Filed with the Securities and Exchange Commission on January 29, 1998.
Securities Act Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HARVEST RESTAURANT GROUP, INC.
(formerly CLUCKCORP INTERNATIONAL, INC.)
--------------------------------------
(Exact Name of Registrant
As Specified In Its Charter)
Texas 5812 76-0406417
- - ------------------------------ --------------------------- ------------
(State or other (Primary Standard Industrial (IRS Employer
jurisdiction of incorporation Classification Code No.) I.D. Number)
or organization)
1250 N.E. Loop 410, Suite 335
San Antonio, Texas 78209
(210) 824-2496
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(Address, including zip code, and telephone
number, including area code, of Registrant's principal
executive offices)
William J. Gallagher, Chief Executive Officer
Harvest Restaurant Group, Inc.
1250 N.E. Loop 410, Suite 335
San Antonio, Texas 78209
(210) 824-2496
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(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies of all communications to:
Gary A. Agron, Esq.
Law Office of Gary A. Agron
5445 DTC Parkway, Suite 520
Englewood, Colorado 80111
(303) 770-7254
(303) 770-7257 (fax)
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of the Offering.
<PAGE>
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
(ii)
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================================
Title of each class of Amount to be Proposed Proposed Amount of
securities to be registered registered maximum maximum registration
offering price aggregate fee
per unit offering
price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Preferred Stock, 1,500,000 (3) $1.00 (1) $1,500,000 (1) $ 443
$1.00 par value, underlying Shares
Series B Preferred Stock,
$1.00 par value (3)
- ---------------------------------------------------------------------------------------------------------------
Common Stock, no par 4,050,000 (4) $ .66 (2) $2,673,000 (2) $ 789
value, underlying Series A Shares
Preferred Stock (4)
- ---------------------------------------------------------------------------------------------------------------
Totals ......................... $4,173000 $1,232
===============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the closing price per share of the Series
A Preferred Stock on the NASDAQ SmallCap Market on January 26, 1998 of
$2.00 per share. See footnote (3) below.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the closing price per share of the Common
Stock on the NASDAQ SmallCap Market on
January 26, 1998 of $.66 per share.
(3) The Series A Preferred Stock being registered hereby underlies an aggregate
of $1,500,000 of Series B Preferred Stock (150 shares)and is convertible
based upon 80% of the average closing bid price of the Series A Preferred
Stock for the five days prior to conversion. The registration fee assumes a
bid price of $1.25 per share of Preferred Stock (rather than $2.00 per
share so as to allow the Registrant to register 1,500,000 shares of Series
A Preferred Stock in order to provide sufficient shares if the market price
per share goes as low as $1.00 per Series A Preferred share) of which 80%
is $1.00 per share. Therefore, 1,500,000 shares of Series A Preferred Stock
are being registered to satisfy the $1,500,000 of Series B Preferred Stock
at $1.00 per share.
(4) Each share of Series A Preferred Stock is convertible into 2.7 shares of
Common Stock.
(iii)
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
(iv)
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
BETWEEN ITEMS OF FORM S-3 AND THE PROSPECTUS
<S> <C> <C>
Item
No. Prospectus Caption or Page
1 Forepart of the Registration Statement and Facing Page; Cross-Reference Sheet;
Outside Front Cover Page of Prospectus Outside Front Cover Page of
Prospectus
2 Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover
of Prospectus Pages of Prospectus
3 Summary Information, Risk Factors and Outside Front Cover Page of
Ratio of Earnings to Fixed Charges Prospectus; Risk Factors
4 Use of Proceeds Use of Proceeds
5 Determination of Offering Price *
6 Dilution *
7 Selling Security Holders Selling Stockholders
8 Plan of Distribution Plan of Distribution
9 Description of Securities to be Registered *
10 Interests of Named Experts and Counsel Legal Matters; Experts
11 Material Changes *
12 Incorporation of Certain Information by Inside Front Cover Page of Prospectus
Reference
13 Disclosure of Commission Position on Item 17(a)
Indemnification for Securities Act Liabilities
</TABLE>
* Not Applicable
(v)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
SUBJECT TO COMPLETION, DATED JANUARY , 1998
PROSPECTUS
HARVEST RESTAURANT GROUP, INC.
Up to 1,500,000 shares of Series A Preferred Stock
Upon Conversion of 150 shares of Series B Preferred Stock and
Up to 4,050,000 shares of Common Stock
Upon Conversion of 1,500,000 shares of Series A Preferred Stock
This Prospectus covers the sale of up to 1,500,000 shares of Series A
Preferred Stock ("Preferred Stock") upon conversion of 150 shares of Series B
Preferred Stock and 4,050,000 shares of Common Stock upon conversion of the
1,500,000 shares of Series A Preferred Stock of Harvest Restaurant Group, Inc.
(the "Company"). The holder of these securities is referred to as the "Selling
Stockholder." See "Selling Stockholder." The Company will not receive any part
of the proceeds from the sale of securities by the Selling Stockholder.
The Selling Stockholder may sell the Preferred Stock or underlying Common
Stock from time to time directly or indirectly through designated agents in open
market transactions, including block trades, on the NASDAQ SmallCap Market (the
"SmallCap Market"), in negotiated public or private transactions or in a
combination of such methods of sale or through dealers or underwriters to be
determined at the time of sale. To the extent required, the Preferred Stock or
underlying Common Stock to be sold, the name of the Selling Stockholder,
purchase price, offering price, the name of any agent, dealer or underwriter,
and any applicable commission or discount with respect to a particular offer or
sale will be set forth in an accompanying prospectus supplement. The aggregate
proceeds to the Selling Stockholder from sales of the Preferred Stock or
underlying Common Stock will be the purchase price of the securities sold less
the aggregate agents' commissions and underwriters' discounts, if any. All other
distribution expenses of the offering will be paid by the Company. See "Plan of
Distribution."
The Selling Stockholder and any broker-dealers, agents or underwriters that
participate with the Selling Stockholder in the distribution of the Preferred
Stock or underlying Common Stock may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
any commission received by them and any profit on the resale of the Common Stock
or Warrants purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution."
The Preferred Stock and Common Stock are listed on the SmallCap Market
under the symbols "ROTIP" and "ROTI," respectively. On January 26, 1998, the
closing sales prices of the Preferred Stock and Common Stockas reported on the
SmallCap Market were $2.00 per share and $.66 per share, respectively.
PURCHASE OF THE PREFERRED STOCK OR THE UNDERLYING COMMON STOCK IS
SPECULATIVE, INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY
PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
ON PAGE 5 HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-3 (the
"Registration Statement") under the 1933 Act with respect to the securities
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain items of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered by this Prospectus, reference
is made to such Registration Statement and the exhibits thereto. Statements
contained in this Prospectus as to the contents of any contract or other
documents are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement for a full statement of the provisions thereof; each such
statement contained herein is qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 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 and copied at
public reference facilities of the Commission at 450 Fifth Street N.W.,
Washington, D.C. 20549; Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; 7 World Trade Center, New York, New York 10048;
and 5670 Wilshire Boulevard, Los Angeles, California 90036. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates and on the
Commission's Web site at http://www.sec.gov.
The Company furnishes annual reports to its stockholders which include
audited financial statements. The Company may also furnish quarterly financial
statements to its stockholders and such other reports as may be authorized by
its Board of Directors.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed or will be filed with the
Commission are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 29, 1996;
(2) The Company's Quarterly Report on Form 10-QSB for the twelve weeks
ended October 5, 1997.
(3) The Company's Quarterly Report on Form 10-QSB for the sixteen weeks
ended July 13, 1997;
(4) The Company's Quarterly Report on Form 10-QSB for the twelve weeks
ended April 20, 1997;
2
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(5) Proxy Statement for the Annual Meeting of Stockholders of the Company
held April 30, 1997;
(6) Description of the Common Stock contained in the Company's
Registration Statement on Form SB-2 declared effective under the
Securities Act, on July 9, 1996; File Number 33-95796;
(7) Description of Series A Preferred Stock contained in the Company's
Registration Statement on Form SB-2 declared effective under the
Securities Act, on June 11, 1997, File Number 333-21067.
(8) All other documents subsequently filed by the Company pursuant to
Sections 12, 13(a), 13(c), 14 and 15(d) of the 1934 Act.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of the
filing of such documents. Any statement contained in this Prospectus, in a
supplement to this Prospectus or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed supplement to this Prospectus or in any document
that also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents. Written or oral requests for such
copies should be directed to Joseph Fazzone, Chief Financial Officer, Harvest
Restaurant Group, Inc.,1250 N.E. Loop 410, Suite 335, San Antonio, TX 78209,
telephone (210) 824-2496.
3
<PAGE>
BUSINESS OF THE COMPANY
The Company owns, operates and franchises quick service restaurants under
the "Harvest Rotisserie" name, which feature marinated oak-roasted rotisserie
chicken, oak-roasted turkey breast, roast ham, meatloaf, an assortment of
sandwiches and other fresh homestyle food items. Harvest Rotisserie restaurants
(sometimes referred to as the "Restaurant(s)") emphasize rotisserie oak-roasted
chicken, turkey and fresh homestyle side dishes consistent with what the Company
believes to be (i) an increased consumer demand for take-home prepared foods,
(ii) an emphasis on lower fat foods such as chicken and turkey, and (iii) the
popularity of homestyle cooking. Harvest Rotisserie side dishes include cold
dishes such as coleslaws and salads and hot dishes such as baked beans,
stuffing, corn, parsley potatoes, macaroni and cheese, steamed fresh vegetables,
mashed potatoes and gravy, rice, creamed spinach, cheese rice and baked cinnamon
apples. The Company maintains strict quality standards in purchasing, storing,
preparing and serving its entrees, side dishes, desserts and other products.
Recent Developments
- -------------------
To date, the Company has opened three Restaurants in San Antonio, Texas
(one of which is used as both a training facility and a public restaurant) and
one Restaurant in Corpus Christi, Texas. The Company has also franchised ten
restaurants, in Florida, Indiana, North Carolina and California including eight
restaurants which the Company purchased from Kenny Rogers Roasters and assigned
to an area developer for operation as Harvest Rotisserie restaurant franchises.
In January 1998, the area developer closed four of these restaurants located in
Indiana and North Carolina due to operating losses at the Restaurants and the
Company's inability to provide additional working capital financing to the area
developer. It is expected that the area developer may close up to five
additional restaurants within the next 30 to 60 days.
During 1997, the Company began the development of a multi-branded
restaurant concept featuring Harvest Rotisserie along with two or more
additional branded concepts in one building ("Harvest" restaurants.) In December
1997, the Company converted its Corpus Christi restaurant into a multi-branded
restaurant concept that includes Harvest Rotisserie, Red Line Burgers and Old
San Antonio Taco Factory. The Company intends to concentrate its future
expansion efforts primarily on the development of multi-branded Harvest
restaurants in Texas. Consistent with this change in strategy, the Company no
longer intends to develop four of the five properties in San Antonio and Houston
which the Company had previously executed leases for and is negotiating a
disposition of the properties with the respective landlords. The Company intends
to develop the remaining leased property in San Antonio, but currently does not
have the funds necessary to do so. The Company has also cancelled a previous
letter of intent to acquire nine additional restaurants from Kenny Rogers
Roasters located in Maryland, but continues to negotiate the terms of the
purchase of four Kenny Rogers Roasters restaurants in Utah, although no
agreement has been reached.
To facilitate the Company's expansion of multi-branded Harvest restaurants
in Texas, the Company has entered into a non-binding letter of intent to acquire
80% of the assets of Red Line, Inc., the franchisor of Red Line Burgers,
however, a definitive agreement has not yet been executed. Completion of this
acquisition is contingent upon the Company's ability to raise the financing
necessary to complete the acquisition and fund the costs of conversion of Red
Line, Inc.'s 25 restaurants located in South Texas into multi-branded Harvest
restaurants.
The Company's executive offices are located at 1250 N.E. Loop 410, Suite
335, San Antonio, Texas 78209, telephone (210) 824-2496.
4
<PAGE>
RISK FACTORS
Investors should carefully consider the following risk factors and other
information contained in this Prospectus before making an investment in the
Common Stock or Warrants. 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. No assurance can be given that the
future results addressed 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 addressed in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results addressed
in such forward-looking statements.
Limited Operating History; Negligible Revenues; Ongoing Substantial
Operating Losses. The Company has a limited operating history (commencing in
June 1993) upon which potential investors may base an evaluation of its
performance. The Company has operated at a loss since inception and has
accumulated a deficit of $7,161,907 at October 5, 1997. For the twelve weeks
ended October 5, 1997 and the fiscal years ended December 29, 1996, and December
31, 1995, the Company reported revenues of $621,243, $263,892 and $276,678 and
net losses of $1,889,061, $2,011,254 and $924,483, respectively. There can be no
assurance that the Company's operations will become profitable or that revenues
will increase. It is anticipated that the Company will incur significant
additional losses from its Restaurant operations, from its area developer
closing four Restaurants in January 1998 and the expected closing of five more
Restaurants within the next 30 to 60 days by the same area develper. The closing
of the nine Restaurants is anticipated to result in an approximately $3 million
loss. The likelihood of the Company's success must also be considered in light
of the problems, experiences, difficulties, complications and delays frequently
encountered in connection with the operation and development of a new business.
Limited Working Capital. At December 31, 1997 the Company estimates that
its working capital was limited to approximately $500,000 which is not
sufficient for the Company to finance the acquisition, development or conversion
of any additional Restaurants. Moreover, considering the Company's ongoing
substantial losses, such working capital will only finance the Company's
existing operations for two months before the Company is forced to curtail its
operations and reduce its overhead expenses or terminate its operations.
Default On Assumed Obligation; Leasehold Liabilities. The Company is in
default upon an approximately $500,000 obligation it assumed as a result of its
purchase of certain Kenny Rogers Roasters restaurants and suit has been
commenced against the Company by the holder of such obligation. The Company is
also responsible to pay leasehold obligations on the nine Restaurants operated
by an area developer which have been closed or will close shortly, amounting to
approximately $50,000 per month and additional area developer obligations of
approximately $1,000,000.
Decline In Price of the Company's Securities; Loss of Primary Market Maker.
Since September 30, 1997 the price of the Company's Preferred Stock has declined
approximately 88% and its Common Stock has declined approximately 80%. In
December 1997 the Company's primary market maker terminated its operations which
contributed to a decline in the price of the Company's securities and has
adversely affected the liquidity of such securities.
Four Restaurants in Operation; Operating Losses; Possible Termination of
Harvest Rotisserie Concept. The Company has only four Restaurants in operation
(excluding six franchised restaurants) one of which is being used both as a
training facility and a public restaurant. All 10 remaining Restaurants are
currently operating at a loss and the Company expects that substantial losses
will continue in the future. If the Company's 10 owned and franchised
Restaurants continue to lose money, the Company may be required to modify or
terminate its Harvest Rotisserie concept.
Potential Adverse Effect of Shares Issuable Upon Exercise of Stock Options
and Shares Eligible for Future Sale. The Company had 2,492,630 shares of Common
Stock outstanding as of October 5, 1997, and has reserved for issuance an
5
<PAGE>
aggregate of 9,701,680 shares of Common Stock upon exercise of outstanding stock
options and warrants. An aggregate of 1,000,000 shares of Common Stock issued in
the Company's initial public offering ("IPO"), and 5,400,000 shares issuable
upon conversion of the Preferred Stock and Preferred Stock issuable upon
exercise of Preferred Stock Warrants issued in a subsequent public offering in
June 1997 have been previously registered. In addition, 540,000 shares issuable
upon conversion of the Representative's Preferred Stock Warrants are subject to
demand registration rights and up to 1,500,000 shares of Preferred Stock (and
the underlying 4,050,000 shares of Common Stock) are being registered hereby.
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 at any time under
Rule 144 of the Securities Act. Exercise of options and warrants could dilute
the Company's net tangible book value and/or prove to be a hindrance to future
financing. The holders of such options and warrants 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. Considering the current trading volume of
the Common Stock and the number of shares outstanding, the shares currently
available for resale will have a significant depressive effect on the market
price of the Common Stock. The Company is also obligated to issue approximately
900,000 additional shares of free trading Common Stock to satisfy its dividend
commitments on the Preferred Stock based upon a Common Stock market price of
$.66 per share.
Adverse Affect of Business Week Article; NASDAQ Listing Investigation. In
December 1997 Business Week magazine published an article which suggested that
the Company had compensated certain brokerage firms for promoting and selling
the Company's NASDAQ SmallCap traded securities. Although the Company has stated
publicly that no such compensation was paid by it, the Business Week allegations
adversely affected the Company's reputation in the business and brokerage
communities and the liquidity and market prices of its securities. Moreover,
NASDAQ Listing Investigations has requested certain information from the Company
to determine if the Company did in fact compensate brokerage firms for promoting
and selling the Company's securities. See "Risk Factors - Maintenance Criteria
For the NASDAQ SmallCap Market Securities; Company Not in Compliance."
Dependence Upon Area Developers. If the Company continues the Harvest
Restaurant concept, it may acquire restaurant properties to be subleased to and
operated by area developers after conversion to Harvest Rotisserie restaurants.
The Company has and may continue to acquire restaurant properties, sublease the
properties to area developers (if area developers are obtained by the Company)
and provide funds (if funds are available to the Company) 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, (as was one area developer who operated nine Restaurants and has now
closed four Restaurants), 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.
Adverse Affect of Area Developer Operating Losses. A number of civil
actions have recently been filed against Boston Market alleging, among other
things, that the operating losses of Boston Market area developers should have
been reflected in Boston Market's financial statements or investors should
otherwise have been advised of the existence and scope of such area developer
losses, because Boston Market financed the operations of these area developers.
The Company has entered into similar arrangements with an area developer who
acquired eight restaurants from the Company and converted the restaurants (along
with a ninth restaurant subsequently opened by the area developer) to Harvest
Rotisserie restaurants, in the states of Florida, Indiana and North Carolina.
Although the Company has established a reserve for developer losses, should
losses exceed the reserve, (as is expected with the Company's nine Restaurant
area develoeprs) the Company will be required to reflect in its financial
statements all or a portion of such additional losses. The reflection of such
reserves or additional area developer losses in the Company's financial
statements will significantly and adversely affect the Company's results of
operations which, in turn, may adversely affect the market price of its Common
Stock and the Company's ability to fund its operations on an ongoing basis in
the future.
6
<PAGE>
Intense Competition. The food service industry is intensely competitive
with respect to food quality, concept, location, service and price. There are
many well-established food service competitors with substantially greater
financial and other resources than the Company and with substantially longer
operating histories. The Company competes with takeout food service companies,
fast-food restaurants, casual full-service dine-in restaurants, delicatessens,
cafeteria-style buffets and prepared food stores, as well as with supermarkets
and convenience stores. The number of rotisserie-roasted chicken establishments
and the number of national restaurant chains, fast-food and grocery stores
offering rotisserie-roasted chicken and other homestyle food products have
increased in the past few years, providing direct competition for customers and
resulting in the sale or closing of a number of rotisserie-roasted chicken
establishments including establishments operated by some of the larger franchise
chains. Moreover, other national restaurant chains could introduce new
restaurants similar to Harvest Rotisserie, or the multi-branded concept
currently being considered by management.
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.
Risks Associated with the Food Service Industry. Food service businesses
are often affected by changes in consumer tastes, national, regional and local
economic conditions, demographic trends, traffic patterns and the type, number,
and location of competing restaurants. Multi-unit food service chains may also
be affected by publicity resulting from poor food quality, illness, injury, or
other health concerns or operating issues stemming from individual restaurants.
Dependence upon frequent deliveries of fresh produce also subjects food service
businesses such as the Company to the risk that shortages or interruptions in
supply caused by adverse weather or other conditions could adversely affect the
availability, quality and cost of food ingredients. In addition, factors such as
inflation, increased food, labor and employee benefits costs, regional weather
conditions and the limited availability of experienced management and hourly
employees may also adversely affect the food service industry in general and the
Company's results of operations and financial condition in particular.
Risks Associated With Expansion. The Company does not have the funds for
any expansion. However, should the Company seek to open additional Company-owned
Restaurants if financing becomes available then such development will be
dependent upon, among other things, market acceptance for the Company's Harvest
Rotisserie concept or the multi-brand restaurant concept that is currently being
considered by management, the availability of suitable Restaurant sites, timely
development and construction of the Restaurants, the hiring of skilled
management and other personnel, the Company's general ability to successfully
manage growth (including monitoring Restaurants, controlling costs and
maintaining effective quality controls), the availability of adequate financing
and the Company's ability to attract and retain qualified franchisees. In the
case of franchised restaurants, the Company will also be substantially dependent
upon the management skills of its franchisees.
7
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Need for Additional Capital; Possible Curtailment or Elimination of Current
Operations. The Company requires additional capital to maintain its existing
operations and in order to develop new Restaurants. The Company has no
commitments or arrangements to obtain any additional capital, and no assurances
can be given that such capital will be available on terms satisfactory to the
Company, if at all. The Company's ability to open additional Restaurants for
which leases have been executed is also contingent upon the Company's ability to
obtain construction financing and equipment lease financing for such
Restaurants. If the Company is unable to generate additional working capital, it
will be required to curtail or terminate its current operations.
Importance of Attracting Competent Area Developers and Franchisees. The
Company's future success will be dependent upon its ability to attract and
retain Restaurant area developers and franchisees and the manner in which
Restaurant franchisees operate, develop and promote their Restaurants. There can
be no assurance that franchisees will have the business abilities or access to
financial resources necessary to open the Restaurants required by their
franchise agreements or that they will operate their Restaurants in a manner
consistent with the Company's concept and standards. The Company competes for
qualified franchisees with multinational fast-food chains, national and regional
restaurant chains and other regional and local restaurant franchisors. Many
restaurant franchisors have greater market recognition and greater financial,
marketing and human resources than the Company.
Adverse Effect of Government Regulation; Franchise Risks. The restaurant
industry is subject to numerous federal, state and local government regulations,
including those relating to the preparation and sale of food and those relating
to building and zoning requirements. The Company and future franchisees are also
subject to laws relating to employees, including minimum wage requirements,
overtime, working and safety conditions and citizenship requirements. In
addition, the Company is subject to regulation by the Federal Trade Commission
and must comply with many state laws which govern the offer, sale and
termination of franchises. Compliance with such laws is time-consuming and
expensive, and failure to comply could result in the Company being unable to
offer franchises and could subject the Company to significant liability to
franchisees. Developing a franchise program is costly and requires a significant
amount of ongoing management effort. 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.
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.
8
<PAGE>
Competitors Offer Discount Pricing. A number of quick service restaurant
companies (including chicken restaurants) have recently experienced lower growth
rates and declines in average sales per restaurant, in response to which certain
of these companies have adopted discount pricing strategies. Such strategies
could have the effect of drawing customers away from companies which do not
engage in discount pricing and could negatively impact the operating margins of
other competitors who do attempt to match these discount prices.
Possible Inadequacy of General Liability and Commercial Insurance; Product
Liability Insurance. Although the Company carries general liability, product
liability and commercial insurance of up to $2,000,000, there can be no
assurance that its coverage will be adequate to protect it against general,
commercial or product liability claims. Any general, commercial or product
liability claim which is not covered by such policy, or is in excess of the
limits of liability of such policy, could have a material adverse effect on the
financial condition of the Company. There can be no assurance that the Company
will be able to maintain its insurance on reasonable terms.
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 propriety rights of others, that the
Company's Marks would be upheld if challenged or that the Company would not
otherwise be prevented from using its Marks. The Company has registered with the
United States Patent Office its Harvest Rotisserie name and service mark. The
Company's exclusive right to the Cluckers Marks is limited in the United States
to the state of Texas. There can be no assurance that the Company will obtain
sufficient protection for its Marks or that it will have the financial resources
to enforce or defend its 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.
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. The Company is required to pay
dividends in cash or in Common Stock upon its Preferred Stock. Based upon a
market price of $.66 per share of Common Stock (at January 26, 1998) the Company
must issue approximately 900,000 shares of its Common Stock annually. The
Company does not have the funds to pay its Preferred Stock dividends in cash.
9
<PAGE>
Maintenance Criteria for The NASDAQ SmallCap Market Securities; Company Not
In Compliance. The National Association of Securities Dealers, Inc. ("the
NASD"), which administers The NASDAQ SmallCap Market, sets the criteria for
continued eligibility on The NASDAQ SmallCap Market. In order to continue to be
included on The NASDAQ SmallCap Market, a company must maintain $2 million in
net tangible assets, a $1 million market value of its public float, two
market-makers, at least 300 holders of the Common Stock, 500,000 shares in the
public float and a minimum bid price of $1.00 per share. The Company's Common
Stock currently trades at less than $1.00 per share and is therefore not in
compliance with NASDAQ SmallCap Market maintenance requirements. Moreover, the
bid price of the Company's Preferred Stock on January 26, 1998 was only $2.00
per share. The Company's failure to meet the NASDAQ SmallCap Market's
maintenance criteria in the future or future maintenance requirements imposed by
The NASDAQ SmallCap Market may result in the discontinuance of the inclusion of
its securities in The NASDAQ SmallCap Market. In such event, trading, if any, in
the securities may then continue to be conducted in the non-NASDAQ
over-the-counter market in what are commonly referred to as the electronic
bulletin board and the "pink sheets." As a result, an investor may find it more
difficult to dispose of or obtain accurate quotations as to the market value of
the securities. In addition, the Company would be subject to Rule 15g (the
"Rule") promulgated under the Exchange Act, which imposes various sales practice
requirements on broker-dealers who sell securities governed by the Rule to
persons other than established customers and accredited investors. For these
types of transactions, the broker-dealer must make a special suitability
determination for the Purchaser and have received the Purchaser's written
consent to the transactions prior to sale. Consequently, the Rule may have an
adverse effect on the ability of broker-dealers to sell the securities, which
may affect the ability of Purchasers in the Offering to sell the securities in
the secondary market. See "Risk Factors - Adverse Affect of Business Week
Article; NASDAQ Listing Investigation".
Disclosure Related to Penny Stocks. The Commission has adopted rules that
define a "penny stock" as equity securities priced at under $5.00 per share
which are not listed for trading on The NASDAQ SmallCap Market (unless (i) the
issuer has a net worth of $2,000,000 if in business for more than three years or
$5,000,000 if in business for less than three years or (ii) the issuer has had
average annual revenues of $6,000,000 for the prior three years. In the event
that any of the Company's securities are characterized in the future as penny
stock, broker-dealers dealing in the securities will be subject to the
disclosure rules for transactions involving penny stocks which require the
broker-dealer among other things to (i) determine the suitability of purchasers
of the securities and obtain the written consent of Purchasers to purchase such
securities and (ii) disclose the best (inside) bid and offer prices for such
securities and the price at which the broker-dealer last purchased or sold the
securities. The additional burdens imposed upon broker-dealers may discourage
them from effecting transactions in penny stocks, which could reduce the
liquidity of the securities offered hereby.
10
<PAGE>
Stockholder Approval Not Required for Issuance of Preferred Stock;
Prevention of Change in Control. The authorized capital stock of the Company
includes 5,000,000 shares of Preferred Stock (of which 515,150 Shares 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.
Limitation on Directors' Liability. The Company's Articles of Incorporation
provide for substantial limitations on the liability of the Company's directors
to its stockholders for monetary damages.
Possible Volatility of Securities Prices. The market price of the Company's
Common Stock has been highly volatile and may continue to be volatile in the
future. Factors such as the Company's operating results or public announcements
by the Company or its competitors may have a significant effect on the market
price of the Company's securities. In addition, market prices for securities of
many small capitalization companies have experienced wide fluctuations in
response to variations in quarterly operating results, general economic
indicators and other factors beyond the control of the Company. The registration
of the securities offered hereby could increase the volatility of the Common
Stock by increasing the number of shares of publicly traded Common Stock
outstanding.
11
<PAGE>
USE OF PROCEEDS
The Company will not receive proceeds from the sale of Common Stock by the
Selling Stockholders, although it will receive any funds tendered upon exercise
price of the Warrants, which will be added to the Company's working capital.
SELLING STOCKHOLDERS
This Prospectus covers the sale of an aggregate up to 1,500,000 shares of
Preferred Stock upon conversion of 150 shares of Series B Preferred Stock and up
to 4,050,000 shares of Common Stock upon conversion of the 1,500,000 shares of
Preferred Stock on the basis of 2.7 shares of Common Stock for each share of
Preferred Stock. The Selling Stockholder may, at its election, either sell the
Preferred Stock or convert all or a portion of the Preferred Stock into Common
Stock and subsequently sell the Common Stock. The Company will not receive any
part of the proceeds from the sale of securities by the Selling Stockholder.
Set forth below is the name of the Selling Stockholder, the number of
shares of Preferred Stock and underlying Common Stock owned by the Selling
Stockholder as of this date, the number of shares of Preferred Stock and
underlying shares of Common Stock which may be offered by the Selling
Stockholder pursuant to this Prospectus, and the number of securities to be
owned by the Selling Stockholder upon completion of the offering. All securities
are owned beneficially and of record. The address of the Selling Stockholder is
in care of the Company at 1250 N.E. Loop 410, Suite 335, San Antonio, Texas
78209. The shares of Preferred Stock and underlying Common Stock listed below
may be offered for sale by the Selling Stockholder from time to time in open
market transactions at prevailing market prices and at customary commission
rates. See "Plan of Distribution."
12
<PAGE>
<TABLE>
<CAPTION>
Number of
Securities
to be
Number of Securities Number of Owned
Name of Selling Owned Prior to the Securities Being After the
Stockholder Offering Offered Offering
----------- -------- ------- --------
<S> <C> <C>
Sovereign Partners, L.P. 1,500,000 shares of Preferred 1,500,000 shares of Preferred -0-
Stock and 4,050,000 shares of Stock and 4,050,000 shares of
Common Stock underlying the Common Stock underlying the
Preferred Stock Preferred Stock
</TABLE>
PLAN OF DISTRIBUTION
The Perfered Stock and underlying Common Stock may be sold from time to
time by the Selling Stockholder in open market transactions, including block
trades on the NASDAQ SmallCap Market, in negotiated public or private
transactions or in a combination of such methods of sale. Alternatively, the
Selling Stockholder may from time to time upon exercise or conversion offer the
securities through underwriters, dealers or agents, who may receive compensation
in the form of underwriting discounts, concessions or commissions from the
Selling Stockholder or the purchasers of the securities for whom they may act as
agent. The Selling Stockholder and any such underwriters, dealers or agents that
participate in the distribution of the Common Stock or Warrants may be deemed to
be underwriters, and any profit on the sale of the securities by them and any
discounts, commissions or concessions received by any such underwriters, dealers
or agents might be deemed to be underwriting discounts and commissions under the
Securities Act. At the time a particular offer of the securities is made, to the
extent required, a prospectus supplement will be distributed that will set forth
the aggregate amount of securities being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Stockholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers, including the proposed selling price to
purchasers. The Company will not receive any of the proceeds from the sale by
the Selling Stockholder. All of the distribution expenses of the offering (other
than sales commissions and discounts) will be paid by the Company.
The Preferred Stock and underlying Common Stock may be sold from time to
time in one or more transactions at a fixed offering price, which may be
changed, or at varying prices determined at the time of sale or at negotiated
prices.
The Company has agreed to indemnify in certain circumstances the Selling
Stockholder and any underwriter, selling brokers, dealer managers or similar
persons who participate in the distribution of the securities, if any, and
certain persons related to the foregoing persons, against certain liabilities,
including liabilities under the Securities Act. The Selling Stockholder has
agreed to indemnify in certain circumstances the Company and certain persons
related to the Company against certain liabilities, including liabilities under
the Securities Act.
In order to comply with certain states' securities laws, if applicable, the
securities will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the securities may
not be sold unless they have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is complied
with.
13
<PAGE>
LEGAL MATTERS
Gary A. Agron, Englewood, Colorado, has acted as counsel to the Company in
connection with the offering.
EXPERTS
The financial statements of the Company included in the Company's Annual
Report on Form 10-KSB for the year ended December 29, 1996 which are
incorporated by reference in the Registration Statement of which this Prospectus
forms a part, have been audited by Akin, Doherty, Klein & Feuge, P.C.,
independent auditors, as stated in their report appearing therein, and have been
so included herein in reliance upon such report given upon the authority of that
firm as experts in accounting and auditing.
14
<PAGE>
======================================== ======================================
No dealer, salesman or other person has
been authorized to give any information
or to make any representations other
than contained in this Prospectus in
connection with the Offering described
herein, and if given or made, such
information or representations must not
be relied upon as having been authorized
by the Company. This Prospectus does not
constitute an offer to sell, or the Up to 1,500,000 shares of Series A
solicitation of an offer to buy, the Preferred Stock upon conversion
securities offered hereby to any person of 150 shares of Series B
in any state or other jurisdiction in Preferred Stock and
which such offer or solicitation is Up to 4,050,000 shares of
unlawful. Neither the delivery of this Common Stock upon conversion
Prospectus nor any sale hereunder shall, of 1,500,000 shares of Series A
under any circumstances, create any Preferred Stock
implication that there has been no
change in the affairs of the Company
since the date hereof.
HARVEST RESTAURANT GROUP, INC.
Page
----
Available Information.............. 2
Incorporation of Certain
Documents by Reference........... 2 ---------------
Business of the Company............ 4
Risk Factors....................... 5 PROSPECTUS
Use of Proceeds.................... 12
Selling Stockholders............... 12 ---------------
Plan of Distribution............... 13
Legal Matters...................... 14
Experts............................ 14
, 1998
-------------
======================================== =====================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.(1)
SEC Registration Fee............................. $ -0-
Printing Expenses................................ 2,000
Legal Fees and Expenses.......................... 15,000
Accounting Fees.................................. 1,000
Miscellaneous Expenses........................... 2,000
--------
TOTAL............................................ $20,000
(1) All expenses are estimated except the SEC Registration fee.
ITEM 15. Indemnification of Directors and Officers.
-----------------------------------------
Article Eleven of the Registrant's Articles of Incorporation provides 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 the 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.
II-1
<PAGE>
Section 3. Insurance. The Corporation shall have power to purchase and
maintain insurance or other arrangements on behalf of any person who is or was a
director, Officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article Eleven or the Act."
ITEM 16. Exhibits.
(a) Exhibits
Exhibit No. Title
2.01 Articles of Incorporation of the Registrant as amended(1)
2.02 Bylaws of the Registrant (1)
5.05 Opinion of Gary A. Agron (including consent)
10.37 Subscription Documents relative to purchase of Series B
Preferred Stock.
23.18 Consent of Gary A. Agron (See 5.05, above)
23.19 Consent of Akin, Doherty, Klein & Feuge, P.C.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
SB-2, file number 33-95796, declared effective on July 9, 1996.
ITEM 17. Undertakings.
------------
The Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant 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 Registrant of expenses incurred or paid by a director, officer or
II-2
<PAGE>
controlling person of the Registrant 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 Registrant 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 of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) That subject to the terms and conditions of Section 13(a) of the
Securities Exchange Act of 1934, it will file with the Securities and Exchange
Commission such supplementary and periodic information, documents and reports as
may be prescribed by any rule or regulation of the Commission heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
(c) That 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.
(d) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(e) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in San Antonio, Texas, on January 26, 1998.
HARVEST RESTAURANT GROUP, 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 in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board of January 26, 1998
By: /s/ William J. Gallagher Directors and Chief Executive
------------------------------ Officer
William J. Gallagher
January 26, 1998
By: /s/ Larry F. Harris President and Director
-------------------------------
Larry F. Harris
By: /s/ Sam Bell Steves Rosser Vice President - development, January 26, 1998
------------------------------- Secretary and Director
Sam Bell Steves Rosser
By: /s/ Michael M. Hogan Director January 26, 1998
-------------------------------
Michael M. Hogan
By: /s/ Theodore M. Heesch Director January 26, 1998
------------------------------
Theodore M. Heesch
By: /s/ Joseph Fazzone Chief Financial Officer and January 26, 1998
------------------------------- Principal Accounting Officer
Joseph Fazzone
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit No. Title
- ----------- -----
5.05 Opinion of Gary A. Agron (including consent)
10.37 Subscription Documents relative to purchase of Series B
Preferred Stock
23.18 Consent of Gary A. Agron (See 5.05, above)
23.19 Consent of Akin, Doherty, Klein & Feuge, P.C.
EXHIBIT 5.05
January 27, 1998
Harvest Restaurant Group, Inc.
1250 N.E. Loop 410, Suite 335
San Antonio, TX 78209
Re: Registration Statement on Form S-3
Gentlemen:
We have assisted in the preparation and filing by Harvest Restaurant Group,
Inc. (formerly CluckCorp International, Inc.) (the "Company") of a Registration
Statement on Form S-3 (the "Registration Statement") with the Securities and
Exchange Commission relating to 1,500,000 shares of Series A Preferred Stock and
the underlying 4,050,000 share of no par value Common Stock (collectively the
"Securities").
We have examined such records and documents and have made such examination
of laws as we considered necessary to form a basis for the opinions set forth
herein. In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity with the originals of all documents submitted to us as copies
thereof.
Based upon and subject to the foregoing, we are of the opinion that the
Securities have been duly authorized and reserved for issuance, and such
Securities, when issued in accordance with the terms thereof, against payment
therefor, will be duly and validly issued, fully paid and nonassessable.
The foregoing assumes that all requisite steps will be taken to comply with
the requirements of the Securities Act of 1933, as amended, and applicable state
laws relating to the offer and sales of securities.
We consent to the filing of a copy of this opinion in the Registration
Statement and the use of our opinion in connection therewith.
Very truly yours,
/s/ Gary A. Agron
---------------------------
Gary A. Agron
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance set
forth below, is entered into by and between Harvest Restaurant Group, Inc., a
Texas corporation, with headquarters located at 1250 N.E. Loop 410, Suite 335,
San Antonio, TX 78209 ("Company"), and the undersigned (the "Buyer").
WITNESSETH:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D" as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the " 1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, 7% Series B convertible preferred stock, $1.00 par
value per share(the "Preferred Stock"), of the Company which will be convertible
into shares of either (1) Company's publicly traded Series A convertible
preferred stock, $1.00 par value per share ( the "Series A Preferred") or (2)
the Company's Common Stock, $.0l par value per share (the "Common Stock"),
together referred to as the shares ("Shares"); upon the terms and subject to the
conditions of such Preferred Stock (the Common Stock, the Series A Preferred and
the Preferred Stock sometimes referred to herein as the "Securities"), and
subject to acceptance of this Agreement by the Company.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase. The undersigned hereby agrees to initially purchase from the
Company, the Preferred Stock of the Company, in the principal amount set forth
on the signature page of this Agreement, out of a total offering of $3,000,000
in Preferred Stock as more specifically set forth in section 4(h), and having
the terms and conditions and being in the form attached hereto as Annex I. The
Preferred Stock is being offered at a purchase price of ten thousand dollars
($10,000) per share in minimum subscription amounts of at least five (5) shares
($50,000). The offering amount for the first and second tranches is one hundred
fifty (150) shares of Preferred Stock, or a total of three hundred shares (300)
of Preferred stock and a total of three million dollars ($3,000,000). The
offering amount may be increased upon the consent of 100% of the purchasers. The
purchase price for the Preferred Stock for each purchaser shall be as set forth
on the signature page hereto and shall be payable in United States Dollars.
b. Form of Payment. The Buyer shall pay the purchase price for the
Preferred Stock by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as Annex III (the "Joint Escrow Instructions") as
set forth below. Promptly following payment by the Buyer to the Escrow Agent of
the purchase price of the Preferred Stock, the Company shall deliver the
Preferred Stock duly executed on behalf of the Company to the Escrow Agent. By
signing this Agreement, Buyer and Company, and subject to acceptance by the
Escrow Agent, agree to all of the terms and conditions of, and becomes a party
to, the Joint Escrow Instructions, all of the provisions of which are
incorporated herein by this reference as if set forth in full.
C. Method of Payment. Payment into escrow of the purchase price for the
Preferred Stock shall be made by wire transfer of funds to:
ROTI; 1/27/98; 1:14 PM;
1
<PAGE>
Peninsula Bank of San Diego
Attn: Wire Dept
1331 Rosecrans Street
San Diego, CA 92106
Fax Number: 619-226-5483
ABA No. 122234822
Account No. 139952701
ATTN: Lenie Holland
Ref: Law Offices of Lance T. Bury
Not later than 12:00 noon, New York time, on December 24, 1997 the Company shall
have accepted this Agreement and returned a signed counterpart of this Agreement
to the Escrow Agent by facsimile; the Buyer(s) shall deposit with the Escrow
Agent the aggregate purchase price for the Preferred Stock of an initial amount
of $1,500,000 for the first Closing (as defined below), in currently available
funds. The exact timing of the payment for any Additional Closing Date (as
defined in section 7) will be agreed to by the parties, but shall be in
compliance with section 4(g). Time is of the essence with respect to such
payments, and failure by the Buyer to make such payments, shall allow the
Company to cancel this Agreement.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
a. The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows: Without limiting Buyer's right to sell the Series A
Preferred or any Common Stock pursuant to the Registration Statement the buyer
is purchasing the Preferred Stock and will be acquiring the shares of Series A
Preferred or Common Stock issuable upon conversion of the Preferred Stock for
its own account for investment only and not with a view towards the public sale
or distribution thereof and not with a view to or for sale in connection with
any distribution thereof;
b. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), and (ii) experienced in making investments of the kind described
in this Agreement and the related documents, (iii) able, by reason of the
business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its investment
in the Securities;
c. All subsequent offers and sales of the Preferred Stock, and (1) the
shares of Series A Preferred issuable upon conversion of, or as dividends on, or
(2) the shares of Common Stock issuable upon conversion of, or issued as
dividends on, the Preferred Stock (the "Shares") by the Buyer shall be made
pursuant to registration of the Shares under the 1933 Act or pursuant to an
exemption from registration;
d. The Buyer understands that the Preferred Stock are being offered and
sold, and the Shares are being offered, to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Preferred Stock and to receive an offer of the Shares;
e. The Buyer and its advisors, if any, have been furnished with, or
obtained through independent investigation, all materials relating to the
business, finances and operations of the Company and materials relating to the
offer and sale of the Preferred Stock and the offer of the Shares which have
been requested by the Buyer, including Risk Factors, Capitalization Schedule and
Use of Proceeds included with Annex V hereto. The Buyer
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and its advisors, if any, have been afforded the opportunity to ask questions of
the Company and have received complete and satisfactory answers to any such
inquiries. Without limiting the generality of the foregoing, the Buyer has also
had the opportunity to obtain and to review the Company's (1) Annual Report on
Form 10-K for the fiscal year ended December 29, 1996, (2) Quarterly Reports on
Form 1O-Q for the fiscal quarters ended April 20, 1997, July 13, 1997 and
October 5, 1997, and (3) Forms 8-K available via the EDGAR on line data base
(the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities involves a
high degree of risk;
g. The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities;
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
Neither the Buyer, nor any affiliate of the Buyer, has any present
intention of entering into,
any put option, short position, or other similar position with respect to the
Preferred Stock or the Shares.
j. Notwithstanding the provisions hereof or of the Preferred Stock, in no
event (except with respect to an Event of Mandatory Conversion upon the maturity
of the Preferred Stock) shall the holder be entitled to convert any Preferred
Stock to the extent after such conversion, the sum of (1) the number of shares
of Common Stock beneficially owned by the Buyer and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Preferred Stock), and (2) the number
of shares of Common Stock issuable upon the conversion of the Preferred Stock
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the Buyer and its affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of the proviso to
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
a. Concerning the Shares. There are no preemptive rights of any stockholder
of the Company, as
such, to acquire the Series A Preferred or Common Stock.
b. Reporting Company Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas. The
Company has registered its Common Stock pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Common Stock is
listed and traded on the Nasdaq Small Cap Market. The Company has received no
notice, either oral or written, with respect to the continued eligibility of the
Series A Preferred or the Common Stock for such listing.
c. Authorized Shares. The Company has sufficient authorized and unissued
Shares as may be reasonably necessary to effect the conversion of the Preferred
Stock. The Shares have been duly authorized and, when issued upon conversion of,
or as dividends on, the Preferred Stock, will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder.
d. Securities Purchase Agreement; Registration Rights Agreement and Stock.
This Agreement and the Registration Rights Agreement, the form of which is
attached hereto as Annex IV (the "Registration Rights Agreement "), and the
transactions contemplated thereby, have been duly and validly authorized by the
Company, this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the Registration Rights Agreement, when executed and
delivered by the Company, will be, valid and binding agreements of the
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Company enforceable in accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally; and the Preferred Stock will be duly and validly authorized
and, when executed and delivered on behalf of the Company in accordance with
this Agreement, will be a valid and binding obligation of the Company in
accordance with its terms, subject to general principles of equity and to
bankruptcy, insolvency, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally.
e. Non-contravention. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company, the issuance of the Securities,
and the consummation by the Company of the other transactions contemplated by
this Agreement, the Registration Rights Agreement, and the Preferred Stock do
not and will not conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under (i) the articles of
incorporation or by-laws of the Company, (ii) any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, including any
listing agreement for the Series A Preferred or Common Stock except as herein
set forth, (iii) to its knowledge, any existing applicable law, rule, or
regulation or any applicable decree, judgment, or (iv) to its knowledge, order
of any court, United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the Company or any
of its properties or assets, except such conflict, breach or default which would
not have a material adverse effect on the transactions contemplated herein.
f. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the Stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. None of the SEC Filings with the Securities and Exchange
Commission since and including the filing of the 10-K ending December 29, 1996
contained, at the time they were filed, 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 made therein in light of the circumstances under which they
were made, not misleading. Except as set forth on Annex V hereto, the Company
has since December 29, 1996 timely filed all requisite forms, reports and
exhibits thereto with the Securities and Exchange Commission.
h. Absence of Certain Changes. Since January 1, 1997, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, or results of operations of the
Company, except as disclosed in Annex V or in the documents referred to in
Section 2(e) hereof.
i. Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally) or as disclosed in
the documents referred to in Section 2(e), that has not been disclosed in
writing to the Buyer that (i) would reasonably be expected to have a material
adverse effect on the business or financial condition of the Company or (ii)
would reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement.
j. Absence of Litigation. Except as set forth in Annex V hereto, and in the
documents referred to in Section 2(e), which the Buyer has reviewed, there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, wherein an unfavorable decision, ruling or
finding would have a material adverse effect on the business or financial
condition of the Company or the transactions contemplated by this Agreement or
any of the documents contemplated hereby or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of such other documents.
k. Absence of Events of Default. Except as set forth in Annex V hereto and
Section 3(e), no Event of Default, as defined in the respective agreement to
which the Company is a party, and no event which, with the giving of notice or
the passage of time or both, would become an Event of Default (as so defined),
has occurred and is continuing, which would have a material adverse effect on
the Company's financial condition or results of operations.
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l. Prior Issues. Any convertible securities issued by the Company during
the past 12 months has been fully disclosed as set forth in Annex V. The Company
has not issued any convertible securities that can convert into Company's Series
A Preferred stock. The presently outstanding unconverted principal amount of
each such issuance as at October 5, 1997 are set forth in Annex V.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the Preferred
Stock have not been and are not being registered under the provisions of the
1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register the Securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that the Preferred
Stock, and, until such time as the Series A Preferred and/or Common Stock has
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective registration statement
("Registration Statement"), the Shares issued to the Holder upon conversion of
the Preferred Stock shall bear a restrictive legend in substantially the
following form (and a stop transfer order may be placed against transfer of the
Preferred Stock and such Shares):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS
NOT REQUIRED.
c. Registration Rights Agreement. The parties hereto agree to enter into
the Registration Rights Agreement, in substantially the form attached hereto as
Annex IV, on or before the Closing Date.
d. Filings. The Company undertakes and agrees to make all necessary filings
in connection with the sale of the Preferred Stock to the Buyer under any United
States laws and regulations, or by any domestic securities exchange or trading
market, and to provide a copy thereof to the Buyer promptly after such filing.
e. Reporting Status. So long as the Buyer beneficially owns any of the
Preferred Stock, the Company shall file all reports required to be filed with
the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall
not terminate its status as an issuer required to file reports under the 1934
Act even if the 1934 Act or the rules and regulations thereunder would permit
such termination.
f. Use of Proceeds. The Company will use the proceeds from the sale of the
Preferred Stock (excluding amounts paid by the Company for legal fees and
finder's fees in connection with the sale of the Preferred Stock) for internal
the acquisitions of additional Harvest Rotisserie restaurants and working
capital purposes, and shall not, directly or indirectly, use such proceeds for
any loan to or investment in any other corporation, partnership enterprise or
other person. The projected use of proceeds for the initial $1,500,000, and the
additional $1,500,000 are as set forth as attached hereto as Annex V.
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g. Company's Option. At the option of the Company, in addition to Buyer's
initial $1,500,000 closing (to take place by December 24, 1997), the Buyer
agrees to purchase up to an additional $1,500,000 principal amount of Preferred
Stock (the "Additional Preferred Stock") in one additional closing of
$1,500,000, occurring no sooner than the 30th day and no later than the 75th day
after the Effective Date (as defined below) and upon 10 days written demand by
the Company, upon the same terms and conditions as those applicable to the
Preferred Stock issued pursuant to this Agreement (the "Additional Closing
Date"). Buyer's obligation to purchase the Additional Preferred Stock on the
Additional Closing Date shall be contingent upon the satisfaction of the
following conditions: On the Additional Closing Date (i) the Registration
Statement required to be filed under the Registration Rights Agreement is
effective, or if prior to 90 days after the Closing Date, Company has placed
into escrow a sufficient number of shares of registered Common Stock to the
satisfaction of the Buyer, (the "Effective Date"), (ii) the representations and
warranties of the Company contained in Section 3 are true and correct in all
material respects, and (iii) the Fixed Conversion Price of the Series A
Preferred Stock (as defined in the Statement of Resolution) on each Additional
Closing Date so long as the Series A Preferred Stock price exceeds $6.00 per
share, and (iv) the average dollar volume for the twenty (20) trading days
preceding each Additional Closing Date equals or exceeds $175,000 for either the
Series A Preferred or Common Stock. Each share of such Preferred Stock shall
mature on the last day of the 36th month following its issuance,
h. Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Series A Preferred
and Common Stock sufficient to yield the number of shares of Series A Preferred
or Common Stock issueable at conversion as may be required to satisfy the
conversion rights of the Buyer pursuant to the terms and conditions of the
Preferred Stock. Company agrees when it files the registration statement in
accordance with the terms of the Registration Rights Agreement it will register
2.5 times (1) the number of shares of Series A Preferred and (2) the number of
shares of Common Stock that Buyer's Preferred Stock would have converted into on
the date of Closing.
i. Capital Raising Restrictions: The Company agrees that for a period
ending no less than 60 days after any Closing Date or Additional Closing Date it
will not issue any securities at a discount (other than in a public debt
offering with an original issue discount) that can be convertible into Company's
Series A Preferred or Common Stock without the express written consent of 75% of
the then existing holders of the Preferred Stock.
j. Buyer's Conversion Into More Liquid Security. Buyer or holder may
convert its Preferred Stock into either Company's Series A Preferred or Common
Stock, and agrees to convert its Preferred Stock into the security which has the
highest average dollar trading volume the prior 20 trading days; provided,
however, if the closing bid of Company's Common Stock is $3.00 or less on the
date of conversion then Buyer or holder shall convert into the Series A
Preferred Stock. However, Buyer or holder can convert into Common Stock if $3.00
or less if he otherwise would be precluded from converting into Company's Series
A Preferred. Furthermore, if by converting into one security rather than the
other would cause Company to be in violation of a Nasdaq or NASD rule or listing
requirement, then the Buyer or holder shall be precluded from converting into
such security.
k. Company Understands Dilutive Impact of Issuing Additional Shares of
Preferred or Common Stock. Company represents it is aware that the issuance of
additional shares of Series A Preferred or Company's Common Stock will have a
dilutive effect on the current security holders of each such class of stock.
Company understands there is a possibility that the stock price of Company's
Series A Preferred stock or its Common Stock could drop upon the issuance (or
expected issuance) of additional shares of such security and that the larger
amount of money it raises increases the likelihood that a higher number of new
shares will be sold into the market and negatively impact the stock price of
each such class of stock.
1. Rule 144 Stock Issued and Outstanding. Company represents that the
number of shares of Rule 144 stock that have been issued are listed in
accompanying Exhibit V, and that to the best of Company's knowledge all or
substantially all of such shares have been converted into the market as of
December 15, 1997.
m. Company Has Not Paid Brokers to Promote Company's Stock. Company
represents that to the best of its knowledge the Company has never paid off any
brokers or been a party to pay offs to sell or promote its shares of Common
Stock or Series A Preferred.
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<PAGE>
n. Timely Filing of Registration Statement. Company understands that a
delay in the filing of the S-3 registration statement (or other suitable form
agreed to by Buyer) pursuant to the accompany Registration Rights Agreement
could result in economic loss to the Buyer. As compensation to the Buyer for
such loss, the Company agrees to pay Buyer or holder for the late filing of the
registration statement, Company agrees to pay Buyer or holder for such late
filing an amount, payable in cash or Series A Preferred at Buyer or holder's
option, equal to 2% of the gross purchase price paid by Buyer for the Series B
Preferred Stock if not filed within 30 days from the Closing and 3% of the gross
purchase price if not filed within 45 days from the Closing. Such amounts shall
be in addition to the amounts payable if Company fails to have the registration
statement declared effective within 90 days, as detailed in the Registration
Rights Agreement of even date.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the aggregate purchase
price for the Preferred Stock in accordance with Section I (c) hereof, the
Company will irrevocably instruct its transfer agent to issue Series A Preferred
or Common Stock from time to time upon conversion of the Preferred Stock in such
amounts as specified from time to time by the Company to the transfer agent,
bearing the restrictive legend specified in Section 4(b) of this Agreement prior
to registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each conversion of the Preferred Stock. The Company warrants
that no instruction other than such instructions referred to in this Section 5
and stop transfer instructions to give effect to Section 4(a) hereof prior to
registration and sale of the Shares under the 1933 Act will be given by the
Company to the transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Securities. If the Buyer (or holder) provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of a resale by
the Buyer (or holder) of any of the Securities in accordance with clause (1)(B)
of Section 4(a) of this Agreement is not required under the 1933 Act, the
Company shall (except as provided in clause (2) of Section 4(a) of this
Agreement) permit the transfer of the Securities and, in the case of the Shares,
promptly instruct the Company's transfer agent to issue one or more certificates
for Series A Preferred or Common Stock without legend in such name and in such
denominations as specified by the Buyer (or holder).
b. The Company will permit the Buyer or holder to exercise its right to
convert the Preferred Stock by faxing an executed and completed Notice of
Conversion to the Company and delivering within three business days thereafter,
a copy or the original Notice of Conversion and the original Preferred Stock
certificate representing a sufficient number of shares to the Company or
transfer agent by express courier, (with a copy to the other party). Each date
on which a Notice of Conversion is faxed to and received by the Company in
accordance with the provisions hereof shall be deemed a Conversion Date. The
Company will transmit the certificates representing the Shares issuable upon
conversion of any Preferred Stock (together with the Preferred Stock
representing the Shares not so converted) to the Buyer via overnight express
courier, by electronic transfer or otherwise, within three business days after
receipt by the Company of a Notice of Conversion and the original Preferred
Stock certificates (the "Delivery Date").
c. The Company understands that a delay in the issuance of the Shares of
Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
Buyer or holder for late issuance and delivery of the Shares upon conversion in
accordance with the following schedule, where "No. Business Days Late" is
defined as the number of business days beyond three (3) business days from the
Delivery Date.
[
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Late Payment For
Each $10,000 Preferred
No. Business Days Late Share Being Converted
---------------------- ---------------------
1 0
2 0
3 $50
4 $100
5 $150
6 $200
7 $250
8 $300
9 $400
10 $500
(less than) 10 $500 plus $50 for each
Business Day Late
beyond 10 days
The Company shall pay by check any late payments to Buyer or holder
incurred under this section and deliver such payments by overnight courier on
the 15th and last day of each month. The amount of such payment shall include
amounts owed under this section through the 14th and next to last day of each
month. Alternatively, Buyer or holder may elect to receive payment in Shares at
the conversion rate detailed in the Statement of Resolution for the Preferred
Stock.
Furthermore, in addition to any other remedies which may be available to
the Buyer, in the event that the Company fails for any reason to effect delivery
of such shares of Common Stock within five business days after the Delivery
Date, the Buyer will be entitled at its option to revoke the relevant Notice of
Conversion by delivering notice to such effect to the Company whereupon the
Company and the Buyer shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion.
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the Escrow Agent
pursuant to Section I (b) hereof, or a delivery against payment basis on the
Closing Date and on each Additional Closing Date.
7. CLOSING DATES.
The date and time of the issuance and sale to Buyer(s) of its initial
$1,500,000 closing of Preferred Stock (the "Closing" or "Issuance") shall occur
upon the fulfillment or waiver of all closing conditions pursuant to Sections 8
and 9, and no later than 5 PM New York time on December 24, 1997; and the
closing of the second $1,500,000 of Preferred Stock (the "Additional Closing
Date") shall occur in a manner consistent with Section 4.g. and no sooner than
12:00 Noon, New York time within 20 NYSE trading days after the registration of
the Company's Common Stock underlying the Preferred Stock anticipated to be
issued on the Additional Closing Date, or the placing of additional shares of
Series A Preferred or Common Stock acceptable to Buyer to ensure the timely
conversion of Buyer's Preferred Stock holdings, or such other mutually agreed to
time. The closing shall occur on such date at the offices of the Escrow Agent.
Notwithstanding anything to the contrary contained herein, the Escrow Agent will
be authorized to release the funds representing the Purchase Price for the
Preferred Stock, and the Preferred Stock only upon satisfaction of the
conditions set forth in Section 8 hereof for each Closing.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Preferred
Stock on the Closing Date and Additional Closing Date to the Buyer pursuant to
this Agreement is conditioned upon:
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a. The receipt and acceptance by the Company of such an agreement as
evidenced by execution of this Agreement by the Company for One Million Five
Hundred Thousand Dollars ($1,500,000) for its initial Closing Date, and One
Million Five Hundred Thousand Dollars ($1,500,000.00) in Preferred Stock for the
Additional Closing Date (or such lesser amount as the Company, in its sole
discretion, shall determine);
b. Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the purchase price for the Preferred Stock in
accordance with Section 1 (c) hereof for each separate Closing;
c. The accuracy on the Closing Date and Additional Closing Date(s) of the
representations and warranties of the Buyer contained in this Agreement as if
made on the Closing Date and the performance by the Buyer on or before the
Closing Date and Additional Closing Date of all covenants and agreements of the
Buyer required to be performed on or before the Closing Date and Additional
Closing Date;
d. There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Stock on the Closing Date and Additional Closing Date is conditioned
upon:
a. Acceptance by Buyer of this Agreement for the sale of Preferred Stock,
as indicated by the execution of this Agreement;
b. Delivery by the Company to the Escrow Agent of the Preferred Stock in
accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date and Additional
Closing Date of the representations and warranties of the Company contained in
this Agreement as if made on the Closing Date and Additional Closing Date and
the performance by the Company on or before the Closing Date and Additional
Closing Date of all covenants and agreements of the Company required to be
performed on or before the Closing Date and Additional Closing Date; and
d. On the Closing Date and Additional Closing Date, the Buyer having
received an opinion of counsel from Company, dated the Closing Date and
Additional Closing Date, in form, scope and substance reasonably satisfactory to
the Buyer, to the effect set forth in Annex III attached hereto, and Company's
granting of registration rights as enumerated in the Registration Rights
Agreement annexed hereto as Annex IV.
10. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based onto non conveniens, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
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11. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given, (i) on the date delivered, (a) by personal delivery, or (b) if advance
copy is given by fax, (ii) seven business days after deposit in the United
States Postal Service by regular or certified mail, or (iii) three business days
mailing by international express courier, with postage and fees prepaid,
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
COMPANY: Harvest Restaurant Group, Inc. with a copy to:
1250 N.E. Loop 410, Suite 335 Gary Agron, Esq..
San Antonio, TX 75202 5445 DTC Parkway, Suite 520
Attention: President Englewood, CO 80111
Telecopier No.: (210) 824-3398 Telecopier No.: (303) 770-7257
PURCHASER: At the address set forth on the signature page of this Agreement.
ESCROW AGENT: Law Offices of Lance Bury
2035 Crabapple Parc Way
Roswell, Georgia 30076
Telecopier No. (770) 518-0916
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Company's representations
and warranties shall survive the execution and delivery hereof of this Agreement
and the delivery of the Preferred Stock. Buyer's representations, to the extent
not affected by time, shall also survive the execution and delivery of this
Agreement and Buyer's receipt of the Preferred Stock.
IN WITNESS WHEREOF, This Securities Purchase Agreement has been duly
executed by the Buyer or one of its officers thereunto duly authorized as of the
date set forth below.
AGGREGATE PURCHASE PRICE OF BUYER'S PREFERRED STOCK: TRANCHE 1 $1,500,000
TRANCHE 2 $1,500,000
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this __ day of December, 1997.
SOVEREIGN PARTNERS, LP A
Printed Name of Subscriber
By: /s/ Steven Hicks
------------------------------
(Signature of Authorized Person)
Steven Hicks, President & GP
230 Park Avenue, Suite 1002
New York, NY 10069
Telephone: 212-808-7224
Telecopier: 212-490-3969
This Agreement has been accepted as of December __, 1997.
HARVEST RESTAURANT GROUP, INC.
By: /s/ William Gallagher
------------------------------
Title: Chairman of the Board & CEO
ROTI; 1/27/98; 1:14 PM;
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NOTICE OF CONVERSION
-- Harvest Restaurant Group, Inc. --
(To be Executed by the Registered Holder
in order to Convert its Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert its Series B Preferred
Stock (the "Preferred Stock") of Harvest Restaurant Group, Inc. (the "Company").
into shares of Company's series A preferred stock ("Series A Preferred Stock")
or common stock ("Common Stock") according to the conditions of the Statement of
Resolution and consistent with the provisions of the Securities Purchase
Agreement, as of the date written below in connection with the resale of the
underlying Series A Preferred Stock or Common Stock. If shares are to be issued
in the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
Holder for any conversion, except for transfer taxes, if any.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Series A Preferred Stock or Common Stock issuable
to the undersigned upon conversion of the Preferred Stock shall be made in
compliance with Regulation D, pursuant to registration of the Series A Preferred
Stock or Common Stock under the Securities Act of 1933, as amended (the "Act")
or pursuant to an exemption from registration under the Act, subject to any
restrictions on sale or transfer set forth in the Securities Purchase Agreement
between the Company and the original holder of the Preferred Stock submitted
herewith for conversion.
The undersigned hereby confirms that its representations and warranties
contained within the Subscription Agreement between the undersigned and the
Company (to the extent not affected by the passing of time) are true and correct
as of the date of this Notice (including but not limited to the fact that the
undersigned is not an underwriter, dealer or other person who participates
pursuant to a contractual arrangement in the distribution of the Securities
offered or sold in reliance on Regulation D).
Date of Conversion:
---------------------
Underlying Security
--------------------
(Series A Preferred or Common Stock)
Applicable Conversion Price:
------------
Signature:
-----------------------------
Name:
----------------------------------
N.Y. Address:
--------------------------
No shares of Series A Preferred Stock or Common Stock will be issued until the
original Preferred Stock Certificate(s) to be converted and the Notice of
Conversion are received by the Company or its Transfer Agent. The Holder shall
(i) fax, on or prior to 11:59 p.m., New York City time, on the date of
conversion, a copy of this completed and fully executed Notice of Conversion to
the Company at the office of the Company or its designated Transfer Agent for
the Preferred Stock that the Holder elects to convert and (ii) surrender, to a
common courier for delivery to the office of the Company or the Transfer Agent,
the original Preferred Stock Certificate(s) representing the Preferred Stock
being converted. The Company or its Transfer Agent shall issue shares of Common
Stock and surrender them to a common courier for delivery to the Preferred Stock
Holder no later than three (3) business days following receipt of a facsimile of
this Notice of Conversion and receipt by the Company or its Transfer Agent of
the Preferred Stock Certificates) to be converted, pursuant to the terms of the
Statement of Resolution and the Securities Purchase Agreement, and shall make
payments for the number of business days such issuance and delivery is late,
pursuant to the terms of the Securities Purchase Agreement.
ROTI; 1/27/98; 1:14 PM;
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 23, 1997 (this
"Agreement"), is made by and between Harvest Restaurant Group, Inc., a Texas
corporation (the "Company"), and the entity named on the signature page hereto
(the "Initial Investor").
WITNESSETH:
WHEREAS, upon the terms and subject to the conditions of the securities
purchase agreement, dated as of December 23, 1997, between the Initial Investor
and the Company (the "Securities Purchase Agreement"), the Company has agreed to
issue and sell to the Initial Investors $1,500,000 of 7% Series B convertible
preferred stock of the Company, $1.00 par value per share ("Series B Preferred
Stock") and at Company's option the right to acquire an additional $1,500,000 in
an aggregate principal amount not exceeding $3,000,000 (collectively, the
"Preferred Stock"), which Preferred Stock will be convertible into shares of (1)
the Company's Series A convertible preferred stock, $1.00 par value (the "Series
A Preferred Stock") or the Company's common stock, $.00l par value (the "Common
Stock"), collectively the conversion shares (the "Conversion Shares") upon the
terms and subject to the conditions of such Preferred Stock (and the underlying
statement of resolution establishing series of preferred stock (the "Statement
of Resolution"); and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, Initial Investor and
Sterling Capital, LLC hereby agrees as follows:
1. Definitions
(a) As used in this Agreement, the following terms shall have the following
meanings:
(i) "Investor" means the Initial Investor and any permitted transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares and the
Warrant Shares.
(iv) "Registration Statement " means a registration statement of the
Company under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement or
Statement of Resolution.
2. Registration.
(a) Mandatory Registration. The Company shall prepare and file with the
SEC, no later than thirty (30) days following the December __, 1997 Closing Date
under the Securities Purchase Agreement, either a Registration Statement on Form
S-3 (or other suitable registration form reasonably acceptable to the Initial
Investors) registering for resale by the Investor a sufficient number of shares
of Series A Preferred Stock and Common Stock for the Initial Investors (or such
lesser number as may be required by the SEC, but in no event less than the
number of shares into which the Preferred Stock would be convertible and the
Warrants exercisable at the time of filing of the Form S-3 (or other suitable
registration form reasonably acceptable to the Initial Investors), or an
amendment to any pending Company Registration Statement on Form S-3 (or other
suitable registration form acceptable to the Initial Investors), and such
Registration Statement or amended Registration Statement shall state that, in
accordance with Rule 416 and 457 under the Securities Act, it also covers such
indeterminate number of additional shares of Series A Preferred Stock and Common
Stock as may become issuable upon conversion of the Preferred Stock and the
exercise of the Warrants resulting from adjustment in the conversion price, or
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<PAGE>
to prevent dilution resulting from stock splits, or stock dividends), which
Registration Statement shall be declared effective no later than 90 days after
the Closing Date. If at any time the number of shares of Series A Preferred
Stock or Common Stock into which the Preferred Stock may be converted exceeds
the aggregate number of shares of Series A Preferred Stock or Common Stock then
registered, the Company shall, within ten (10) business days after Company
becomes aware of such circumstances, either (i) amend the Registration Statement
filed by the Company pursuant to the preceding sentence, if such Registration
Statement has not been declared effective by the SEC at that time, to register
all shares of Series A Preferred Stock or Common Stock into which the Preferred
Stock may be converted, or (ii) if such Registration Statement has been declared
effective by the SEC at that time, file with the SEC an additional Registration
Statement on Form S-3 (or other suitable registration form acceptable to a
majority of the current Investors) to register the shares of Series A Preferred
Stock and Common Stock into which the Preferred Stock may be converted that
exceed the aggregate number of shares of Series A Preferred Stock and Common
Stock already registered.
(b) Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
investors acting by majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
to represent their interests. The Company shall have the exclusive right to
select an investment banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Investors. The Investors who hold the Registrable
Securities to be included in such underwriting shall pay all underwriting
discounts and commissions and other fees and expenses of such investment banker
or bankers and manager or managers so selected in accordance with the Section
2(b) (other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by the
Investors.
If the Registration Statement covering the Registrable Securities required
to be filed by the Company pursuant to Section 2(a) hereof is not effective by
ninety (90) days following the initial Closing Date (the "Required Effective
Date") (except as provided by the last sentence of section 2a), then the Company
will make payments to the Initial Investor in such amounts and at such times as
shall be determined pursuant to this Section 2(b). The amount to be paid by the
Company to the Initial Investor shall be determined as of each Computation Date,
and such amount shall be equal to one (1 %) percent of the purchase price paid
by the Initial Investor for all Preferred Stock then purchased and outstanding
pursuant tothe Securities Purchase Agreement for any period from the Required
Effective Date to the first Computation Date, and three (3 %) percent to each
Computation Date thereafter, until the Registration Statement is declared
effective by the SEC (the "Periodic Amount"). The full Periodic Amount shall be
paid by the Company in immediately available funds within three business days
after each Computation Date. Notwithstanding the foregoing, the amounts payable
shall not be payable to the extent any delay in the effectiveness of the
Registration Statement occurs because of an act of, or a failure to act or to
act timely by the Initial Investor or its counsel, or in the event all of the
Registrable Securities may be sold pursuant to Rule 144 Closing Date, a
Registration Statement with respect to not less than the number of Registrable
Securities provided in Section 2(a), above, and thereafter use its best efforts
to cause each Registration Statement relating to Registrable Securities to
become effective ninety (90) days after the Closing Date, and keep the
Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date that is three years after the Closing
Date (ii) the date when the Investors may sell all Registrable Securities under
Rule 144 or (iii) the date the Investors no longer own any of the Registrable
Securities, which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(b)Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration effective at all times during the Registration Period, and,
during the Registration Period, comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement;
(c) Furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
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<PAGE>
(d) Use reasonable efforts to (I) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (ii) prepare and
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to use such registrations and qualifications as may
be necessary to maintain the effectiveness thereof at all time during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registraable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction,
(C) file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal expense or burden to the
Company or (E) make any change in its articles of incorporation or by-laws,
which in each case the Board of Directions of the Company determines to be
contrary to the best interests of the Company and its stockholders;.
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance by the SEC
of a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(g) Use its best efforts to maintain the designation of all the Registrable
Securities covered by the Registration Statement as a National Association of
Securities Dealers Automated Quotations System ("NASDAQ") "Small Capitalization"
within the meaning of Rule 1lAa2-1 of the SEC under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the quotation of the Registrable
Securities on the NASDAQ Small Cap Market; to arrange for at least two market
makers to register or maintain registration with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities;
(h) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request, and, within three (3) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel; and
(j) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4 Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:
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<PAGE>
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) business
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if such Investor elects to
have any of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the fling date the Company
has not received the Requested Information from an Investor (a "NonResponsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor, and the
Company shall have no further obligation to register such Non-Responsive
Investor's Registrable Securities with such Registration Statement; provided
that, such Investor may piggyback onto a subsequent registration, subject to the
payment of any directly incurred expenses, not to exceed $1,000.
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement, and such election shall relieve the
Company from any further obligation to register such Investor's Registrable
Securities, subject to such Investor's rights to piggyback onto a subsequent
registration as provided in subsection (a); and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 3, but including,
without limitation, all registration, listing, and qualifications fees, primers
and accounting fees, the fees and disbursements of counsel for the Company and a
fee for a single counsel for the Investor not exceeding $3,500, shall be borne
by the Company.
6. Indemnification. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor within the meaning of the Securities Act or the
Exchange Act (each, an "Indemnified Person" or "Indemnified Party"), against any
losses, claims, damages, liabilities or expenses joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation under the Securities Act, the Exchange
Act or any state securities law (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to clause (b) of this
Section 6, the Company shall reimburse the Investors, promptly as such expenses
are incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (I) apply to
a Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(b) hereof; (II) with respect to any preliminary
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prospectus, inure to the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (III) be available to the extent such Claim is based on a failure
of the Investor to deliver or cause to be delivered the prospectus made
available by the Company; or (IV) apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Each Investor will
indemnify the Company and its officers, directors and agents against any claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company, by or on behalf
of such Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the reasonable fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. In such event, the Company shall pay for only one separate legal
counsel for the Indemnified Persons or Indemnified Parties; such legal counsel
shall be selected by the Company if an Indemnified Party, or if the Company is
not an Indemnified Party, by the Investors holding a majority interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates. The failure to deliver written notice to the indemnifying party within
a reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action. The indemnification required by
this Section 6 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
7. Contribution. To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section II (f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
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(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of in excess of fifty
(50%) percent or more of the Registrable Securities or Preferred Stock of the
Company which is convertible into such securities only if: (a) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (b) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (i) the name and
address of such transferee or assignee and (ii) the securities with respect to
which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received the written notice contemplated by clause (a) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shallnot be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof.
10. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered (by hand,
by courier, by telephone line facsimile transmission, receipt confirmed, or
other means) or sent by certified mail, return receipt requested, properly
addressed and with proper postage pre-paid (i) if to the Company, Harvest
Restaurant Group, Inc., 1250 N.E. Loop 410, Suite 335, San Antonio, Texas 78209,
with a copy to Gary Agron, Esq., Law Offices of Gary Agron, 5445 DTC Parkway,
Suite 520, Engelwood, CO 80111, telephone: 303- 770-7254, facsimile:
303-770-7257; (ii) if to the Initial Investor, at the address set forth under
its name in the Securities Purchase Agreement, with a copy to Lance T. Bury,
Esq., Law Offices of Lance T. Bury, 2035 Crabapple Parc Way, Roswell, GA 30076
and (iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four (4) calendar days after deposit with the United states
Postal Service.
(c) Except as otherwise provided herein in Section 4, failure of any party
to exercise any right or remedy under this Agreement or otherwise, or delay by a
party in exercising such right or remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based onto non coveniens, to the bringing of any such proceeding
in such jurisdictions. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto. This Agreement may be signed in one
or more counterparts, each of which shall be deemed an original. The headings of
this Agreement are for convenience of reference and shall not form part of, or
affect the interpretation of this Agreement. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
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<PAGE>
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
A signed copy of this Agreement will be deemed as valid as an original,
including a facsimile copy.
(j) Neither party shall be liable for consequential damages.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
Harvest Restaurant Group, Inc.
By: /s/ WILLIAM GALLAGHER
-------------------------
Name: William Gallagher
Title: Chairman/CEO
SOVEREIGN PARTNERS, LP
By: /s/ STEVEN HICKS
---------------------------
Name: Steven Hicks
Title: President
<PAGE>
Portion of 6(b)
In case any such action is brought against any Indemnified Person or Indemnified
Party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified,
assume the defense thereof, subject to the provisions herein stated and after
notice from the indemnifying party to such Indemnified Person or Indemnified
Party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such Indemnified Person or Indemnified Party under this
Section 6 for any legal or other reasonable out-of-pocket expenses subsequently
incurred by such Indemnified Person or Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action of its final conclusion. The
Indemnified Person or Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and reasonable out-of-pocket expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the Indemnified
Person or Indemnified Party. 8@l4@97
<PAGE>
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION
WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
135,000 shares
Form of
Warrant to Purchase Common Stock
of
Harvest Restaurant Group, Inc.
THIS CERTIFIES that Sterling Capital, LLC or any subsequent ("Holder")
hereof, has the right to purchase from Harvest Restaurant Group, Inc., a Texas
corporation (the "Company"), not more than 135,000 fully paid and nonassessable
shares of the Company's Common Stock, $.01 par value ("Common Stock"), at a
price of $____ per share subject to adjustment as provided below (the "Exercise
Price"), at any time on or before 11:59 p.m., Atlanta, Georgia time, on December
__, 2002.
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Date of Issuance.
This Warrant shall be deemed to be issued on December __, 1997.
2. Exercise.
(a) Manner of Exercise. This Warrant may be exercised as to all or any
lesser number of full shares of Common Stock covered hereby upon surrender of
this Warrant, with the Exercise Form attached hereto duly executed, together
with the full Exercise Price (as defined in Section 3) for each share of Common
Stock as to which this Warrant is exercised, at the office of the Company,
Harvest Restaurant Group, Inc. 1250 N.E. Loop 410 , Suite 335, San Antonio, TX
78209. Attention: Secretary, Telephone No. (210) 824-2496, Telecopy No. (210)
824-3398, or at such other office or agency as the Company may designate in
writing, by overnight mail, with an advance copy of the Exercise Form attached
as Exhibit A ("Exercise Form") by facsimile (such surrender and payment of the
Exercise Price hereinafter called the "Exercise of this Warrant").
(b) Date of Exercise. The Date of Exercise ("Date of Exercise") of this
Warrant shall be defined as the date that the advance copy of the Exercise Form
is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company within five (5) business days
thereafter. The original Warrant and Exercise Form must be received within five
(5) business days of the Date of Exercise, or the exercise may, at the Company's
option, be considered void. Alternatively, the Date of Exercise shall be defined
as the date the original Exercise Form is received by the Company, if Holder has
not sent advance notice by facsimile.
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(c) Cancellation of Warrant. This Warrant shall be canceled upon its
Exercise, and, as soon as practical after the Date of Exercise, the Holder
hereof shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise, and if this Warrant is not exercised in full, the
Holder shall be entitled to receive a new Warrant or Warrants (containing terms
identical to this Warrant) representing any unexercised portion of this Warrant
in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to have become the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of such Warrant. Nothing in this Warrant
shall be construed as conferring upon the Holder hereof any rights as a
shareholder of the Company.
Payment of Warrant Exercise Price.
The Exercise Price ("Exercise Price") shall equal $_____ x 110% during the
first 365 day period ("Initial Exercise Price") or, if the Date of Exercise is
later than one year than the Date of Issuance, the lesser of (a) the Initial
Exercies Price or (b) the "Lowest Reset Price," as that term is defined below.
The Company shall calculate a "Reset Price" on each anniversary date of the Date
of Issuance which shall equal the average Closing Bid Price of the Company's
Common Stock for the five (5) trading days ending on such anniversary date of
the Date of Issuance x 110% ("Reset Price"). The "Lowest Reset Price" shall
equal the lowest Reset Price determined on any anniversary date of the Date of
Issuance, taking into account, as appropriate, any adjustments made pursuant to
Section 5 hereof.
For purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the Nasdaq Small Cap Market, or if no longer trading on the Nasdaq
Small Cap Market, the closing bid price on the principal national securities
exchange or the National Market System on which the Common Stock is so traded
and if not available, the mean of the high and low prices on the principal
national securities exchange or the National Market System on which the Common
Stock is so traded.
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(i) Cash Exercise: cash, certified check or cashiers check or wire
transfer; or
(ii) Cashless Exercise: surrender of this Warrant at the principal office
of the Company together with notice of cashless election, in which event the
Company shall issue Holder a number of shares of Common Stock computed using the
following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant
is being exercised.
A = the Market Price of one (1) share of Common Stock (for
purposes of this Section 3(ii), the "Market Price" shall be
defined as the average closing price of the Common Stock
for the five (5) trading days prior to the Date of
Exercise of this Warrant (the "Average Closing Price"), as
reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), or if the Common
2
<PAGE>
Stock is not traded on NASDAQ, the price in the
over-the-counter market; provided, however, that if the Common
Stock is listed on a stock exchange, the Market Price shall be
the average Closing on such exchange. If the Common Stock
is/was not traded during the five (5) trading days prior to
the Date of Exercise, then the closing price for the last
publicly traded day shall be deemed to be the closing price
for any and all (if applicable) days during such five (5)
trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issuable upon exercise
of this Warrant in a cashless exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
endorsed. This Warrant shall be canceled upon such surrender and, as soon as
practicable thereafter, the person to whom such transfer is made shall be
entitled to receive a new Warrant or Warrants as to the portion of this Warrant
transferred, and the Holder of this Warrant shall be entitled to receive a new
Warrant or Warrants as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise of
this Warrant constitute "Registrable Securities" under the Registration Rights
Agreement dated on or about December __, 1997 between the Company and certain
investors and, accordingly, has the benefit of the registration rights pursuant
to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then the Holder hereof, upon Exercise of this
Warrant after the record date for the determination of Holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise of
this Warrant, in addition to the number of shares of Common Stock as to which
this Warrant is Exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been Exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any time
effect a recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which the Holder hereof shall
be entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give the Warrant Holder the same notice it provides to holders of
Common Stock of any transaction described in this Section 5(b).
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<PAGE>
(c) Distributions. If the Company shall at any time distribute to Holders
of Common Stock cash, evidences of indebtedness or other securities or assets
(other than cash dividends or distributions payable out of earned surplus or net
profits for the current or preceding year) then, in any such case, the Holder of
this Warrant shall be entitled to receive, upon exercise of this Warrant, with
respect to each share of Common Stock issuable upon such Exercise, the amount of
cash or evidences of indebtedness or other securities or assets which such
Holder would have been entitled to receive with respect to each such share of
Common Stock as a result of the happening of such event had this Warrant been
Exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board in its discretion) and the denominator of which is such Exercise Price.
(d) Notice of Consolidation or Merger. If the Company shall at any time
consolidate or merge with any other corporation or transfer all or substantially
all of its assets, then the Company shall deliver written notice to the Holder
of such merger, consolidation or sale of assets at least thirty (30) days prior
to the closing of such merger, consolidation or sale of assets and this Warrant
shall terminate and expire immediately prior to the closing of such merger,
consolidation or sale of assets.
(e) Exercise Price Defined. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in this Warrant until
the occurrence of an event stated in subsection (a), (b) or (c) of this Section
5 and thereafter shall mean said price as adjusted from time to time in
accordance with the provisions of said subsection. No such adjustment shall be
made unless such adjustment would change the Exercise Price at the time by $.01
or more; provided, however, that all adjustments not so made shall be deferred
and made when the aggregate thereof would change the Exercise Price at the time
by $.01 or more. No adjustment made pursuant to any provision of this Section 5
shall have the effect of increasing the total consideration payable upon
Exercise of this Warrant in respect of all the Common Stock as to which this
Warrant may be exercised.
(f) Adjustments: Additional Shares, Securities or Assets. In the event that
at any time, as a result of an adjustment made pursuant to this Section 5, the
Holder of this Warrant shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Common Stock) then,
wherever appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or assets;
and thereafter the number of such shares and/or other securities or assets shall
be subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, the Holder hereof would be entitled a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion shall be the next higher number of shares.
4
<PAGE>
7. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for Exercise and
payment of the Exercise Price of this Warrant. The Company covenants and agrees
that upon Exercise of this Warrant, all shares of Common Stock issuable upon
such Exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant and the Common Stock
issuable on Exercise hereof have not been registered under the Securities Act of
1933, as amended, and may not be sold, transferred, pledged, hypothecated or
otherwise disposed of in the absence of registration or the availability of an
exemption from registration under said Act. All shares of Common Stock issued
upon Exercise of this Warrant shall bear an appropriate legend to such effect,
if applicable.
(b) Assignment. Assuming the conditions of (a) above regarding registration
or exemption have been satisfied, the Holder may sell, transfer, assign, pledge
or otherwise dispose of this Warrant, in whole or in part. Holder shall deliver
a written notice to Company, substantially in the form of the Assignment
attached hereto as Exhibit B, indicating the person or persons to whom the
Warrant shall be assigned and the respective number of warrants to be assigned
to each assignee. The Company shall effect the assignment within ten days, and
shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
(c) Investment Intent. The Warrant and Common Stock issuable upon
conversion are intended to be held for investment purposes and not with an
intent to distribution, as defined in the Act.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Company and the Holder of this Warrant any legal or
equitable right, remedy or claim under this Warrant and this Warrant shall be
for the sole and exclusive benefit of the Company and the Holder of this
Warrant.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of Delaware, without giving
effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
5
<PAGE>
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by the Holder of
this Warrant to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company,
Harvest Restaurant Group, Inc., 1250 N.E. Loop 410, Suite 335, San Antonio,
Texas 78209, Attention: Secretary, Telephone No. (210) 824-2496, Telecopy No.
(210) 824-3398. Notices or demands pursuant to this Warrant to be given or made
by the Company to or on behalf of the Holder of this Warrant shall be
sufficiently given or made if sent by certified or registered mail, return
receipt requested, postage prepaid, and addressed to Sterling Capital, LLC,
Attn: Lance Bury, address: 1117 Perimeter Center West, Suite 510East, Atlanta,
Georgia 30338, Telephone No. (770) 392-3332, Telecopy No. (770) 518-0916, until
another address is designated in writing by Holder.
IN WITNESS WHEREOF, this Warrant issued to Sterling Capital, LLC is hereby
executed and effective as of the date set forth below.
Dated as of _____________, 1997 HARVEST RESTAURANT GROUP, INC.
By: ________________________________
Print Name: ________________________________
Title: ________________________________
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<PAGE>
EXHIBIT A
EXERCISE FORM
TO: HARVEST RESTAURANT GROUP, INC.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock HARVEST RESTAURANT GROUP, INC. a
Texas corporation, evidenced by the attached Warrant, and herewith makes payment
of the Exercise Price with respect to such shares in full, all in accordance
with the conditions and provisions of said Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of such Common Stock, except in accordance with the provisions of Section 8
of the Warrant, and consents that the following legend may be affixed to the
stock certificates for the Common Stock hereby subscribed for, if such legend is
applicable:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any
provincial or state securities law, and may not be sold, transferred,
pledged, hypothecated or otherwise disposed of until either (i) a
registration statement under the Securities Act and applicable
provincial or state securities laws shall have become effective with
regard thereto, or (ii) an exemption from registration under the
Securities Act or applicable provincial or state securities laws is
available in connection with such offer, sale or transfer."
The undersigned requests that stock certificates for such shares be issued,
and a warrant representing any unexercised portion hereof be issued, pursuant to
the Warrant in the name of the Registered Holder and delivered to the
undersigned at the address set forth below:
Dated:
- --------------------------------------------------------------------------------
Signature of Registered Holder
- --------------------------------------------------------------------------------
Name of Registered Holder (Print)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered Holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons below named the right to
purchase _______ shares of the Common Stock of HARVEST RESTAURANT GROUP, INC.
evidenced by the attached Warrant and does hereby irrevocably constitute and
appoint _______________________ attorney to transfer the said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________________
Signature
Fill in for new Registration of Warrant:
- ----------------------------------------
Name
- ----------------------------------------
Address
- ----------------------------------------
Please print name and address of assignee
(including zip code number)
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form or Assignment must correspond to
the name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
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<PAGE>
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION
WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
15,000 shares
Form of
Warrant to Purchase Common Stock
of
Harvest Restaurant Group, Inc.
THIS CERTIFIES that Dunwoody Brokerage Services, Inc. or any subsequent
("Holder") hereof, has the right to purchase from Harvest Restaurant Group,
Inc., a Texas corporation (the "Company"), not more than 15,000 fully paid and
nonassessable shares of the Company's Common Stock, $.01 par value ("Common
Stock"), at a price of $____ per share subject to adjustment as provided below
(the "Exercise Price"), at any time on or before 11:59 p.m., Atlanta, Georgia
time, on December __, 2002.
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Date of Issuance.
This Warrant shall be deemed to be issued on December __, 1997.
2. Exercise.
(a) Manner of Exercise. This Warrant may be exercised as to all or any
lesser number of full shares of Common Stock covered hereby upon surrender of
this Warrant, with the Exercise Form attached hereto duly executed, together
with the full Exercise Price (as defined in Section 3) for each share of Common
Stock as to which this Warrant is exercised, at the office of the Company,
Harvest Restaurant Group, Inc. 1250 N.E. Loop 410 , Suite 335, San Antonio, TX
78209. Attention: Secretary, Telephone No. (210) 824-2496, Telecopy No. (210)
824-3398, or at such other office or agency as the Company may designate in
writing, by overnight mail, with an advance copy of the Exercise Form attached
as Exhibit A ("Exercise Form") by facsimile (such surrender and payment of the
Exercise Price hereinafter called the "Exercise of this Warrant").
(b) Date of Exercise. The Date of Exercise ("Date of Exercise") of this
Warrant shall be defined as the date that the advance copy of the Exercise Form
is sent by facsimile to the Company, provided that the original Warrant and
Exercise Form are received by the Company within five (5) business days
thereafter. The original Warrant and Exercise Form must be received within five
(5) business days of the Date of Exercise, or the exercise may, at the Company's
option, be considered void. Alternatively, the Date of Exercise shall be defined
as the date the original Exercise Form is received by the Company, if Holder has
not sent advance notice by facsimile.
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<PAGE>
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by the Holder of
this Warrant to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company,
Harvest Restaurant Group, Inc., 1250 N.E. Loop 410, Suite 335, San Antonio,
Texas 78209, Attention: Secretary, Telephone No. (210) 824-2496, Telecopy No.
(210) 824-3398. Notices or demands pursuant to this Warrant to be given or made
by the Company to or on behalf of the Holder of this Warrant shall be
sufficiently given or made if sent by certified or registered mail, return
receipt requested, postage prepaid, and addressed to Dunwoody Brokerage
Services, Inc., 8309 Dunwoody Place, Atlanta, GA 30350 Telephone No. (770)
640-0011, Telecopy No. (770) 993-1324, until another address is designated in
writing by Holder.
IN WITNESS WHEREOF, this Warrant issued to Dunwoody Brokerage Services,
Inc. is hereby executed and effective as of the date set forth below.
Dated as of December __, 1997 HARVEST RESTAURANT GROUP, INC.
By: ________________________________
Print Name: ________________________________
Title: ________________________________
10
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AUTHORIZATION/DESIGNATION OF WARRANTS
I, Robert Hopkins, as President of Dunwoody Brokerage Services, Inc.
("Dunwoody"), hereby authorize and designate the issuance of the warrants
exercisable into the common stock of Harvest Restaurant Group, Inc. issuable to
Dunwoody pursuant to the Engagement Letter to raise $2.0 - $3.0 million in two
tranches as follows:
1 10% of the Warrants: Issuable to Dunwoody Brokerage Services, Inc.
1 90% of the Warrants: Issuable to Sterling Capital, LLC
I agree that a signed facsimile copy of this Authorization/Designation
shall be valid as an original.
Executed this __ day of December 1997.
- -----------------------------
Robert L. Hopkins, President
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 of Harvest Restaurant Group, Inc., of our report dated
February 6, 1997, except for Note I (third paragraph) and Note K (second
paragraph) as to which the date is May 12, 1997, relating to the financial
statements of CluckCorp International, Inc. for the years ended December 31,
1995 and December 29, 1996, and the reference to our firm under the caption
"Experts" in the Prospectus contained in said Registration Statement.
/s/ Akin, Doherty, Klein & Feuge, P.C.
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Certified Public Accountants
San Antonio, Texas
January 29, 1998
