall mean the date which is
the earlier of (i) the date upon which Tenant first occupies and opens for
business at the Premises, (ii) thirty (30) days after approval of the "Plans"
(as hereinafter defined) by the City of Alamo Heights, or (iii) March 20, 1997.
The term "Lease Year" shall mean any period of twelve (12) calendar months
commencing on the Effective Date or an anniversary thereof and ending on the
last day of the twelfth (12th) month thereafter.
4. RENT.
a. Triple Net Expenses. From and after the Effective Date triple net
expenses will be payable by Tenant; i.e. taxes, insurance, repairs and
maintenance.
b. Primary Term Rent. During the Primary Term of this Lease, Tenant shall
pay to Landlord, as rent ("Rent") for the Premises, the sums set forth below,
plus triple net expenses.
(1) Commencing on the Effective Date, the Tenant shall pay to the
Landlord, as Rent, through and including the last day of the sixtieth
(60th) month after the Effective Date, the net sum of $4,887.50 per
month. If the Effective Date is a day other than the first day of a
month, the Rent for the first and last month of this period shall be
prorated. In addition, Tenant shall pay all triple net expenses, i.e.,
taxes, insurance, repairs and maintenance.
(2) Commencing on the first day of the first month following the above,
the Tenant shall pay to the Landlord, as Rent, through and including
the end of the Primary Term, the net sum of $5,312.50 per month. If
the Effective Date is a day other than the first day of a month, the
Rent for the first and last month of this period shall be prorated. In
addition, Tenant shall pay all triple net expenses, i.e. taxes,
insurance, repairs and maintenance.
c. Option Term Rent. During the Option Terms of this Lease, Tenant shall
pay to Landlord, as Rent for the Premises, the sums as set forth below.
(1) During the First Option Term, Tenant shall pay to Landlord, as Rent,
the net sum of $5,843.75. In addition, Tenant shall pay all triple net
expenses, i.e. taxes, insurance, repairs and maintenance.
(2) During the Second Option Term, Tenant shall pay to Landlord, as Rent,
the net sum of $6,429.12. In addition, Tenant shall pay all triple net
expenses, i.e. taxes, insurance, repairs and maintenance.
d. Payment Date. Rent is payable in advance on or before the first (1st)
day of each and every calendar month, at the address of Landlord set forth
herein, without demand, abatement, deduction or set off.
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<PAGE>
e. Late Payment of Rent. if any installment of Rent is not paid within ten
(10) days after the date said installment is due, it shall bear interest at the
maximum lawful non-usurious rate of interest ("Maximum Rate") from the due date
to the date of payment. In addition to such interest, Tenant acknowledges that
the late payment by Tenant of any installment of any amounts due as Rent will
cause Landlord to incur administrative, collection, processing and other costs
and expenses not contemplated by this Lease, the exact amount of which costs
being extremely difficult or impractical to fix. If any installment is not
received by Landlord from Tenant by the tenth (10th) day of the month for which
such installment is due, Tenant shall immediately pay to Landlord a late charge
equal to ten percent (10%) of such installment. Tenant agrees that this late
charge is fair compensation to Landlord for its loss suffered by such nonpayment
of Tenant. Acceptance of any late charge imposed hereunder shall not constitute
a waiver of Tenant's default with respect to such nonpayment by Tenant nor
prevent Landlord from exercising all other rights and remedies available to
Landlord under this Lease. All agreements herein are expressly limited so that,
in no event, will Landlord contract for, collect or receive interest in excess
of the Maximum Rate.
f. Sums Expended. In the event Tenant, at any time, does not strictly
comply with all of the terms, covenants and conditions of this Lease, Landlord
may, without obligation, but following notice to Tenant, elect to perform on
behalf of Tenant. In such event, any amounts expended by Landlord shall be
immediately due and payable by Tenant to Landlord as additional Rent hereunder,
shall bear interest at the Maximum Rate from the date expended by Landlord to
the date of payment, and in the event of nonpayment thereof, Landlord shall be
entitled to exercise all of its remedies for Tenant's failure to pay Rent as set
forth herein.
5. RENT AND SECURITY DEPOSITS.
a. Rental Deposit. Landlord acknowledges the receipt of the sum of
$4,887.50 as a prepayment of the first fall month's Rent (the "Rental Deposit").
Landlord shall have the right to commingle the sums so deposited with other
funds of Landlord. Upon default by Tenant hereunder, Landlord shall have the
right, without notice, to off-set the sums so deposited against the obligations
of Tenant hereunder, and shall off-set such sum against the first month's Rent
at the time the same shall be due.
b. Security Deposit. Landlord acknowledges the receipt of the sum of
$5,312.50, as prepayment of the last month's Rent for the Primary Term of the
Lease (the "Security Deposit"). Landlord shall have the right to commingle the
sums so deposited with other funds of Landlord. Upon default by Tenant
hereunder, Landlord shall have the right, without notice, to off-set the sums so
deposited against the obligations of Tenant hereunder. The Security Deposit
shall remain on deposit with Landlord during the entire Term of this Lease, In
the event of an off-set of the Security Deposit upon demand from Landlord,
Tenant shall restore the Security Deposit to the original amount thereof
c. Letter of Credit. On or before the earlier of February 19, 1997 or the
date upon which the City of Alamo Heights shall approve the Plans, Tenant shall
deposit with Landlord an irrevocable letter of credit (together with all
renewals and replacements, the "Letter of Credit" or a "Letter of Credit") in
the amount of $100,000.00, which shall be available to Landlord at sight, upon
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<PAGE>
the presentation of a certificate from Landlord stating that a default has
occurred in the payment or the performance of the Lease and Tenant has failed to
cure same within the applicable cure period. In particular, the Letter of Credit
shall secure the obligation of the Tenant to remodel the Premises and open for
business on or before the "Commencement Date" (as hereinafter defined), and
thereafter the payment and the performance of the other terms and conditions of
the Lease. The initial Letter of Credit shall provide for replacement by a
Letter of Credit in the amount of $50,000.00 upon the completion of remodeling
in accordance with the Plans approved by the Landlord and the City of Alamo
Heights on a lien free basis and Tenant's opening for business. The initial
Letter of Credit in the amount of $100,000.00 shall be for a term of no less
than nine (9) months and each Letter of Credit thereafter shall be for a term of
not less than twelve (12) months and each Letter of Credit shall provide for
automatic payment thirty (30) days prior to expiration if not renewed or
replaced for an additional twelve (12) months, and continuing in such manner for
the first sixty-six (66) months of the Primary Term. After the Letter of Credit
in the amount of $50,000.00, each subsequent Letter of Credit shall be for a sum
of $10,000.00 less than the previous Letter of Credit. At the end of the first
sixty-six (66) months of the Primary Term, the Letter of Credit shall be
released to the Tenant.
6. CONDITION OF THE PREMISES.
a. "AS IS." Tenant agrees that it has examined and knows the condition of
the Premises and every part thereof and improvements thereon, and that no
statements or representations as to the condition or repair of the Premises have
been made by or for Landlord prior to or contemporaneously with the execution of
this Lease. TENANT ACCEPTS THE PREMISES AND THE IMPROVEMENTS THEREON IN AN "AS
IS, WHERE IS CONDITION, SUBJECT TO ALL FAULT," AND LANDLORD EXPRESSLY DISCLAIMS
ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO THE CONDITION, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
b. Contingency. The obligations of Tenant hereunder are contingent upon
Tenant procuring approval for the construction of the "Tenant's Work" as
hereinafter defined, in accordance with the Plans, approved by the City of Alamo
Heights. If Tenant has not procured the approval of the Plans by Landlord and
the City of Alamo Heights by February 19, 1997, Tenant may upon notice to
Landlord delivered no later than 10:00 p.m. February 19, 1997 (the "Contingency
Date") terminate this Lease, and the Rental Deposit and the Security Deposit,
less the legal fees incurred by Landlord shall be returned to Tenant.
Additionally, if Landlord and Tenant have not signed the "Non-Fixture Letter"
(as defined below) by the Contingency Date, Tenant may elect to terminate this
Lease as provided above. Upon termination this Lease shall be null, void and of
no further force and effect. Until the Contingency Date, Landlord may continue
to show the Premises to potential tenants, subject to the rights of Tenant and
will clearly inform all prospects that the Premises will not be available unless
Tenant's Plans are not approved by The City of Alamo Heights. If Tenant shall
not terminate this Lease on or before the Contingency Date, the right to
terminate shall expire. This contingency applies only to (i) the failure or
refusal of the Landlord and/or the City of Alamo Heights to approve the Plans or
(ii) the failure to sign the Non-Fixture Letter, and is not a general
contingency for any other purpose.
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7. CONSTRUCTION OBLIGATIONS.
a. Tenant's Work. The Tenant has represented to Landlord that it intends to
expend approximately Two Hundred Thousand and No/100 Dollars ($200,000.00) to
remodel the Premises and to open a restaurant in the Premises and agrees that it
must expend not less than One Hundred Thousand and No/100 Dollars ($100,000,00)
on improvements to the building, landscaping and signage for the Premises. The
Tenant has agreed to make improvements to the Premises and coordinate all work
necessary to complete all exterior and landscaping work described below and to
cause a portion, but not less than one-half of the useable square footage of the
Premises to be a first class commercial restaurant facility, and to finish-out
as a shell space, the balance of the Premises for a compatible use. The
footprint for the building and improvements shall not be modified or changed.
Without limiting the work Tenant may choose to do, upon approval by the City of
Alamo Heights of Tenant's Plans, the following work will be necessary and will
be performed by Tenant at its expense ("Tenant's Work"):
(1) remodel, enlarge or expand bathrooms and assure compliance with
handicapped access statutes, including the Americans with Disabilities
Act;
(2) construct and repair the interior walls;
(3) fix up, repair or replace the roof and ceiling;
(4) exterior and interior clean up, paint and repair;
(5) carpet, vinyl or other appropriate floor coverings;
(6) repair or replace refrigeration/freezer equipment or remodel space for
other appropriate restaurant use and relocate refrigeration/freezer
equipment;
(7) repair, replace or remove the pole sign in the front of the building
(as allowed by the City of Alamo Heights);
(8) exterior landscaping and lighting; and
(9) install sinks, stoves, refrigerators and other required fixtures.
Tenant shall be responsible for the supervision and control of all
contractors, laborers and artisans in the performance of Tenant's Work. Tenant
shall protect and maintain the existing HVAC units which are located on the roof
and shall not damage such equipment in its remodeling. Landlord shall have no
responsibility to Tenant or any third party to review or approve any work or to
supervise or control any contractor, but reserves the right to determine that
the resulting remodeling and improvements are in accordance with the "Plans." If
required by The City of Alamo Heights, Landlord shall bear the cost of one new
grease trap for the improvements.
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b. Prior Approval. Copies of drawings, preliminary plans, elevations and
other matters submitted to the City of Alamo Heights by Tenant will, at the same
time be submitted to Landlord. Prior to (i) final approval of any plans by the
City of Alamo Heights, and (ii) prior to commencing any construction, the Tenant
shall deliver to Landlord for approval final plans and specifications ("Plans")
and all building permits and variances ("Permits") for the construction. If
Landlord has failed to disapprove such Plans, by notice in writing to Tenant
within seven (7) business days of Landlord's receipt of same, then Landlord
shall be deemed to have approved the Plans. No contract will be let nor
contractor hired until the Landlord has approved the Plans and the Permits have
been issued. The Tenant shall employ only reputable, experienced contractors.
Each contract shall contain an express waiver of any mechanic's or materialman's
lien rights.
c. Quality of Work. Tenant shall commence construction promptly upon
approval of the Plans by The City of Alamo Heights and in no event later than
March 30, 1997. Tenant agrees to promptly complete all construction. Upon
commencement of construction, Tenant shall reasonably complete all such
improvements in a good and workmanlike manner, in accordance with the Plans and
the Permits, and free and clear of all liens and encumbrances of any kind no
later than one hundred twenty (120) days after the Effective Date, subject to
the terms of Section 31(1) below, but in no event later than one hundred fifty
(150) days after the Effective Date (the "Commencement Date") and to open for
business upon completion thereof
d. Insurance. Tenant shall maintain an "all builder's risk policy" naming
Landlord as additional insured, and provide the Landlord with a certificate of
insurance prior to commencement of any work.
e. Lien Waivers. Upon completion of the construction and prior to opening
for business, Tenant will provide Landlord with evidence of the payment of all
bills for labor and material and provide full and final lien waivers for each
contractor, subcontractor and materialman.
g. Bonded Contracts or Other Security. Prior to the commencement of any
construction for permitted alterations, Tenant shall furnish to Landlord a
written, itemized cost estimate, and a payment, performance and labor and
materials bond for any general contractor, or for each major sub-contractor as
required by Landlord, with coverages satisfactory to Landlord. Alternatively,
Tenant may provide for each contract, cash, letters of credit or other security
for the performance of such contract prior to the commencement of work.
8. QUIET ENJOYMENT. Landlord agrees that if Tenant is not in default hereunder,
Tenant's quiet and peaceable enjoyment of the Premises during the Term of this
Lease shall not be disturbed by Landlord.
9. USE. Tenant shall use and occupy the Premises solely for the business of a
first class restaurant and a compatible sub-tenant and for no other purpose
without first obtaining Landlord's written consent, which consent shall not be
unreasonably withheld. In no event will any use be allowed which might adversely
impact or damage the character or reputation of the Premises.
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10. LAWS AND STANDARDS. Tenant agrees not to use or suffer or permit to be used
the Premises or any part thereof for any purpose or use in violation of any laws
or ordinances or the regulations of any governmental authority, or in any manner
which constitutes waste or a nuisance or unreasonable annoyance to the owners or
occupants of adjoining or neighboring property, or that will injure the
reputation of the Premises. Tenant shall promptly comply with all laws,
ordinances, rules and regulations of all Federal, state, county and municipal
governments now in force or that may be enacted hereafter, with all directions,
rules and regulations of the fire marshal, health officer, building inspector or
other proper officers of the governmental agencies having Jurisdiction and with
such standards established from time to time by the National Board of Fire
Under-writers of the National Fire Protective Association, or any similar bodies
which are applicable to Tenant's use and occupancy of the Premises. Tenant
shall, upon prior written consent of Landlord, at Tenant's sole cost and
expense, make all repairs, replacements and alterations to the Premises which
are or hereafter may be required in order to comply with the foregoing. Tenant
agrees that it will not use the Premises for any extrahazardous purpose, or do,
suffer or permit any act to be done in or about the Premises which will increase
any insurance rate with respect thereto, or which will violate, suspend, void or
make inoperative any policy or policies of insurance of any kind at the time
carried with respect to the Premises or the building or improvements thereon,
Tenant shall indemnify and save Landlord harmless from any penalties, damages or
charges imposed for any violations of the covenants herein, whether occasioned
by neglect, omission or willful act of Tenant, or any other person upon said
premises by license or invitation of Tenant or holding or occupying the same or
any part thereof under or by right of Tenant.
11. UTILITIES AND OTHER COSTS. Tenant shall pay for all water, fuel, light,
power, heat, telephone, sewer and rubbish services or other utility services
supplied to the Premises, as well as all other similar costs and expenses which
are customarily paid by tenants under triple net leases.
12. REPAIR AND MAINTENANCE. Landlord shall have no obligation, express or
implied for repair and maintenance. Tenant shall keep and maintain the Premises
in a clean and sanitary order and in good condition and repair. Tenant shall
make such structural and nonstructural repairs and replacements to the Premises
as may from time to time be necessary or required for the proper use thereof.
13. ALTERATIONS; SIGNS.
a. Except the improvements set forth above or set out in the Plans, Tenant
shall not have the right to make non-structural changes or alterations to the
building or improvements on the Premises without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed, and
Tenant shall not have the right to make structural changes or alterations, to
the building and improvements on the Premises, or to tear down or remove any
buildings or improvements, without the prior written consent of Landlord. Prior
to the commencement of any construction for permitted alterations, Tenant shall
furnish to Landlord plans and specifications, a written, itemized cost estimate
and a performance and labor and materials bond with coverages satisfactory to
Landlord.
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b. Tenant shall have the right, at Tenant's sole cost, to erect, install,
maintain, and operate on the Premises such equipment, trade and business
fixtures, and signs as Tenant may deem advisable for the operation of Tenant's
business (subject to the provisions of this paragraph), which can be REMOVED
without damage to the improvements and building of the Premises and which are
not screwed, nailed or plumbed into the Premises, except as specified in a
letter after this date, to be delivered, approved and signed by Landlord and
Tenant no later than the Contingency Date (the "Non-Fixture Letter"), and such
shall not be deemed to be part of the Premises, but shall remain the property of
Tenant. All such installations shall be effected in compliance with applicable
governmental laws, ordinances and regulations and shall not materially injure or
deface the improvements or the building of the Premises. Tenant shall submit to
Landlord for Landlord's approval, which approval shall not be unreasonably
withheld, drawings of the signs which Tenant intends to install on the Premises,
together with its plans and specifications. At any time during the term of this
Lease, Tenant shall have the right to remove its equipment, trade or business
fixtures, signs and other personal property described in the Non-Fixture Letter
from the Premises provided that (i) Tenant is not then in default, and (ii)
Tenant shall repair any damage to the improvements and building of the Premises
resulting from such removal. All permanent improvements and fixtures ("Fixture")
installed by the Tenant upon the Premises shall become a part of the Premises
and shall immediately upon such installation become the property of the
Landlord. Once installed in the Premises, Fixtures may not be removed from the
Premises without the instruction or consent of the Landlord. The term Fixture,
shall include such matters as sinks, vent-a-hoods, built-in or walk-in
refrigeration equipment, built-in stoves and ovens, counter-tops and other such
items which are permanently installed in the Premises and cannot be removed
without damage to the improvements and building of the Premises or which are
screwed, nailed or plumbed into the Premises, except as specified in the
Non-Fixture Letter described above.
14. LIABILITY INSURANCE.
a. On the date of execution of this Lease, Tenant will procure, maintain
and keep in force, comprehensive general liability insurance for claims for
bodily injury, death or property damage, occurring in or about the Premises,
with a limit of one million ($1,000,000.00) each occurrence for bodily injury or
death to any one person, or property damage with a general policy aggregate of
$2,000,000.00, or such greater amounts as Landlord may require. Coverage shall
specifically include liquor dram-shop coverage if alcoholic beverages are sold
by Tenant and products liability coverage. Landlord shall be named as an
additional insured, Tenant shall provide certificates of such insurance to
Landlord prior to the Effective Date. Landlord shall have the right to require
that the amount of such insurance be increased by a reasonable amount, not more
often than annually within thirty (30) days' written notice from Landlord to
Tenant. Tenant may carry greater coverage for the risks set forth above. Said
policies shall provide that they may not be canceled without thirty (30) days'
written notice to Landlord.
b. If Tenant shall not provide evidence of insurance, Landlord may, at its
option, cause such insurance to be issued and, Tenant shall pay the premiums for
such insurance, which shall be deemed additional Rent, promptly upon demand by
Landlord.
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15. FIRE/EXTENDED COVERAGE INSURANCE.
a. On or before the earlier of (i) commencement of construction of any
improvement to the Premises by Tenant or (ii) the Effective Date, Tenant shall
provide to Landlord an "All Risk" Builder's insurance policy or policies of
insurance, in form, content and amount reasonably satisfactory to Landlord. The
builder's insurance policy shall continue until first occupancy of the Premises
by Tenant. Prior to first occupancy of the Premises, the Tenant shall procure,
at its expense, a standard form policy or policies of insurance providing
coverage against loss by fire, extended coverage, vandalism and malicious
mischief insurance on the building and other improvements constructed upon the
Premises in an amount equal to one hundred percent (100%) of the full
replacement value of the building (exclusive of foundations) and improvements,
without deduction for depreciation. Any policy or policies providing such
coverage shall contain the so-called special extended coverage all risk and
agreed amount endorsements. If necessary to determine a current replacement
value or required for insurance purposes, Tenant shall have the improvements on
the Premises appraised. If the full replacement value of the building shall
change, then the Tenant shall immediately adjust the amount of insurance. Tenant
shall also procure, at its expense, liability insurance in amounts deemed
reasonably satisfactory to Landlord. Tenant shall fully cooperate with Landlord
and the carrier of any insurance hereunder.
b. On or before delivery of any policy or policies of insurance required by
this Lease by Tenant, and thereafter, not less than thirty (30) days prior to
the expiration of the policy or each renewal of the policy or policies of
insurance, the Tenant shall pay the entire cost of the insurance required
hereby. Failure to pay for the insurance required hereby and/or to provide
evidence of the existence of such insurance in the form and amount required
hereby shall be a default hereunder.
c. Any loss or losses payable under such policy or policies of insurance
shall be made payable to Landlord. Tenant shall cause Landlord to be named as
the additional insured under the insurance required hereby.
d. Except as herein otherwise provided, if the building or other
improvements shall be damaged or destroyed during the Term by fire or other
casualty, upon the demand of Landlord, Tenant promptly after adjustment of the
insurance claim, and the agreement of the Landlord to make the proceeds
available to the Tenant to restore the improvements, Tenant shall repair and
restore the building and improvements to approximately the same condition as
existed immediately prior to the date of such damage or destruction.
e. Except as herein otherwise provided, if the Premises or any part thereof
or its furniture, equipment and fixtures therein shall be destroyed or damaged,
such fact shall not affect the provisions of this Lease (any law, rule or
regulation to the contrary notwithstanding), and Tenant's obligations under this
Lease, including the payment of Rent, additional rent and other charges, shall
continue without abatement of any kind.
f. All insurance required hereby shall be placed in companies qualified to
do business in the State of Texas and having a rating of AAA or better by Best's
Insurance Reports unless otherwise approved by Landlord. Tenant shall furnish
Landlord with certificates of such policies of insurance
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promptly following their initial issuance and thereafter, Tenant will deliver to
Landlord certificates of renewal at least thirty (30) days prior the expiration
of the policy or renewal of the policy of insurance. If Tenant shall not provide
evidence of insurance, Landlord may, at its option, cause such insurance to be
issued and, Tenant shall pay the premiums for such insurance, which shall be
deemed additional Rent, promptly upon demand by Landlord.
g. Any other provision of this Lease to the contrary notwithstanding, if
the Premises shall be damaged or destroyed to the extent of fifty percent (50%)
or more of their then insurable value during an Option Term, Tenant shall have
the right, but not the obligation, to elect to cancel or terminate this Lease;
said right shall be exercised in writing and delivered to Landlord within sixty
(60) days after the date of such occurrence as set forth in this paragraph. Upon
such termination, Landlord shall be entitled to all insurance proceeds covering
the Premises (but not covering Tenant's equipment, trade or business fixtures or
personal property, furnishings or furniture) resulting from such damage or
destruction,
h. The Tenant acknowledges that the insurance provided above insures only
the building and improvements and not its contents and Tenant will procure
renter's or other coverage as it deems necessary.
16. LIENS.
a. To secure the payment of all Rent, other sums due and to become due
hereunder, and the performance of all of the Tenant's other obligations
hereunder, Tenant hereby grants to Landlord a contract lien on and security
interest in all furniture, trade fixtures, equipment (except ice machines,
electric dishwashers, and vending machines which are leased), and any and all
other personal property of any kind or character which may be placed in the
Premises and also upon all proceeds of any insurance which may accrue to Tenant
by reason of damage to or destruction of any such personal property. All
exemption laws are hereby waived by Tenant. This lien and security interest are
given in addition to and not in lieu of Landlord's statutory lien and shall be
cumulative thereto. This lien and security interest may be foreclosed with or
without court proceedings, by public or private sale, with or without notice,
and Landlord shall have the right to become purchaser at any sale upon being the
highest bidder. Upon request of Landlord, Tenant shall execute Uniform
Commercial Code financing statement relating to this security interest.
b. Landlord agrees that it will subordinate its landlord's lien, whether
present or future, whether constitutional, statutory or contractual, or claims
against any of Tenant's fixtures and personal property, which are described in
the Non-Fixture Letter, to the purchase money security interest of Tenant's
suppliers and institutional financial sources, provided that the subordination
shall (i) be available for personal property described in the Non-Fixture Letter
only, (ii) be for purchase money amortizing indebtedness (no blanket liens),
(iii) when Tenant is not in default hereunder, (iv) in form acceptable to
Landlord in its reasonable discretion, (v) provide that the subordination shall
lapse if a default occurs in the Lease and Landlord notifies the purchase money
lender of such default and the lender does not remove the property so
encumbered, within thirty (30) days after the expiration of any grace or
curative period for such default, and (vi) in no event be construed to require
Landlord to subordinate its fee interest.
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c. Tenant agrees and covenants that it will not allow any mechanic's liens,
or other liens for any labor performed or materials furnished which may cloud or
impair title to the Premises, and that if any such liens shall arise, Tenant
shall promptly remove such liens and that the same shall be discharged of record
at Tenant's expense within ten (10) days after request from Landlord. In the
event Tenant fails to discharge any lien after the request of Landlord, Landlord
may cause to be issued, a bond for said lien and the cost shall be deemed
additional Rent, and shall be due and payable upon written demand from Landlord
to Tenant. Notwithstanding the above, the Tenant will not be responsible for
mechanic's liens or other liens arising from the items of Landlord's Work.
17. INDEMNITY. Landlord shall not be liable for any damage or liability of any
kind, for any injury or death of persons, or damage to property of Tenant or any
other person occurring from and after the date of execution of this Lease, from
any cause whatsoever, by reason of the use or occupancy of the Premises by
Tenant or any person thereon or holding under Tenant. Tenant shall indemnity and
save Landlord harmless from all liability whatsoever, on account of any such
real or claimed damage or injury and from all liens, claims and demands arising
out of the use or occupancy of the Premises and its facilities, or any repairs,
alterations or improvements which Tenant may make to the Premises.
18. WAIVER OF SUBROGATION. The parties release each other, and their respective
authorized representatives, from any claims for damage to any person or property
of either Landlord or Tenant in or on the Premises that are caused by or result
from risks insured against under any insurance policies carried by the parties
and in force at the time of any such damage. The parties further agree neither
party shall be liable to the other for any damage caused by fire or any of the
risks insured against under any insurance policy required by this Lease and each
party shall cause each insurance policy obtained by it to provide that the
insurance company waives all right of recovery by way of subrogation against
either party in connection with any covered damage.
19. PROPERTY TAXES.
a. Taxes. From the Effective Date of this Lease, Tenant shall pay all
taxes, assessments, levies, fees, water and sewer charges, sales and use taxes
and all other governmental charges, general and special, ordinary and
extraordinary, and whether or not within the contemplation of the parties
hereto, together with any interest and penalties thereon, which are, at any
time, imposed or levied upon or assessed against (i) the Premises, (ii) any
Rent, (iii) this Lease; or (iv) any personal property owned or leased by Tenant.
Notwithstanding the foregoing, Tenant shall not be required to pay any
franchise, corporate, estate, inheritance, succession, transfer, income, profits
or revenue taxes of Landlord, unless any such tax is imposed or levied upon or
assessed against Landlord in substitution for or in place of any other tax,
assessment, charge or levy referred to in the paragraph above.
b. Apportionment. All property taxes and assessments that shall become due
and payable during the first and last years of the Term of this Lease, shall be
apportioned pro rata between Landlord and Tenant in accordance with, the
respective number of months during which the Tenant occupies the Premises and
shall be based on the taxing authority's year. For the first year of the Term of
this Lease, Tenant shall pay Landlord its pro rata share of the taxes for the
current year within ten (10) days of the presentation by Landlord to Tenant of
the tax bill for the current year.
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c. Contesting Assessment. Tenant, at its expense, shall have the right to
contest the amount or validity of any tax or assessment imposed against the
Premises, but Landlord shall not be liable for any expenses, including
attorney's fees, in connection therewith. Landlord will cooperate with Tenant in
its contest of any tax or assessment imposed against the Premises.
d. Method of Payment. Tenant shall pay all taxes and assessments at least
thirty (30) days prior to the latest date upon which such taxes and assessments
may be paid prior to delinquency or other costs, expenses or charges being added
thereto. Tenant shall provide written evidence of the timely payment of taxes
and assessments within ten (10) days of payment thereof.
20. BANKRUPTCY OR INSOLVENCY.
a. In the event of the filing or commencement of any proceeding by of
against Tenant under the Bankruptcy Code, the duly appointed Trustee, subject to
Court approval, shall have the right to assume this Lease if the Trustee shall
(i) cure any default or provide adequate assurance that the Trustee will
promptly cure such default; (ii) compensate or provide adequate assurance that
the Trustee will promptly compensate the Landlord for any actual loss resulting
from such default; and (iii) provide adequate assurance of future performance of
the covenants, agreements and obligations of Tenant under the terms of this
Lease.
b. The failure by the Trustee to assume or reject this Lease within sixty
(60) days after the order for relief (in a Chapter 7), or within sixty (60) days
of confirmation of a plan (Chapter 11), shall, at Landlord's option, be deemed a
rejection.
21. DEFAULT.
a. The default on the part of Tenant shall exist under this Lease when:
(1) Tenant fails to pay any monetary sum due hereunder, including without
limitation, Rent or any other charges as and when due, and such
failure continues for ten (10) days; provided, however, if a monetary
sum is not paid when due one (1) time in any Lease Year, Landlord
shall notify Tenant of such failure and Tenant shall have ten (10)
days from the date of notice to cure such default. This is the only
notice which Landlord will provide and is obligated to provide, and if
a second failure occurs in any Lease Year, no notice shall be
required, and the same is waived by Tenant to the fullest extent
allowed by law;
(2) Tenant fails to observe or perform any other provision, covenant or
condition of this Lease to be observed or performed by Tenant and such
failure continues for fifteen (15) days after written notice thereof
by Landlord to Tenant; provided if such default cannot reasonably be
cured within fifteen (15) days, then Tenant shall have additional time
to cure such default as is reasonable and necessary, but in no event
greater than forty-five (45) days from the date of written notice;
provided further that (i) Tenant requests such
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additional time in writing before the expiration of the fifteen (15)
day period and (ii) Tenant diligently, continuously and in good faith
prosecutes the cure of such default;
(3) Tenant vacates or abandons the Premises for more than thirty (30)
days, except as otherwise provided in Paragraph 23; or
(4) A general assignment by Tenant for the benefit of creditors occurs or
the filing by or against Tenant of any proceeding under any insolvency
or bankruptcy law occurs, or the appointment of a trustee or receiver
to take possession of all or substantially all of Tenant's assets
located upon the Premises or of Tenant's interest in this Lease,
unless such seizure is discharged within twenty (20) days thereof for
the purpose of effecting a moratorium upon or composition of its debts
occurs within twenty (20) days.
b. In the event of a default, Landlord may treat same as a breach of this
Lease, and, in addition to any or all other rights or remedies of Landlord, and
by the law provided and without being considered an election of remedies,
Landlord shall have the option without further notice or demand.(i) to declare
the Term hereof ended and to reenter the Premises and take possession thereof
and remove all persons therefrom, and Tenant shall have no further claim thereon
or hereunder; or (ii) without declaring this Lease terminated, to reenter the
Premises and occupy the whole or any part thereof for and on account of Tenant
and to collect any unpaid rentals, and any other charges which have become
payable or which may thereafter become payable; or (iii) even though Landlord
may have reentered the Premises, to thereafter elect to terminate this Lease and
all of the rights of Tenant in or to the Premises. Landlord shall have the right
to change any locks to the Premises, without notice to Tenant, and Landlord
shall have no obligation to provide any notice of the changing of the locks or
regarding the payment of delinquent Rent as provided by the Texas Property Code.
Tenant waives any and all notices provided for in the Texas Property Code to the
extent allowed by law.
c. Landlord shall not be deemed to have terminated this Lease or the
liability of Tenant to pay any rental or other charges thereafter accruing, or
to have terminated Tenant's liability for damages under any of the provisions
hereof, by any such reentry or by any action in unlawful detainer, or otherwise,
to obtain possession of the Premises, unless Landlord shall have notified Tenant
in writing that Landlord has so elected to terminate this Lease. The service by
Landlord of any notice pursuant to the unlawful detainer statutes of the state
where the Premises are situated and the surrender of possession pursuant to such
notice shall not (unless Landlord elects to the contrary at the time of or at
any time subsequent to the serving of such notices and such election is
evidenced by a written notice to Tenant) be deemed to be a termination of this
Lease. In the event of any entry or taking possession of the Premises as
aforesaid, Landlord shall have the right, but not the obligation, to remove
therefrom all or any part of the personal property located therein and may place
the same in storage at a public warehouse at the expense and risk of Tenant.
d. Should Landlord elect to terminate this Lease, Landlord may recover from
Tenant as damages: (i) the worth at the time of award of judgment of the unpaid
rent which had been earned at the time of termination; plus (ii) the worth at
the time of award of judgment of the amount by
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which the unpaid rent for the balance of the term of the Lease exceeds the fair
rental value of the Premises; plus (iii) any other amount necessary to
compensate Landlord for all damages caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to, any reasonable costs
or expenses incurred by Landlord in, (a) retaking possession of the Premises,
including reasonable attorney's fees therefor, (b) maintaining or preserving the
Premises, (c) preparing the Premises for reletting to a new lessee, including
repairs or alterations to the Premises for such reletting, (d) leasing
commissions, and (e) any other reasonable costs necessary or appropriate to
relet the Premises; plus (iv) such other reasonable amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by the laws of the
state where the Premises are situated.
e. Efforts by the Landlord to mitigate the damages caused by the Tenant's
breach of the Lease do not waive the Landlord's right to recover damages.
f. Even though Tenant has breached this Lease and abandoned the Premises,
this Lease shall remain in effect for so long as Landlord does not terminate the
Lease, and the Landlord may enforce all its rights and remedies under this
Lease, including the right to recover the Rent as it becomes due under this
Lease. The following do not constitute a termination of Tenant's right to
possession: (i) acts of maintenance or preservation; (ii) efforts to relet the
Premises; or (iii) the appointment of a receiver on initiation by Landlord to
protect its interest under this Lease. Should Landlord relet the Premises on
account of the Tenant, the Landlord shall not be obligated to terminate this
Lease, and in addition to such other relief as may be allowed by law, Landlord
may recover from Tenant the past due Rent and unpaid Rent for the balance of the
Term of the Lease, less the amount of rent collected under the reletting of the
Premises, plus (iii) any other reasonable amount incurred by Landlord in
retaking or reletting the Premises, including but not limited to, any reasonable
costs or expenses incurred by Landlord and any costs or expenses incurred by
Landlord in, (a) retaking possession of the Premises, including reasonable
attorney's fees therefor, (b) maintaining or preserving the Premises, (c)
preparing the Premises for reletting to a new lessee, including repairs or
alterations to the Premises for such reletting, (d) leasing commissions, and (e)
any other reasonable costs necessary or appropriate to relet the Premises.
Landlord shall have no obligation or duty to Tenant to relet the Premises.
g. The rights of Landlord are not exclusive and shall be cumulative to all
other rights or remedies now or hereafter given to Landlord by law or by the
terms of this Lease. Nothing herein affects the right of Landlord to equitable
relief where such relief is appropriate, The bringing of an action as described
herein does not affect Landlord's right to bring a separate action for relief on
termination, or in equity but no relief shall be requested and no damages shall
be recovered in the subsequent action for any detriment for which a claim for
damages was made and determined on the merits in the previous action.
h. In the event of default, all of Tenant's furniture, equipment, and other
personal property shall remain on the Premises and in that event, and continuing
during the length of said default, Landlord shall have the right to take the
exclusive possession of same and to use same, rent free, until all defaults are
cured or, at its option, at any time during the term of this Lease (and after a
default), to require Tenant to remove same.
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22. CONDEMNATION.
a. If forty percent (40%) or more of the rentable area of the Premises
shall be acquired or condemned by power of condemnation or eminent domain, or be
sold in lieu thereof, then Landlord or Tenant, by written notice given within
sixty (60) days after notice of such taking or acquisition, may terminate this
Lease effective on the date that title vests in the condemning authority. Tenant
shall pay all Rent, additional rentals and all other charges and expenses as
shall be prorated and payable to the date of such termination, and Tenant shall
promptly vacate the Premises. Tenant shall have no claim against Landlord for
the value of any unexpired term of this Lease.
b. If all or any portion of the Premises shall be acquired by authority of
any governmental authority pursuant to the exercise of its power of eminent
domain or by deed in lieu thereof and the Lease is not terminated then,
commencing on the date of such acquisition, the Rent provided shall be reduced
in the same proportion that the fair rental value of the Premises immediately
after such acquisition and any restoration agreed to be performed by the parties
hereto bears to the fair rental value of the Premises immediately prior to such
acquisition. In addition, if Tenant shall restore the remaining portion of the
Premises to as close to its previously existing condition as possible, then
Tenant shall first be entitled to recover its expenses incurred in such
restoration out of any such award and the balance shall be allocated to
Landlord, as aforesaid. The plans for such restoration, together with the cost
to be incurred by Tenant must be approved in writing by Landlord prior to
commencing any work. If the parties are unable to agree on such fair rental
values within ninety (90) days after the date of such acquisition, the same
shall be determined by appraisal. Until the new Rent shall have been determined,
Tenant shall continue to pay Rent at the rate in effect immediately prior to
such acquisition and upon such determination, an appropriate adjustment shall be
made.
C. If the parties do not agree upon any fair rental value then Landlord
shall within ten (10) days provide Tenant with the name of three (3) appraisers.
Tenant shall within ten (10) days select one of the named appraisers, who shall
determine the fair rental value. All appraisers appointed shall be licensed by
the State of Texas, shall be members of the Appraisal Institute and shall be
qualified by experience and ability to determine the foregoing fair rental value
and the fees and other costs shall be shared equally by both Landlord and
Tenant.
23. TENANT'S CONDUCT OF BUSINESS.
a. Tenant shall continuously and uninterruptedly from and after its initial
opening for business, operate and conduct within the Premises the business which
it is permitted to operate and conduct under the provisions hereof, except for
customary national, state or local holidays and vacation time in the ordinary
course of business, or while the Premises are untenantable by reason of fire or
other casualty or repair or restoration approved by Landlord. Tenant will keep
the Premises in a neat, clean and orderly condition. Tenant shall have the right
from time-to-time to close the business for the purpose of making repairs,
maintenance, or for remodeling, which in any event shall be promptly completed
in a good and workmanlike manner. In no event shall a closing for such purpose
exceed ninety (90) days without Tenant requesting the written consent of
Landlord, and Landlord granting such consent. Landlord's consent shall not be
unreasonably withheld.
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b. At any time following expiration of five (5) years from the Effective
Date, Tenant may close the business with the consent of Landlord, which consent
shall not be unreasonably withheld, where Tenant is and continues paying Rent as
agreed, and maintains the Premises without deterioration, including keeping
electricity, heating and cooling at temperatures as if occupying the Premises,
maintains and monitors the landscaping, continues to light the Premises to
prevent vandalism and diligently and continually pursues the subletting or
assignment of this Lease. Any closing hereunder shall not in any event exceed
ninety (90) days without the written consent of Landlord. If Tenant requires
additional time, but in no event greater than one hundred eighty (180) days in
total, Tenant may request such additional time in writing from Landlord, and
Landlord's consent shall not be unreasonably withheld. Prior to closing the
business under this provision, Tenant must notify Landlord of its intent to do
so; set forth in writing the steps which will be taken to assure that no
deterioration of the building and improvements will occur, and must provide
written evidence that such closing does not affect the insurance coverage and
provide vacant building coverage satisfactory to Landlord. Such notice shall
further detail the efforts Tenant will undertake to sublease or assign this
Lease. Notwithstanding anything to the contrary, in the event Tenant notifies
Landlord of its intention to close the business, Landlord may elect, at its
option to terminate this Lease without penalty at any time following such
notice. Termination, in such event shall be effective upon the date set forth in
the notice of election to terminate. The obligations of each party shall end
upon such termination. At the option of Landlord, if Tenant elects to close the
business under this provision, the rights of Tenant to the Option Terms shall be
null, void and of no further force and effect.
24. ASSIGNMENT.
a. Tenant shall not have the right to assign this Lease, or its rights
hereunder, or to sublet all or any part of the Premises without the prior
written consent of the Landlord, which consent shall not be unreasonably
withheld. In the event Landlord consents to an assignment or sublease, without
implying any obligation to do so, Tenant shall remain liable for the prompt
payment of all Rent required to be paid hereunder and for the performance of all
the terms, covenants and conditions herein. No assignment or sublease shall
alter, affect or modify any of the rights of Landlord under this Lease. At the
option of Landlord, if Tenant shall sublease or assign this Lease (other than
the initial sublease), the rights of Tenant to the Option Terms shall be null,
void and of no further force and effect.
b. Tenant may mortgage, pledge or otherwise encumber its interest in this
Lease or in the Premises to any financial institution advancing purchase-money
financing for Tenant's operations on the Premises; provided, however, that in
the event of a foreclosure of the interest of such financial institution, the
Premises may be used only in the manner permitted by this Lease.
25. NOTICES. Any and all notices or demands by or from Landlord to Tenant, or
Tenant to Landlord shall be in writing. They shall be served either personally,
via messenger or overnight carrier, or by certified mail. If served personally,
service shall be conclusively deemed made at the time of service. If served by
certified mail, service shall be conclusively deemed made twenty-four (24) hours
after deposit thereof in the United States mail, postage prepaid.
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Any notice or demand to Landlord may be given unto it at:
Nancy Glass West
2315 Briarwood
San Antonio, Texas 78209
With copy to:
S. Carl Friedsam
Martin, Drought & Torres, Inc.
NationsBank Plaza, Suite 2500
300 Convent Street
San Antonio, Texas 78205-3789
Any notice or demand to Tenant may be given unto it at:
Cluckcorp International, Inc.
1250 N.E. Loop 410, Suite 335
San Antonio, Texas 78209
With copy to:
Douglas W. Becker
Cauthorn, Hale, Homberger, Fuller,
Sheehan & Becker, Incorporated
700 North St. Mary's Street, Suite 620
San Antonio, Texas 78205
Said addresses may be changed from time to time by notice given in
accordance with the provisions of this paragraph.
26. TERMINATION. On the last day, of the Term of this Lease or sooner
termination, Tenant shall peaceably and quietly leave the Premises, and all
Fixtures, all in good working order, condition and repair, damage by events or
acts beyond the reasonable control of Tenant and permitted alterations excepted.
The Premises shall be returned in a broom clean condition.
27. PERSONAL PROPERTY. All equipment, business and trade fixtures, furniture and
other personal property used by Tenant in the Premises (but excluding Fixtures
installed by Tenant) may be removed by Tenant at the expiration of this Lease if
Tenant is not in default under the Lease. Tenant shall repair any damage to the
building caused by such removal, to the satisfaction of Landlord, including
painting or other repairs as Landlord may reasonably require. In the event that
Tenant fails to remove its personal property at the expiration or sooner
termination of this Lease, Tenant shall be deemed to have abandoned such
personal property and Landlord shall be permitted to dispose of such personal
property as it deems appropriate, In the event of a default, Tenant may not
remove any furniture or other personal property (including tables, chairs,
linen, flatware and other items of personal property) whatsoever. Tenant agrees
that a portion of the consideration for this
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Lease is this agreement and the understanding that in the event of a default the
Premises could be let for restaurant purposes with such furniture and personal
property.
28. HOLDING OVER. Tenant shall not continue to conduct its business at the
Premises after the last day of the term here created. Any holding over shall be
at a rate equal to two (2) times the Rent otherwise payable hereunder. If Tenant
notifies Landlord in writing within the sixty (60) day period prior to the end
of the Second Option Term that Tenant wants to negotiate an extension of this
Lease, and the parties are under good faith negotiations, then for a period of
up to sixty (60) days after the end of the term, no holdover rent will be paid,
but instead Rent shall continue for such sixty (60) days at the Rent otherwise
payable under this Lease.
29. HAZARDOUS SUBSTANCES.
a. Tenant shall not cause or permit to occur (i) any violation of any
federal, state, or local law, ordinance, or regulation now or hereafter enacted,
related to environmental conditions on, under, o r about the Premises; or (ii)
the use, generation, release, manufacture, refining, production, processing,
storage, or disposal of any hazardous substances on, under, or about the
premises.
b. Tenant shall comply with all laws regulating the use, generation,
storage, transportation, or disposal of hazardous substances.
c. If Tenant fails to fulfill any duty imposed under this provision, then
Landlord may take whatever actions are necessary to correct the situation, and
Tenant shall reimburse Landlord for all costs associated therewith (including
reasonable attorney's fees and reasonable consulting fees).
d. Tenant shall indemnity, defend, and hold harmless the Landlord from all
fines, suits, procedures, claims and actions of every kind, and all costs
associated therewith arising out of or in any way connected with any deposit,
spill, discharge, or other release of hazardous substances that occurs during
the Term of this Lease.
30. LEASING COMMISSION. Landlord is acting as her own agent. Tenant represents
to Landlord that it has dealt with no broker or other person entitled to a fee
or commission on this Lease other than Michael Gulley, of Hardy & Company
("Broker"). Landlord agrees to pay Broker a commission equal to three percent
(3%) of the Rents for the Primary Term, payable one-half (1/2) upon the
expiration of the Contingency Date if Tenant has not terminated this Lease, and
one-fourth (1/4) upon the expiration of the first and second lease years,
thereafter.
31. MISCELLANEOUS PROVISIONS.
a. Tenant shall permit Landlord and its agents to enter into and upon the
Premises at all reasonable times upon twenty-four (24) hours notice to Tenant
for the purpose of inspecting the same.
b. Nothing contained in this Lease shall be deemed or construed by the
parties hereto, or any third party, to create the relationship of principal and
agent, or of partnership or of joint
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venture, or of trustee and beneficiary, or of any other association between the
parties hereto and neither the method of payment of any monies hereunder, nor
any other provisions in this Lease, nor any acts of the parties hereto, shall be
deemed to create any relationship set forth hereinabove.
c. No waiver of default by the party or parties hereunder shall be implied
from any omission by a party or parties to take action on account of such
default if such default persists or is repeated, and no express waiver shall
affect any default other than the default specified in the express waiver, and
that only for the time and to the extent therein stated. One or more waivers of
any covenant, term or condition of this Lease by a party or parties shall not be
deemed to waive or render unnecessary the consent to or approval of said party
or par-ties of any subsequent or similar acts by a party or parties.
d. The language in all parts of this Lease shall be in all cases construed
simple according to its fair meaning.
e. This Lease may be executed in any number of counterparts, each of which
so executed and delivered shall be deemed an original, but such counterparts
together shall constitute but one Lease.
f This Lease shall be construed according to the laws of the State in which
the Premises are located.
g. Time is of the essence of this Lease.
h. Should any portion of this Lease be declared invalid and unenforceable,
then such portion shall be deemed to be severable from this Lease and shall not
affect the remainder thereof
i. It is expressly understood that this Lease contains all terms,
covenants, conditions and agreements between the parties hereto relating to the
subject matter of this Lease, and that no prior agreements or understandings,
either oral or written, pertaining to the same, shall be valid or of any force
or effect, and that the terms, covenants, conditions and provisions of this
Lease cannot be altered, changed, modified or added to except in writing by all
the parties hereto.
j. Should any party or parties hereto institute any action or proceeding in
Court or by arbitration to enforce any provision or provisions hereof, or for
damages by reason of any default under this Lease, or for a declaration of such
party's or parties' rights or obligations hereunder, or for any other judicial
remedies, the prevailing party or parties shall be entitled to receive from the
losing party or parties such amount as the Court may find to be actual
attorney's fees and costs incurred for the services rendered the party or
parties prevailing in any such action or proceeding or on appeal therefrom. In
the event Landlord employs the services of counsel, without regard to the
commencement of any action, resorting from Tenant's failure to strictly comply
with all of the terms, covenants and conditions hereof, all attorney's fees
incurred by Landlord shall be payable by Tenant to Landlord upon demand.
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<PAGE>
k. This Lease shall be binding upon and inure to the benefit of the
personal and legal representatives, successors and assigns of the parties.
l. Force Majeure. The time for the completion of construction of
improvements pursuant to Paragraph 7c and repairs pursuant to Paragraph 12 shall
be deemed extended by time lost due to delays resulting from acts of God,
strikes, unavailability of materials, civil riots, floods, other unusually
inclement weather (but not including seasonally inclement weather), national or
labor restrictions by governmental authority, and any other cause not within the
control of Tenant, as the case may be, but in no event greater than as set forth
therein.
m. Warranties, Guarantees. Landlord hereby permits Tenant to retain, during
the term of this Lease, all warranties and guarantees pertaining to Improvements
and equipment erected or installed upon the Premises. In the event of
termination of this Lease when any warranties or guarantees are still
applicable, Tenant hereby assigns to Landlord effective as of the date of
termination of all such warranties and guarantees pertaining to the Improvements
(including, without limitation, all heating and air conditioning equipment
installed upon the Premises, but not including Tenant's kitchen equipment,
furniture or inventory).
n. Subordination, Non-Disturbance. Tenant accepts this Lease subject and
subordinate to any mortgage, deed of trust or other lien presently existing upon
the Premises and to any renewals and extensions thereof, provided that Tenant
and holder of said mortgage, deed of trust or other lien now or hereafter
existing shall have executed and delivered a non-disturbance agreement
reasonably acceptable to said lienholder and Tenant. Tenant further agrees that
any such mortgagee shall have the right at any time to subordinate such
mortgage, deed of trust or other lien to this Lease, Landlord is hereby
irrevocably vested with full power and authority to, upon execution of a
non-disturbance agreement as set forth above, subordinate this Lease to any
mortgage, deed of trust or other lien hereafter placed upon the Premises, and
Tenant agrees upon demand to execute such further instruments subordinating the
Lease upon the express condition that this Lease shall be recognized by the
mortgagee by the execution of a non-disturbance agreement acceptable to Tenant
and mortgagee, and that the rights of Tenant shall remain in full force and
effect during the term of this Lease so long as Tenant shall continue to perform
all of the covenants and conditions of this Lease. At any time when there is
outstanding a mortgage, deed of trust or similar security instrument covering
Landlord's interest in the Premises of which Tenant has been given written
notice, Tenant may not exercise any remedies for default by Landlord hereunder
unless and until the holder of the indebtedness secured by such mortgage, deed
of trust or similar security instrument shall have received written notice of
such default and a reasonable time for curing such default shall thereafter have
elapsed.
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<PAGE>
The parties hereto have executed this Lease on the date of execution by both of
the parties.
EXECUTED this 20th day of January, 1997.
LANDLORD:
/s/ NANCY GLASS WEST
- --------------------
NANCY GLASS WEST
Date: 1-20-97
TENANT:
CLUCKCORP INTERNATIONAL, INC.
BY: /s/ Steves Rosser
- ---------------------
NAME: Steves Rosser
TITLE: V.P. Development
Date: 1-17-97
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EXHIBIT "A"
All of Lots 1, 2 and 3, and the West 25 feet of Lot 4, all in Block 3, COUNTRY
CLUB HEIGHTS, situated within the corporate limits of the City of Alamo Heights,
Bexar County, Texas, according to plat thereof recorded in Volume 368, Page 359,
Deed and Plat Records of Bexar County, Texas, and being the same property
conveyed to the assured by deed dated December 3, 1963, from Helen K. Bridgman,
et al., filed for record in the office of the county clerk of Bexar County, on
December 12, 1963.
EXHIBIT 23.09
CONSENT AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CluckCorp International, Inc.
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated March 15, 1996, relating to the Financial Statements of CluckCorp
International, Inc. and to the the references to our firm under the caption
"Experts" in the Prospectus.
Akin, Doherty, Klein & Feuge, P.C.
San Antonio, Texas
February 4, 1997
