McLaughlin & Stern LLP
260 Madison Avenue
New York, New York 10016
(212) 448-1100
March 18,
1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Arthur Treacher's Inc.
CIK: 0001016951
Gentlemen:
We herewith transmit to you Form 10-SB of
Arthur Treacher's Inc. Please be advised that the'
financial statements of M.I.E. Hospitality Inc., a
significant business acquired by the Registrant in
November 1996, have been audited for the year ended
December 29, 1996, the most recent fiscal year of
M.I.E. M.I.E. was a privately held corporation prior to
the acquisition and audited financial statements for prior
periods are not otherwise available.
Very truly
yours,
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Steven W.
Schuster
SWS:ab
steven\treachers\letters\sec318
2
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(B) or 12(G) of the Securities Act of 1934
ARTHUR TREACHER'S,
INC.
(Name of Small Business Issuer in Its Charter)
UTAH
34-1413104
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
7400 Baymeadows Way, Suite 300, Jacksonville, Florida
32256
(Address of Principal Executive Offices)
(Zip Code)
(904) 739-1200
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which
to be so Registered
Each Class is to be Registered
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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PART I
Item 1. Description of Business.
The Company is a fast service seafood restaurant chain
based in Jacksonville, Florida. The Company's principal
business is the operation of Company owned stores and
the sale of franchises of "Arthur Treacher's Fish &
Chips" fast food restaurants. The Company has 124
restaurants in the Arthur Treacher's system, consisting
of 63 Company owned restaurants and 61 independently
owned and operated franchised locations. The
Company also anticipates opening an additional six
Company owned restaurants by April 30, 1997. The
restaurants are located in 12 states in the mid-western
and eastern United States as well as in Washington D.C.
and the province of Ontario, Canada.
(A) Background
The Company was originally founded in 1969 as Arthur
Treacher's Fish & Chips, Inc., a Delaware corporation.
The Company operated a network of franchised and
Company owned restaurants in the United States and
Canada. The Company"s main product was its "Original
Fish & Chips" product consisting of two fish fillets
coated with a special batter prepared under a
proprietary formula, deep-fried golden brown and
served with English-style chips and two corn meal "hush
puppies." The Company"s other products included an
assortment of other fried and grilled seafood
combination dishes including shrimp, clams and chicken.
In 1979, Mrs. Paul's, Inc. ("Mrs. Paul's") purchased
Arthur Treacher's Fish & Chips, Inc. Mrs. Paul's
changed the products offered at the restaurants, which
change resulted in severe dissatisfaction among the
franchisees, a reduction in the number of restaurants and
litigation between certain franchisees and Mrs. Paul's.
In 1982, Lumara Foods of America, Inc. ("Lumara")
acquired the assets of Arthur Treacher's Fish & Chips,
Inc. from Mrs. Paul's. Lumara was unable to achieve
profitability and consequently sought bankruptcy
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protection in 1983. In December 1983, Arthur
Treacher's Inc., an Ohio corporation, entered into an
agreement to purchase the assets of Lumara, during
Chapter XI bankruptcy proceedings. In February 1984,
Arthur Treacher's Inc., an Ohio corporation, merged
into El Charro, Inc., a Utah corporation, which
consummated the acquisition of the assets of Lumara
and changed its name to Arthur Treacher's, Inc.
The Company reduced its size from approximately 200
to 123 stores between 1984 and 1996, primarily through
a net reduction from more than 180 franchised locations
to 95 franchised locations, under the management of
President and principal shareholder, James R. Cataland.
In 1984, only 74 of the more than 180 franchised
locations were in good standing. The franchise network
was rebuilt and expanded in the early 1990's under the
management of Mr. Cataland.
In 1993, three investors, including Mr. Bruce R.
Galloway, the current Chairman of the Board of the
Company, and Mr. Fred Knoll, a Director designee of
the Company, acquired from the Company an aggregate
of 2,000,000 shares of Common Stock for $1,000,000.
On May 31, 1996, an investor group organized by Mr.
Galloway acquired control of the Company through the
purchase of an additional 2,000,000 shares from the
then principal shareholder and President, Mr. Cataland.
Contemporaneously with such acquisition, Mr. R.
Frank Brown became President, Chief Executive Officer
and Treasurer of the Company, and the current Board
of Directors was elected.
Under Mr. Brown's direction, the Company has taken
several steps to improve its operations. The Company
has also commenced testing of its "Seafood Grille"
concept, reduced costs by changing to lower cost
seafood suppliers, commenced efforts to renegotiate
certain property leases, hired a new Director of
Purchasing and Director of Marketing, retained a new
advertising agency, held regional meetings with
franchisees for the first time in several years, attended
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franchise conventions to promote the Company and
produced new promotional and advertising materials.
On November 27, 1996, the Company purchased all of
the issued and outstanding shares of capital stock of
M.I.E. Hospitality, Inc. ("MIE" and the "MIE
Acquisition"). MIE, formerly the Company's largest
franchisee and now a wholly-owned subsidiary, had an
exclusive territory in New York, Pennsylvania, New
Jersey and Delaware, where it operated 33 stores. The
Company anticipates that the MIE Acquisition will
provide opportunities for additional expansion, since the
Company can open additional Company owned stores
and sell additional franchises in states where MIE was
the exclusive franchisee. In addition, during the six
months ended December 31, 1996, the Company
purchased six franchised restaurants in the Detroit area.
The Company believes these six restaurants are
strategically located in areas with a concentration of
Arthur Treacher's restaurants. Management believes
that such restaurants can be better managed by the
Company than by the former franchisees with no
additional administrative overhead being incurred by the
Company.
(B) Franchises
The Company has 124 restaurants in its system,
consisting of 63 Company owned restaurants and 61
independently owned and operated franchised locations.
The Company has two geographical options for
franchises: individual stores and area development.
The Company has a franchisee that has agreed to open
one franchise for each of the next three years in
northeastern Ohio, although such franchisee does not
have any exclusive territory. The Company also has a
franchisee with an exclusive franchise for the province
of Ontario, Canada, where there are 13 restaurants.
Pursuant to its franchise agreement, the Company
provides its franchisees with a method of operation,
including trade secrets, technical knowledge, a supply
distribution program and standards for customer
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service, quality control, decor, layout, signs and
accounting systems. The Company also provides
centralized advertising and cooperative advertising
programs and an initial training program, which is
required for franchisees. Each franchisee is currently
required to spend a minimum of three percent of
monthly gross sales on advertising. In addition, each
franchisee must purchase certain private label,
proprietary food, paper supplies, equipment and signage
from Company approved suppliers and distributors.
The Company does not select restaurant sites for
franchisees, but all sites are subject to the Company's
approval. The Company also requires that its
franchisees name the Company as an additional
insured party on their property and casualty insurance
policies and that vendors provide subrogation to the
Company with respect to their product liability
insurance.
Pursuant to the Company's standard franchise
agreement, which is incorporated in its Uniform
Franchise Offering Circular, the initial franchise fee for
a one unit franchise is $19,500. The fee for each
additional franchise declines thereafter. The fee for an
area development franchise is $49,500.
These franchise fees do not include the costs associated
with the operation of the restaurant, including food,
supplies, labor, equipment, occupancy costs and taxes.
Each franchisee is subject to a royalty fee payable to the
Company of a maximum of six percent of gross sales,
although most franchisees, including the Canadian
franchisee, pay royalties at a rate substantially lower
than six percent of gross sales, with an average royalty
of about three percent. With respect to the remaining
franchisees, as of February 28, 1997, four franchisees
operating four restaurants have either been notified of
being in default for non-payment of royalties or are
more than 90 days in default on royalty payments.
One of such franchisees, operating two restaurants,
and the Company have executed an installment
payment plan with respect to its delinquent payments.
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The inability of the Company's franchisees to make
payments on a timely basis will adversely affect the
Company's liquidity and its operations.
(C) Corporate Strategy
The Company seeks to focus on three key areas of
development:
The "Seafood Grille" concept,
Unit Expansion,
Marketing, Advertising and
Promotion.
1. The "Seafood Grille" Concept
The Company is renovating its existing restaurants to
adopt the "Seafood Grille" concept to focus on grilled
foods while enhancing the Company's existing brand
name. The Company has begun to expand its menu to
include, in addition to its current fried fish dinner and
fried chicken combinations, a selection of grilled
seafood entrees and grilled chicken entrees, together
with an assortment of vegetables and other side dishes.
Several species of fish, including tuna, cod, mahi-
mahi and salmon, are being developed in order to
complement the Company's existing line of seafood
products.
Each fish fillet sold under the "Seafood Grille" concept
is deep skinned and flash-frozen under a strict recipe
developed by the Company. At each store location,
the fillet is inserted into a special grilling unit for
quick cooking. Test marketing and implementation of
this concept began in July 1996 at a franchised
location that the Company purchased in November
1996. As of February 28, 1997, the Company had
expanded the test marketing to an additional two
Company owned restaurants. The Company expects
to complete renovations to implement the "Seafood
Grille" concept at approximately 12 additional
restaurants located in food courts and 6 free standing
restaurants by June 30, 1997.
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The Company is developing a nationwide
implementation plan, which will include operations,
marketing and advertising expenditures. The
Company will renovate its existing Company owned
stores from the proceeds of a private placement in
November 1996 (the "November Private Placement")
and to the extent funds are available from operating
cash flows. The Company expects to spend
approximately $60,000 for each restaurant renovation
including equipment, signage and approximately
$10,000 for promotional materials related to the
"Seafood Grille" concept. The Company anticipates
that all of the restaurants currently owned by the
Company will offer the "Seafood Grille" concept,
although the cost of renovation will depend on such
factors as the size of the restaurant, whether the
restaurant is free standing or in a mall, and the
amount of equipment to be installed. Such
renovations will be made on a region by region basis
so that all restaurants within a region can benefit from
regional advertising and marketing promotions. New
store formats may be developed to enable consumers
to view a wider selection of the Company's menu
selections. New store displays may be exhibited at all
restaurant locations to provide consumers with
information such as caloric, fat and cholesterol content
in each of the Company's menu items. The Company
cannot require franchisees to renovate their stores to
implement the "Seafood Grille" concept and has not
determined whether to provide incentives for such
renovations. Furthermore, the conversion of any
existing restaurants that may be purchased from
franchisees will incur additional costs, a portion of
which will come from operations.
2. Unit Expansion
The Company intends to open more Company owned
and operated stores and franchised stores. The
Company's system has 124 restaurants, of which 63
(51%) were Company owned. The Company expects
to achieve a ratio of approximately 40% of the
restaurants as Company owned by the year 2000 due
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to franchise development. The Company will
continue to build its network of Company owned and
franchised restaurants with additional locations in
order to increase the Company's penetration into local
markets. The Company seeks to expand both in its
principal existing markets of Florida, Ohio, Michigan,
Texas, the New York metropolitan area and Ontario
and in markets where the Company previously had a
significant presence, including Virginia, Maryland,
Washington D.C., Illinois and New England. The
Company anticipates opening an additional six
Company owned restaurants by April 30, 1997.
Execution of its growth strategy requires the
Company's management to, among other things: (i)
identify acquisition candidates who are willing to be
acquired at prices acceptable to the Company; (ii)
consummate identified acquisitions; and (iii) obtain
financing for future acquisitions. The Company
believes that the acquisition of franchise restaurants is
preferable to opening new Company owned
restaurants where there is a concentration of other
restaurants, particularly Company owned restaurants.
Such concentration of Company owned restaurants
enables the Company to achieve more effective
control of marketing, economies of scale regarding the
purchase of supplies, the deployment of field
personnel and advertising and thereby improve the
restaurants operations without any increase in central
administrative overhead. The Company believes that
such economies of scale can be achieved if a minimum
of six to ten restaurants are in an area.
The Company does not anticipate further development
of its franchise network until the fiscal year
commencing July 1997. The Company wants to
implement the "Seafood Grille" concept, purchase
some restaurants from franchisees and improve its
image before again focusing on the sale of franchises.
In order to develop its franchise system, the Company
intends to develop joint programs with new corporate
franchisees for regional expansion opportunities in
certain selected markets. This program will entail a
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corporate sponsor for a particular region based upon
metropolitan population densities. A region would
typically be large enough to cover an area that could
accommodate ten or more store locations. The
Company anticipates that a master franchise agreement
would be executed with the corporate franchisee
providing it with rights to a specified region and to
support from the Company in order to develop the
area within certain guidelines established by the
Company relating, among other things, to a minimum
number of restaurants to be opened within particular
time periods. Current agreements do not require any
minimum number of restaurants to be opened in a
region and the Company currently has only one master
franchise agreement for Ontario, Canada. The
Company also intends to grant new franchises to
operators of single restaurants. There can be no
assurance, however, that suitable franchisees can be
located or that master franchise agreements will be
reached at terms acceptable to the Company.
The Company estimates the cost of opening a new
Company owned restaurant at between $50,000 and
$150,000 per restaurant (assuming the purchase, not
lease, of new equipment), depending upon factors
such as the size of the restaurant, the lease and local
construction costs. This cost includes the capability
for the "Seafood Grille" concept. By standardizing the
construction and equipment procurement process of its
restaurant network, the Company believes that it could
develop the economies of scale in the design and site
selection process. A supplementary benefit of such an
expansion program could include proposals to arrange
for regional or national equipment leasing and
financing programs and the use of national or regional
contractors to provide support for franchisees wishing
to expand. There can be no assurance that such
programs will be reached at terms acceptable to the
Company.
The Company's proposed expansion and store
renovations will be dependent on, among other things,
market acceptance of the Company's "Seafood Grille"
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concept, the availability of suitable restaurant sites,
negotiation of acceptable lease terms, timely
development of such sites, obtaining landlords'
consents to renovations, constructing or renovating
restaurants, hiring of skilled management and other
personnel, the general ability to successfully manage
growth (including monitoring restaurants, controlling
costs and maintaining effective quality controls) and
the availability of adequate financing. In the case of
franchised restaurants, the Company will be
substantially dependent on the management skills of its
franchisees.
3. Marketing, Promotion and Advertising
The Company believes that its brand name is still
recognized among consumers in the northeastern, mid-
western and southern regions of the United States
primarily because the Company's primary product line
had been a popular restaurant concept during the early
1970's. The Company and its franchisees typically
spend approximately three to four percent of gross
sales per year on advertising. In addition, suppliers
provide the Company with rebates to be spent by the
Company on marketing. In the fiscal year ended June
30, 1996, such marketing rebates were approximately
$400,000. The Company has broad discretion in
spending such marketing allowances.
Management is developing a marketing campaign to
re-establish the Company's brand name. Since June
1996, the Company has retained a new advertising
agency and produced new television commercials.
System-wide promotion with coordinated regional
advertising represents an area of opportunity for the
Company. Local advertising by the Company and its
franchisees has been, and continues to be, the
predominant form of promotion. The Company has
hired a Director of Marketing who has developed to
produce advertising and promotion at the local level
consisting of in-store advertising, local circulars,
promotions and newspaper advertising. By utilizing
system-wide promotion with regional advertising
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campaigns, the Company expects to achieve greater
control and market breadth and to increase consumer
awareness of its products and services while
maintaining creative control over the Company's
brand image. Such a program would provide the
Company with system-wide coverage using print,
network and cable television, national radio media.
The franchisees will be expected to pay a portion of
the three percent currently required to be spent on
advertising by each franchisee to the Company as a
fee for such coordinated advertising. A portion of the
approximately three percent of gross sales currently
spent by the Company for advertising Company
owned stores would also be devoted to the coordinated
campaign. The amounts collected would be utilized
entirely on marketing and promotional campaigns to
benefit the entire franchise network.
(D) Suppliers and Pricing
The Company's senior management (most of whom
joined the Company since June 1996) have experience
with the supply and pricing issues associated with the
food industry. Seafood prices, particularly the price
of pollack, are subject to supply problems due to
environmental and economic factors. The Company
has developed measures to minimize the effect on the
Company.
The Company's principal product, "Fish and Chips,"
includes pollack. The Company utilizes one supplier
to the Company owned stores for pollack.
Franchisees use two suppliers for pollack. The
Company and its franchisees use three suppliers for
shrimp. For the fiscal year ended June 30, 1996,
purchases of pollack and shrimp accounted for
approximately 20% and 7% of the Company's
operating expenses, excluding occupancy costs,
respectively. The Company has reduced its costs
since June 30, 1996 by utilizing new suppliers of
pollack and shrimp. The Company anticipates
offering salmon, grouper, cod, mahi-mahi and tuna.
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Such seafoods' supplies and prices are subject to
volatility. Seafoods of the quality sought by the
Company tend to trade on a negotiated basis
depending upon supply and demand at the time of
purchase. Supply and price can be affected by
multiple factors, such as weather, politics and
economics in the producing countries. An increase in
the prices of seafood, particularly pollack, could have
an adverse effect on the Company's profitability.
The Company maintains relationships with certain
seafood vendors in an effort to obtain seafood of the
quality and in the quantity demanded by the
Company's customers. These relationships enable the
Company to maintain its supply of fish as well as
affording the Company some price stability. The
Company has sought to mitigate the effects of price
volatility by entering into agreements with its principal
fish suppliers to provide fixed prices for seafood
products during the six months to one year duration of
the contracts. Such fixed price agreements also help
ensure the Company's supply of fish. To date, some
of these agreements have been oral. However, the
Company believes that alternate suppliers of pollack
and other seafoods are available if the prices of
pollack or other seafoods increase substantially.
Management also intends to take advantage of
changing technologies with respect to the "farming"
and breeding of selected species of fish and seafood
products, and currently purchases some fish products
that are "farmed."
The Company uses different individual suppliers for
many of its significant non-seafood items. For example,
cups, french fries, shortening and proprietary fish batter
are each purchased from different individual suppliers
under oral agreements which set the price for one year.
Chicken, however, is purchased from three suppliers.
All of the Company's supplies are delivered by such
suppliers to one distributor, who services the
Company's restaurants from three distribution centers.
Any disruption in supplies from such suppliers could
temporarily have an adverse effect on the Company's
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operations, although the Company believes that the
supplier could readily be replaced. Except with respect
to the Company's proprietary batter mix, franchisees
can purchase such products from other suppliers or
distributors, subject to the Company's prior approval.
The Company received approximately $160,000 from
royalties on its batter mix sales in the fiscal year ended
June 30, 1996.
(E) Competition
The restaurant business is highly competitive with
respect to price, service, location and food quality and
is generally considered to be a mature industry.
Competition in the industry can be expected to
increase. The industry is affected by changes in
consumer eating habits and preferences, local,
regional and national economic conditions,
demographic trends, automobile traffic patterns,
government regulation, employee availability and
commodity and operating cost fluctuations, many of
which are beyond the Company's control. Any
unplanned or unanticipated changes in these factors
could adversely affect the Company.
There are numerous well-established competitors in
the operating areas of the Company. Restaurants
operated or franchised by the Company compete
directly not only with quick service restaurants
("QSRs"), but also with moderately priced family and
specialty restaurants. Significant competitors include
fast food fish restaurants such as Long John Silver and
Captain D's, casual dining restaurants with a seafood
emphasis such as Red Lobster and Landry's, and other
chains that serve grilled seafood or chicken, or both.
The Company's primary competitors in the fast
service seafood restaurant business are Long John
Silver and Captain D's. Both competitors have
company owned and franchised restaurant operations
in certain regions of the United States. Long John
Silver is the largest competitor with over 1,300
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locations nationwide. Captain D's, a wholly owned
subsidiary of Shoney's, Inc. with approximately 598
units, has a strong regional presence in the
southeastern United States. Many of the Company's
competitors possess substantially greater financial,
marketing, personnel and other resources than those of
the Company. Such competitive pressures limit the
Company's ability to increase food and beverage
prices and thus may limit the extent to which the
Company and its franchisees can offset certain costs of
doing business. There can be no assurance that well-
established competitors will not place additional
restaurants in close proximity to those of the Company
and its franchisees.
The Company also faces vigorous competition from
other QSR chains in attracting and retaining suitable
franchises. Beginning in the fiscal year commencing
July 1, 1997, the Company plans to increase its
number of franchised restaurants but there can be no
assurance that it will be able to attract and retain
suitable franchisees.
Competition with the Company can take other forms.
The Company also competes with fast food restaurants
and "casual dining" restaurants that offer specialties
other than grilled fish and chicken. Consumer
preferences tend to shift and the variety of alternatives
may affect consumer selection. A change by
consumers to other types of products such as pork or
beef or to restaurants with ethnic themes such as
Mexican, Chinese or Italian can have a material
adverse affect on the Company's sales.
The Company has developed a concentration of
restaurant locations in the food courts of regional
shopping malls. The competition in the malls
typically consists of the seven to thirteen different
restaurant concepts in each food court. Each food
concept generally serves a distinctive menu item
which may compete, directly or indirectly, with the
Company. There can be no assurance that the
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Company will continue to be able to compete
effectively with such food concepts.
(F) Employees
At February 28, 1997, the Company had
approximately 700 employees. A total of
approximately 575 employees are paid on an hourly
basis and 125 employees receive a salary. Eight of
the Company's employees perform executive
functions. Most of the Company's employees are
employed at the Company's restaurants. The
Company believes that the number of persons
employed is adequate to conduct the Company's
current level of operations. The Company believes
that it would need an additional two to four
administrative employees at its headquarters to
manage the anticipated expansion. The addition of
new restaurants will also increase the number of
employees at the restaurants.
Since many of the Company's employees are paid
hourly rates related to the federal minimum wage,
increases in the minimum wage will increase the
Company's operating expenses. The Federal
government has increased the minimum wage from
$4.25 an hour to $4.75 per hour in October 1996 and
will increase the minimum wage to $5.15 in
September 1997. As of February 28, 1997, the
Company employed 575 hourly workers,
approximately 50% of whom are paid below $5.15
per hour. The Company believes that increases in the
minimum wage will cause operating costs to increase
by less than 0.4% and that such increased cost will be
offset by increased sales and reduced costs derived
from improved purchasing procedures, of which there
can be no assurance.
(G) Government Regulation
The Company's business is subject to extensive
federal, state and local government regulation,
including regulations relating to franchising, public
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health and safety, zoning and fire codes. The failure
to obtain or retain food or other licenses would
adversely affect the operations of the Company's
restaurants.
The Company is subject to federal and state laws,
rules and regulations that govern the offer and sale of
franchises. The Company is also subject to a number
of state laws that regulate certain substantive aspects
of the franchisor-franchisee relationship. If the
Company is unable to comply with the franchise laws,
rules and regulations of a particular state, relating to
offers and sales of franchises, the Company will be
unable to engage in offering or selling franchises in
such state. The Company believes it is in compliance
with such laws, rules and regulations and has not been
cited for non-compliance. In 1994, the Federal Trade
Commission ("FTC") investigated complaints filed by
certain franchisees but took no action. The Company
is not currently subject to any investigation by any
federal or state regulatory authority.
On a national level, the FTC requires the Company to
furnish prospective franchisees with a disclosure
document which complies with the FTC's Trade
Regulation Rule (the "FTC Rul"). The Company's
current FTC disclosure document is effective for use
in 37 states, and the District of Columbia, that do not
require registration of disclosure documents.
However, in the 13 remaining states, the Company is
required to register a state-specific document and
receive an effective registration notice prior to the
commencement of sales of franchises in such states.
The Company is not qualified to sell franchises in any
state that requires a state specific document although
the Company believes that it could register in such
states if it chose to offer franchises in such states.
The Company has begun the registration process in
Illinois, New York, Virginia and Maryland.
The Company will be required to update its FTC
disclosure document to reflect the occurrence of
material events. The occurrence of any such events
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may, from time to time, require the Company to
modify its disclosure documents within 90 days or
stop offering and selling franchises until the document
is so updated. There can be no assurance that the
Company will be able to update its disclosure
document or become registered to offer or sell
franchises in certain states consistent with its
expansion plans or that the Company will be able to
comply with existing or future franchise regulations in
any particular state, any of which could have an
adverse effect on the Company.
(H) Trade and Service Marks and Trade
Secrets
The Company believes that the "Arthur Treacher's"
and the "Arthur Treacher's Fish & Chips" service
marks and other service marks may have significant
value and are important to the marketing of its
restaurants and products. All are registered with the
United States Patent Office. The Company has applied
to register "Arthur Treacher's Seafood Grille" as a
service mark. There can be no assurance, however,
that the Company's trade and service marks do not, or
will not, violate the proprietary rights of others, that
the Company's trade and service marks would be
upheld if challenged or that the Company would not
be prevented from using its trade or service marks.
Any of the aforementioned instances could have a
material adverse effect on the Company and its
franchisees. The Company's trade and service marks
have not been and are not subject to any material
challenges and the Company has acted to vigorously
defend the marks in several isolated instances where
alleged infringement has occurred. The Company is
aware of two restaurants in the New York
metropolitan area which infringed on the Company's
service mark in 1996, each of which ceased such
infringement upon demand by the Company.
The Company utilizes a proprietary batter mix in
connection with the preparation of its seafood
products. There can be no assurance that such recipe
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will not be copied by a competitor and that the
Company's business will not be adversely affected.
Item 2. Management's Discussion and
Analysis or Plan of Operation.
This Management's Discussion and Analysis of
Financial Condition and Results of Operations of the
Company should be read in conjunction with the
Financial Statements and Notes thereto appearing
elsewhere in this Registration Statement.
Overview
The Company's principal sources of revenues are from
the operations of the Company owned restaurants and
the receipt of royalties from franchisees. The
Company's cost of sales includes food, supplies and
occupancy costs (rent and utilities at Company owned
stores). Operating expenses include labor costs at the
Company owned stores and advertising, marketing and
maintenance costs. Franchise services and selling
expenses include fees payable to regional
representatives and their expenses and the salary of the
Company's Director of Franchise Services. General and
administrative costs include expenses incurred for
corporate support and administration, including the
salaries and related expenses of personnel at the
Company's headquarters in Jacksonville, Florida (except
the Director of Franchise Services), the costs of
operating the headquarters offices (rent and utilities)
and certain related costs (travel and entertainment).
Results of Operations
The following discussion includes the following periods:
(i) the six months ended December 29, 1996 (the "1997
Six Months") and the six months ended December 26,
1995 (the "1996 Six Months"), (ii) the three months
ended December 29, 1996 (the "1997 Second Quarter")
and the three months ended December 26, 1995 (the
21
<PAGE>
"1996 Second Quarter") and (iii) the fiscal year ended
June 30, 1996 ("Fiscal 1996") and the fiscal year ended
June 30, 1995 ("Fiscal 1995"). The financial statements
for the 1997 Six Months, the 1996 Six Months and the
1997 Second Quarter have not been audited or
reviewed by an independent certified accountant. The
discussion of (i) the 1997 Second Quarter and the 1996
Second Quarter and (ii) the 1997 Six Months and the
1996 Six Months reflect the operations of the Company
for such periods and the operations of MIE for the
period November 27, 1996 (the date of consummation
of the MIE Acquisition) and December 29, 1996.
Results for any interim period are not necessarily
indicative of the results for a full year. The financial
results of the Company have been audited as of the full
fiscal years ended June 30, 1996 and June 30, 1995, and
do not reflect the operations of MIE.
1997 Second Quarter and 1996 Second Quarter
The Company's revenues increased 79.2% to
$3,929,736 in the 1997 Second Quarter from
$2,192,601 in the 1996 Second Quarter. This increase
primarily reflected the Company's acquisition on
November 27, 1996 of MIE (the Company's largest
franchisee) and six franchise restaurants. Comparable
store sales of restaurants that had been open for a
minimum of 12 months were 1.5% less in the 1997
Second Quarter than in the 1996 Second Quarter. The
Company hired a new advertising agency and television
advertising expenditures were approximately $75,000 in
the 1997 Second Quarter compared to $0 in the 1996
Second Quarter. The Company also added new menu
specials, including scallops, oysters, and popcorn shrimp
in the 1997 Second Quarter.
The most significant increase in sales was in Company
owned restaurant sales, which increased 95.6% to
$3,676,876 in the 1997 Second Quarter, principally due
to the increase in the number of Company owned stores
from 24 at the end of the 1996 Second Quarter to 61 at
the end of the 1997 Second Quarter with the acquisition
of MIE. Franchise and royalty income declined in the
22
<PAGE>
1997 Second Quarter primarily because of the reduction
in the number of franchised restaurants from 112 at the
end of the 1996 Second Quarter to 62 at the end of the
1997 Second Quarter. Revenues from franchise fees
declined to $252,860 in the 1997 Second Quarter from
$312,764 in the 1996 Second Quarter primarily due to
the reduction in the number of franchised stores.
The Company's total costs and expenses for Company
owned stores increased 69.4% to $3,699,187 in the
1997 Second Quarter. The Company believes that the
increase in cost of sales resulted from an increase in the
number of Company owned stores and higher sales
volumes. As a percentage of sales at Company owned
stores, the cost of sales, including occupancy costs, was
54.1% in the 1997 Second Quarter compared to 55.9%
in the 1996 Second Quarter. The increase in cost of
sales and expenses at Company owned stores in the
1997 Second Quarter was principally because four of
the six stores purchased from franchisees since June 30,
1996 were unprofitable in the 1997 Second Quarter.
The Company's operating expenses increased 62.4% to
$1,232,840 in the 1997 Second Quarter. As a
percentage of revenues, operating expenses decreased
to 31.4% in the 1997 Second Quarter from 40.3% in the
1996 Second Quarter due to greater expense control
over operations. Franchise service and selling expenses
decreased 13.3% to$185,058 in the 1997 Second
Quarter as a result of lower franchise and royalty
revenues. Franchise service and selling expenses were
73.2% of franchise related revenues in the 1997 Second
Quarter. Fees payable to regional representatives
declined in conjunction with the decline in revenues
from franchisees because the Company reduced the
number of regional representatives from six at the end
of the 1996 Second Quarter to two in the 1997 Second
Quarter.
The Company's general and administrative expenses
increased by 82.2% to $292,390 in the 1997 Second
Quarter from the 1996 Second Quarter as a result of the
hiring of professional managers to support the
23
<PAGE>
Company's growth. As a percentage of revenues,
general and administrative expenses increased to 7.4%
in the 1997 Second Quarter from 7.3% in the 1996
Second Quarter.
The Company's income from operations before non-
recurring items and depreciation increased to $230,549
in the 1997 Second Quarter from $8,549 in the 1996
Second Quarter. The Company incurred a non-
recurring charge in the 1997 Second Quarter of
$158,800 as a result of restructuring costs relating to
research and development of the "Seafood Grille"
concept, certain non-recurring advertising expenses,
additional training costs, corporate relocation expenses
and consulting fees. Interest expense for the 1997
Second Quarter was $36,186 compared to $37,118 in
the 1996 Second Quarter.
Depreciation and amortization increased to $116,170 in
the 1997 Second Quarter compared to $77,153 in the
1996 Second Quarter. The Company also benefitted
from a net operating loss carry forward of $38,633 in
the 1997 Second Quarter compared to a benefit of
$30,113 in the 1996 Second Quarter.
As a result of the foregoing, the Company's net loss
was $79,973 in the 1997 Second Quarter compared to
$75,609 in the 1996 Second Quarter.
1997 Six Months and 1996 Six Months
The Company's revenues increased 51.6% to
$6,037,079 in the 1997 Six Months from $3,982,591 in
the 1996 Six Months. This increase primarily reflected
the Company's acquisition on November 27, 1996 of
MIE and, during the 1997 Six Months, of six franchise
restaurants. Comparable store sales of restaurants that
had been open for a minimum of 12 months were 0.9%
less in the 1997 Six Months than in the 1996 Six
Months. The increases in revenues were stimulated by
new marketing efforts and new menu items. The
Company hired a new advertising agency and television
advertising expenditures were approximately $136,661
24
<PAGE>
in the 1997 Six Months compared to $0 in the 1996 Six
Months. The Company also added new menu specials,
including scallops, oysters, and popcorn shrimp in the
1997 Six Months.
The most significant increase in sales was in Company
owned restaurant sales, which increased 63.5% to
$5,476,396 in the 1997 Six Months, principally due to
the increase in the number of Company owned stores
from 24 at the end of the 1996 Six Months to 61 at the
end of the 1997 Six Months as a result of the MIE
Acquisition. Franchise and royalty income declined
11.4% to $560,683 in the 1997 Six Months primarily
because of the reduction in the number of franchised
restaurants from 112 at the end of the 1996 Six Months
to 62 at the end of the 1997 Six Months.
The Company's total costs and expenses for Company
owned stores increased 51.4% to $6,087,087 in the
1997 Six Months compared to the 1996 Six Months.
The Company believes that the increase in cost of sales
resulted from an increase in the number of Company
owned stores and higher sales volumes. As a
percentage of sales at Company owned stores, the cost
of sales was 57.9% in the 1997 Six Months compared
to 57.4% in the 1996 Six Months. The increase in cost
of sales as a percentage of sales at Company owned
stores in the 1997 Six Months was, principally, because
four of the six stores purchased from franchisees since
June 30, 1996 were unprofitable in the 1997 Six
Months.
Pollack, the Company's primary seafood product, and
shrimp accounted for approximately 25% and 12%,
respectively, of the Company's cost of sales, excluding
occupancy costs, in the 1997 Six Months, compared to
approximately 20% and 7%, respectively, of the
Company's cost of sales, excluding occupancy costs in
Fiscal 1996. This increase in the cost of sales attributed
to pollack and shrimp resulted from greater sales of
these products in the 1997 Six Months as a percentage
of the Company's revenues. The Company anticipates
lowering its cost of pollack and shrimp as a percentage
of total revenues since it uses a new supplier who
25
<PAGE>
charges the Company less per pound for pollack and
shrimp. Such savings were not realized in the 1997 Six
Months because the Company needed to deplete higher
priced inventory in its possession at July 1, 1996.
The Company's operating expenses increased 47.8% to
$2,029,180 in the 1997 Six Months primarily due to
costs of transition involved with the change of control
in June 1996 and the resulting restructuring of the
Company's operations. As a percentage of revenues,
operating expenses decreased to 33.6% in the 1997 Six
Months from 34.5% in the 1996 Six Months due to
greater control over expenses and operations.
Franchise service and selling expenses decreased 15.9%
to $328,788 in the 1997 Six Months as a result of the
reduction in the sale of franchises. Franchise service
and selling expenses were 58.6% of franchise service
and selling expenses in the 1997 Six Months. Fees
payable to regional representatives declined in
conjunction with the decline in revenues from
franchisees and the Company reduced the number of
regional representatives from three at the end of the
1996 Six Months to two in the 1997 Six Months.
The Company's general and administrative expenses
increased 67.8% to $558,678 in the 1997 Six Months
as a result of the hiring of additional staff and associated
recruitment and training expenses. As a percentage of
revenues, general and administrative expenses increased
from 8.4% in the 1996 Six Months to 9.3% in the 1997
Six Months. Since June 1, 1996, the Company has
hired a Director of Purchasing, a Director of Marketing
and several field supervisory personnel to assist the
Company's anticipated expansion.
The Company's loss from operations before non-
recurring items and depreciation was $50,008 in the
1997 Six Months compared to $36,930 in the 1996 Six
Months. The Company incurred a non-recurring charge
in the 1997 Six Months of $158,800 as a result of
restructuring costs relating to research and development
of the "Seafood Grille" concept, terminations of lease
obligations, legal settlements, corporate relocation
26
<PAGE>
expenses and consulting fees. Interest expense for the
1997 Six Months was $74,543 compared to $74,720 in
the 1996 Six Months.
Depreciation and amortization increased 45.3% from
the 1996 Six Months to $185,283 in the 1997 Six
Months. The Company also benefitted from a net
operating loss carry forward of $271,979 in the 1997
Six Months compared to $68,124 in the 1996 Six
Months.
As a result of the foregoing, the Company's net loss
increased to $280,887 in the 1997 Six Months from
$171,005 in the 1996 Six Months.
Fiscal 1996 and Fiscal 1995
The Company's revenues increased to $7,877,910 in
Fiscal 1996 from $7,218,455 in Fiscal 1995, an increase
of 9%. The most significant increase was in sales at
Company owned restaurants, where revenues increased
18% to $6,648,564 in Fiscal 1996. Although the
number of Company owned stores increased from 23 at
the ended of Fiscal 1995 to 24 at the end of Fiscal 1996,
revenues at Company owned stores increased principally
through the purchase of six restaurants from franchisees
which, in the aggregate, had substantially higher sales
than the aggregate sales of the three Company owned
stores that were closed and the one Company owned
store that was sold to a franchisee in Fiscal 1996.
Franchise and royalty income declined 20% to
$1,228,296 in Fiscal 1996 primarily because of the
reduction in the number of franchised restaurants from
123 at the end of Fiscal 1995 to 103 at the end of Fiscal
1996. Revenue from initial franchise fees declined to
$1,050 from $63,550 because only one franchise was
sold in Fiscal 1996.
The Company's total costs and expenses increased 8%
to $8,165,433 in Fiscal 1996. The cost of sales,
including occupancy, at Company owned stores
increased 16% to $3,856,776 in Fiscal 1996. As a
percentage of revenues from Company owned
27
<PAGE>
restaurants, the cost of sales, including occupancy,
decreased from 59% in Fiscal 1995 to 58% in Fiscal
1996. The Company's operating expenses increased
15% to $2,742,907 in Fiscal 1996. As a percentage of
revenues, operating expenses increased from 33% in
Fiscal 1995 to 35% in Fiscal 1996. Such increases were
primarily due to increased costs to associated with
higher sales volumes. Franchise service and selling
expenses declined 17% to $876,584 in Fiscal 1996,
representing 11% and 15% of total revenue in Fiscal
1996 and Fiscal 1995, respectively, as a result of lower
costs associated with servicing fewer franchisees. Fees
payable to regional representatives declined in
conjunction with the decline in revenues from
franchisees.
The Company's general and administrative expenses
declined 14% to $689,166 in Fiscal 1996. As a
percentage of revenues, general and administrative
expenses declined from 11% in Fiscal 1995 to 9% in
Fiscal 1996 as a result of reductions in staff. General
and administrative expenses can be expected to increase
in Fiscal 1997 as a result of the Company's anticipated
expansion plans.
As a result of the reduced costs associated with the
smaller franchise network and the higher revenues from
Company owned stores, the Company's loss from
operations before non-recurring items declined 21% to
$287,523 in Fiscal 1996. However, the Company
incurred a non-recurring charge in Fiscal 1996 of
$403,434 as a result of costs relating to the
restructuring of its operations, including lease
cancellation fees, the write-off of deferred advertising
assets and certain other items. Interest expenses for
Fiscal 1996 also increased to $168,513 from $101,818
in Fiscal 1995 as a result of increased payments to Bank
One, the restructuring of lease obligations and interest
payable on promissory notes issued in connection with
the purchase of restaurants from franchisees and
restructuring of lease obligations.
28
<PAGE>
Depreciation and amortization increased 69% to
$290,120 in Fiscal 1996 as a result of the acquisition of
the five new Company owned stores and costs
associated with the closing of three Company owned
stores. The Company also benefited from a net
operating loss carry forward of $329,100 in Fiscal 1996
compared to a benefit of $146,600 in Fiscal 1995.
As a result of the foregoing, the Company's net loss
increased 112% to $825,240 in Fiscal 1996 from
$389,998 in Fiscal 1995.
Liquidity and Capital Resources
Since 1993, the Company has financed its operations
principally from revenues derived from Company owned
stores and royalty income from franchisees, private
placements of equity and a line of credit from a bank. In
1993, three investors, including Mr. Bruce Galloway,
the current Chairman of the Board of the Company, and
Mr. Fred Knoll, a Director designee of the Company,
acquired from the Company an aggregate of 2,000,000
shares of Common Stock for $1,000,000. In 1994, the
Company obtained a line of credit for $750,000 from
Bank One which was repaid in 1996.
The Company had a working capital surplus of
$1,460,538 at December 31, 1996 compared with a
working capital deficit of $1,252,796 at June 30, 1996.
Historically, operating losses have caused the Company
to suffer liquidity problems, which included the
Company's inability to make certain lease and note
payments when due. In order to increase its working
capital and alleviate such liquidity problems, the
Company sold 3,042,463 shares of Common Stock in a
private placement for aggregate gross proceeds of
$1,919,275 from June through September 1996 (the
"June Private Placement") and sold 3,163,911 shares of
Common Stock in a private placement for aggregate
gross proceeds of $5,631,761 in November and
December 1996 (the "November Private Placement").
As a result of the June Private Placement, the Company
had $985,616 in cash and short-term investments at
29
<PAGE>
June 30, 1996. The Company utilized approximately
$400,000 of the proceeds of such private placement to
provide collateral to Bank One as security for the
outstanding indebtedness of $750,000, approximately
$350,000 to satisfy trade payables that were outstanding
as of June 1, 1996, approximately $250,000 to fund
losses from operations since June 1, 1996,
approximately $166,000 for expenses incurred in
connection with the offering and the change of control
of the Company through the hiring of Mr. R. Frank
Brown, approximately $125,000 for advertising and
public relations and the costs associated with the hiring
of new management personnel, approximately $105,000
for (i) the repayment of notes due former franchisees
who had sold restaurants to the Company and (ii) lease
obligations, approximately $142,000 for accounting and
legal expenses incurred in conjunction with and after the
private placement and with respect to the defense of
ongoing litigation and approximately $78,000 for
placement fees in connection with the private placement.
With respect to such placement fees, approximately
$40,000 was paid to Mr. Bruce Galloway, the Chairman
of the Board of the Company, in his capacity as a
placement agent.
As a result of the November Private Placement, the
Company had cash and cash equivalents of $3,480,963
as of December 31, 1996. In November and December
1996, the Company received net proceeds of
approximately $5,100,000 from the proceeds of the
November Private Placement after deduction of
commissions and selling expenses payable to Burnham
Securities Inc. ("Burnham"), the placement agent. The
Company used $364,000 of the proceeds of the
November Private Placement to satisfy its remaining
obligations to Bank One. The Company also spent
$2,250,000 for the purchase of all of the outstanding
capital stock of MIE and the repayment of certain
indebtedness of MIE in conjunction with the MIE
Acquisition.
The Company anticipates that the proceeds of the
November Private Placement, together with projected
30
<PAGE>
cash flow from operations, will be sufficient to fund the
Company's operations. In the event that the proceeds
of the November Private Placement are insufficient to
sustain the Company until it obtains sufficient revenues
from operations, the Company will require additional
financing. Although the Company is discussing a new
credit facility with a bank, the Company has no
arrangements or commitments for such financing, and
there can be no assurance that any additional financing
can be obtained, or, if obtained, that it will be on
reasonable terms.
Item 3. Description of Property.
The Company's principal executive offices are located
at 7400 Baymeadows Way, Jacksonville, Florida 32256
(904-739-1200). The Company rents its 7,600 square
feet of headquarters space for an annual rent of
approximately $134,000 pursuant to a lease which
expires in 2001. The Company believes that its
headquarters space is adequate for its proposed
expansion.
The Company's 63 restaurants include 31 restaurants
located in premises leased by the Company, 32 located
in premises leased by MIE, a wholly-owned subsidiary
of the Company, and one in a property owned by MIE.
In addition, with respect to five leases, the Company
either guarantees the obligations of franchisees or leases
the properties and subleases them to franchisees. The
Company's free standing restaurants are each
approximately 2,000 square feet and the Company's
restaurants located in malls are each approximately 400
to 1,100 square feet.
The leases have remaining terms ranging from one to 16
years. Many of the leases contain renewal options for
periods of five to 10 years. The Company is reviewing
whether to continue to operate any marginal restaurants
acquired in the MIE Acquisition and to renegotiate the
terms of each restaurant lease upon the expiration of
each lease. The following chart sets forth the expiration
31
<PAGE>
dates of the terms of (i) the leases of Company owned
restaurants, including six which are scheduled to open
by April 30, 1997 and (ii) the Company's leases which
are subleased to franchisees and leases of franchisees
which are guaranteed by the Company.
Leases Subject
to Guarantees
Number of Leases or Subleases
Expiration Date
6 0
1997
4 1
1998
7 0
1999
3 1
2000
14 0
2001
11 2
2002
13 0
2003
7 1
2004
3 0
After 2004
Item 4. Security Ownership of Certain
Beneficial Owners and Management.
The following table sets forth information as of
February 28, 1997 with respect to officers, directors and
persons who are known by the Company to be
beneficial owners of more than 5% of the Company's
Common Stock. Except as otherwise indicated, the
Company believes that the beneficial owners of the
Common Stock listed below, based on information
furnished by such owners, have sole investment and
voting power with respect to such shares, subject to
community property laws where applicable.
32
<PAGE>
Shareholder Shares
Percentage
Bruce R. Galloway(1) 1,807,334
12.0
NTS Financial Services, Ltd.(2) 1,164,666
7.9
Knoll Capital Management, Inc.(3) 833,916
5.8
Evan Binn and Ronna Binn(4) 811,592
5.6
Lifeyrissjodur Austurlands 779,875
5.4
AFC Enterprises, Inc.(5) 776,666
5.4
Magee Industrial
Enterprises, Inc.(6) 765,625
5.1
Lifeyrissjodurinn Hlif 676,875
4.7
Heinz Schimmelbusch(7) 66,668
0.5
R. Frank Brown(8) 50,000
0.4
William Saculla(9) 15,000
0.1
Officers and Directors as a Group 3,937,584
25.6%
Total Outstanding Shares (10)
14,377,531
(1) Mr. Bruce R. Galloway is the Chairman of the
Board of the Company. Includes warrants to
purchase 430,000 shares of Common Stock at a
purchase price of $1.51, which warrants are
exercisable through May 31, 2001. Includes
warrants to purchase 250,000 shares of
Common Stock which are exercisable at an
exercise price of $3.00 per share through
December 31, 2001.
33
<PAGE>
(2) Mr. Skuli Thorvaldsson, the Vice Chairman of
the Company, is the President of NTS Financial
Services, Ltd. Includes warrants to purchase
250,000 shares of Common Stock at a purchase
price of $1.51, which warrants are exercisable
through May 31, 2001. Includes warrants to
purchase 50,000 shares of Common Stock
which are exercisable for a term of five years at
an exercise price of $3.00 per share.
(3) Mr. Fred Knoll, a Director designee of the
Company, is the sole shareholder of Knoll
Capital Management, Inc.
(4) Includes warrants to purchase 50,000 shares of
Common Stock owned by Mr. and Mrs. Binn,
which warrants are exercisable at a purchase
price of $1.51 per share through May 31, 2001.
(5) Includes warrants to purchase 100,000 shares of
Common Stock owned by Mr. Andrew
Catapano, President of AFC Enterprises. Such
warrants are exercisable at a purchase price of
$1.51 per share through May 31, 2001.
(6) Gives effect to the conversion of 490,000 shares
of Series B Preferred Stock into 765,625 shares
of Common Stock for no additional
consideration.
(7) Mr. Heinz Schimmelbusch, a Director designee,
disclaims beneficial ownership of 133,334 shares
of Common Stock held in trust for his children.
(8) Mr. R. Frank Brown is the President, Chief
Executive Officer, Treasurer and a Director of
the Company. Does not include options granted
which have not vested pursuant to Mr. Brown's
employment agreement to purchase an
aggregate of 700,000 shares of Common Stock,
with an exercise price of $1.375 per share with
respect to 350,000 shares and an exercise price
34
<PAGE>
of $2.125 per share with respect to 350,000
shares. 20% of such options vest each year for
a period of five years commencing June 1, 1997.
(9) Mr. William Saculla is the Secretary of the
Company. Does not include options which have
been granted but have not vested to purchase
15,000 shares of Common Stock at a price of
$2.65 per share. 20% of such options vest for
a period of five years commencing September 1,
1997.
(10) Gives no effect to the issuance of any shares of
Common Stock upon the exercise of any
outstanding options or warrants, including: (i)
1,335,000 shares of Common Stock upon the
exercise of currently exercisable warrants with
an exercise price of $1.51 per share, (ii) 400,000
shares of Common Stock upon the exercise of
currently exercisable warrants with an exercise
price of $3.00 per share, (iii) 316,391 shares of
Common Stock upon the exercise of currently
exercisable warrants issued to the placement
agent of the November Private Placement, with
an exercise price of $3.30 per share, (iv)
167,500 shares of Common Stock issuable to
employees of the Company other than Mr.
Brown for an exercise price of $2.65, which
vest over a period of five years commencing
September 1, 1997, (v) 5,000 other warrants
with an exercise price of $3.00 per share
exercisable through January 31, 2002, and (vi)
700,000 shares of Common Stock issuable upon
the exercise of options which vest over a period
of five years issued to Mr. Brown, and the
issuance of 862,514 shares of Common Stock
upon conversion of all of the outstanding shares
of Series A and Series B Preferred Stock.
Item 5. Directors, Executive Officers,
Promoters and Control Persons.
35
<PAGE>
Name Age
Position
Bruce R. Galloway 39
Chairman of the Board
R. Frank Brown 48
President, Chief Executive Officer,
Treasurer and Director
Skuli Thorvaldsson 55
Vice Chairman of the Board
Fred Knoll 41
Director (Designee)
Heinz Schimmelbusch 53
Director
(Designee)
Dennis S. Bookshester 58
Director (Designee)
William F. Saculla 45
Secretary
Directors
Bruce R. Galloway. Mr. Galloway has been Chairman
of the Board of Directors since May 1996. Mr.
Galloway is currently a managing director of Burnham,
the placement agent in the November Private
Placement, an NASD Broker/Dealer and investment
bank based in New York. Prior to joining Burnham in
1993, Mr. Galloway was a senior vice president at
Oppenheimer & Company, an investment bank and
NASD Broker/Dealer based in New York, from 1991
through 1993. Mr. Galloway holds a B.A. degree in
Economics from Hobart College and an M.B.A. in
Finance from New York University's Stern Graduate
School of Business.
36
<PAGE>
R. Frank Brown. Mr. Brown has served as President,
Chief Executive Officer, Treasurer and Director since
May 1996. From May 1995 to May 1996, Mr. Brown
worked as a consultant to an investment group
associated with the Company. Prior to working for the
Company, Mr. Brown was associated with Shoney's
and Captain D's. From August 1992 to May 1995, he
operated, as a franchisee, two Shoney's restaurants in
northern Utah. From November 1984 to August 1992,
Mr. Brown was President of Captain D's. From August
1978 through November 1984, Mr. Brown held
numerous positions within the Captain D's organization,
including Group Vice President, Vice President of
Franchise Operations, Director of Franchise Operations,
Director of Personal and Training, Personal Recruiter
and Unit Manager. Mr. Brown is a 1972 Graduate of
Purdue University, where he received a B.A. degree in
Psychology.
Skuli Thorvaldsson. Mr. Thorvaldsson has been Vice
Chairman of the Board of Directors since May 1996.
Mr. Thorvaldsson has been the Chief Executive Officer
of the Hotel Holt in Iceland since 1980. Since 1992,
Mr. Thorvaldsson has been the President of NTS
Financial Services, Ltd. Mr. Thorvaldsson has various
diversified interests in food court services, travel agency
and pork processing. He is also a master franchisee of
Domino's Pizza in Scandinavia. Mr. Thorvaldsson is a
director of Allied Resources Corp. Mr. Thorvaldsson
graduated from the Commercial College of Iceland and
the University of Barcelona. Mr. Thorvaldsson received
his Degree in Law from the University of Iceland.
Fred Knoll. Mr. Knoll is a Director designee of the
Company. Since 1987, he has been the principal of
Knoll Capital Management, L.P., a venture capital firm
specializing in the information technology industry.
From 1989 until 1993, Mr. Knoll was Chairman of the
Board of Directors of Telos Corporation (formerly C3
Inc.), a computer systems integration company with
approximately $200 million in annual sales. From l985
to 1987, Mr. Knoll was an investment manager for
General American Investors, responsible for the
37
<PAGE>
technology portfolio, and served as the United States
representative on investments in leveraged buyouts and
venture capital for Murray Johnstone, Ltd. of Glasgow,
Scotland. Mr. Knoll is the Chairman of the Board of
Thinkings Tools Inc. and of Lamar Signal Processing
Ltd., and he is a director of numerous companies
including Spradling Holdings Ltd. and U.S. Energy
Systems Inc. Mr. Knoll is on the Board of Advisors of
SRI International (the European division of Stanford
Research Institute) and is a co-manager of the Valor
Capital Management and Valor International public
stock funds. Mr. Knoll holds a B.S. in Electrical
Engineering and Computer Science and a B.S. in
Management from Massachusetts Institute of
Technology and an M.B.A. from Columbia University
in Finance and International Business.
Heinz C. Schimmelbusch. Mr. Schimmelbusch is a
Director designee of the Company. He is Chairman,
President and Chief Executive Officer of Allied
Resource Corporation ("Allied"), a company founded
by Mr. Schimmelbusch in 1994 to develop companies
active in mining, advanced materials and recycling. Mr.
Schimmelbusch is also Chairman of Alanx Corporation,
a producer of composite ceramics for wear solutions;
Chairman and Chief Executive Officer of Puralube, Inc.,
which is commercializing an advanced process for re-
refining used oil; and a Director of Northfield Minerals
Inc., a gold mining and exploration company listed on
the Toronto Stock Exchange. Mr. Schimmelbusch has
been a Director of Safeguard Scientific Corporation, a
company whose shares are listed on the New York
Stock Exchange, since 1989. Prior to 1994, Mr.
Schimmelbusch was Chairman of the Management
Board of Metallgesellschaft AG, Germany, a
multinational company in the process industries, and
Chairman of the Supervisory Board of LURGI AG,
Germany's leading process engineering firm; of Buderus
AG, a leading manufacturer of commercial and
residential health equipment; of Dynamit Nobel AG, a
leading manufacturer of explosives; and Norddeutsche
Affinerie AG, Europe's largest copper producer. Mr.
Schimmelbusch also served on the Boards of several
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leading German Corporations and institutions, including
Allianz Versicherungs AG, Munich; Philipp Holzmann
AG, Frankfurt; Mobil Oil AG, Hamburg; Teck
Corporation, Vancouver; and others. Mr.
Schimmelbusch has been the founder and Chief
Executive Officer of a number of public companies in
process industries, including: Inmet Corporation,
Toronto, Canada (formerly Metall Mining Corporation);
Methanex Corporation, Vancouver, Canada; and B.U.S.
Umweltservice AG, Frankfurt, Germany. Mr.
Schimmelbusch served as a Member of the Presidency
and Chairman of the Environmental Division of the
German Industrial Association (BDI) and represented
Germany on the Executive Board of the International
Chamber of Commerce, Paris, where he held the office
of Vice President. Mr. Schimmelbusch received his
graduate degree (with distinction) and his doctorate
(magna cum laude) in Economics from the University of
Tubigen, Germany.
Dennis S. Bookshester Mr. Bookshester is a Director
designee of the Company. Since 1991, he has been a
business consultant. In January 1997, he became
President and Chief Executive Officer of H20 Plus, Inc.
From 1990 through 1991, he served as President and
Chief Executive Officer of Zale Corporation. From
1984 through 1989, he served as Vice Chairman of
Carson Pirie Scott & Company and as Chairman and
Chief Executive Officer of its retail division. From 1983
through 1984, he served as the President and Chief
Executive Officer of the Department Stores Division of
Carson Pirie Scott & Company. From 1977 through
1983, he held various executive positions with
Associated Dry Goods Corporation, where he served as
President of its Caldor, Inc. subsidiary from 1982
through 1983, as Chairman and Chief Executive Officer
of Sibley, Lindsay and Curr Division from 1978 through
1982 and as President of such division from 1977
through 1978. From 1961 through 1977 he was with
Federated Department Stores, Inc. where he became
Senior Vice President of Merchandising. Mr.
Bookshester is a Director of Evans, Playboy Enterprises
Inc., AMRE, Fruit of the Loom, Sundance Homes,
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American Gem Corporation and the University of
Chicago Council for the Graduate School of Business.
Mr. Bookshester received his B.S. degree from the
University of Alabama in 1960.
William F. Saculla. Mr. Saculla has served as Secretary
of the Company since 1984. Mr. Saculla is responsible
for the Company's financial reporting activities and
internal controls. Mr. Saculla earned a B.S. degree in
Accounting from Youngstown State University in 1978.
The Director designees have agreed to become members
of the Board of Directors upon the Company obtaining
Director and Officer liability insurance.
Other Key Employees
R. Daniel Cheatham, Director of Purchasing. Mr.
Cheatham has served as Director of Purchasing since
June 1996. Prior to joining the Company, Mr.
Cheatham served as Director of Purchasing, as well as
Director of Research & Development for Skipper's
Restaurants, based in Seattle, Washington, from January
1993 through April 1996. From March 1990 through
January 1993, Mr. Cheatham was Senior Vice President
of Sales and Marketing for Mike Rose Corporation, a
division of Shoney's, Inc., based in Nashville,
Tennessee. Mr. Cheatham earned a B.S. degree in
Business and Economics at Huntingdon College in
Montgomery, Alabama in 1966.
Michael D. Proulx, Director of Franchise Services. Mr.
Proulx has served as Director of Franchise Development
since January 1994. He was the owner of a Company
franchise from December 1992 through August 1996,
when it was purchased by the Company. Prior to
October 1992, Mr. Proulx was a Commissioned Officer
serving as a Pilot and Intelligence Officer in the United
States Army with assignments that included that of
Company Commander, Airfield Commander and
Brigade Operations Officer. Mr. Proulx is a 1973
graduate of Cornell University where he received a B.S.
degree in Economics. Mr. Proulx also received an M.S.
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degree in International Relations from Troy State
University in 1988.
Jana Williams, Director of Marketing. Ms. Williams
rejoined the Company as the Director of Marketing in
June 1996. Prior to this, Ms. Williams was the
Marketing and Media Coordinator for the Company
from December 1993 to January 1996. From January
1996 to June 1996, she was an Account Coordinator at
Harte Hanks Direct Marketing. From January 1992 to
June 1993, Ms. Williams served as a Convention
Coordinator for Technol Medical Products, Inc., in Fort
Worth, Texas. From May 1986 through January 1992,
she served as Women's Services Specialist for the Team
Bank in Dallas, Texas. Ms. Williams is a 1990 graduate
of the University of Texas, Arlington where she earned
a B.A. in Marketing.
Committees
In December 1996, the Board of Directors formed the
following committees: Executive, Compensation and
Audit. The Board of Directors elected Frank Brown,
Bruce Galloway and Skuli Thorvaldsson to the
Executive Committee. The Compensation Committee
of the Board of Directors was formed to review the
Company's executive compensation proposals, subject
to the approval of the Board of Directors. The
Compensation Committee is composed of Dennis
Bookshester, Skuli Thorvaldsson and Bruce Galloway.
The Audit Committee was formed to advise the Board
in matters relating to the audit of the Company's
financial statements and the Company's financial
reporting systems. The Board elected Messrs. Bruce
Galloway, R. Frank Brown, William Saculla, the
Company's Secretary, and George Koo, an independent
advisor to the Company, as members of the Audit
Committee.
In addition, the International Advisory Committee was
formed to advise the Board of Directors regarding
international operations and expansion opportunities,
although without the power to obligate the Company.
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The Board selected Gudmundur Jonsson, David Baron,
Valdimar Thomasson, Evan Binn, Gisly Martinsson,
Lore Karnath and Hans Rutkowski to the International
Advisory Committee.
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Item 6. Executive Compensation.
The following table provides certain summary
information concerning the compensation paid or
accrued by the Company to or on behalf of its Chief
Executive Officer and the other named executive
officers of the Company for services rendered in all
capacities to the Company and its subsidiaries for the
fiscal years ended June 30, 1996, 1995 and 1994.
(a) Summary Compensation Table
Long-Term Compensation Annual Compensation Awards Payouts Payouts Name
andOther Annual Restricted Seccurities LTIP All Other Principal PositionYear
Salary Bonus Compensation Stock UnderlyingPayoutsCompen Award(s) Options/SARs R.
Frank Brown1996 $10,025.00 0.00 $0.00 0.00 700,000 $0.00 0 President, CEO,
shares of Treasurer Common Stock 1995 $0.00 0.00 $0.00 0.00 0 $0.00 1994 $0.00
0.00 $0.00 0.00 0 $0.00 0 William Saculla 1996 $75,000.00 $1,000 $0.00 0.00
0$0.00 0 Secretary 1995 $70,000.00 0.00 $0.00 0.00 0 $0.00 1994 $65,000.00 0.00
$0.00 0.00 0.00 $0.00 0
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(b) Option/SAR Grants in Last Fiscal Year Number of Securities Percent of
total Underlying Options/SARs options/SARs granted to Name granted employees in
fiscal year Exercise or base price Expiration Date R. Frank Brown (1) 700,000
shares of 100% $1.375 for 350,000 Shares 2002-2006 Common Stock $2.125 for
350,000 Shares
______________________
(1) 20% of these options vest each year over a period of five years commencing
June 1, 1997 and are exercisable for five years after vesting.
(c) Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
Shares acquired on Number of Unexercised Value of unexercised in-the-money
Name exercise Value Realized options/SARs at June 30, 1996 options/SARs at June
30, 1996 R. Frank Brown(1) 0 0 700,000 options $0 Exercisable, $262,500
Unexercisable ______________________ (1) 20% of these options vest each year
over a period of five years commencing June 1, 1997 and are exercisable for five
years after vesting.
(d) Long-Term Incentive Plans - Awards in Last Fiscal Year
Estimated future payouts under non-stock price based plans
Number of shares, Performance or other period Name units or other rights
until maturation or payout Threshold Target Maximum R. Frank Brown(1) 700,000
June 1997-June 2001 ______________________ (1) 20% of these options vest each
year over a period of five years commencing June 1, 1997 and are exercisable for
five years after vesting.
Mr. R. Frank Brown has executed an employment
agreement with the Company which provides for a
salary of $125,000 per year for a term of two years
commencing June 1, 1996. The agreement is renewable
annually for additional one year terms. Pursuant to the
employment agreement, the Company granted Mr.
Brown options to purchase an aggregate of 700,000
shares of Common Stock, with an exercise price of
$1.375 per share with respect to 350,000 shares and an
exercise price of $2.125 per share with respect to
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350,000 shares. 20% of these options vest each year
over a period of five years commencing June 1, 1997
and are exercisable for five years after vesting. In the
event that Mr. Brown's employment contract is not
renewed, he will only be entitled to exercise those
options which have vested as of the date of termination.
The Company has also purchased $1,000,000 of key
man life insurance on Mr. Brown, of which the
Company is the beneficiary. Ownership of the policy
will be assigned to Mr. Brown upon termination of Mr.
Brown's employment. Mr. Brown also receives a car
allowance of $600 per month.
Mr. R. Daniel Cheatham, the Director of Purchasing,
receives an annual salary of $90,000. Mr. Cheatham
receives a car allowance of $600 per month. Mr.
William Saculla, the Secretary of the Company receives
an annual salary of $75,000. Mr. Saculla also receives
a car allowance of $600 per month. No other employee
of the Company receives a salary in excess of $75,000.
Item 7. Certain Relationships and Related
Transactions.
On May 31, 1996, Mr. James R. Cataland sold
2,000,000 shares of Common Stock to an investor
group led by Mr. Bruce Galloway, the Company's
Chairman of the Board, for an aggregate sale price of
$1,200,000. With respect to such 2,000,000 shares,
Mr. Galloway purchased 416,667 shares, NTS Financial
Services, LTD. (an affiliate of Mr. Thorvaldsson, the
Company's Vice Chairman of the Board) purchased
416,666 shares, Lifeyrissjodurinnn Hilf (an Icelandic
pension fund) purchased 546,875 shares, Heinz
Schimmelbusch and members of his family purchased
200,000 shares and certain non-affiliates of the
Company purchased the remaining 419,792 shares.
Contemporaneously with such sale, James A. Cataland
and William Saculla resigned from the Board of
Directors of the Company, Mr. Cataland resigned as
President of the Company and Messrs. Galloway,
Brown and Thorvaldsson were elected to the Board of
Directors. Mr. Galloway paid $0.60 per share
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purchased from Mr. Cataland, but received no
placement fee in connection therewith. Certain other
purchasers of the balance of 2,000,000 shares of
Common Stock from Mr. Cataland and 3,042,463
shares of Common Stock from the Company paid $0.64
per share. Of the $0.64 purchase price per share, $0.04
per share was paid as a placement fee to Mr. Galloway,
and other broker/dealers, and Mr. Cataland and the
Company received $0.60 per share from such investors.
With respect to such private placement, approximately
$40,000 in placement fees were paid to Mr. Bruce
Galloway in his capacity as a placement agent. Upon
the sale of his shares of Common Stock, Mr. Cataland
was retained by the Company as a consultant under a
consulting agreement. Under this agreement, Mr.
Cataland receives a consulting fee of $100,000 per year,
payable in bi-weekly installments for two years which
commenced June 1, 1996.
On May 31, 1996, Messrs. Bruce Galloway, Skuli
Thorvaldsson and Gudmundur Jonsson agreed to be
jointly and severally liable for the Company's
obligations to Bank One under a term loan in the
original principal amount of $750,000 and Mr. Andrew
Catapano, the President of AFC Enterprises (a principal
shareholder of the Company) agreed to guarantee
$187,500 of the Company's obligations. Upon
repayment of the loan on December 2, 1996, the
guarantees were terminated. In consideration for such
guarantors providing the guarantees and providing
approximately $170,000 to fund certain expenses in
connection with the acquisition of Mr. Cataland's shares
and the placement of the Company's Common Stock in
May 1996, the Company issued 555,000 warrants to
Mr. Galloway, 250,000 warrants to Mr. Thorvaldsson,
250,000 warrants to Mr. Jonsson and 100,000 warrants
to Mr. Catapano. Such warrants are exercisable at a
price of $1.51 for a period of five years through May
31, 2001.
On August 26, 1996, the Company purchased
substantially all of the assets and selected liabilities of
Proulx Properties, Inc., a corporation owned by Michael
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Proulx, the Company's Director of Franchise Services.
The assets of the corporation consisted of a franchised
restaurant located in Port Charlotte, Florida. The
purchase price was 22,000 shares of Common Stock of
the Company valued at $68,750. On the date of the
transaction, the average of the Company's closing bid
and asked prices was $3.125 per share.
On November 27, 1996, the Company purchased all of
the issued and outstanding stock of MIE for
$1,506,563. The Company also invested $743,437 into
MIE, which amount was immediately paid to Magee
Industrial Enterprises ("Magee"), an affiliate of MIE, to
reduce the outstanding indebtedness owed by MIE to
Magee to $1,091,563. The $2,250,000 paid in
connection with the MIE Acquisition was paid from the
proceeds of the November Private Placement.
The $1,139,563 principal amount of remaining debt
owed by MIE to Magee is evidenced by a promissory
note (the "Magee Note") payable in 10 equal
semiannual installments, with the first payment being
due on June 1, 1998 and the final payment being due on
December 1, 2002. The principal amount of the Magee
Note bears interest at the rate of eight percent (8%) per
annum, and interest is payable every six months
commencing June 1, 1997. In the event of a closing of
any financing by the Company in excess of $10,000,000,
provided that the debt or equity financing which results
in equaling or exceeding the aggregate gross proceeds
of $10,000,000 is a debt or equity financing for gross
proceeds of a minimum of $5,000,000 (other than any
purchase money financing in connection with the
acquisition of any assets) or the sale of all or
substantially all of the capital stock of the Company or
MIE, the balance of all outstanding principal and
interest under the Magee Note shall be immediately due
and payable.
The 490,000 shares of Series B Preferred Stock of the
Company owned by MIE were transferred to Magee in
connection with the Company's acquisition of MIE.
The Series B Preferred Stock is convertible into
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<PAGE>
765,625 shares of Common Stock of the Company at
the option of the Company commencing April 27, 1997.
The Company agreed to pay Magee an amount equal to
the accrued dividend on the Series B Preferred Stock of
$390,417 through November 30, 1996 in full on
September 1, 1998. Such obligation shall not bear
interest and no dividends have accumulated on such
Preferred Stock since November 30, 1996.
In connection with the November Private Placement,
Bruce Galloway received $71,000 as selling
commissions. Burnham, the placement agent of the
November Private Placement, had agreed to pay Mr.
Galloway, the Chairman of the Board of the Company
and a Managing Director of Burnham, 20% of the cash
compensation payable to Burnham in consideration for
his services rendered in connection with the November
Private Placement.
Effective January 10, 1997, the Company issued
250,000 warrants to Bruce Galloway, 100,000 warrants
to Mr. George Koo (an advisor to the Board) and
50,000 warrants to Mr. Skuli Thorvaldsson. The
warrants are exercisable for a term of five years at an
exercise price of $3.00 per share. The warrants were
issued for services rendered in connection with the
acquisition of MIE and represented the reinstatement of
400,000 warrants previously issued to Mr. Galloway
(with an exercise price of $0.60 per share) which had
expired in August 1995.
Item 8. Description of Securities.
The Company's certificate of incorporation provides for
an authorized capital stock of 25,000,000 shares of
Common Stock and 2,000,000 shares of Preferred
Stock. 14,377,531 shares of Common Stock, 87,200
shares of Series A Preferred Stock and 490,000 shares
of Series B Preferred Stock are issued and outstanding.
Common Stock
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The holders of Common Stock are entitled to one vote
per share held of record on all matters to be voted on by
shareholders. There is no cumulative voting with
respect to the election of Directors, with the result that
holders of more than 50% of the shares voting for the
election of directors can elect all of the directors. The
holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of
Directors from sources available therefor. In the event
of liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders
of Common Stock are entitled to share ratably in the
assets of the Company available for distribution to
stockholders after payment of liabilities and after
provisions for each class of stock, if any, having
preference over the Common Stock. All outstanding
shares are fully paid and non-assessable and legally
issued. Shareholders do not have any preemptive rights
to subscribe for or purchase any stock, warrants or
other securities of the Company. The Common Stock
is not convertible or redeemable.
Preferred Stock
The Series A Preferred Stock is entitled to a cumulative
dividend of $0.10 per share per annum if and when the
Board declared a dividend. The Company has not paid
any dividends with respect to the Series A Preferred
Stock. Accordingly, no dividends may be distributed
with respect to the Common Stock so long as there are
accrued and unpaid dividends on the Series A Preferred
Stock. The holders of the Series A Preferred Stock are
not entitled to vote, except as required by law. The
87,200 outstanding shares of Series A Preferred Stock
are convertible into 96,889 shares of Common Stock for
no additional consideration at the option of the holder
of the stock. The Series A Preferred Stock is entitled to
a liquidation preference of $1.00 per share, plus any
accrued and unpaid dividends. The Series A Preferred
Stock may be redeemed by the Company at a
redemption price of $1.00 per share plus all accrued
and unpaid dividends. The amount of accumulated and
unpaid dividends was approximately $96,000 as of
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December 31, 1996. The Company has an agreement in
principle with the holders of the Series A Preferred
Stock to issue such holders 130,800 shares of Common
Stock in consideration for the 87,200 shares of Series A
Preferred Stock and all accumulated and unpaid
dividends on the Series A Preferred Stock.
The Series B Preferred Stock is entitled to a cumulative
dividend of $0.10 per share per annum if and when the
Board declares a dividend. The holders of the Series B
Preferred Stock are not entitled to vote, except as
required by law. The Series B Preferred Stock is
entitled to a liquidation preference of $1.00 per share.
The Company has not paid any dividends with respect
to the Series B Preferred Stock. In conjunction with
the acquisition of all of the issued and outstanding
shares of capital stock of MIE from affiliates of Magee
on November 27, 1996, Magee (the holder of all of the
issued and outstanding shares of Series B Preferred
Stock), and the Company agreed that no dividends
would accumulate on such Preferred Stock after
November 30, 1996. The Company agreed to pay
Magee an amount equal to the accrued dividend on the
Series B Preferred Stock of $390,417 through
November 30, 1996 in full on September 1, 1998. Such
obligation shall not bear interest. The 490,000
outstanding shares of Series B Preferred Stock are
convertible at the option of the holder at any time into
765,625 shares of Common Stock for no additional
consideration. The Series B Preferred Stock is
convertible into 765,625 shares of Common Stock of
the Company at the option of the Company
commencing April 27, 1997.
Warrants and Options
The Company has issued 1,335,000 warrants to
purchase shares of Common Stock at an exercise price
of $1.51 per share. The warrants are exercisable for a
period of five years through May 31, 2001. Some of
such warrants were issued to principals of the Company,
including 555,000 warrants to Bruce Galloway, 250,000
warrants to Skuli Thorvaldsson, 250,000 warrants to
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Gudmundur Jonsson, 100,000 warrants to Andrew
Catapano (the owner of AFC Enterprises, Inc., a
principal shareholder of the Company), and 50,000 to
Evan Binn (a principal shareholder of the Company).
The remaining 255,000 warrants are held by six people,
none of whom owns more than 65,000 warrants. Mr.
Galloway subsequently transferred 125,000 of such
warrants.
Pursuant to his employment agreement, the Company
granted Mr. Frank Brown options to purchase an
aggregate of 700,000 shares of Common Stock, with an
exercise price of $1.375 per share with respect to
350,000 shares and an exercise price of $2.125 per
share with respect to 350,000 shares. 20% of these
options vest each year over a period of five years
commencing June 1, 1997 and are exercisable for five
years after vesting. In the event that Mr. Brown's
employment contract is not renewed, he will only be
entitled to exercise those options which have vested as
of the date of termination.
The Company has issued options to employees other
than Mr. Brown to purchase an aggregate of 167,500
shares of Common Stock at an exercise price of $2.65
per share. 20% of these options vest each year over a
period of five years commencing on September 1, 1996
and are exercisable for five years after vesting.
The Company has issued to Burnham warrants to
purchase 316,391 shares of Common Stock in
consideration for services rendered as placement agent
in the November Private Placement. The warrants are
exercisable for a period of five years from the date of
issue at a price per share equal to$3.30, a price equal to
110% of the closing bid price of the Company's shares
as recorded on the NASD Bulletin Board on the date of
each closing under the November Private Placement.
Effective January 10, 1997, the Company issued
250,000 warrants to Mr. Bruce Galloway, 100,000
warrants to Mr. George Koo and 50,000 warrants to
Mr. Skuli Thorvaldsson. The warrants are exercisable
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for a term of five years at an exercise price of $3.00 per
share. The warrants were issued for services rendered
in connection with the acquisition of MIE and
represented the reinstatement of 400,000 warrants
previously issued to Mr. Galloway (with an exercise
price of $0.60 per share) which had expired in August
1995.
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PART II
Item 1. Market Price of and Dividends on the
Registrant's Common Equity and
Other Shareholder Matters.
(a) Market Information
The following table sets forth the high and low
prices for the periods indicated as reported by the
National Daily Quotation Service, Inc. between dealers
and do not include retail mark-ups, mark-downs, or
commissions and do not necessarily represent actual
transactions, as reported by the National Association of
Securities Dealers Composite Feed or other qualified
inter-dealer quotation medium. As of February 28,
1997, the closing bid price was $3.875 per share.
Low
High
1995 Fiscal Year:
First Quarter 0.560
1.310
Second Quarter 0.680
1.870
Third Quarter 0.680
1.680
Fourth Quarter 0.680
1.180
1996 Fiscal Year:
First Quarter 0.500
1.063
Second Quarter 0.375
0.906
Third Quarter 0.250
0.875
Fourth Quarter 0.500
3.125
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1997 Fiscal Year:
First Quarter 2.000
3.375
Second Quarter 3.000
3.375
Period 1/1/97 through
2/28/97 3.000
3.875
The Common Stock is recorded on the NASD
Bulletin Board with the symbol ATCH. As of February
28, 1997, the number of record holders of the
Company's Common Stock was 583.
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(b) Dividends
To date, the Company has not paid any
dividends on its Common Stock. The payment of
dividends, if any, in the future is within the discretion of
the Board of Directors and will depend upon the
Company's earnings, its capital requirements and
financial condition, and other relevant factors. The
Company does not intend to declare any dividends in
the foreseeable future, but instead intends to retain all
earnings, if any, for use in the Company's business
operations. No dividends may be distributed with
respect to the Common Stock so long as there are
accrued and unpaid dividends on the Series A Preferred
Stock. The amount of accumulated and unpaid
dividends on the Series A Preferred Stock was
approximately $96,000 as of December 31, 1996. The
Company has an agreement in principle with the holders
of the Series A Preferred Stock to issue such holders
130,800 shares of Common Stock in consideration for
the 87,200 shares of Series A Preferred Stock and all
accumulated and unpaid dividends on the Series A
Preferred Stock.
Item 2. Legal Proceedings
In the normal course of the Company's business, certain
actions may be filed against the Company for which the
Company and its legal counsel, do not believe would
warrant any merit. Such actions may prove to be
meritorious and could result in settlements which could
materially and severely affect the financial condition of
the Company. As of December 31, 1996, the Company
has not made any provisions for any actions, including
the action discussed below. There can be no assurance
that any actions against the Company would be resolved
in favor of the Company nor that such actions would be
dismissed. The following action is pending:
ATAC Corporation and Patrick Cullen v. Arthur
Treacher's, Inc. and James Cataland, Case No.
1:95CV 1032, in the U.S. District Court, Northern
District, Ohio Eastern Division
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On November 16, 1994, the Company terminated the
agency agreement of a Regional Development
Representative, ATAC Corporation, on the grounds
that the agent breached the agreement by assigning the
agency agreement to a third party without the consent
of the Company. On May 9, 1995, ATAC filed the
above lawsuit; however, ATAC did not inform the
Company of the lawsuit (via service of process as
prescribed by the Ohio Rules of Civil Procedure).
ATAC seeks a minimum of $2,750,000 in compensatory
damages and $6,000,000 in punitive damages.
On August 31, 1995, ATAC's counsel informed the
Company that a lawsuit has been filed. ATAC alleges
that the Company terminated the contract without
cause, tortiously interfered with other business
relationships, wrongful conversion of the territory,
restraint of trade and price-fixing, breach of contract,
fraud, RICO and conversion. The Company has filed a
partial motion on the pleadings to dismiss James
Cataland, Sr. and William Saculla from the lawsuit. The
Company has also filed a Motion for Judgment on the
Pleading which requests the court to dismiss all claims.
If successful, ATAC will only be allowed to proceed
under a breach of contract theory.
The Company believes that the lawsuit is an attempt by
plaintiffs to regain the territory by forcing the Company
to defend expensive litigation at significant expense and
that the plaintiffs' claims are without merit. The
Company has filed a counterclaim against ATAC
seeking a Declaratory Judgment from the court that
ATAC does not have a service contract with the
Company in certain areas which the Company does
business, breach of contract and indemnification for
previous lawsuits which have occurred because of the
actions of ATAC on behalf of the Company.
Item 3. Changes in and Disagreements with
Accountants.
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None
Item 4. Recent Sales of Unregistered
Securities.
From May through August, 1996, the Company
concluded a private placement of 3,042,463 shares of its
Common Stock at $.64 per share (for gross proceeds of
$1,947,176) to 22 accredited investors.
In August 1996 and December 1996, the Company
issued an aggregate of 37,050 shares of Common Stock
and, in January 1997, a warrant to purchase 5,000
shares of Common Stock at an exercise price of $3.00
per share for five years commencing January 1, 1997 to
McLaughlin & Stern, LLP in consideration for legal
services.
On May 31, 1996, the Company issued warrants to
purchase an aggregate of 1,335,000 shares of Common
Stock at an exercise price of $1.51 per share, which
warrants are exercisable through May 31, 2001. The
Company issued an aggregate of 1,155,000 warrants in
consideration for the warrant holders providing personal
guarantees of the Company's obligations to Bank One
under a term loan in the principal amount of $750,000
and for providing approximately $170,000 to fund
certain expenses in connection with the acquisition of
Mr. Cataland's shares in May 1996 and the private
placement of the Company's Common Stock in May
1996. The remaining 180,000 warrants were issued in
consideration for services rendered to the Company in
connection with the change of control of the Company
in May 1996.
In November and December, 1996, the Company
concluded a private placement of 3,163,911 shares of its
Common Stock at $1.78 per share (for gross proceeds
of $5,631,761) to 57 accredited investors. In
conjunction with such private placement, the Company
has issued to Burnham warrants to purchase 316,391
shares of Common Stock in consideration for services
rendered as placement agent in the November Private
Placement. The warrants are exercisable for a period of
57
<PAGE>
five years from the date of issue at a price per share
equal to$3.30, a price equal to 110% of the closing bid
price of the Company's shares as recorded on the
NASD Bulletin Board on the date of each closing under
the November Private Placement.
Neither the Company nor any person acting on its behalf
offered or sold the securities described above by means
of any form of general solicitation or general
advertising. Each purchaser represented in writing that
he acquired the securities for his own account. A
legend was placed on the certificates stating that the
restrictions on their transferability and sale. Each
purchaser signed a written agreement that the securities
will not be sold without registration under the Securities
Act or exemption therefrom. The Registrant believes
such issuances are exempt transactions not involving a
public offering under Section 4(2) of the Securities Act.
Item 5. Indemnification of Directors and Officers.
The Utah Revised Business Corporation Act of 1992
(the "Model Act") provides that the statutory
indemnification provisions are not exclusive and a
corporation, through its by-laws, may authorize
indemnification in circumstances that go beyond those
permitted by statute, subject to certain limitations. The
Model Act does not, however, permit any
indemnification to the director or officer where: (a)
amount of financial benefit received by director to which
he was not entitled; (b) intentional infliction of harm on
corporation or shareholders; (c) unlawful distribution;
or (d) intentional violation of criminal law. The
Company's By-Laws provide for indemnification of
officers and directors for any action taken or failure to
take action as the officer and/or director so long as the
officer and/or director reasonably believed that his
conduct was in, or not opposed to, the Compan's best
interests, and not in violation of the Model Act.
58
<PAGE>
PART III
Item 1. Index to Exhibits.
Item 2. Description of Exhibits.
(a) Exhibits
3.1.1 Registrant's Certificate of
Incorporation
3.1.2 Agreement and Plan of
Reorganization and First Addendum dated
December 5, 1983
3.1.3 Certificate of Merger dated
January 23, 1984
3.1.4 Articles of Merger dated January
27, 1984
3.1.5 Articles of Amendment to
Articles of Incorporation dated
January 27, 1984
3.1.6 Amendment to Articles of
Incorporation dated January 27, 1986
3.1.7 Articles of Amendment to
Articles of Incorporation dated June 28, 1996
3.2 Registrant's Bylaws
4.1 Form of Common Stock
Certificate
4.2 Certificate of Designation on
Series A Preferred Stock
4.3 Certificate of Designation on
Series B Preferred Stock
59
<PAGE>
10.1 Purchase Agreement dated May
31, 1996 between James Cataland and
Registrant
10.2 Employment Agreement dated
June 1, 1996 between R. Frank
Brown and Registrant
10.3 Purchase Agreement dated
November 27, 1996, between
M.I.E. Hospitality and
Registrant
10.4 Guaranty Surety Agreement
dated November 27, 1996 by Arthur
Treacher's, Inc.
10.5 Escrow Agreement dated
November 27, 1996 among Arthur
Treacher's,
Inc. Seller and Brown Brothers
Harriman & Co.
10.6 Mutual Release Agreement dated
November 27, 1996, among M.I.E.
Hospitality, Inc. and Magee Industrial Enterprises, Inc.
10.7 Promissory Note dated
November 27, 1996 for
$390,417 from M.I.E.
Hospitality, Inc. in favor of
Magee Industrial Enterprises
Inc.
10.8 Promissory Note dated
November 27, 1996 for $1,139,563 from M.I.E.
Hospitality, Inc in favor of
Magee Industrial Enterprises, Inc.
10.9 Uniform Franchise Offering
Circular as of January 1, 1997
60
<PAGE>
10.10 Form of Franchise Agreement as
of January 1, 1997
10.11 Form of Warrant exerciseable at
$1.51 per share
10.12 Form of Warrant to Burnham
Securities, Inc.
10.13 Form of Stock Option to
Employees
21. List of Subsidiaries
27. Financial Data Schedules
61
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities
Exchange Act of 1934, the registrant caused this
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
ARTHUR
TREACHER'S, INC.
(Registrant)
Date: March 18, 1997 By \s\ R.
Frank Brown
R.
Frank Brown,
President, Chief Executive Officer, Treasurer
steven\treacher\10sb\10sb.318
62
<PAGE>
ARTHUR TREACHER'S INC. AND SUBSIDIARIES
INDEX TO PRO FORMA FINANCIAL INFORMATION AND HISTORICAL
FINANCIAL STATEMENTS
Page
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ARTHUR TREACHER'S INC. CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED - INCLUDING M.I.E.
HOSPITALITY, INC.) - DECEMBER 29, 1996
Consolidated Balance Sheet as of December 29, 1996 F-3
Consolidated Comparative Statements of Operations for Quarters Ending
December 29, 1996 and December 26, 1995 F-5
Consolidated Comparative Statements of Operations for Periods Ending
December 29, 1996 and December 26, 1995 F-6
PRO FORMA COMBINED FINANCIAL INFORMATION
Pro Forma Combined Balance Sheet as of June 30, 1996 F-7
Pro Forma Combined Statement of Operations for Fiscal Year Ended June
30, 1996
F-9
Pro Forma Combined Balance Sheet as of June 30, 1995 F-10
Pro Forma Combined Statement of Operations for Fiscal Year Ended
June 30, 1995
F-12
ARTHUR TREACHER'S INC. AND SUBSIDIARIES FINANCIAL
STATEMENTS
Independent Auditors' Report F-13
Consolidated Balance Sheets as of June 30, 1996 and 1995 F-14
Consolidated Statements of Operations for the fiscal years ended
June 30, 1996 and 1995
F-16
Consolidated Statements of Retained Earnings for the fiscal years ended
June 30, 1996 and 1995
F-17
Consolidated Statements of Cash Flows for the fiscal years ended
June 30, 1996 and 1995
F-18
Notes to Consolidated Financial Statements F-19
Independent Auditors' Report F-29
Consolidated Balance Sheets as of June 30, 1995 and 1994 F-30
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
F-1
Consolidated Statements of Operations for the fiscal years ended
June 30, 1995 and 1994
F-32
Consolidated Statements of Retained Earnings for the fiscal years ended
June 30, 1995 and 1994
F-34
Consolidated Statements of Cash Flows for the fiscal years ended
June 30, 1995 and 1994
F-35
Notes to Consolidated Financial Statements F-37
M.I.E. HOSPITALITY, INC. FINANCIAL STATEMENTS
Independent Auditors' Report F-47
Balance Sheet as of December 29, 1996 F-48
Statement of Operations for the year ended December 29, 1996 F-50
Statement of Stockholders' Equity for the year ended December 29, 1996 F-51
Statement of Cash flows for the year ended December 29, 1996 F-52
Notes to Financial Statements F-53
F-2
</TABLE>
ann\wp\sws\treacher\index
<PAGE>
ARTHUR TREACHER'S, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 29, 1996
(Unaudited)
ASSETS
December 1996
CURRENT ASSETS
Cash and short-term investments $3,480,963
Deposits held in escrow 28,004
Accounts receivable, net of allowance
for doubtful accounts of $16,650 in 1996 182,913
Inventories 263,825
Prepaid Expenses 112,772
Note receivable - current portion 6,195
TOTAL CURRENT ASSETS
4,074,672
OTHER ASSETS
Security deposits 143,703
Note receivable net of current portion 7,794
Other
70,349
TOTAL OTHER ASSETS
221,846
PROPERTY AND EQUIPMENT, at cost
Land
135,252
Buildings
273,649
Equipment and Leasehold improvements 9,789,800
Vehicles
51,486
TOTAL PROPERTY AND EQUIPMENT
10,250,187
Less - accumulated depreciation 5,077,270
NET PROPERTY AND EQUIPMENT
5,172,917
TOTAL ASSETS $9,469,435
F-3
<PAGE>
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY December 1996
CURRENT LIABILITIES
Accounts payable $1,224,725
Accrued expenses and taxes withheld 882,554
Current maturities of long-term debt 506,855
TOTAL CURRENT LIABILITIES
2,614,134
LONG-TERM DEBT, net of current portion 1,432, 285
DEFERRED FEDERAL INCOME TAX 115,501
DEFERRED ROYALTY AND FRANCHISE FEES 36,214
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock 577,800
Common Stock 143,646
Paid-in-capital 8,873,133
Retained earnings (deficit) (4,323,278)
TOTAL STOCKHOLDERS' EQUITY
5,271,301
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,469,435
F-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ARTHUR TREACHER'S, INC.
COMPARATIVE STATEMENTS OF OPERATIONS
FOR QUARTERS ENDING
(Unaudited)
(Unaudited)
9/30/96
9/27/95
through
through
12/29/96
12/26/95
TOTAL REVENUE $3,929,736 $2,192,601
TOTAL COSTS AND EXPENSES 3,699,187 2,184,052
INCOME FROM OPERATIONS BEFORE
NON-RECURRING ITEMS 230,549
8,549
NON-RECURRING ITEMS (158,800) 0
INCOME FROM OPERATIONS 71,749 8,549
TOTAL OTHER INCOME (EXPENSE) (74,185) (37,118)
LOSS BEFORE DEPRECIATION, AMORTIZATION
AND INCOME TAXES (2,436) (28,569)
DEPRECIATION AND AMORTIZATION 116,170 77,153
LOSS BEFORE INCOME TAXES (118,606) (105,722)
TOTAL INCOME TAX BENEFIT 38,633 30,113
NET LOSS $ (79,973)
$ (75,609)
NET LOSS PER COMMON SHARE $ (0.01) $ (0.01)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<S> <C> <C> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING $13,244,930 $8,076,200
F-5
ARTHUR TREACHER'S, INC.
COMPARATIVE STATEMENTS OR OPERATIONS
FOR PERIODS ENDING
(Unaudited)
(Unaudited)
7/1/96
7/1/95
through
through
12/29/96
12/26/95
TOTAL REVENUE $6,037,079
$3,982,591
TOTAL COSTS AND EXPENSES 6,087,087 4,019,521
INCOME FROM OPERATIONS BEFORE
NON-RECURRING ITEMS (50,008)
(36,930)
NON-RECURRING ITEMS (158,800) 0
LOSS FROM OPERATIONS (208,808) (36,930)
TOTAL OTHER INCOME (EXPENSE) (158,775) (74,720)
LOSS BEFORE DEPRECIATION, AMORTIZATION
AND INCOME TAXES (367,583) (111,650)
DEPRECIATION AND AMORTIZATION 185,283 127,479
LOSS BEFORE INCOME TAXES (552,866) (239,129)
TOTAL INCOME TAX BENEFIT 271,979 68,124
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NET LOSS $ (280,887)
$ (171,005)
NET LOSS PER COMMON SHARE $ (0.02) $ (0.02)
AVERAGE SHARES OUTSTANDING 12,195,463 8,076,200
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ARTHUR TREACHER'S INC
CONSOLIDATED
PROFORMA
BALANCE SHEETS
FOR PERIODS ENDING
MIE ARTHUR TREACHER'S INC
ASSETS (unaudited) (audited)
June 30, 1996 June 30, 1996
CURRENT
ASSETS
CASH (157,259) 990,683
ACCOUNTS RECEIVABLE 20,489 147,122
INVENTORIES 149,665 68,668
PREPAID EXPENSES 213,048 34,867
NOTES RECEIVABLE 5,777
Total Current Assets 231,720 1,241,340
OTHER ASSETS
INVESTMENTS 490,000
LAND 135,252
BUILDINGS 117,349 156,300
EQUIPMENT and LEASEHOLD IMPROVEMENTS 6,586,002 2,658,471
LESS : Accumulated Depreciation 3,335,495 1,424,317
NET 3,993,108 1,390,454
FRANCHISE and ORGANIZATION COST 166,130
LESS : Accumulated Amortization 105,438
NET 60,692
OTHER ASSETS 63,350 32,810
DEFERRED TAXES 334,800
NOTES RECEIVABLE 11,151
Total Other Assets 4,128,301 1,758,064
TOTAL 4,360,021 2,999,404
ASSETS
F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
MIE ARTHUR TREACHER'S INC
(unaudited) (audited)
June 30, 1996 June 30, 1996
LIABILITIES and STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
ACCOUNTS PAYABLE (90,897) 923,379
ACCRUED EXPENSES 97,495 514,555
TAXES PAYABLE 48,259
NOTES PAYABLE 2,505,000 1,056,202
Total Current Liabilities 2,559,857 2,494,136
OTHER LIABILITIES
LONG TERM DEBT 458,923
DEFERRED ROYALTIES and INCOME 46,379
Total Liabilities 2,559,857 2,999,438
STOCKHOLDER'S EQUITY
PREFERRED STOCK 577,800
COMMON STOCK 8,212 111,186
PAID IN CAPITAL 52,316 3,731,347
RETAINED EARNINGS 1,897,602 (4,042,391)
1,958,130 377,942
TREASURY STOCK (157,966)
SUBSCRIPTIONS RECEIVABLE (377,976)
Total Stockholder's Equity (Deficit) 1,800,164 (34)
TOTAL LIABILITIES and EQUITY 4,360,021 2,999,404
F-8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
PROFORMA
STATEMENT OF OPERATIONS
JULY 1995 THRU JUNE 1996
MIE ARTHUR TREACHER'S PROFORMA
INC
July-95 July-95 July-95
THRU THRU THRU
June-96 June-96 June-96
(unaudited) ( AUDITED ) (unaudited)
REVENUE
SALES 14,999,299 6,648,564 21,647,863
FRANCHISE and OTHER INCOME 1,229,346 1,229,346
__________ __________ __________
TOTAL REVENUE 14,999,299 7,877,910 22,877,209
COST OF SALES 4,904,144 2,438,028 7,342,172
OPERATING EXPENSES 8,558,974 4,166,405 12,725,379
FRANCHISE SERVICE and SELLING EXPENSES 876,584 876,584
GENERAL and ADMINISTRATIVE 1,255,144 689,166 1,944,310
__________ __________ __________
TOTAL COST and EXPENSES 14,718,262 8,170,183 22,888,445
__________ __________ __________
EBITDA BEFORE NON RECURRING ITEMS 281,037 (292,273) (11,236)
NON RECURRING ITEMS 403,434 403,434
INTEREST EXPENSE 215,196 168,513 383,709
DEPRECIATION 621,556 290,120 911,676
__________ __________ __________
NET PROFIT BEFORE TAXES (555,715) (1,154,340) (1,710,055)
F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ARTHUR TREACHER'S INC
CONSOLIDATED
PROFORMA
BALANCE SHEETS
FOR PERIODS ENDING
MIE ARTHUR TREACHER'S INC
ASSETS (unaudited) (audited)
June 25, 1995 June 30, 1995
CURRENT ASSETS
CASH 122,259 26,185
ACCOUNTS RECEIVABLE 7,819 171,864
INVENTORIES 155,964 90,048
PREPAID EXPENSES 194,526 172,200
NOTES RECEIVABLE 1,388
Total Current Assets 481,956 460,297
OTHER ASSETS
INVESTMENTS 490,000
LAND 135,252
BUILDINGS 117,349 156,300
EQUIPMENT and LEASEHOLD IMPROVEMENTS 6,946,995 2,421,549
LESS : Accumulated Depreciation 2,941,466 1,195,999
NET 4,748,130 1,381,850
FRANCHISE and ORGANIZATION COST 166,130
LESS : Accumulated Amortization 95,886
NET 70,244
OTHER ASSETS 66,100 26,635
DEFERRED TAXES 5,700
NOTES RECEIVABLE 17,119
Total Other Assets 4,901,593 1,414,185
TOTAL ASSETS 5,383,549 1,874,482
F-10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
MIE ARTHUR TREACHER'S INC
(unaudited) (audited)
June 25, 1995 June 30, 1995
LIABILITIES and STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES
ACCOUNTS PAYABLE 330,212 654,872
ACCRUED EXPENSES 118,287 258,030
TAXES PAYABLE 88,501
NOTES PAYABLE 2,555,000 300,917
Total Current Liabilities 3,092,000 1,213,819
OTHER LIABILITIES
LONG TERM DEBT 970,839
DEFERRED ROYALTIES and INCOME 64,665
Total Liabilities 3,092,000 2,249,323
STOCKHOLDER'S EQUITY
PREFERRED STOCK 577,800
COMMON STOCK 8,212 80,762
PAID IN CAPITAL 52,316 2,183,748
RETAINED EARNINGS 2,388,987 (3,217,151)
2,449,515 (374,841)
TREASURY STOCK (157,966)
SUBSCRIPTIONS RECEIVABLE 0
Total Stockholder's Equity (Deficit) 2,291,549 (374,841)
TOTAL LIABILITIES and EQUITY 5,383,549 1,874,482
F-11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
PROFORMA
STATEMENT OF OPERATIONS
JULY 1994 THRU JUNE 1995
MIE ARTHUR TREACHER'S INC PROFORMA
July-94 July-94 July-94
THRU THRU THRU
June-95 June-95 June-95
(unaudited) ( AUDITED ) (unaudited)
REVENUE
SALES 14,926,795 5,625,587 20,552,382
FRANCHISE and OTHER INCOME 1,691,965 1,691,965
__________ _________ __________
_
TOTAL REVENUE 14,926,795 7,317,552 22,244,347
COST OF SALES 4,765,510 2,083,155 6,848,665
OPERATING EXPENSES 8,287,512 3,632,450 11,919,962
FRANCHISE SERVICE and SELLING EXPENSES 0 1,060,986 1,060,986
GENERAL and ADMINISTRATIVE 759,007 803,713 1,562,720
__________ _________ __________
_
TOTAL COST and EXPENSES 13,812,029 7,580,304 21,392,333
__________ _________ __________
_
EBITDA BEFORE NON RECURRING ITEMS 1,114,766 (262,752) 852,014
NON RECURRING ITEMS 0 0 0
INTEREST EXPENSE 406,418 101,818 508,236
DEPRECIATION 633,207 172,028 805,235
__________ _________ __________
_
NET PROFIT BEFORE TAXES 75,141 (536,598) (461,457)
F-12
</TABLE>
<PAGE>
To the Board of Directors and Stockholders of Arthur Treacher's, Inc. and
subsidiaries Report of Independent Auditors We have audited the accompanying
consolidated balance sheets of Arthur Treacher's, Inc and subsidiaries as of
June 30, 1996 and 1995, and the related consolidated statements of operations,
retained earnings (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion. In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Arthur
Treacher's, Inc. as of June 30, 1996 and 1995, and the consolidated results of
their operations and their consolidated cash flows for the years then ended in
conformity with generally accepted accounting principles. Lytkowski & Pease,
Inc. September 20, 1996 Lytkowski & Pease, Inc. Certified Public Accountants 8th
Floor Annex, 1422 Euclid Avenue, Cleveland, Ohio 44115-1975 216-696-5394
F-13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ARTHUR TREACHER'S, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
ASSETS
1996 1995
CURRENT ASSETS
Cash and short-term investments $ 985,616$ 26,085
Deposits held in escrow 5,067100
Accounts receivable, net of
allowance for doubtful accounts
of $39,000 in 1996 and $66,000
in 1995147,122171,864
Inventories 68,66890,048
Prepaid expenses 34,867 172,200
TOTAL CURRENT ASSETS1,241,340460,297
OTHER ASSETS
Deposits23,97626,635
Deferred taxes334,8005,700
Other 8,834
TOTAL OTHER ASSETS367,61032,335
PROPERTY AND EQUIPMENT, at cost
Buildings156,300156,300
Furniture, fixtures and equipment1,202,6901,043,777
Leasehold improvements 1,404,2951,334,551
Vehicles 51,486 43,221
TOTAL PROPERTY AND EQUIPMENT2,814,7712,577,849
Less - accumulated depreciation 1,424,317 1,195,999
NET PROPERTY AND EQUIPMENT 1,390,454 1,381,850
$2,999,404$1,874,482
F-14
</TABLE>
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1996 1995
CURRENT LIABILITIES
Bank overdraft$ 45,336
Accounts payable$ 923,379609,536
Accrued expenses and taxes withheld514,555258,030
Current maturities of long-term debt 1,056,202 300,917
TOTAL CURRENT LIABILITIES2,494,1361,213,819
LONG-TERM DEBT, net of current portion458,923970,839
DEFERRED ROYALTY AND FRANCHISE FEES46,37964,665
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock577,800577,800
Common stock111,18680,762
Paid-in-capital3,731,3472,183,748
Retained earnings (deficit)(4,042,391)(3,217,151)
377,942(374,841)
Less - subscriptions receivable 377,976
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) (34) (374,841)
$2,999,404$1,874,482
See notes to consolidated financial statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ARTHUR TREACHER'S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
REVENUE
Company-owned restaurant sales $6,648,564 $5,625,587
Franchise and royalty income 1,228,296 1,529,318
Initial franchise fees 1,050 63,550
TOTAL REVENUE 7,877,910 7,218,455
COSTS AND EXPENSES
Company-owned restaurants:
Cost of sales, including occupancy, except depreciation 3,856,776 3,334,350
Operating expenses 2,742,907 2,381,255
Franchise service and selling expenses 876,584 1,060,986
General and administrative 689,166 803,713
TOTAL COSTS AND EXPENSES 8,165,433 7,580,304
LOSS FROM OPERATIONS BEFORE
NON-RECURRING ITEMS (287,523) (361,849)
NON-RECURRING ITEMS (403,434)
LOSS FROM OPERATIONS (690,957) (361,849)
OTHER INCOME (EXPENSE)
Interest expense (168,513) (101,818)
Loss on sale (4,750)
Other - net 99,097
TOTAL OTHER INCOME (EXPENSE) (173,263) (2,721)
LOSS BEFORE DEPRECIATION, AMORTIZATION
AND INCOME TAXES (864,220) (364,570)
DEPRECIATION AND AMORTIZATION 290,120 172,028
LOSS BEFORE INCOME TAXES (1,154,340) (536,598)
INCOME TAX BENEFIT
Current 63,000
Deferred, including benefit from net operating
loss carryforward of $329,100 in 1996 329,100 83,600
TOTAL INCOME TAX BENEFIT 329,100 146,600
NET LOSS $ (825,240) $ (389,998)
NET LOSS PER COMMON SHARE $ (.10) $ (.05)
AVERAGE SHARES OUTSTANDING 8,273,032 7,943,746
See notes to consolidated financial statements.
F-16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ARTHUR TREACHER'S, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
Preferred Stock Common Stock Paid-in Retained Subscriptions
Shares Amoun Shares Amount Capital (Deficit) Receivable Total
BALANCE -- JUNE 30, 1994 577,800 $577,800 7,916,157 $ 79,162 $2,105,348 $(2,827,153)
$ (64,843)
Issuance of common stock 160,000 1,600 78,400
80,000
Net loss (389,998)
(389,998)
BALANCE -- JUNE 30, 1995 577,800 577,800 8,076,157 80,762 2,183,748 (3,217,151)
(374,841)
Issuance of common stock 3,042,463 30,424 1,547,599
$(377,976) 1,200,047
Net loss (825,240)
(825,240)
BALANCE -- JUNE 30, 1996 577,800 $577,800 11,118,620 $111,186 $3,731,347 $(4,042,391)
$(377,976) $ (34)
See notes to consolidated financial statements.
</TABLE>
<PAGE>
YEARS ENDED JUNE 30, 1996 AND 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (825,240) $ (389,998)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 290,120 172,028
Loss (gain) on sale of property and equipment 95,112 (38,906)
Provision for doubtful accounts (28,943) 45,500
Changes in operating assets and liabilities:
Deposits held in escrow (4,967) 23,698
Accounts receivable 53,685 14,612
Notes receivable 30,826
Other assets 4,363 19,486
Prepaid expenses 127,294 76,660
Inventories 21,380 2,232
Accounts payable 268,006 176,070
Accrued expenses and other liabilities 237,438 (369,321)
Deferred federal income tax benefit (329,100) (83,600)
TOTAL ADJUSTMENTS 734,388 69,285
NET CASH USED IN OPERATING
ACTIVITIES (90,852) (320,713)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property 18,000 120,000
Purchase of property and equipment (410,230) (494,167)
NET CASH USED IN INVESTING
ACTIVITIES (392,230) (374,167)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,200,047 80,000
Proceeds from long-term debt 490,852 1,104,886
Principal payments on long-term debt (248,286) (430,248)
Repayment of capital lease obligations (61,597)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,442,613 693,041
NET CHANGE IN CASH AND SHORT -
TERM INVESTMENTS 959,531 (1,839)
Cash and short-term investments at beginning of year 26,085 27,924
CASH AND SHORT-TERM INVESTMENTS
AT END OF YEAR $ 985,616 $ 26,085
See notes to consolidated financial statements.
F-18
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<PAGE>
ARTHUR TREACHER'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the business: Arthur Treacher's, Inc. (the "Company")
operates twenty-five Arthur Treacher's Fish & Chips restaurants, of which
twenty-four are owned by the Company, in Ohio, Florida, Michigan, South Carolina
and New York. The Company is also a franchisor of 100 Arthur Treacher's Fish &
Chips restaurants located throughout the United States and Canada. Sales
(unaudited) of Arthur Treacher's Fish & Chips products through company-owned and
franchised restaurants totaled $43 million and $44 million for the years ended
June 30, 1996 and 1995, respectively. During the year ended June 30, 1996, 4
locations were opened and 23 locations were closed or terminated. Additionally,
5 franchises were repurchased by the Company and 1 corporate-owned restaurant
was sold to a franchisee. During the year ended June 30, 1995, 12 locations were
opened and 25 locations were closed or terminated. Additionally, 5 franchises
were repurchased by the Company and 1 corporate owned restaurant was sold to a
franchisee. The Company sells individual franchises. An individual franchise
permits the operation of a franchised Arthur Treacher's Fish & Chips restaurant.
When an individual franchise is sold, the Company assists the franchisee in site
selection, training personnel, implementation of an accounting and store
management system, and various other services. During the year ended June 30,
1996, the Company sold one individual franchise. Arthur Treacher's Management
Co., a wholly-owned subsidiary, provides payroll services to the Company. Arthur
Treacher's Advertising Co., a wholly-owned subsidiary, provided certain
advertising services to the Company and the franchisees. Principles of
consolidation: The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Financial instruments:
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and receivables
from franchisees. The Company generally does not require collateral to secure
its trade receivables and maintains a reserve for potential credit losses.
Property and equipment: Property and equipment are stated at cost. Maintenance
and repairs are charged to expense while expenditures for renewals which prolong
the lives of the assets are capitalized. Depreciation is computed utilizing the
straight-line method over the estimated useful lives of the various assets.
Leasehold improvements are amortized by the straight-line method over the
shorter of their estimated useful lives or the term of the lease. The
depreciation and amortization periods range from one to sixteen years for
leasehold improvements. Equipment and vehicles are depreciated over 10 years and
five years, respectively. Depreciation expense approximated $290,000 and
$172,000 for the years ended June 30, 1996 and 1995, respectively. F-19
</TABLE>
<PAGE>
Cash and cash equivalents: Cash and cash equivalents include cash and
short-term investments with original maturities of three months or less and
consist of checking accounts and a repurchase agreement with a local commercial
bank as described below. At June 30, 1996, the Company had cash balances on
deposit with a commercial bank which exceeded the federally-insured deposit
limit by approximately $11,000. At June 30, 1996, cash and short-term
investments include a three-day repurchase agreement with a commercial bank in
the amount of $844,000. The agreement matures on July 1, 1996, and is
collateralized by FNMA securities held by the bank with a fair market value of
$844,000. Inventories: Inventories, which consist primarily of food located at
the company-owned stores, are stated at the lower of cost (first-in, first-out
method) or market. Franchise fees and royalty income: The Company recognizes
initial franchise fees from the sale of individual franchises as income when it
has substantially performed its obligations relating to such fees. For
individual franchises, this occurs at the commencement of operations by the
franchisee. Amounts received prior to this time ($24,000 and $0 at June 30, 1996
and 1995, respectively) are recorded as deferred franchise fees until such
services have been substantially performed. Direct costs relating to franchise
sales ($8,500 and $0 at June 30, 1996 and 1995, respectively) for which revenue
has not yet been recognized are deferred as prepaid expenses until the related
revenue is recognized. Initial franchise fees related to individual franchise
sales totaled $1,050 and $63,000 for the years ended June 30, 1996 and 1995,
respectively. Generally, royalties are based on franchisee restaurant sales and
are accrued as revenue during the period in which the related franchisee
restaurant sales occur. Accounts receivable consist principally of amounts due
from franchisees for royalties. Reacquired franchises: Costs associated with
reacquiring franchise locations are recorded as equipment, inventory and
leaseholds to the extent that the total does not exceed the fair market value of
the assets acquired. If the Company's intention is to resell the reacquired
franchise, the franchise is carried at the lower of cost to the Company or
estimated net realizable value. If the Company's intention is to retain and
operate the franchise, costs pertaining to purchased rights are amortized over
the respective terms of the related agreements. Costs associated with the
reacquisition of franchise rights where the unit will be closed are charged to
operations. Net loss per common share: The computation of loss per common share
is based on average shares outstanding during the year. Reclassifications:
Certain 1995 amounts have been reclassified to conform to 1996 reporting
classifications. Use of estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NOTE 2 -- ACCRUED EXPENSES AND TAXES WITHHELD
Accrued expenses and taxes withheld consist of the following at
June 30, 1996 and 1995:
1996 1995
Sales tax payable $ 17,781 $ 20,451
Taxes other than income 85,436 103,976
Utilities 12,132 7,026
Interest 8,020
Other 174,386 (3,423)
Past due tax liabilities 216,800 130,000
$514,555 $258,030
</TABLE>
The Company is presently negotiating with key tax authorities in an
effort to settle its outstanding obligations for
past due payroll tax liabilities and abate penalties and interest.
F-21
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NOTE 3 -- LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1996 and 1995:
1996 1995
Bank One, Cleveland $ 750,000 $ 750,000
Metropolitan Savings Bank 48,223 54,222
GMAC 31,137 19,909
Franchise acquisitions 497,510 344,169
Other 188,255 103,456
1,515,125 1,271,756
Less - current maturities 1,056,202 300,917
$ 458,923 $ 970,839
</TABLE>
Notes payable - Bank One, Cleveland: In July 1994, the Company entered into
a $750,000 line of credit agreement with Bank One, Cleveland. Borrowings under
the line of credit bear interest at the bank's prime rate (8.25% at June 30,
1996) plus 2%, and 1/2% on the unused portion of the line. Interest only
payments commenced October 31, 1994 and are due quarterly thereafter. The line
of credit matures on December 1, 1996 (See Note 10). Borrowings under the line
are secured by accounts receivable, inventories, the unconditional and absolute
guarantee of the Company's former chief executive officer and certain majority
shareholders. The loan contains certain restrictive covenants including
restrictions on dividends, capital expenditures, and requires the Company to
maintain certain financial ratios. Note payable - Metropolitan Savings Bank: The
note payable to Metropolitan Savings Bank was executed in December 1993 in the
amount of $63,000, with interest at the bank's prime rate (8.25% at June 30,
1996) plus 2%. The note requires 60 monthly principal payments of $1,050. The
loan is secured by and was used to repurchase a store from a franchisee. Notes
payable - GMAC: The notes payable to GMAC represent various loans for the
purchase of vehicles. The notes bear interest at rates ranging from 9.5% to
12.7% per annum, and are payable in installments through December 2000. The
notes are secured by the vehicles purchased. Notes payable - franchise
acquisitions: The Company has entered into financing arrangements with various
franchisees for the repurchase of certain franchise operations and equipment.
The various borrowings require total monthly payments of approximately $13,871
and bear interest at rates ranging from 8% to 12.5%. The notes mature at various
dates through January 2003. Notes payable - other: The Company has converted
certain past due trade accounts payable to notes payable. The various borrowings
require total monthly payments of approximately $10,733 and bear interest at
rates ranging from 8% to 10%. The notes mature at various dates through February
1998.
F-22
<PAGE>
The aggregate maturities of outstanding long-term debt are as follows:
Year Ending June 30,
1997 $1,056,202
1998 144,000
1999 81,628
2000 90,120
2001 60,422
Thereafter 82,753
$1,515,125
The interest paid on all outstanding obligations for the years ended June
30, 1996 and 1995 totaled $160,493 and
$80,700, respectively.
Based on current borrowing rates, the fair value of the above notes
payable approximate their carrying amount.
NOTE 4 -- LEASES
The Company is obligated under long-term operating lease arrangements for
its restaurants, certain leasehold improvements and automobiles, with remaining
terms ranging from 1 to 16 years. In addition, many of the leases contain
renewal options for periods of five to ten years and, in some instances,
purchase options. Most of the leases are net leases under which the Company pays
the taxes, insurance, utilities, and maintenance costs. Certain leases provide
for additional annual rent based upon total gross revenues and increases in the
Consumer Price Index. Rent expense for all operating leases, net of sublease
income of $6,000 and $15,500 in fiscal 1996 and 1995, respectively, including
leases with terms of less than one year, amounted to $791,321 and $671,000 for
the years ended June 30, 1996 and 1995, respectively. Amortization of leased
assets is included in depreciation and amortization expense.
F-23
<PAGE>
Future minimum lease payments under operating leases having remaining
noncancellable lease terms in excess of one
year are as follows:
Year Ending June 30, Amount
1997 $ 645,000
1998 649,000
1999 640,000
2000 584,000
2001 569,000
Thereafter 1,314,000
Total minimum lease payments $4,401,000
In addition to the lease obligations described above, the Company also
conditionally guarantees the payment of certain lease obligations of franchisees
in the event the franchisee does not pay. At June 30, 1996, franchisee lease
obligations conditionally guaranteed by the Company total $1,954,000. In the
event the franchisee defaults, the Company retains the right to take back the
franchise unit and resell it, or operate the unit as a company owned restaurant.
NOTE 5 -- STOCKHOLDERS' EQUITY (DEFICIT)
The following is a summary of stockholders' equity (deficit) at June 30,
1996 and 1995:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
Series A and B non-voting preferred stock, par
value $1.00 per share; authorized - 1996:
2,000,000 shares, 1995: 1,000,000 shares;
issued and outstanding - 577,800 shares $ 577,800 $ 577,800
Common stock, par value $0.01 per share,
authorized - 1996: 25,000,000 shares,
1995: 10,000,000 shares;
issued and outstanding - 1996: 11,118,620
shares, 1995: 8,076,157 shares 111,186 80,762
Paid-in-capital 3,731,347 2,183,748
Retained deficit (4,042,391) (3,217,151)
377,942 (374,841)
Less - subscription receivable 377,976
$ (34) $ (374,841)
</TABLE>
F-24
<PAGE>
In June 1996, the Company's shareholders authorized an increase in the
Company's authorized common stock to 25,000,000 (from 10,000,000) shares and
preferred stock to 2,000,000 (from 1,000,000) shares. During 1996, the Company
completed the sale of 2,362,500 shares of its authorized but restricted common
stock in a private placement to an investment group at prices ranging from $.60
to $.64 per share. Proceeds received by the Company from the offering totaled
$1,245,700, net of fees and expenses of $239,300. The proceeds were used to
repay certain corporate obligations, repurchase certain franchise restaurants,
test market new product developments, and provide additional working capital for
the Company. Additionally, in May 1996, the Company's majority shareholder, CEO
and President, resigned and sold 2,000,000 shares of his common stock to an
investment group for $1,200,000 and other consideration. The Company has
subsequently elected a new President and CEO. During June 1996, the Company sold
679,963 shares of its common stock by subscription in a private placement for
$377,976, net of fees and expenses of $56,300. The proceeds were received in
September 1996. The June 30, 1996 common stock and paid-in capital information
include the shares under subscription, with a corresponding reduction in total
shareholders' equity (deficit) for the total subscriptions receivable. In April
1995, in connection with the repurchase of two restaurants, the Company issued
160,000 shares of its authorized common stock to the seller. In connection with
the above private placements, certain individuals elected to the Company's Board
of Directors, acted as placement agents. The individuals were paid a fee of
$77,700 from the proceeds of the offering for such services and were reimbursed
$217,900 for the reimbursement of expenses incurred in connection with the
offering. In June 1996, the Company issued an aggregate of 1,335,000 warrants to
certain individuals of the investment group (including the new Board of Director
members) as additional compensation for services provided in connection with the
offering and in consideration for them providing personal guarantees of the
Company's existing indebtedness to Bank One in the amount of $750,000. Each
warrant is exercisable to purchase one share of the Company's common stock at an
exercise price of 110% of the closing bid price of a share of common stock of
the Company as quoted on the NASDAQ Bulletin Board on the day of such grant. The
non-voting preferred stock entitles the holders to cumulative dividends, when
and as declared by the Board of Directors, at an annual rate of 10% and a
preference on liquidation of $1.00 per share. A certain class of preferred stock
may be redeemable at the option of the Company at par plus declared, accrued and
unpaid dividends and may be convertible, at any time, at the option of the
preferred stockholder, into common stock. If all preferred shares were converted
to common stock, a minimum of 587,555 common shares would be issued.
F-25
<PAGE>
NOTE 6 -- NON-RECURRING ITEMS
During 1996, the Company incurred certain costs relating to the
restructuring of its operations. The items included charges for lease
cancellation fees, the write-off of deferred advertising assets, and certain
other items. These costs, totaling $403,434, have been recorded as non-recurring
items in the accompanying 1996 financial statements.
NOTE 7 -- INCOME TAXES In
connection with an Offer In Compromise and Collateral Agreement entered into
with the Internal Revenue Service in August 1992 to settle certain past due tax
liabilities, the Company agreed to waive future utilization of substantially all
net operating loss carryforwards generated from losses sustained prior to June
30, 1992. At June 30, 1992, net operating loss carryforwards available totaled
approximately $3,000,000 and expire at various times through the year 2005 with
the waiver of such net operating loss carryforwards limited to the sums waived,
by the Internal Revenue Service under the Offer In Compromise, plus interest.
The amount of net operating loss carryforwards which may become available cannot
be determined at this time, accordingly, any future benefit from the use of the
Company's potential net operating loss carryforward has not been recognized in
the accompanying financial statements. No restrictions exist relating to
utilization of net operating losses in subsequent periods. Additionally, the
Offer In Compromise provides for potential additional future payments at certain
net taxable income levels through 1998. The federal income tax benefit is based
on pre-tax income adjusted for timing differences in the recognition of income
and expenses for financial and tax reporting purposes. Deferred income taxes
arise from timing differences resulting from income and expense items reported
for financial accounting and tax purposes in different periods. Accordingly,
deferred income taxes principally represent deferrals related to depreciation
charges and the recognition of franchise, royalty income and certain tax accrual
reversals. Deferred tax liabilities recognized for taxable temporary differences
totaled $109,000 in 1996 and $98,800 in 1995. Deferred tax assets recognized for
deductible temporary differences and loss carryforwards total $443,800 in 1996
and $104,500 in 1995. In fiscal 1996, these were a loss for tax reporting that
could not be carried back, and its estimated tax benefit of $329,100, which
based upon management's projection of future profitability indicates that
realization of the related deferred tax asset is more likely than not, has been
recognized. The components of the deferred tax asset have been classified as
non-current based on their characteristics and management's expectation as to
the timing of their future realization.
F-26
<PAGE>
NOTE 8 -- FRANCHISES PURCHASED
During 1996 and 1995, the Company purchased five restaurant units in each
year, from various franchisees. These
transactions have been accounted for as purchases, with the purchase price
allocated as follows:
1996 1995
Furniture, fixtures and equipment $148,382 $202,800
Leaseholds 213,405 250,600
$361,787 $453,400
Consideration for the purchases consisted of the following:
1996 1995
Cash $1,825 $126,000
Debt forgiven 9,962 66,000
Notes payable 350,000 181,400
Common stock issued 80,000
$361,787 $453,400
NOTE 9 -- COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party in certain legal actions relating to its termination
of the agency agreements of three Regional Representatives on the grounds of
non-performance and conduct detrimental to the Arthur Treacher's system. The
Regional Representatives were under contract with the Company to provide various
services to and on behalf of Arthur Treacher's for the franchisees, but were not
franchise owners. The Regional Representatives have each filed separate claims
against the Company, either as a counterclaim, complaint, or arbitration demand.
The claims alleged include "a disagreement" between the parties, wrongful
termination of the contracts, wrongful conversion of the territories and
misrepresentation made by Company officials. The Company is vigorously defending
against these allegations and believes them to be without merit. The claims
estimated damages averaging $5,000,000, principally resulting from the
assertions that the Regional Representatives lost future projected potential
profits. Certain other legal claims are pending against the Company but, in the
opinion of management, liabilities, if any, arising from such claims would not
have a material effect upon the consolidated financial condition of the Company.
The Company has entered into an agreement with the Company's former president
and Chief Executive Officer to provide consulting services to the Company at a
rate of $100,000 per year for two years, commencing June 1996.
F-27
<PAGE>
NOTE 10 -- SUBSEQUENT EVENTS
In September 1996, the Company modified its loan agreement with Bank One,
Cleveland and deposited a portion of the proceeds received from the equity
placement in the amount of $400,000 with the bank, as additional collateral to
secure the repayment of the debt more fully-described in Note 3. During the
ensuing period of July 1996 through September 1996, the Company purchased six
restaurants from various franchisees for consideration of cash, forgiveness of
debt, assumption of certain trade and notes payable and common stock. One such
restaurant was purchased on August 26, 1996, from an executive of the Company
for 22,000 restricted shares of common stock. This executive has no continuing
interest in this restaurant and continues to perform his duties as a senior
manager with the Company. Also, the Company franchised a previously owned
corporate restaurant on July 12, 1996, located in South Carolina. As a result of
the acquisition of six restaurants and the sale of one restaurant the Company
<PAGE>
operates at 29 locations as of September 20, 1996. From the period of June 1996
to September 1996, the Company received $377,976 from a private placement of its
common shares (See Note 5).
F-28
<PAGE>
To the Board of Directors
and Stockholders of
Arthur Treacher's, Inc. and subsidiaries
Report of Independent Auditors
We have audited the accompanying consolidated balance sheets of Arthur
Treacher's, Inc and subsidiaries as of June 30, 1995, and 1994, and the related
consolidated statements of operations, retained earnings (deficit), and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of Arthur Treacher's, Inc. as of June 30, 1995
and 1994, and the consolidated results of their operations and their
consolidated cash flows for the years then ended in conformity with generally
accepted accounting principles. Lytkowski & Pease, Inc. July 31, 1996, except
for Note 10 as to which the date is September 13, 1996 Lytkowski & Pease, Inc.
Certified Public Accountants 8th Floor Annex, 1422 Euclid Avenue, Cleveland,
Ohio 44115-1975 216-696-5394
F-29
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ARTHUR TREACHER'S, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS
Cash $ 26,085 $ 27,924
Deposits held in escrow 100 23,798
Accounts receivable, net of
allowance for doubtful accounts
of $66,000 in 1995 and $17,000
in 1994 171,864 231,876
Current portion of notes receivable 3,352
Inventories 90,048 92,280
Prepaid expenses 172,200 248,860
TOTAL CURRENT ASSETS 460,297 628,090
OTHER ASSETS
Notes receivable from franchisees 27,474
Deposits 26,635 30,184
Deferred taxes 5,700
Other 15,937
TOTAL OTHER ASSETS 32,335 73,595
PROPERTY AND EQUIPMENT, at cost
Buildings 156,300 296,343
Furniture, fixtures and equipment 1,043,777 908,799
Leasehold improvements 1,334,551 1,137,260
Vehicles 43,221 43,221
TOTAL PROPERTY AND EQUIPMENT 2,577,849 2,385,623
Less - accumulated depreciation 1,195,999 1,244,299
NET PROPERTY AND EQUIPMENT 1,381,850 1,141,324
</TABLE>
$1,874,482 $1,843,009
F-30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1995 1994
CURRENT LIABILITIES
Bank overdraft $ 45,336 $
Accounts payable 609,536 478,802
Accrued expenses and taxes withheld 258,030 501,070
Current maturities of debt and
capital leases 300,917 176,234
TOTAL CURRENT LIABILITIES 1,213,819 1,156,106
LONG-TERM DEBT, net of current portion 970,839 414,183
CAPITAL LEASE OBLIGATIONS, net of current
portion 50,779
DEFERRED FEDERAL INCOME TAX 77,900
OTHER LONG-TERM OBLIGATIONS 62,443
DEFERRED ROYALTY AND FRANCHISE FEES 64,665 146,441
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock 577,800 577,800
Common stock 80,762 79,162
Paid-in-capital 2,183,748 2,105,348
Retained earnings (deficit) (3,217,151) (2,827,153)
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) (374,841) (64,843)
</TABLE>
$1,874,482 $1,843,009
See notes to consolidated financial statements
F-31
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ARTHUR TREACHER'S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995 AND 1994
1995 1994
REVENUE
Company-owned restaurant sales $5,625,587 $5,638,133
Franchise and royalty income 1,529,318 1,980,760
Initial franchise fees 63,550 1,068,500
TOTAL REVENUE 7,218,455 8,687,393
COSTS AND EXPENSES
Company-owned restaurants -
Cost of sales, including occupancy,
except depreciation 3,334,350 3,260,573
Operating expenses 2,381,255 2,498,566
Franchise service and selling expenses 1,060,986 1,795,884
General and administrative 803,713 837,061
Corporate relocation costs 66,840
TOTAL COSTS AND EXPENSES 7,580,304 8,458,924
(LOSS) INCOME FROM OPERATIONS (361,849) 228,469
OTHER INCOME (EXPENSE)
Interest expense (101,818) (91,661)
Other - net 99,097 113,582
TOTAL OTHER (EXPENSE) INCOME (2,721) 21,921
(LOSS) INCOME BEFORE DEPRECIATION,
AMORTIZATION AND INCOME TAXES (364,570) 250,390
DEPRECIATION AND AMORTIZATION 172,028 192,649
(LOSS) INCOME BEFORE INCOME TAXES (536,598) 57,741
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
INCOME (TAXES) BENEFIT
Current 63,000 (63,000)
Deferred 83,600 33,600
TOTAL INCOME (TAXES) BENEFIT 146,600 (29,400)
NET (LOSS) INCOME $ (389,998) $ 28,341
NET LOSS PER COMMON SHARE $ (.05) $ -
AVERAGE SHARES OUTSTANDING 7,943,746 7,582,824
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ARTHUR TREACHER'S, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
Preferred Stock Common Stock Paid-in Retained
Shares Amount Shares Amount Capital (Deficit)
Total
BALANCE -- JUNE 30, 1993 585,800 $585,800 5,916,157 $59,162 $1,125,348
$(2,855,494) $(1,085,184)
Issuance of common
stock 2,000,000 20,000 980,000
1,000,000
Retirement of
preferred stock (8,000) (8,000)
(8,000)
Net income
28,341 28,341
BALANCE -- JUNE 30, 1994 577,800 577,800 7,916,157 79,162 2,105,348
(2,827,153) (64,843)
Issuance of common
stock 160,000 1,600 78,400
80,000
Net loss
(389,998) (389,998)
BALANCE -- JUNE 30, 1995 577,800 $577,800 8,076,157 $80,762 $2,183,748
$(3,217,151) $ (374,841)
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ARTHUR TREACHER'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995 AND 1994
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (389,998) $ 28,341
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 172,028 195,949
Gain on sale of property and equipment (38,906) (131,794)
Provision for doubtful accounts 45,500 95,800
Changes in operating assets and liabilities:
Deposits held in escrow 23,698 30,008
Accounts receivable 14,612 (74,560)
Notes receivable 30,826 29,560
Other assets 19,486 (42,507)
Prepaid expenses 76,660 409,624
Inventories 2,232 (22,976)
Accounts payable 176,070 99,146
Accrued expenses and other liabilities (369,321) (1,330,047)
Deferred federal income tax (83,600) (33,600)
TOTAL ADJUSTMENTS 69,285 (775,397)
NET CASH USED IN OPERATING
ACTIVITIES (320,713) (747,056)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property 120,000 225,000
Purchase of property and equipment (494,167) (449,200)
NET CASH USED IN INVESTING
ACTIVITIES (374,167) (224,200)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 80,000 1,000,000
Proceeds from long-term debt 1,104,886 169,790
Principal payments on long-term debt (430,248) (276,262)
Repayment of capital lease obligations (61,597) (7,778)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 693,041 885,750
NET CHANGE IN CASH (1,839) (85,506)
</TABLE>
F-35
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<FN>
Cash at beginning of year 27,924 113,430
CASH AT END OF YEAR $ 26,085 $ 27,924
See notes to consolidated financial statements.
</FN>
</TABLE>
F-36
<PAGE>
ARTHUR TREACHER'S, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30,
1995 AND 1994 NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description
of the business: Arthur Treacher's, Inc. (the "Company") operates twenty-six
Arthur Treacher's Fish & Chips restaurants, of which twenty-three are owned by
the Company, in Ohio, Florida, Michigan, South Carolina and New York. The
Company is also a franchisor of 122 Arthur Treacher's Fish & Chips restaurants
located throughout the United States and Canada. Sales (unaudited) of Arthur
Treacher's Fish & Chips products through company-owned and franchised
restaurants totaled $44 million and $42 million for the years ended June 30,
1995 and 1994, respectively. During the year ended June 30, 1995, 12 locations
were opened and 25 locations were closed or terminated. Additionally, 5
franchises were repurchased by the Company and 1 corporate-owned restaurant was
sold to a franchisee. The Company sells Area Development Agreements and
individual franchises. An Area Development Agreement provides a representative
with the right to act as exclusive agent for the marketing and supervision of
individual franchises for and on behalf of the Company, and to locate and
recruit potential franchisees to own and operate Arthur Treacher's franchises
within a specific development territory. The Company provides the Area
Development representative a general program orientation, training and advisory
assistance. An individual franchise permits operation of a franchised Arthur
Treacher's Fish & Chips restaurant unit. When an individual franchise is sold,
the Company assists the franchisee in site selection, training personnel,
implementation of an accounting and store management system, and various other
services. During the year ended June 30, 1995 no Area Development Agreements
were sold. During the year ended June 30, 1994 two Area Development Agreements
were sold. Arthur Treacher's Management Company, a wholly-owned subsidiary,
provides payroll and employee benefit services to certain members of the
franchise network. Arthur Treacher's Advertising Co., a wholly-owned subsidiary,
provides certain advertising services to the franchisees. Principles of
consolidation: The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Property and equipment:
Property and equipment is stated at cost, except for capitalized leases which
are recorded at the lesser of fair value or the discounted present value of the
minimum lease payments.
F-37
<PAGE>
Maintenance and repairs are charged to expense while expenditures for
renewals which prolong the lives of the assets are capitalized. Depreciation is
computed utilizing the straight-line method over the estimated useful lives of
the various assets. Capital leases and leasehold improvements are amortized by
the straight-line method over the shorter of their estimated useful lives or the
term of the lease. The depreciation and amortization periods range from one to
sixteen years for buildings and leasehold improvements. Equipment and vehicles
are depreciated over ten years and five years respectively. Depreciation expense
totaled $172,000 and $195,000 for the years ended June 30, 1995 and 1994,
respectively. Inventories: Inventories, which consist primarily of food located
at the company-owned stores, are stated at the lower of cost (first-in,
first-out method) or market. Franchise fees and royalty income: The Company
recognizes initial franchise fees from the sale of Area Development Agreements
and individual franchises as income when it has substantially performed its
obligations relating to such fees. For Area Development Agreement sales, this
occurs when substantially all training and orientation has been provided and,
for individual franchises, at the commencement of operations by the franchisee.
Amounts received prior to this time ($0 and $146,441 at June 30, 1995 and 1994,
respectively) are recorded as deferred franchise fees until such services have
been substantially performed. Direct costs relating to franchise sales ($0 and
$93,370 at June 30, 1995 and 1994, respectively) for which revenue has not yet
been recognized are deferred as prepaid expenses until the related revenue is
recognized. Initial franchise fees related to the sale of Area Development
Agreements totaled $0 and $101,500 for the years ending June 30, 1995 and 1994,
respectively. Individual franchise sales totaled $63,000 and $967,000 for the
years ended June 30, 1995 and 1994, respectively. Generally, royalties are based
on franchisee restaurant sales and are accrued as revenue during the period in
which the related franchisee restaurant sales occur. Reacquired franchises:
Costs associated with reacquiring a franchise location are recorded as equipment
inventory to the extent that the total does not exceed the fair market value of
the assets acquired. If the Company's intention is to resell the reacquired
franchise, the franchise is carried at the lower of cost to the Company or
estimated net realizable value. If the Company's intention is to retain and
operate the franchise, costs pertaining to purchased rights are amortized over
the respective terms of the related agreements. Costs associated with the
reacquisition of franchise rights where the unit will be closed are charged to
operations. Net loss per common share: The computation of loss per common share
is based on average shares outstanding during the year. Reclassifications:
Certain 1994 amounts have been reclassified to conform to 1995 reporting
classifications.
F-38
<PAGE>
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 2 -- INVESTMENTS IN LIMITED PARTNERSHIPS
At June 30, 1993, the Company was the general partner in two limited
partnerships formed to acquire and operate Arthur Treacher's Fish & Chips
restaurant franchises. The Company's capital contribution to the partnerships
consisted of certain franchise rights. The investments were accounted for on the
cost basis. During 1994 the Company bought out the limited partners of the two
limited partnerships. One store is now operated by the Company and the other was
resold to a third party.
NOTE 3 -- ACCRUED EXPENSES AND TAXES WITHHELD
Accrued expenses and taxes withheld consist of the following at June 30,
1995 and 1994:
1995 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Sales tax payable $ 20,451 $ 16,983
Taxes other than income 103,976 51,076
Income taxes 63,000
Wages and salaries 21,163
Utilities 7,026 7,027
Other (3,423) 40,025
Past due tax liabilities 130,000 301,796
$258,030 $501,070
</TABLE>
Because of significant operating losses and cash flow deficits incurred in
prior years, the Company remains delinquent on certain tax liabilities for
periods from 1986 through February 1988. The delinquency includes substantial
penalties and interest. In October 1994, the Company settled with one government
agency for approximately $120,000 and is presently renegotiating with other key
tax authorities in an effort to settle the remaining outstanding obligations and
abate penalties and interest. All current taxes have been paid on a timely basis
since March 1988.
In August 1992, the Internal Revenue Service accepted the Company's Offer
In Compromise relating to all past due federal tax liabilities. Under the terms
of the agreement, the Company has agreed to pay $275,000, $135,000 of which was
paid in 1992 with the balance of $140,000 being paid in monthly installments of
$4,620, (including interest at 8%) which began in October 1992. Payments to be
made under the agreement during fiscal 1995 are included in past due liabilities
at June 30, 1994, with the balance ($62,443) classified as other long-term
obligations. In July 1994 the Company paid off the obligation with borrowings
from the Company's line of credit.
F-39
<PAGE>
As a part of the Offer In Compromise, the Company also executed a
Collateral Agreement with the Internal Revenue Service providing for potential
additional future payments at certain net taxable income levels through 1998 and
waivers of operating loss carryforwards. The total of such potential additional
payments shall not exceed amounts waived, plus interest, under the Offer In
Compromise. Additionally, in March 1988, the Internal Revenue Service filed tax
liens against substantially all of the Company's assets. Upon payment of the
outstanding balance under the Offer In Compromise in July 1994 these liens were
released.
NOTE 4 -- LONG-TERM DEBT
Long-term debt, excluding capital lease obligations, consists of the
following at June 30, 1995 and 1994:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Society National Bank $ $ 82,857
Monarch/Sky Brothers, Inc. 198,808
Metropolitan Savings Bank 54,222 59,591
Bank One, Cleveland 750,000
GMAC 19,909 29,143
Franchise acquisitions 447,625 211,078
1,271,756 581,477
Less - current maturities 300,917 167,294
TOTAL LONG-TERM DEBT $ 970,839 $414,183
</TABLE>
Note payable - Society National Bank: The note payable to Society National
Bank represents the amendment and restatement of two term notes with the bank.
The note, amended in July 1992, required monthly principal and interest payments
of $3,458 with a balloon payment of the remaining outstanding balance in July
1993, with interest at the bank's prime rate (9% at June 30, 1995) plus 1%. In
September 1993, the Bank extended the note until August 1, 1994 on the same
terms and conditions as the existing loan. The loan was repaid in full in July
1994 with the proceeds from the note payable - Bank One, more fully discussed
below.
Note payable - Monarch/Sky Brothers, Inc.: The note payable to Monarch/Sky
Brothers, Inc. (the Company's principal supplier of food products) represents a
$338,808 term note executed September 1991. Interest was payable at the prime
interest rate plus 1%. A principal payment of $50,000 was made in February 1994,
with the remaining balance paid off in July 1994 with the proceeds from the note
payable - Bank One, more fully discussed below.
Note payable - Metropolitan Savings Bank: The note payable to Metropolitan
Savings Bank was executed in December 1993 in the amount of $63,000, with
interest at the bank's prime rate (9% at June 30, 1995) plus 2%. The note
requires 60 monthly principal payments of $1,050 plus interest. The loan is
secured by and was used to repurchase a store from a franchisee.
F-40
<PAGE>
Notes payable - Bank One, Cleveland: In July 1994, the Company entered into
a $750,000 line of credit agreement with Bank One, Cleveland. Borrowings under
the line of credit bear interest at the bank's prime rate (9% at June 30, 1995)
plus 2%, and 1/2% on the unused portion of the line. Interest only payments
commenced October 31, 1994, and quarterly thereafter. The line of credit matures
on December 1, 1996. Borrowings under the line are secured by accounts
receivable, inventories, the unconditional and absolute guarantee of the
Company's chief executive officer and certain shareholders. The loan contains
certain restrictive covenants including restrictions on dividends, capital
expenditures and requirements for the Company to maintain certain financial
ratios. Borrowings under the line of credit in July 1994 were used principally
to repay indebtedness on existing corporate obligations, including amounts due
the Internal Revenue Service for past due tax liabilities.
Notes payable - GMAC: The notes payable to GMAC represent various loans for
the purchase of vehicles. The notes bear interest at rates ranging from 9.5% to
12.7% per annum, and are payable in 36 monthly installments through July 1998.
The notes are secured by the vehicles purchased.
Notes payable - franchise acquisitions: The Company has entered into
financing arrangements with various franchisees for the repurchase of certain
franchise operations and equipment. The various borrowings require total monthly
payments of approximately $24,088 and bear interest at rates ranging from 7.5%
to 11.5%. The notes mature at various dates through October 2000.
The aggregate maturities of outstanding long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ending June 30,
1996 $ 300,917
1997 250,185
1998 214,261
1999 175,406
2000 177,158
Thereafter 153,829
$1,271,756
</TABLE>
Total interest paid on all outstanding obligations for the years ended
June 30, 1995 and 1994 totaled $80,700
and $91,700, respectively.
NOTE 5 -- LEASES
The Company is obligated under both capital and long-term operating lease
arrangements for its restaurants, certain leasehold improvements and
automobiles, with remaining terms ranging from 1 to 16 years. In addition, many
of the leases contain renewal options for periods of five to ten years and, in
some instances, purchase options.
F-41
<PAGE>
Most of the leases are net leases under which the Company pays the taxes,
insurance, utilities, and maintenance costs. Certain leases provide for
additional annual rents based upon total gross revenues and increases in the
Consumer Price Index.
Rent expense for all operating leases, net of sublease income of $15,500
and $30,000 in 1995 and 1994, respectively, including leases with terms of less
than one year, amounted to $671,000 and $470,000 for the years ended June 30,
1995 and 1994, respectively.
During 1995 there was no property and equipment under capitalized leases.
Property and equipment included the following amounts for leases that had been
capitalized at June 30, 1994:
1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Buildings $296,343
Furniture, fixtures and equipment 19,223
315,566
Less - allowance for amortization 215,848
$ 99,718
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense.
Future minimum lease payments under operating leases having remaining
noncancellable lease terms in excess
of one year are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ending June 30, Amount
1996 $ 740,000
1997 749,000
1998 734,000
1999 730,000
2000 678,000
Thereafter 1,818,000
Total minimum lease payments $5,449,000
</TABLE>
In addition to the lease obligations described above, the Company also
conditionally guarantees the payment of certain lease obligations of franchisees
in the event the franchisee does not pay. At June 30, 1995, franchisee lease
payments conditionally guaranteed by the Company total $2,872,000. In the event
the franchisee defaults, the Company retains the right to take back the
franchise unit and resell it, or operate the unit as a company restaurant.
Accordingly, the Company does not anticipate any losses related to these
guarantees.
F-42
<PAGE>
NOTE 6 -- STOCKHOLDERS' EQUITY (DEFICIT)
The following is a summary of stockholders' equity (deficit) at
June 30, 1995 and 1994:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Series B non-voting preferred
stock, par value $1.00 per share,
1,000,000 shares authorized; issued
and outstanding: 577,800 shares $ 577,800 $ 577,800
Common stock, par value $0.01 per
share, 10,000,000 shares authorized;
issued and outstanding: 1995: 8,076,157
shares, 1994: 7,916,157 shares 80,762 79,162
Paid-in-capital 2,183,748 2,105,348
Retained (deficit) (3,217,151) (2,827,153)
</TABLE>
$ (374,841) $ (64,843)
The Series B non-voting preferred stock entitles the holders to cumulative
dividends at an annual rate of 10%. Common stock dividends may not be paid
unless provision has been made for payment of preferred dividends. At June 30,
1995, approximately $400,000 of preferred stock dividends were accrued and
unpaid. The preferred stock is callable at the option of the Company at par plus
accrued and unpaid dividends and is convertible, at any time, at the option of
the preferred stockholder, into common stock at various conversion rates
depending on the length of time the stock has been held. Any common shares
issued pursuant to conversion must be registered under federal security laws
within nine months of the exercise date. In September 1993, 8,000 shares of
preferred stock were repurchased at par value.
In August 1993, the Company sold 2,000,000 shares of its authorized but
unissued common stock in a private placement to an investment group. Proceeds
received from the offering totaled $1,000,000. The proceeds of the equity
placement were used to repay certain corporate obligations, including a portion
of the past due tax liabilities discussed in Note 3, with the balance of the
proceeds used for restaurant expansion and general corporate purposes. The
Company also issued warrants to purchase 400,000 shares of the Company's common
stock to the same investor group. The warrants were exercisable at the holder's
option through August 1995. The exercise price was $.50 per share through August
1994 and is $.60 per share thereafter. No warrants were exercised and have
expired.
In April 1995, in connection with the repurchase of two restaurants, the
Company issued 160,000 shares of its authorized common stock to the seller.
F-43
<PAGE>
NOTE 7 -- INCOME TAXES
In connection with the Company's Offer In Compromise and Collateral
Agreement with the Internal Revenue Service in August 1992 (see Note 3), the
Company agreed to waive future utilization of substantially all net operating
loss carryforwards generated from losses sustained prior to June 30, 1992. At
June 30, 1992 net operating loss carryforwards available totaled approximately
$3,000,000 and expire at various times through the year 2005 with the waiver of
such net operating loss carryforwards limited to the sums waived, by the
Internal Revenue Service under the Offer In Compromise, plus interest. Income
taxes have been provided on 1994 book income, however, management believes
certain net operating loss carryforwards generated prior to June 30, 1992, may
ultimately become available for utilization, subject to certain restrictions and
limitations. The amount of net operating loss carryforwards which may become
available cannot be determined at this time, accordingly, any future benefit
from the use of the Company's potential net operating loss carryforward has not
been recognized in the accompanying financial statements.
The provision for federal income taxes is based on pre-tax income adjusted
for timing differences in the recognition of income and expenses for financial
and tax reporting purposes. Deferred income taxes arise from timing differences
resulting from income and expense items reported for financial accounting and
tax purposes in different periods. Accordingly, deferred income taxes
principally represent deferrals related to depreciation charges and the
recognition of franchise, royalty income and certain tax accrual reversals.
At June 30, 1995 and 1994, deferred tax assets are $104,500 and $24,100,
respectively, and the deferred tax liabilities are $98,800 and $102,000,
respectively.
NOTE 8 -- FRANCHISES PURCHASED
During 1995 and 1994, the Company purchased five and seven restaurant
units, respectively, from various franchisees. These transactions have been
accounted for as purchases, with the purchase price allocated as follows: 1995
1994
Furniture, fixtures and equipment $202,800 $186,400
Leaseholds 250,600 187,400
$453,400 $373,800
Consideration for the purchases consisted of the following:
1995 1994
Cash $126,000 $ 71,400
Debt forgiven 66,000 83,100
Notes payable 181,400 169,800
Area development rights assigned 49,500
Common stock issued 80,000
$453,400 $373,800
F-44
<PAGE>
The Company is presently operating all the units except one, which was
resold to a franchisee in fiscal 1994.
NOTE 9 -- CONTINGENT LIABILITIES
The Company is a party in certain legal actions relating to its termination
of the agency agreements of three Regional Representatives on the grounds of
non-performance and conduct detrimental to the Arthur Treacher's system. The
Regional Representatives were under contract with the Company to provide various
services to and on behalf of Arthur Treacher's for the franchisees, but were not
franchise owners.
The Regional Representatives have each filed separate claims against the
Company, either as a counterclaim, complaint, or arbitration demand. The claims
alleged include "a disagreement" between the parties, wrongful termination of
the contracts, wrongful conversion of the territories and misrepresentation made
by Company officials. The Company is vigorously defending against these
allegations and believes them to be without merit. The claims allege estimated
damages averaging $5,000,000, principally resulting from the assertions that the
Regional Representatives lost future projected potential profits.
Certain other legal claims are pending against the Company but, in the
opinion of management, liabilities, if any, arising from such claims would not
have a material effect upon the consolidated financial condition of the Company.
NOTE 10 - SUBSEQUENT EVENTS
In June 1996, the Company's shareholders authorized an increase in the
Company's authorized common stock to 25,000,000 (from 10,000,000) shares and
preferred stock to 2,000,000 (from 1,000,000) shares.
During the period May through September 1996, the Company completed the
sale of 3,042,463 shares of its authorized but unissued common stock in a
private placement to an investment group at prices ranging from $.60 to $.64 per
share. Proceeds received by the Company from the offering totaled $1,623,700,
net of placement fees of $77,700 and expenses of $217,900. The proceeds were
used to repay certain corporate obligations, repurchase certain franchisee
restaurants, test market new product developments, and provide additional
working capital for the Company. Additionally, the Company's majority
shareholder, CEO and president resigned and sold 2,000,000 shares of his common
stock to an investment group for $1,200,000 and other consideration. The Company
has subsequently elected a new president and CEO. The Company has also entered
into an agreement with the former president and CEO to provide consulting
services to the Company at the rate of $100,000 per year for two years
commencing June 1996.
In connection with the above private placement, certain individuals
subsequently elected to the Company's Board of Directors acted as placement
agents. The individuals were paid a fee of $77,700 from the proceeds of the
offering for such services and were reimbursed $217,900 for the reimbursement of
expenses incurred in connection with the offering. Subsequent to the offering,
the Company issued an aggregate of 1,335,000 warrants to certain individuals of
the investment group
F-45
<PAGE>
(including the new Board of Directors members) as additional compensation
for services provided in connection with the offering and in consideration for
them providing personal guarantees of the Company's existing indebtedness to
Bank One in the amount of $750,000. Each warrant is exercisable to purchase one
share of the
<PAGE>
Company's common stock at an exercise price of 110% of the closing bid
price of a share of common stock of the Company as quoted on the NASDAQ Bulletin
Board on the day of such grant. In September 1996, the Company deposited a
portion of the proceeds received from the equity placement in the amount of
$400,000 with Bank One, Cleveland, the Company's principal bank lender, as
additional collateral to secure the repayment of the debt more fully-described
in Note 4.
F-46
<PAGE>
To the Board of Directors and Stockholders
of M.I.E. Hospitality, Inc.
Report of Independent Auditors
We have audited the accompanying balance sheet of M.I.E. Hospitality, Inc.
(A wholly-owned subsidiary of Arthur Treacher's Inc. effective as of November
27, 1996) as of December 29, 1996, and the related statements of operations,
stockholder's equity and cash flows for the period January 1, 1996 through
December 29, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit in accordance
with generally accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principals used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial
position of M.I.E. Hospitality Inc. as of December 29, 1996 and the results of
its operations and its cash flows for the period January 1, 1996 through
December 29, 1996 in conformity with generally accepted accounting principles.
As more fully discussed in Notes 1 and 6, on November 27, 1996 the stockholders
of M.I.E. Hospitality, Inc. sold their stock to Arthur Treacher's, Inc. and the
Company became a wholly-owned subsidiary of Arthur Treacher's, Inc. At that
time, the Company became ineligible to operate as an S Corporation and,
accordingly, its S Corporation status was terminated as of that date. /s/
LYTKOWSKI & PEASE, INC. LYTKOWSKI & PEASE, INC. March 7, 1997 Lytkowski & Pease,
Inc. Certified Public Accountants 8th floor Annex, 1422 Euclid Avenue,
Cleveland, Ohio 44115-1975, 216 696-5394
F-47
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
M.I.E. HOSPITALITY, INC.
BALANCE SHEET
DECEMBER 29, 1996
ASSETS
CURRENT ASSETS
Cash and short-term investments $1,003,603
Accounts receivable - related party 91,574
Inventories 136,907
Prepaid expenses 37,525
Note receivable - current 6,195
TOTAL CURRENT ASSETS 1,275,804
OTHER ASSETS
Franchise and organizational fees, net of
accumulated amortization of $105,000 56,294
Deposits 51,563
Note receivable, net of current portion 7,794
Other 61,514
TOTAL OTHER ASSETS 177,165
PROPERTY AND EQUIPMENT, at cost
Land 135,252
Buildings 117,349
Furniture, fixtures, equipment and improvements 6,498,992
TOTAL PROPERTY AND EQUIPMENT 6,751,593
Less - accumulated depreciation 3,503,803
NET PROPERTY AND EQUIPMENT 3,247,790
$4,700,759
</TABLE>
F-48
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<FN>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 109,037
Accrued expenses and taxes withheld 338,857
Income taxes due to parent 118,172
TOTAL CURRENT LIABILITIES 566,066
LONG-TERM DEBT - RELATED PARTY 1,139,563
DEFERRED TAXES 723,999
STOCKHOLDER'S EQUITY
Common stock, voting 1
Common stock, non-voting 8,212
Paid-in-capital 670,752
Retained earnings 1,750,132
Treasury stock, at cost (157,966)
TOTAL STOCKHOLDER'S EQUITY 2,271,131
$4,700,759
See notes to financial statements.
</FN>
</TABLE>
F-49
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<FN>
M.I.E. HOSPITALITY, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1996 THROUGH DECEMBER 29, 1996
REVENUE
Restaurant sales $14,399,959
COSTS AND EXPENSES
Cost of sales 12,225,180
General and administrative 1,529,105
TOTAL COSTS AND EXPENSES 13,754,285
INCOME FROM OPERATIONS 645,674
OTHER INCOME (EXPENSE)
Interest expense (205,470)
Loss on store closings (162,686)
Gain on sale of investments 370,000
TOTAL OTHER INCOME 1,844
INCOME BEFORE DEPRECIATION, AMORTIZATION
AND INCOME TAXES 647,518
DEPRECIATION AND AMORTIZATION 638,096
INCOME BEFORE INCOME TAXES 9,422
INCOME TAX EXPENSE
Current 118,172
Deferred 723,999
TOTAL INCOME TAXES 842,171
NET LOSS $ (832,749)
NET LOSS PER COMMON SHARE $ (1.07)
AVERAGE SHARES OUTSTANDING 780,164
See notes to financial statements.
</FN>
</TABLE>
F-50
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
M.I.E. HOSPITALITY, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD JANUARY 1, 1996 THROUGH DECEMBER 29, 1996
Common Stock Common Stock
Voting Non-Voting Paid-in RetainedTreasury Stock
SharesAmount Shares Amount Capital Earnings Shares Amount
Total
BALANCE -- JANUARY 1, 1996 11.65 $1 821,214.26 $8,212 $52,315 $ 2,582,881 41,062
$(157,966) $ 2,485,443
Capital Contribution 618,437
618,437
Net loss (832,749)
(832,749)
BALANCE -- DECEMBER 29, 1996 11.65 $1 821,214.26 $8,212 $670,752 $ 1,750,132 41,062
$(157,966) $ 2,271,131
</TABLE>
See notes to
financial statements.
F-51
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
M.I.E. HOSPITALITY, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1996 THROUGH DECEMBER 29, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (832,749)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 638,096
Loss on sale of property and equipment 162,686
Gain on sale of investments (370,000)
Deferred federal income tax expense 723,999
Changes in operating assets and liabilities:
Accounts receivable (90,699)
Notes receivable 5,727
Prepaid expenses and other assets 27,469
Inventories 20,880
Accounts payable (222,365)
Accrued expenses and other liabilities 109,347
Income taxes due to parent 118,172
TOTAL ADJUSTMENTS 1,123,312
NET CASH PROVIDED BY OPERATING
ACTIVITIES 290,563
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment 35,091
Purchase of property and equipment (186,961)
NET CASH USED IN INVESTING ACTIVITIES (151,870)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 618,437
Borrowings on note payable 238,000
Principal payments on long-term debt (743,437)
NET CASH PROVIDED BY FINANCING ACTIVITIES 113,000
NET CHANGE IN CASH AND SHORT-TERM
INVESTMENTS 251,693
Cash at beginning of period 751,910
CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $1,003,603
</TABLE>
See notes to financial statements.
F-52
<PAGE>
M.I.E. HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 29, 1996
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the business: M.I.E. Hospitality, Inc. (the "Company") owns
and operates thirty-two Arthur Treacher's Fish & Chips restaurants in
Pennsylvania, New York, Delaware and New Jersey. Prior to November 27, 1996, the
Company was owned by certain individual stockholders. On November 27, 1996, the
stockholders sold their stock in the Company to Arthur Treacher's, Inc. ("Arthur
Treacher's") at which time the Company became a wholly-owned subsidiary of
Arthur Treacher's. Because Arthur Treacher's is not an eligible S Corporation
stockholder under Internal Revenue Service regulations, the Company's S election
was terminated at date of the acquisition. Property and equipment: Property and
equipment is stated at cost. Maintenance and repairs are charged to expense
while expenditures for renewals which prolong the lives of the assets are
capitalized. Depreciation is computed utilizing the straight-line method over
the estimated useful lives of the various assets. Leasehold improvements are
amortized by the straight-line method over the shorter of their estimated useful
lives or the term of the lease. Depreciation and amortization periods range from
7-10 years for leasehold improvements and 3-10 years for equipment. Depreciation
and amortization expense totaled $638,096 for the period January 1, 1996 through
December 29, 1996. Cash and cash equivalents: Cash and cash equivalents include
cash and short-term investments with original maturities of three months or less
and consistent of checking accounts and a repurchase agreement with a local
commercial bank as described below. At December 29, 1996, the Company had cash
balances on deposit with a commercial bank which exceeded the federally-insured
deposit limit by approximately $6,000. At December 29, 1996, cash and short-term
investments include an overnight repurchase agreement with a commercial bank in
the amount of $401,000. The agreement is collateralized by FNMA securities held
by the bank with a fair market value of $401,000. Inventories: Inventories,
which consist primarily of food located in the restaurants, are stated at the
lower of cost (first-in, first-out method) or market. Other assets: Other assets
consists of $61,514 of restaurant equipment purchased but not yet placed in
service.
F-53
<PAGE>
Income taxes: Effective November 27, 1996, the Company's S election was
terminated and it became a taxable corporation. As an S Corporation its earnings
and losses were included in the personal tax returns of the stockholders, and
the Company did not record an income tax provision. Effective with the change,
income taxes have been provided
for the tax effects of transactions reported in the financial statements
and consist of taxes currently due plus deferred taxes related primarily to
differences between the basis of property and equipment for financial and income
tax reporting. The deferred taxes represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Net loss per common share: The
computation of loss per common share is based on average shares outstanding
during the period January 1, 1996 through December 29, 1996. Franchise and
organizational fees: Franchise and organizational fees represent the cost of the
rights to own and operate the Arthur Treacher's Fish & Chips restaurants. These
costs are being amortized using the straight-line method over 20 years. Use of
estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. NOTE 2 --
RELATED PARTY RECEIVABLE Accounts receivable - related party at December 29,
1996 consists of amounts due from Magee Industrial Enterprises, Inc. ("Magee"),
an entity owned by the former stockholders of the Company. NOTE 3 -- LONG-TERM
DEBT Long-term debt represents a note payable to Magee, a company owned by the
former stockholders of the Company, in the amount of $1,139,563. The note is
payable in ten equal semi-annual installments with the first payment due in June
1998. The note bears interest at a fixed rate of 8% which is payable in June and
December of each year. The note contains certain provisions requiring an
acceleration of the repayment in the event the Company, or the new stockholder,
obtains certain additional debt or equity financing, or the assets of the
Company are sold.
F-54
<PAGE>
Current maturities of the debt are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ending December 31, Amount
1998 $ 227,913
1999 227,913
2000 227,913
2001 227,913
Thereafter 227,911
Total long-term debt $1,139,563
</TABLE>
Interest paid for the period January 1, 1996 through December 29, 1996
totaled $197,900.
Based on current borrowing rates, the fair value of the above note
payable approximates its carrying amount.
NOTE 4 -- LEASES
The Company is obligated under long-term operating lease arrangements for
its restaurants, and certain leasehold improvements, with remaining terms
ranging from 1 to 16 years. In addition, many of the leases contain renewal
options for periods of 5-20 years. Most of the leases are net leases under which
the Company pays the taxes, insurance, utilities, and maintenance costs. Certain
leases provide for additional annual rent based upon total gross revenues and
increases in the Consumer Price Index. Rent expense for all operating leases,
including leases with terms of less than one year, amounted to $2,435,000 for
the period January 1, 1996 through December 29, 1996. Future minimum lease
payments under operating leases having remaining noncancellable lease terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ending December 31, Amount
1997 $1,270,600
1998 1,240,200
1999 1,210,600
2000 1,220,200
2001 1,073,000
Thereafter 2,104,400
Total minimum lease payments $8,119,000
</TABLE>
F-55
<PAGE>
NOTE 5 -- GAIN ON SALE OF INVESTMENTS
In connection with the sale of the Company's common stock by the
stockholders to Arthur Treacher's, the Company sold Arthur Treacher's non-voting
preferred stock it owned to Magee. The preferred stock, which was being carried
at its cost of $490,000, was sold to Magee at management's estimate of its fair
market value at that time of $860,000. The gain of $370,000 is reflected as
other income in the accompanying financial statements. Proceeds due from the
sale were used to repay existing related party debt.
NOTE 6 -- STOCKHOLDER'S EQUITY
The following is a summary of stockholder's equity at December 29, 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Voting common stock, par value $0.01 per
share, authorized 12 shares; issued and
outstanding 11.65 shares $ 1
Non-voting common stock, par value $0.01
per share, authorized 850,000 shares;
issued: 821,214.26 shares; outstanding:
780,152.26 shares, net of 41,062
shares held in treasury 8,212
Paid-in-capital 670,752
Retained earnings 1,750,132
Treasury stock, at cost (157,966)
</TABLE>
$2,271,131
NOTE 7 -- INCOME TAXES
Prior to November 27, 1996, the Company was an S Corporation. Upon its
acquisition by Arthur Treacher's, which is not an eligible S CORPORATION
stockholder, the Company's S CORPORATION status was terminated and it became a
taxable corporation. At that time, the Company recognized a net deferred tax
liability of approximately $723,000 with a corresponding charge to deferred tax
expense in the statement of operations. Deferred income taxes result principally
from the difference between financial and tax accounting methods for
depreciation. The Company's taxable income for the period from acquisition
through December 29, 1996 will be included in the consolidated tax return filed
by Arthur Treacher's. Income tax expense of $120,000 has been computed based
upon income recognized for financial reporting purposes based upon the taxes the
Company would be required to pay if the Company would file a separate federal
tax return. The estimated income tax payable was computed using a statutory rate
of 34%. At December 29, 1996, taxes currently payable of $118,172 have been
reflected as income taxes due to parent in the accompanying financial statement.
F-56
<PAGE>
No income taxes were paid for the period January 1, 1996 through December
29, 1996. At December 29, 1996 deferred tax assets totaled approximately
$119,000 and deferred tax liabilities total approximately $843,000. No valuation
allowance is considered necessary. NOTE 8 -- CHANGE IN OWNERSHIP On November 27,
1996, Arthur Treacher's purchased 100% of the outstanding common stock of the
Company. In connection with the purchase, in December 1996, Arthur Treacher's
contributed $618,437 as an equity investment for the purpose of reducing the
related party payable to Magee. NOTE 9 -- RELATED PARTY FEES In connection with
the operation of its stores, the Company pays a royalty to Arthur Treacher's.
Royalty expense for the period January 1, 1996 through November 27, 1996 totaled
$254,180. Beginning November 27, 1996, Arthur Treacher's no longer charged the
Company a royalty fee.
F-57
.
<PAGE>
ARTHUR TREACHER'S, INC.
LIST OF EXHIBITS
<PAGE>
Exhibits
3.1.1 Registrant's Certificate of Incorporation
3.1.2 Agreement and Plan of Reorganization and First
Addendum dated December 5, 1983
3.1.3 Certificate of Merger dated January 23, 1984
3.1.4 Articles of Merger dated January 27, 1984
3.1.5 Articles of Amendment to Articles of Incorporation
dated January 27, 1984
3.1.6 Amendment to Articles of Incorporation dated January
27, 1986
3.1.7 Articles of Amendment to Articles of Incorporation
dated June 28, 1996
3.2 Registrant's Bylaws
4.1 Form of Common Stock Certificate
4.2 Certificate of Designation on Series A Preferred
Stock
4.3 Certificate of Designation on Series B Preferred
Stock
10.1 Purchase Agreement dated May 31, 1996 between James
Cataland and Registrant
10.2 Employment Agreement dated June 1, 1996 between R.
Frank Brown and Registrant
10.3 Purchase Agreement dated November 27, 1996, between
M.I.E. Hospitality and Registrant
10.4 Guaranty Surety Agreement dated November 27, 1996 by
Arthur Treacher's, Inc.
<PAGE>
10.5 Escrow Agreement dated November 27, 1996 among
Arthur Treacher's, Inc. Seller and Brown Brothers
Harriman & Co.
10.6 Mutual Release Agreement dated November 27, 1996,
among M.I.E.Hospitality, Inc. and Magee Industrial
Enterprises, Inc.
10.7 Promissory Note dated November 27, 1996 for $390,417
from M.I.E. Hospitality, Inc. in favor of Magee
Industrial Enterprises Inc.
10.8 Promissory Note dated November 27, 1996 for
$1,139,563 from M.I.E. Hospitality, Inc in favor of
Magee Industrial Enterprises, Inc.
10.9 Uniform Franchise Offering Circular as of
January 1, 1997
10.10 Form of Franchise Agreement as of January 1, 1997
10.11 Form of Warrant exerciseable at $1.51 per share
10.12 Form of Warrant to Burnham Securities, Inc.
10.13 Form of Stock Option to Employees
21 List of Subsidiaries
<PAGE>
27 Financial Data Schedules
<PAGE>
EXHIBIT 3.1.1 Registrant's Certificate of Incorporation
<PAGE>
ARTICLES OF INCORPORATION
OF
ARTHUR TREACHER'S, INC.
We, the undersigned natural persons of the age of twenty-one years or
more, acting as incorporators of the corporation under the provisions of the
Utah Business Corporation Act (hereinafter called the "Act"), do hereby adopt
the following Articles of Incorporation for such Corporation.
ARTICLE I
Name. The name of the Corporation (hereinafter called the
"Corporation") is ARTHUR TREACHER'S, INC.
ARTICLE II
Period of Duration. The period of duration of the Corporation is
perpetual.
ARTICLE III
Purposes and Powers. The purpose for which this Corporation is
organized is to invest in all forms of investments and engage in all types of
business, including the restaurant business, real and personal property, stocks
and bonds, minerals and oil, and to acquire options to purchase such properties,
and to engage in all other lawful business.
ARTICLE IV
Capitalization. The Corporation shall have the authority to issue
50,000,00 (fifty million) shares of stock each having a par value of one-tenth
of one cent ($0.001). All stock of the Corporation shall be of the same class
and shall have the same rights and preferences. Fully paid stock of this
Corporation shall not be liable for further call or assessment. The authorized
trading shares shall be issued at the discretion of the Directors.
ARTICLE V
Incorporators. The name and post office address of each
incorporator is:
Steven P. Levine
2222 South Alton Way
Denver, Colorado 80231
<PAGE>
James Miret
5540 West 9th Avenue
Lakewood, Colorado 80214
Neil S. Bernstein
742 South Chambers Road, #203
Aurora, Colorado 80017
ARTICLE VII
Commencement of Business. The Corporation shall not commence business
until at least One Thousand Dollars ($1,000) has been received by the
Corporation as consideration for the issuance of its shares.
ARTICLE VIII
Preemptive Rights. There shall be no preemptive rights to acquire
unissued and/or treasury shares of the stock of the Corporation.
ARTICLE IX
Voting of Shares. Each outstanding share of common stock of the
Corporation shall be entitled to one vote on each matter submitted to a vote at
the meeting of the stockholders. Each stockholder shall be entitled to vote his
or its shares in person or by proxy, executed in writing by such stockholders,
or by his duly authorized attorney-in-fact. At each election of Directors, every
stock holder entitled to vote in such election shall have the right to vote, in
person or by proxy, the number of shares owned by him or it for as many persons
as there are Directors to be elected and for whose election he or it has the
right to vote, but the Shareholder shall have no right to accumulate his or its
votes with regard to such election.
ARTICLE X
Initial Registered Office and Initial Registered Agent. The address of
the initial registered office of the Corporation is 1020 Kearns Building, 136
South Main Street, Salt Lake City, Utah 84101, and the initial Registered Agent
at such office is Scott H. Smith.
STATE OF COLORADO )
: ss
COUNTY OF DENVER )
On the 9th day of September, 1982, personally appeared before me STEVEN
P. LEVINE, JAMES MIRET, and NEIL S. BERNSTEIN, and duly acknowledged to me that
they are the persons who signed the foregoing Articles of Incorporation as
incorporators and that they have
<PAGE>
read the foregoing Articles of Incorporation and know the contents thereof, and
that the same is rue of their knowledge as to those matters upon which they
operate on information and belief and as to those matters believe them to be
true.
s/ STEVEN P. LEVINE
STEVEN P. LEVINE
s/ JAMES MIRET
JAMES MIRET
s/ NEIL S. BERNSTEIN
NEIL S. BERNSTEIN
SUBSCRIBED AND SWORN TO before me this 9th day of September, 1982
s/
NOTARY PUBLIC
<PAGE>
EXHIBIT 3.1.2 Agreement and Plan of Reorganization and First Addendum dated
December 5, 1983
<PAGE>
<PAGE>
AGREEMENT AND PLAN OF
REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is executed on this 5th day of
December, 1983 (hereinafter called the "Agreement"), by and between EL CHARRO,
INC. (hereinafter referred to as "EC"), a corporation organized and existing in
accordance with the laws of the State of Utah, and ARTHUR TREACHER'S, INC.
(hereinafter referred to as "AT"), a corporation organized and existing in
accordance with the laws of the State of Ohio.
RECITALS
WHEREAS:
1. EC is a corporation organized and existing under the laws of the
State of Utah, having been incorporated on September 23, 1982. EC's
principal place of business is located at 3457 Federal Boulevard,
Denver, Colorado 80211.
2. AT is a corporation organized and existing under the laws of the
State of Ohio, having been incorporated in December, 1983. AT's
principal place of business is located at 4959 Mahoning Avenue,
Youngstown, Ohio 44515.
3. AT is to enter into a Purchase Agreement substantially in the
form annexed hereto as Exhibit 1 to acquire the assets set forth
therein pursuant to the terms and conditions thereof from Lumara
Foods of America, Inc. of Youngstown, Ohio, debtor and
debtor-in-possession of said assets (the "Lumara Purchase
Agreement") subject to the entry of a final order (the "Final
Order") (i.e., not subject to motion, appeal, rehearing, certiorari
or the like) by the United States Bankruptcy Court for the
<PAGE>
Northern District of Ohio, Eastern Division
(the "Court"), confirming and approving
said transaction.
4. The Boards of Directors of EC and AT deem it advisable and in
the best interests of such corporations and their respective
shareholders that AT be merged into EC pursuant to the laws of the
States of Utah and Ohio and pursuant to the provisions of this
Agreement.
5.Upon such merger, the shareholders of AT will receive voting
common stock of EC in a transaction intended to qualify as a tax
free reorganization within the meaning of Sections 368(a)(1)(B) of
the Internal Revenue Code of 1954, as amended.
NOW, THEREFORE, in consideration of the above premises and of the
respective representations, warranties and agreements herein contained, the
parties hereto adopt the following Agreement and Plan of Reorganization and
agree as follows:
<PAGE>
ARTICLE I
THE MERGER
PRINCIPAL TERMS OF THE MERGER
1.1-1 Articles of Merger. On or before the Effective Date (as defined in
Section 1.1-5 hereof) and subject to the terms and conditions herein set forth,
upon the approval by their shareholders, EC and AT shall enter into the Articles
of Merger, in the form annexed as Schedule A, which Articles of Merger, and any
other documents required by law to be so filed at the time of filing of the
Articles of Merger (hereinafter referred to collectively as the "Articles of
Merger"), shall be filed in the offices of the Secretary of State of each of
Utah and Ohio, and such other states as counsel for AT deems necessary.
1.1-2 Merger and Name. On the Effective Date of the Merger, AT shall merge
into EC which shall be the Surviving Corporation, on the terms and subject to
the conditions hereinafter set forth. The separate existence of AT shall
thereupon cease and AT and EC shall become a single corporation, which shall be
governed by the laws of the State of Utah, and such corporation shall utilize
the name of Arthur Treacher's, Inc."
1.1-3 Shareholders' Meetings. EC and AT shall each call a meeting of their
respective shareholders, to be held in accordance with their respective Articles
of Incorporation, as amended, and bylaws, applicable federal securities laws and
the general corporation law of their respective states of incorporation. The
shareholders' meetings shall be held on such date(s) as may be approved and
agreed upon by the Board of Directors of EC and AT, respectively, but in no
event later than January 15, 1984. The AT meeting of shareholders shall be held
upon due notice thereof to the shareholders for approval and adoption of this
Agreement. The EC meeting of shareholders shall be held upon due notice thereof
to the shareholders for
<PAGE>
approval and adoption of this Agreement and for approval of the increase of the
authorized capital stock of EC to 100,000,000 shares of common stock, $.001 par
value.
1.1-4 Effect of the Merger. On the Effective Date
of the Merger:
(a) All of the property, real and personal, including subscriptions to
shares, causes of action, rights and obligations under contracts including the
Lumara Purchase Agreement and every other asset of each of AT and EC (sometimes
hereinafter called the "Constituent Corporations"), shall vest, without further
act, in EC, the "Surviving Corporation, except that the parties hereto
acknowledge that AT shall have the right to assign the right to purchase the
property described in Section 1.1.2 of the Lumara Purchase Agreement to a third
party on the specific condition that such third party shall lease such property
to AT under a triple net lease with annual minimum guaranteed rent of not more
than $60,000 per annum and shall grant to AT for a period of three years the
right to purchase such property for a cash purchase price of $350,000.
(b) The Surviving Corporation shall
possess all rights, privileges, immunities, powers,
purposes and franchises of each of the Constituent
Corporations, and
(c) The Surviving Corporation shall
assume and be liable for all of the liabilities,
obligations and penalties of each of the Constituent
Corporations.
1.1-5 Effective Date of the Merger.
(a) The Effective Date of the Merger shall be February 3, 1984 or such
prior date by mutual agreement of the Board of Directors of each of EC and AT,
except that if the required Certificate of
<PAGE>
Merger is not then issued in accordance with the laws of the State of Utah, the
Effective Date of the Merger shall be the date of the issuance of such
Certificate but in no event later than February 10, 1984, unless the Board of
Directors of each of EC and AT mutually decide to extend such later date.
(b) Notwithstanding anything else to the contrary herein contained, for
accounting purposes the Merger shall be effective as of December 31, 1983.
1.1-6 Closing Date. The Closing Date shall be the date mutually agreed upon
by EC and AT, which date shall be within the period allowed in the Final Order
of the Court to consummate the Lumara Purchase Agreement. If the merger shall
not have been consummated after shareholder approval of the Constituent
Corporations but the certificate has not been issued and the court order period
may expire prior to such issuance, then EC upon notice from AT shall wire
transfer the sum of $330,000 to AT's account to enable AT to consummate the
Lumara Purchase Agreement.
1.1-7 Filing Date. Counsel for each of the Constituent Corporations shall
submit the Articles of Merger for filing in the States of Utah and Ohio and such
other states deemed necessary by AT's counsel not more than 45 days after the
close of the later of the shareholders' meetings to be held unless extended by
written agreement of the parties hereto. The date of such submission for filing
is hereinafter called the "Filing Date." The parties shall use their respective
best efforts to submit the Articles of Merger in order to have the Effective
Date occur prior to the Closing Date.
<PAGE>
ARTICLES OF INCORPORATION; BYLAWS;
DIRECTORS AND OFFICERS
1.2-1 Articles of Incorporation. The Articles of Incorporation of EC on the
Effective Date of the Merger shall be the Articles of Incorporation of the
Surviving Corporation, as restated and amended in the Articles of Merger annexed
as Schedule A.
1.2-2 Bylaws. The bylaws of EC in effect on the
Effective Date of the Merger shall be the bylaws of
the Surviving Corporation.
1.2-3 Directors. Messrs. James R. Cataland,
James A. Cataland and Steven P. Levine shall be
directors of the Surviving Corporation until the first
annual meeting of the shareholders of the Surviving
Corporation held subsequent to the Effective Date
and the election and appointment of their respective
successors.
1.2-4 Officers. . On the Effective Date of the
Merger, the officers of the Surviving Corporation
shall be elected by the Board of Directors.
1.2-5 Vacancies. If, on the Effective Date, a vacancy shall exist in the
Board of Directors of the Surviving Corporation by reason of death or inability
to act, or for any other reason, such vacancy may be filled in the manner
provided in the bylaws of the Surviving Corporation.
STATUS AND CONVERSIONS OF SHARES
AND WARRANTS
1.3-1 Manner of Converting Shares. The manner
and basis of converting shares of each Constituent
<PAGE>
Corporation on the Effective Date of the Merger shall be as follows:
1.3-2 EC Capital Stock: Shares of common stock, $.001 par value, of EC (the
only class of EC stock) issued and outstanding on the Effective Date shall
remain unchanged and each issued and outstanding certificate of EC evidencing
ownership of any of such shares shall continue to evidence ownership of the same
number of shares of the Surviving Corporation.
1.3-3 EC Warrants. Warrants to purchase shares of EC common stock issued and
outstanding on the Effective Date shall remain unchanged and each issued and
outstanding warrant certificate of EC evidencing ownership of any of such
warrants shall continue to evidence ownership of the same number of warrants of
the Surviving Corporation.
1.3-4 AT Capital Stock: All shares of common stock, no par value, of AT
(the only class of AT stock) issued and outstanding on the Effective Date
shall be converted into and become that number of shares (rounded off to
the nearest full share) of EC shares of common stock, $.001 par value,
determined by multiplying the number of shares of EC common stock issued
and outstanding on the Effective Date by 1.5, and each holder of an
outstanding certificate or certificates which prior thereto represented
Common Shares of AT shall surrender the same for cancellation and exchange
as hereinafter provided in Section 1.3-5. Additional shares of EC's common
stock may be required to be issued to AT shareholders I., accordance with
Section 1.3-6 hereof. In no event, upon completion of conversion of AT
shares, shall former AT shareholders have an equity portion in the
Surviving Corporation by reason of the exchange and conversion provided in
Sections 1.3-4 and 1.3-6 in excess of or less than 60%.
1.3-5 Surrender of Certificates: After the
<PAGE>
Effective Date, each holder of an outstanding certificate or certificates,
which prior thereto represented common shares of AT converted into EC
common stock in accordance with the provisions of subsection 1.34, shall
surrender the same to Atlas Stock Transfer, Salt Lake City, Utah, which
will act as the Exchange Agent, and shall be entitled upon such surrender
to receive therefor (a) a certificate or certificates representing the
number of shares of EC common stock into which the common shares
theretofore represented by the certificate or certificates so surrendered
shall have been converted. Until so surrendered each such outstanding
certificate shall be deemed for all purposes to evidence the ownership of
the shares of EC common stock into which the common shares of AT have been
so converted.
1.3-6 Additional Issuances of EC Common Stock. To the extent that EC
Warrants issued and outstanding on the Effective Date are thereafter
timely exercised, additional shares of EC common stock shall be issued by
the Surviving Corporation to AT shareholders as of the Effective Date as
provided herein. The number of such additional EC shares to be issued
shall be determined by multiplying the number of shares of EC common stock
issued upon exercise of the Warrants by 1.5 (rounded off to the nearest
full share). Said issuances of additional EC shares shall be made
concurrently with the issuance of EC shares for the exercise of EC
Warrants.
1.3-7 Fractional Interests: No fractional
shares of EC common stock, and no script or
certificates therefor or any cash in respect
thereof, will be issued in connection with the
Merger.
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES
OF AT
AT represents and warrants to EC as follows:
2.1-1 Organization and Good Standing. AT is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio. AT
has full power and authority, corporate and otherwise, to carry on its business
as and where now conducted and is duly qualified to do business and is in good
standing as a foreign corporation in all jurisdictions where the nature of its
activities requires qualification and is not required to qualify to do business
in any jurisdiction other than those in which it is now qualified. AT has no
subsidiaries.
2.1-2 Authorized Capitalization. The authorized capital stock of AT -is 750
shares of no par value common stock, of which 100 shares are currently
outstanding. All of said outstanding shares of common stock have been validly
issued and are fully paid and nonassessable.
2.1-3 Outstanding Options, Warrants and Conversion Rights. AT has no
outstanding rights, options warrants convertible securities, contracts or
commitments or demands of any character which would require the original
issuance or reissuance from treasury by AT of any shares of its capital stock.
2.1-4 Corporate Powers, Compliance with Other Instruments, Governmental
Consents and Law. AT has the unconditional right, power and authority to
execute, pursue and consummate this Agreement and neither the execution of this
Agreement, nor the consummation of the acts and events described in and/or
contemplated by this Agreement, in accordance with its provisions, will alter
the rights or remedies under or the condition or status of AT with respect to
others, conflict with or constitute a default under or a breach or a violation
of or grounds for termination of,
<PAGE>
or an event which, with the lapse of time or notice, could constitute a default
under or breach or violation or grounds for termination of the Articles of
Incorporation, as amended, or bylaws of AT, or any note, indenture, mortgage,
deed of trust or other agreement or instrument to which AT is a party or by
which it is bound, nor, to the best of AT's knowledge, any existing law, order,
rule, regulation, writ, injunction or decree of any union or any government,
governmental department, commission, board, bureau, agency or instrumentality or
court, domestic or foreign, having jurisdiction over AT or of its properties.
Except for the requisite approval of the shareholders of AT to this Agreement
pursuant to Ohio Corporation Law and compliance with the various applicable
state and federal securities laws and all necessary approvals by regulatory
agencies with jurisdiction over said securities laws, no consent, approval,
authorization or order of any court or governmental agency or body or union or
other body is required by AT to consummate the transactions contemplated herein,
except that a final order of the Bankruptcy Court approving the transaction
under the Lamara Purchase Agreement is necessary.
2.1-5 Delivery of Documents. The copies of the Articles of Incorporation, as
amended, bylaws, as amended to the date hereof, of AT which have been made
available for inspection by representatives of EC are true, complete, unmodified
and correct copies of the Articles of Incorporation, as amended, and the bylaws,
as amended, of AT in effect at the date hereof.
2.1-6 Financial Statements. AT has previously furnished the representatives
of EC true and complete copies of the audited balance sheet of AT as of December
10, 1983 (the "Balance Sheet"). Such Balance Sheet presents fairly, to the
extent reported thereon, the financial position of AT as of the end of such
period. A true and correct copy of said Balance Sheet is included in Schedule B.
2.1-7 Material Transactions and Adverse Changes.
Between December 10, 1983 (Balance Sheet Date)
and the date of this Agreement, there has not been,
<PAGE>
occurred or arisen any event, condition or state of facts of any character which
materially and adversely affects or, to the best of the knowledge of AT,
threatens to or does materially and adversely affect the business
assets or financial condition of AT.
2.1-8 No Liabilities Incurred. As of the Balance Sheet date
and since such date, except and to the extent reflected or
reserved against in the AT Balance Sheet, AT had no and has
incurred no material liabilities or obligations, either singly or
in the aggregate, of any nature whether accrued, absolute,
contingent, conditional, secured or unsecured, or otherwise,
including, without limitation, tax liabilities due or to become
due and whether incurred in or in respect of or measured by its
income for any period prior to the date thereof or the date
hereof or arising out of transactions entered into or any state
of facts existing prior to the Balance Sheet Date or the date
hereof, respectively.
2.1-9 Taxes. All income, excise, unemployment, social
security, occupation, franchise and other taxes, duties or
charges levied, assessed or imposed upon AT by the United States
or by any government, state, municipality or governmental
subdivision have been duly paid or adequately provided for and
all income, excise, unemployment, social security, occupation,
franchise and other tax reports or
other reports required by law or regulation have been
duly filed. All federal and state tax
returns of AT
have been filed by AT with the appropriate
governmental agency and all assessments with respect to such
periods have been paid. Adequate reserves have been established
for all income and other tax liabilities on the AT Balance Sheet
for the period then ended and for all preceding periods. AT has
not waived any statute of limitations with respect to any of its
liabilities, including, without limitation, liability for federal
income or any other taxes for any period prior to the date
hereof. No consents have been filed pursuant to Section 341(f) of
the Internal Revenue Code of 1954, as amended, by AT or any
transferor corporation to AT.
2.1-10 Contracts. Except for the Purchase Agreement set forth
in Exhibit 1, AT is not a party to any contract not made in the
ordinary course of business.
2.1-11 Contingent Liabilities. To the. knowledge of AT, there
are no claims, actions, suits, proceedings or investigations
pending or threatened, against or affecting AT or its properties,
in any court or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, or arbitration tribunal,
or other forum which, if adversely determined against AT, would
materially affect the business, prospects, properties or assets
of AT or adversely affect the right of AT to conduct its business
as currently conducted. There are no judgments, decrees, orders,
writs, injunctions,
<PAGE>
demands or any other mandates
outstanding to which AT
is a party or by which it is bound or affected which
adversely affects the business, prospects,
properties
or assets of AT.
2.1-12 Compliance with Laws. AT has complied in all material
respects with all applicable laws, orders and regulations of the
federal, state, municipal and/or other governments and/or any
instrumentality thereof, domestic or foreign, applicable to its
assets and/or to the business conducted by it and is not in
violation of any laws, orders and regulations which singly or in
the aggregate are material.
2.1-13 Indebtedness Owed to Shareholders, Officers or
directors or Employees. AT is not indebted to any officer,
director, employee or shareholder of AT from AT as of the date
hereof.
2.1-14 Indebtedness Owed by
Shareholders, Officers, Directors or
Employees. No money is owed to AT by
any of the shareholders, officers, directors
or employees of AT.
2.1-15 Salaries of Employees. AT has no obligation,
commitment or past repetitive historical practice to pay bonuses,
royalties or other compensation to any officer, director or
employee.
2.1-16 Guarantees. There are no contracts or commitments by
AT, directly or indirectly, guaranteeing the payment, performance
or both payment and performance of the obligations of third
parties.
<PAGE>
2.1-17 Insurance. AT has no property
or liability requiring insurance protection
and are not otherwise procured any
insurance whatsoever.
2.1-18 Relationships. None of the officers or directors of AT
or any of their respective spouses or children, or trusts or
other entities owned or controlled, either. directly or
indirectly, by any one or more of such parties, owns, directly or
indirectly, individually or collectively, any interest in any
corporation, partnership, firm or association which (i) is a
competitor, lender, customer or supplier of, or (ii) has any
existing contractual relationship with AT other than contracts
referenced herein.
2.1-19 Financial Relationships. There are no banks or other
financial institutions in which AT has lines of credit,
outstanding loans, demand or savings deposits, safe deposit
boxes, trust accounts or any banking relationships whatsoever.
2.1-20 Proxy Statement. The term "Proxy Material" as used
herein shall mean the proxy soliciting materials to be used in
connection with the EC shareholder's meeting referred to in
Section 1.1-1. Any changes in the proxy soliciting material as
mailed to the shareholders of EC from the Proxy Material shall be
deemed incorporated by reference in the Proxy Material. AT shall
provide such material as is requested by EC's counsel for
preparation of the Proxy Statements; both EC's counsels request
for information and AT's response shall be timely provided in
order that EC may obtain shareholder approval by January 15,
1984. The EC Proxy Materials and
<PAGE>
Proxy Statement, to the extent information is provided by
personnel of AT, will not include any untrue statement of a
material fact or omit to state any material fact or necessary to
make the statements therein not misleading.
2.1-21 Authorization by Directors,. The execution and
delivery of this Agreement has been duly authorized by the Board
of Directors of AT.
2.1-22 Estoppel. All statements herein are true and correct
and AT has not made any untrue statement of a material fact or
omission of fact necessary in order to make the statements made
herein, in the light of the circumstances under which they were
made, not misleading.
2.1-23 Schedules. With respect to the references made
throughout the Agreement to Schedules, the contents thereof are
to be deemed to be an integral part of the Agreement among the
parties and such contents are incorporated herein by reference.
Moreover, with respect to such Schedules, AT shall provide such
Schedules to EC within five days after the date hereof. All such
Schedules shall be initialed by all parties hereto. To the extent
applicable, all warranties and representations herein expressly
provided shall apply to the information set forth in the
Schedules.
2.1-24 Exercise of Option. James R. Cataland will abstain
from voting on any resolutions by the Board of Directors of the
Surviving Corporation with respect to the exercise of its option
to purchase the property described in Section 1.1.2 of the Lumara
Purchase Agreement.
<PAGE>
2.1-25 Resolution Concerning Veto Power. The
Surviving Corporation's Board of Director s will adopt at its
first meeting a resolution providing Steven P. Levine with the
power to veto any of the following transactions in accordance
with the, terms of the agreement relating thereto:
(a) Merger;
(b) Acquisition of a non-related
business or assets;
(c) Sale or liquidation of a majority
of assets; and
(d) Adoption of stock option, stock bonus or incentive stock
option plans which will result in the reservation for issuance
of a number of shares greater than ten percent of the amount of
shares outstanding at the date of plan adoption.
2.1-26 Investment Representation
Letter. AT's shareholders will each
provide EC
with an Investment Representation Letter
acknowledging that they are aware of
the transfer
restrictions on their shares, acknowledging that the have had
full opportunity to ask questions of EC and its representatives
concerning EC's business and finances, and that they have
received satisfactory responses to their inquiries.
<PAGE>
REPRESENTATIONS AND
WARRANTIES OF EC
EC represents and warrants to AT as follows:
2.2-1. Organization and Good Standing . EC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Utah as set
forth in Schedule T. EC has full power and authority, corporate and otherwise,
to carry on its business as and where now conducted, is duly qualified to do
business and is in good standing as a foreign corporation in all jurisdictions
in which it must qualify to do business as a foreign corporation, and is not
required to qualify to do business in any jurisdiction other than those in which
it is now qualified.
2.2-2. Authorized Capitalization. The authorized capital stock of EC fs
50,000,000 shares o .001 par value common stock, of which approximately
13,875,000 shares are currently outstanding. All of said outstanding shares of
common stock and warrants to purchase shares of common stock have been validly
issued and are fully paid and nonassessable and were issued in compliance with
federal and all applicable state securities laws.
2.2-3. Outstanding Options, Warrants and Conversion Rights. El Charro has
6,500,000 common stock purchase warrants outstanding. These warrants were
originally issued as part of units sold under Regulation A of the Securities Act
of 1933, each unit consisting of one share of common stock, $.001 par value, and
one common stock purchase warrant. The warrants are detachable from the units
and are tradeable separately on the over the counter market. Each warrant
entitles the holder to purchase one share of common stock at $.10 per share
until March 31, 1984. Warrants which have not been exercised by that date will
automatically expire and will be deemed canceled unless the expiration date is
extended by the Board of Directors.
2.2-4 Subsidiary. EC has no subsidiaries.
<PAGE>
2.2-5 Corporate Powers, Compliance with Other Instruments Governmental
Consents and Law. EC has the unconditional right, power and authority to
execute, pursue and consummate this Agreement and neither the execution of this
Agreement, nor the consummation of the acts and events described in and/or
contemplated by this Agreement, in accordance with its provisions, will alter
the rights or remedies under or the condition or status of EC with respect to
others, conflict with or constitute a default under or a breach or a violation
of or grounds for termination of, or an event which, with the lapse of time or
notice, could constitute a default under or breach or violation or grounds for
termination of the Articles of Incorporation, as amended, or bylaws of EC, or
any note, indenture, mortgage, deed of trust or other agreement or instrument to
which EC is a party or by which it is bound, nor, to the best of EC' s
knowledge, any existing law, order, rule, regulation, writ, injunction or decree
of any union or any government, governmental department, commission, board,
bureau, agency or instrumentality or court, domestic or foreign, having
jurisdiction over EC or of its properties. Except for compliance with the
various state and federal securities laws and all necessary approvals by
regulatory agencies with jurisdiction over said securities laws, no consent,
approval, authorization or order of any court or governmental agency or body or
union or other body is required by EC to consummate the transactions
contemplated herein.
2.2-6 Delivery of Documents. The copies of the Articles of Incorporation, as
amended, and the bylaws, as amended to the date hereof, of EC which have been
made available for inspection by representatives of AT are true, complete,
unmodified and correct copies of the Articles of Incorporation, as amended, and
the bylaws, as amended, of EC in effect at the date hereof. 2.2-7 Financial
Statements. EC has previously furnished the representatives or AT true and
complete
<PAGE>
copies of the Balance Sheet of EC as of June 30, 1983 and the related Statement
of Operations, Statement of Shareholder's Equity and the Statement of Changes in
Financial Position for the period September 23, 1982 to June 30, 1983 reported
on by Sigman, Neuman & Company, certified public accountants. All such financial
statements have been prepared in conformity with generally accepted accounting
principles, applied on a basis consistent during the period. EC has also
furnished representatives of AT true and complete copies of unaudited financial
statements for the period of July 1, 1983 through November 30, 1983. For the
purposes of this Agreement, all financial statements of EC shall be deemed to
include any notes to such financial statements. True and correct copies of all
financial statements (all of the foregoing are collectively called 'EC Financial
Statements') described in this Section 2.2-7 are included in Schedule C.
2.2-8 Material Transactions and Adverse Changes. Between November 30, 1983
and the date of this Agreement, EC has not engaged in any material transaction
or transactions not in the ordinary course of its business and there has not
been, occurred or arisen any event, condition or state of facts of any character
which materially and adversely affects or, to the best of the knowledge of EC,
threatens to or does materially and adversely affect the business assets or
financial condition of EC.
2.2-9 Contingent Liabilities. To the knowledge of EC, there are no claims,
actions, suits, proceedings or investigations pending or threatened, against or
affecting EC or its properties, in any court or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or arbitration tribunal, or other forum
which, if adversely determined against EC, would materially affect the business,
prospects, properties or assets of EC or the right of EC to conduct its business
as currently conducted.
There are no judgments, decrees, orders, writs, injunctions, demands or
any other mandates outstanding to which EC or, to the knowledge of EC, is a
party or by which it is bound or affected which
<PAGE>
adversely affects the business, prospects, properties or
assets of EC.
2.2-10 No Liabilities Incurred. As of November 30, 1983 and since such date,
except to the extent reflected or reserved against in the EC Balance Sheet as of
such date, EC had no and has incurred no material liabilities or obligations,
either singly or in the aggregate, of any nature whether accrued, absolute,
contingent, conditional, secured or unsecured, or otherwise, including, without
limitation, tax liabilities due or to become due and whether incurred in or in
respect of or measured by its income for any period prior to the date thereof or
the date hereof or arising out of transactions entered into or any state of
facts existing prior to November 30, 1983, or the date hereof, respectively.
2.2-11 Taxes. All income, excise, unemployment, social security, occupation,
franchise and other taxes, duties or charges levied, assessed or imposed upon EC
by the United States or by any government, state, municipality or governmental
subdivision have been duly paid or adequately provided for and all income,
excise, unemployment, social security, occupation, franchise and other tax
reports or other reports required by law or regulation have been duly filed.
2.1-12 Guarantees. There are no contracts or commitments by EC directly or
indirectly guarantying the payment, performance or both payment and performance
of the obligations of third parties.
2.2-13 Compliance with Laws. EC has complied in all material respects with
all applicable laws, orders and regulations of the federal, state, municipal
and/or other governments and/or any instrumentality thereof, domestic or
foreign, applicable to its assets and/or to the business conducted by it and is
not in violation of any laws, orders and regulations which singly or in the
aggregate are material.
<PAGE>
2.2-14 Proxy Statement. The EC Proxy Material, to the extent information is
provided by personnel of EC will not include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading. Notwithstanding the provisions of this paragraph 2.2-15, EC
shall have no liability for information provided by AT to EC, except that AT
shall provide such material as is requested by EC's counsel for preparation of
the Proxy Statement.
2.2-15 Authorization by Directors. The execution and delivery of this
Agreement has been duly authorized by the majority of the Board of Directors of
EC.
2.2-16. Status of EC Common Stock. The shares of EC common stock to be
issued under this Agreement, upon delivery and upon payment therefor in
accordance with their terms, will be duly authorized, fully paid and
nonassessable.
2.2-17 Estoppel. All statements herein are true and correct and EC has not
made any untrue statement of. a material fact or omission to state a material
fact necessary in order to make the statements made herein, in the light of the
circumstances under which they were made, not misleading.
COVENANTS OF AT
2.3-1 Actions of AT. AT agrees that prior to the Closing Date it shall use
its best efforts to cause this Agreement to become effective in accordance with
its terms and, without limiting the generality of the foregoing, to obtain all
consents and authorizations of third parties, and make all filings and give all
notices to those parties which may be necessary or reasonably required in order
to effect the transactions contemplated by this Agreement, including the
transaction contemplated by the Lumara Purchase
<PAGE>
Agreement, and take such actions as are necessary to comply with applicable
provisions of the Ohio Corporation and Securities Laws and applicable state
securities laws, including calling a meeting of shareholders to vote upon this
Agreement; and to comply with all other applicable state laws and reg ulations
in connection with the meeting of shareholders and the effectuation of this
Agreement.
2.3-2 No Transactions Out of Ordinary Course of Business. Except for the
Lumara Purchase Agreement and the transactions contemplated thereunder, AT
agrees that, prior to the Closing Date, AT will not enter into any transaction
which would be of such materiality as to render materially false or misleading
the description of AT's business activities, assets, liabilities, contractual
commitments and/or business relationships or other matters as set forth in this
Agreement and the information provided by AT for preparation of the Proxy
Materials, pursuant to the request of EC's counsel.
2.3-3 Conduct of Business. AT, prior to the Closing Date, (i) will not do,
or cause to be done, anything which is represented and warranted not to have
been done, in Article II, Section 1, except as otherwise permitted in this
Agreement or approved in advance by the other party, (ii) will not permit
amendments to its Articles of Incorporation or bylaws, (iii) will not cause or
permit to be declared or paid any dividends, stock splits or other distributions
in respect of any shares of its capital stock nor cause or permit any new
issuance of stock, (iv) will maintain its books, accounts and records in the
usual manner on a consistent basis, and (v) will take each and every step
necessary to preserve the charter issued by the State of Ohio, including timely
filing of annual reports and current payment of franchise fees and all taxes now
and/or hereafter due and owing.
2.3-4 Access. AT agrees that it will furnish to EC
and to EC's accountants, attorneys and other
representatives full access, during normal business
hours throughout the term or applicability of this
Agreement but prior to. the Closing Date, to all
information concerning its affairs as EC may reasonably request. In the event of
the termination of this Agreement, AT will deliver to EC all documents and
papers and other material obtained from EC relating to the transaction
contemplated hereby, whether so obtained before or after the execution hereof,
and will use its best efforts to have any information so obtained and not
heretofore made public kept confidential.
2.3-5 Shareholders' Meetings. AT shall duly call and convene a meeting of
its' shareholders for the purpose of voting upon and approving this Agreement.
AT will recommend and solicit the approval of its shareholders with respect to
the consummation of this Agreement. The meeting shall be held on such date or
dates as may be satisfactory to the respective Presidents of AT and EC. AT shall
furnish to EC the information relating to AT which shall be necessary for the
preparation of the Proxy Material.
None of the information to be supplied by AT to be included in the
Proxy Material regarding AT shall contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements,
in light of the circumstances under which they were made, not misleading.
2.3-6 Consents. All consents and/or approvals which are necessary consents
to permit to be transferred to EC under this Agreement all of AT's rights under
indentures, contracts and leases, including the Lumara Purchase Agreement and,
if required, the written consent(s) of any government entities or agencies will
have been obtained in writing before the Filing Date and AT will provide EC all
necessary assistance and cooperation in obtaining such consents, including the
written assumption of liabilities by EC under such indentures, contracts and
leases when appropriately required by relevant third parties or by governing
documents, and the attendance of personnel of EC at hearings before the court to
obtain the final order.
<PAGE>
2.3-7 Rule 144 Compliance. AT will obtain from each shareholder of AT prior
to the Closing Date a letter containing a representation to EC that such person
will not make any disposition of any shares of EC common stock obtained as a
result of this Agreement unless: (i) such distribution has been registered under
the Securities Act; or (ii) the sale is made in conformity with Rule 144
promulgated under the Securities Act; or (iii) some other exemption from
registration of the sale of the EC common stock is available in the opinion of
counsel of EC at such time.
<PAGE>
COVENANTS OF EC
2.4-1 Actions of EC. EC agrees that prior to the Closing Date it shall use
its best efforts to cause this Agreement to become effective in accordance with
its terms and, without limiting the generality of the foregoing, to obtain all
consents and authorizations of third parties, and make all filings and give all
notices to those parties which may be necessary or reasonably required in order
to effect the transactions contemplated by this Agreement, and take such actions
as are necessary to comply with applicable provisions of the Utah Corporation
Law and applicable state and federal securities laws.
2.4-2 No Transactions Out of Ordinary Course of Business. EC agrees that,
prior to the Closing Date, E will not enter into any transaction which would be
of such materiality as to render materially false or misleading the description
of EC's business activities, assets, liabilities, contractual commitments and/or
business relationships or other matters as set forth in this Agreement.
2.4-3 Conduct of Business. EC, prior to the Closing Date, (i) will not do,
or cause to be done, anything which is represented and warranted not to have
been done in Article II, Section 2.2.8, except as otherwise permitted in this
Agreement or approved in advance by the other party, (ii) will not permit
amendments to its Articles of Incorporation or bylaws, except as may be
necessary to carry out the provisions hereof, (iii) will not cause or permit to
be declared or paid any dividends, stock splits or other distributions in
respect of any shares of EC's capital stock nor cause or permit any new issuance
of stock other than upon exercise of EC warrants, (iv) will maintain its books,
accounts and records in the usual manner on-a consistent basis, (v) will take
each and every step necessary to preserve the charters issued by the State of
Utah, including timely filing of annual reports and current payment of franchise
fees and all taxes now and/or hereafter due and owing, and (vi) notwithstanding
the provisions of 3.1-6, to the extent that the rights of the holders of the
Warrants of EC are
<PAGE>
exercised prior to closing, the funds resulting from such exercise shall remain
on deposit with EC.
2.4-4 Access. EC agrees that it will furnish to AT and to AT's accountants,
attorneys and other representatives full access, during normal business hours
throughout the term or applicability of this Agreement but prior to the Closing
Date, to all information concerning its affairs as AT may reasonably request. In
the event of the termination of this Agreement, EC will deliver to AT all do,
elements and papers and other material obtained from AT relating to the
transaction contemplated hereby, whether so obtained before. or after the
execution hereof, and will use its best efforts to have any information so
obtained and not heretofore made public kept confidential.
2 - 4-5 Proxy Preparation. EC shall prepare and furnish to its shareholders
a Proxy Statement relating to the transaction under this Agreement. None of the
information to be supplied by EC to be included in the Proxy Statement to be
submitted to EC shareholders shall contain an untrue statement of a material
fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
2.4-6 Consents. All consents and/or approvals which are necessary consents
to permit to be transferred to the Surviving Corporation all of EC's rights
under indentures, contracts and leases and, if required, the written consent(s)
of any government entities or agencies will have been obtained in writing before
the Filing Date and EC will provide the Surviving Corporation all necessary
assistance and cooperation in obtaining such consents, including the written
assumption of liabilities by the Surviving Corporation under such indentures,
contracts and leases when appropriately required by relevant third parties or by
governing documents. <PAGE>
ARTICLE III
CONDITIONS OF REORGANIZATION
CONDITIONS TO OBLIGATIONS OF EC
The obligations of EC hereunder are, at the option of EC, subject to
compliance with and/or fulfillment of each of the following conditions prior to
the Closing Date.
3.1-1 Representations. The representations and warranties of AT contained I
this Agreement, including the schedules hereto, shall be true and correct on and
as of the Filing Date and Closing Date, with the same effect as though all such
representations and warranties had been made on and as of that date.
3.1-2 Compliance. All the terms, covenants and conditions hereof to be
followed and performed by AT on or before the Filing and/or Closing Date shall
be fully and timely performed.
3.1-3 Certificate from AT. AT shall have received a certificate (s) , dated
the Closing Date and Filing Date, respectively, and executed by AT's Chief
Operating Officer, President (if not the Chief Operating Officer), Senior
Financial Officer and Secretary, confirming the provisions of paragraphs 3.1.1
and
3.2.2 of this Article III.
3.1-4 Actions of AT with Respect to the Lumara
Purchase Agreement.
(a) Not later than five business days following the this
Agreement, AT will execute the Lumara Purchase Agreement
(b) Not later than five business days following the execution of the
Lumara Purchase Agreement, AT shall cause Lumara to make due application(s) and
file and serve such appropriate complaint(s) with the Court for Final Order and
Judgment(s) authorizing and confirming the purchase of assets as provided in the
Lumara
<PAGE>
Purchase Agreement.
3.1-5 Final Order of Bankruptcy Court and
Consummation of Purchase Agreement. The United
States Bankruptcy Court for the Northern District of
Ohio, Eastern Division (the 'Court'), shall
have entered a final order (i.e., not subject to
motion, appeal, rehearing, certiorari or the like),
confirming and approving the purchase by AT of
certain assets of Lumara Foods of America, Inc.
("Lumara Purchase Agreement'), debtor and debtor-
in-possession ("Lumara') in said Court in Case No.
1382-946-Y, as are set forth in, and pursuant to the
terms and conditions of, the Lumara Purchase
Agreement between AT and Lumara which is annexed
hereto as Exhibit 1 (other than the assets described
in Section 1.1-2, which by Final Order of the court a
sale thereof shall be confirmed to the third party);
and the transaction contemplated by said Agreement
shall bd consummated. Except as otherwise provided
herein, the closing of said transaction shall occur
contemporaneously with the closing of the merger
under this Agreement.
3.1-6 EC Net Worth and Cash Balance. On the
Closing Date, EC shall have a net worth of not less
than $300,000 and shall have a cash balance of not
less than $350,000, which net worth and cash balance
shall include the sum of $20,000 (the "Escrowed
Funds') which is to be delivered to Nadler & Nadler
Co., L.P.A. as Escrow Agent pursuant to the Escrow
Agreement annexed as Exhibit 2 and as provided in
Section 3.2-4 hereof.
<PAGE>
3.1-7 Opinion of Counsel. EC shall have received
the opinion of Thomas E.
Zena, counsel to AT,
dated as of the Closing Date, which shall provide,
inter alia, but without qualifications thereof, the
following, to-wit:
(a) AT is a corporation duly organized,
validly existing and in good standing under the laws
of its state of incorporation. AT has full power and
authority, corporate and otherwise, to carry on its
business as and where now conducted and is duly
qualified to do business and is in good standing as a
foreign corporation in each jurisdiction wherein the
character of the properties owned or leased by it or
the nature of the business transacted by it to the
best of its knowledge makes such qualification
necessary.
(b) The authorized capital stock of AT and
number of shares outstanding is as set forth in
Section 2.1.2 of Article II. To the best of the
knowledge of such counsel, all of said outstanding
shares have been validly issued and are fully paid
and nonassessable.
(c) To the best of
the knowledge of such
counsel, AT has no
outstanding conversion rights,
options, warrants, contracts
<PAGE>
or commitments or demands of any character which
would require the issuance (or transfer out of
treasury) by AT of any shares of its capital stock.
(d) compliance with the terms of this
Agreement and the consummation of this Agreement in
accordance with its terms will not conflict with or
constitute a default under or breach or violation of
or grounds for termination of, or an event which,
with the lapse of time or notice and the lapse of
time, could constitute a default under, or breach of
violation of, or grounds for termination of, the
Articles of Incorporation or bylaws of AT or any
note, indenture, mortgage, deed of trust, collective
bargaining agreement or other agreement or instrument
to which AT is a party or by which it is bound of
which such counsel is aware after due inquiry, nor
any existing law, order, rule, regulation, writ,
injunction or decree known to such counsel of any
government, governmental department, commission,
board, bureau, agency or instrumentality or court,
domestic or foreign, having jurisdiction over AT of
its properties. To the best of the knowledge of such
counsel, all consents, approvals, authorization
<PAGE>
and/or orders of any court or governmental agency or
body or union or other body which are required by AT
to consummate the transactions contemplated herein
have been obtained.
(e) This Agreement has been duly approved,
authorized, executed and delivered by AT and
constitutes a legal and binding obligation of AT,
enforceable in accordance with its provisions.
(f) In connection with its legal
representation of AT, such counsel has no knowledge
of any conditions or facts which would constitute a
breach of any of the representations, warranties and
covenants contained in this Agreement.
(g) With respect to the information
concerning AT, its properties, management and
securities which was developed in the course of the
performance of the services of such counsel in
connection with providing information in response to
the request of EC' s counsel for the preparation of
the EC Proxy Statement, (i) such counsel has no
reason to believe that the information on the date of
mailing thereof to EC contained any untrue statement
of a material fact or omitted to state any material
<PAGE>
fact necessary to make the statements therein not
misleading, and (ii) to the best of the knowledge of
such counsel, subsesquent to the date of mailing of
the information to EC, on the one hand, and prior to
the date of such opinion, on the other, no event,
occurrence or state of facts arose or came to light
with respect to AT which should have been and was not
disclosed to the stockholders of EC (it being
understood, however, that such counsel need not
assume any responsibility for any events, occurrences
or states of fact relating to AT or its business,
properties, management or securities during the
periods referred to or for the accuracy, completeness
or fairness of the statements contained in, or for
any omissions from, the Proxy Statement, except that
such counsel shall affirmatively indicate that
nothing has come to their attention that has caused
such counsel to disbelieve any statements therein in
respect of this Agreement, and such counsel need not
express an opinion with respect to the financial
statements or other financial, statistical or
operating data contained therein).
(h) This
Agreement has been duly
authorized by the vote of the
shareholders of AT in
accordance with the
<PAGE>
requirements of the general
corporation law of the State
of Ohio.
(i) To the best of the knowledge of such
counsel, there is no material litigation, proceeding
or governmental investigation pending or threatened
against or relating to AT, its officers or directors,
or its properties or business, or the transactions
contemplated by this Agreement.
In rendering such opinion, such counsel may rely,
to the extent such counsel deems such reliance
necessary or appropriate, upon opinions of other
counsel as to matters of law and as to matters of
fact upon the representations and warranties in this
Agreement and upon certificates and written
statements of governmental officials and of any
officer or officers of AT or other responsible
persons deemed appropriate by such counsel.
3 - 1-8 No Material Change. Between the date
hereof and the Closing Date, AT shall not have
incurred any liabilities or obligations, direct or
contingent, or entered into any material
transactions, except in the ordinary course of
business, and there shall not have been any change in
the capital stock of AT or any material adverse
change in the
<PAGE>
condition, financial or
otherwise, net worth or results
of operations of AT.
3.1-9 No Errors or Misrepresentations. On or
before the Closing Date, EC shall not have discovered
any material error, mistake or omission in the
representations and warranties made herein by AT.
3.1-10 Consents. All consents, approvals,
authorizations, waivers or orders of any court,
tribunal, arbitrator or governmental agency or body
or union required or necessary for the consummation
of the transactions contemplated by this Agreement
shall have been obtained. No agency or department of
any government unit or subdivision shall have
threatened any action against either AT and/or EC to
prevent, or as a result of the consummation of this
Agreement.
3.1-11 Approval of AT and EC Shareholders. The
holders of a majority of the outstanding capital
stock of AT and EC entitled to vote on this Agreement
shall have voted to approve this Agreement at
meetings (or as otherwise provided by state law) of
such shareholders, duly called and held pursuant to
the Articles of Incorporation and bylaws of AT and
EC, the laws
<PAGE>
of the States of Ohio and Utah
and the applicable state and
federal securities laws.
3.1-12 Resolutions. AT will deliver to EC a
certified copy of resolutions adopted by its Board of
Directors authorizing the execution, delivery and
performance of this Agreement and authorizing the
transfer of assets contemplated thereby and all
documents to be executed and delivered by it on the
morning of the Closing Date.
3.1-13 Dissenting Shareholders. The holders of no
more than ten percent of the outstanding shares of AT
or EC entitled to vote at the meeting to approve and
adopt this Agreement shall have voted against this
Agreement and filed written objection thereto in
accordance with the Ohio Corporation Law or Utah
Corporation Law.
3.1-14 Legal Matters. All legal matters in
connection with the consummation of the transaction
contemplated by this Agreement and all documents and
instruments delivered in connection therewith shall
be reasonably satisfactory in form and substance to
Brenman, Epstein, Zerobnick, Raskin & Friedlob, P.C.
and such counsel shall have received authenticated
copies of such corporate documents and certificates
by public officials
<PAGE>
concerning AT as such counsel
may reasonably request.
CONDITIONS TO
OBLIGATIONS OF AT
The obligations of AT hereunder are, at the
option of AT, subject to compliance with and/or
fulfillment of each of the following conditions prior
to the Closing Date.
3.2-1 Representations. The representations and
warranties of EC contained in this Agreement shall be
true and correct on and as of the Filing Date and
Closing Date, with the same effect as though all such
representations and warranties had been made on and
as of that date.
3.2-2 Compliance. All the terms, covenants and
conditions hereof to be followed and performed by EC
on or before the Filing and/or Closing Date shall be
fully and timely performed.
3.2-3 Certificate. AT shall have received a
certificate(s), dated the Closing Date and Filing
Date, respectively, and executed by EC's Chief
Operating Officer, President (if not the Chief
Operating Officer) and Secretary,
<PAGE>
confirming the provisions of
paragraphs 3.2.1 and 3.2.2 of
this Article III.
3.2-4 Delivery of Funds. Upon the execution
hereof EC shall deliver an official bank check in the
amount of $20,000 (the 'Escrowed Funds') payable to
Nadler & Nadler Co., C.P.A. as Escrow Agent (the
"Escrow Agent') whom EC and AT appoint as Escrow
Agent to hold and disburse the Escrowed Funds
pursuant to the terms and conditions of the Escrow
Agreement annexed hereto as Exhibit 2.
3.2-5 Final Order of Bankruptcy Court and
Consummation of Purchase Agreement. The United States
Bankruptcy Court for the Northern District of Ohio,
Eastern Division, shall have entered a final order
(i.e.,not subject to motion, appeal, rehearing,
certiorari or the like), confirming and approving the
purchase by AT of certain assets of Lumara Foods of
America ('Lumara Purchase Agreement") , debtor and
debtor in possession ("Lumara') in said court in Case
No. 1382-946-Y, as are set forth in, and pursuant to
the terms and conditions of, that certain Purchase
Agreement between AT and Lumara which is annexed
hereto as Exhibit 1 (other than the assets described
Section
<PAGE>
1.1-2 which by Final Order of the Court a sale
thereof shall be confirmed to the third party); and
the transaction contemplated by said Agreement shall
be consummated. Except as otherwise provided herein,
the closing of said transaction shall occur
contemporaneously with the closing of the merger
under this Agreement.
3 - 2-6 EC Net Worth and Cash Balance. On
the Closing Date, EC shall have a net worth of not
less than $300,000 and shall have a cash balance of
not less than $350,000; said net worth and cash
balance shall include the Escrowed Funds.
3 - 2-7 Opinion of Counsel. AT shall have
received the opinion of Breriman, Epstein, Zerobnick,
Raskin & Friedlob, P.C., counsel to EC, dated the
Closing Date, which shall provide, inter alia, but
without qualifications thereof, the following,
to-wit:
(a) EC is a corporation duly organized,
validly existing and in good standing under the laws
of its state of incorporation and has full power and
authority, corporate and otherwise, to carry on its
business as and where now conducted and is duly
qualified to do business
<PAGE>
and is in good standing as a foreign corporation in
each jurisdiction wherein the character of the
properties owned or leased by it or the nature of the
business transacted by it to the best of its
knowledge makes such qualification necessary.
(b) The authorized capital stock of EC
consists of 100,000,000 shares of common stock, $.001
par value per share, of which approximately
13,875,000 shares are outstanding. To the best of the
knowledge of such counsel, said outstanding shares
have been validly issued and are fully paid and
nonassessable.
(c) The shares of EC common stock to be
received by AT pursuant to this Agreement have been
duly authorized and, upon issuance, will be validly
issued, fully paid and nonassessable.
(d) To the best of the knowledge of such
counsel, EC has no outstanding rights, options,
warrants, contracts or commitments or demands of any
character which would require the issuance (or
transfer out of treasury) by EC of any shares of its
capital
<PAGE>
stock except for the EC
warrants issued and
outstanding.
(e) Compliance with the terms of this
Agreement and the consummation of this Agreement in
accordance with its terms will not conflict with or
constitute a default under or breach or violation of
or grounds for termination of, or an event which,
with the lapse of time or notice and the lapse of
time, could constitute a default under, or breach of
violation of, or grounds for termination of the
Articles of Incorporation, as amended, or the bylaws
of EC or any note, indenture, mortgage, deed of
trust, or other agreement or instrument to which EC
is a party or by which any of them are bound of which
such counsel is aware after due inquiry, nor any
existing law, order, rule, regulation, writ,
injunction or decree known to such counsel or any
union or any government, governmental department,
commission, board, bureau, agency or instrumentality
or court, domestic or foreign, having jurisdiction
over EC of its properties. To the best of the
knowledge of such counsel, all consents, approvals,
authorization and/or orders of any court or
governmental agency or body or union or other body
which are required
<PAGE>
by EC to consummate the transactions contemplated
herein have been obtained, including all consents,
approvals, authorizations and/or orders of any kind
required under federal and all applicable state
securities laws.
(f) This Agreement has been duly approved,
authorized, executed and delivered by EC and
constitutes a legal and binding obligation of EC,
enforceable in accordance with its provisions.
(g) This Agreement
has been duly authorized by
EC.
(h) In connection with its legal
representation of EC, such counsel has no knowledge
of any conditions or facts which would constitute a
breach of any of the representations, warranties and
covenants contained in this Agreement.
(i) On the basis of the information which
was developed in the course of the performance of the
services of such counsel, with respect to EC and its
business, properties, management and securities (i)
such counsel has no reason to believe that the Proxy
<PAGE>
Statement contained with respect to EC, as of the
date of mailing thereof, any untrue statement of a
material fact or omitted to state any material fact
required to be stated therein or necessary to make
the statements therein not misleading, and (ii ) to
the best of the knowledge of such counsel, subsequent
to the mailing date of the Proxy Statement, on the
one hand, and prior to the date of such opinion, on
the other, no event, occurrence or state of facts
with respect to EC arose or came to light which
should have been and was not disclosed to the
stockholders of EC under applicable federal
securities laws (it being understood, however, that
(a) such counsel need not assume any responsibility
for any events, occurrences or states of fact
relating to EC or its business, properties,
management or securities during the periods referred
to or for the accuracy, completeness or fairness of
the statements contained in, or for any omissions
from, the Proxy Statement, except that such counsel
shall affirmatively indicate that nothing has come to
its attention that has caused such counsel to
disbelieve any statements therein in respect of this
Agreement, and (b) such counsel need not express an
opinion with respect to the financial statements or
other financial, statistical or
<PAGE>
operating data contained therein). Such counsel has
submitted to AT a complete listing of the material
information AT is required to submit to EC to be
disclosed in the Proxy Statement.
(j) To the best of the knowledge of such
counsel, there is no material litigation, proceeding
or governmental investigation pending or threatened
against or relating to EC, its officers or directors,
or its properties or business, or the transactions
contemplated by this Agreement.
In rendering such opinion, such counsel may rely,
to the extent such counsel deems such reliance
necessary or appropriate ' upon opinions of other
counsel as to matters of law other than that of
Colorado and as to matters of fact, upon the
representations and warranties in this Agreement and
upon certificates and written statements of
governmental officials and of any officer or officers
of EC or other responsible persons deemed appropriate
by such counsel.
3.2-8 No Adverse Change.
Between the date hereof and the Closing Date, there
shall not have been any material adverse change in
the
<PAGE>
condition, financial or
otherwise, net worth or results
of operations of EC.
3.2-9 No
Misrepresentations. On or
before the Closing Date, AT
shall not have discovered any
material error, mistake or
omission in the
representations and
warranties made herein by
EC.
3.2-10 Consents. All consents, approvals,
authorizations, waivers or orders of any court,
tribunal, arbitrator or governmental agency or body
or union required or necessary for the consummation
of the transactions contemplated by this Agreement
shall have been obtained. No agency or department of
any government unit or subdivision shall have
threatened any action against either EC and/or AT to
prevent, or as a result of the consummation of this
Agreement.
3.2-11 Approval of EC and AT Shareholders. The
holders of a majority of the outstanding capital
stock of EC and AT entitled to vote on the approval
and adoption of this Agreement shall have voted to
approve this Agreement at meetings of such
<PAGE>
shareholders, duly called and held pursuant to the
Articles of Incorporation, as amended, and bylaws of
EC and AT, the laws of the States of Utah and Ohio
and the applicable state and federal securities laws.
3.2-12 Dissenting Shareholders. The holders of no
more than ten percent of the outstanding shares of EC
or AT entitled to vote at the meetings authorizing
the Merger shall have voted against the Merger and
filed written objection thereto in accordance with
the Utah Corporation Law or the Ohio Corporation Law
respectively demanding appraisal of such shares.
3.2-13 Approval of
Amendment to EC Articles of Incorporation. The proposed amendment
to the Articles of Incorporation of EC as described in subsection
1.1-3 of Article I shall have been approved by the holders of a
majority of the outstanding capital stock of EC entitled to vote
at a meeting of shareholders, duly called and held pursuant to
the Utah Corporation Law, pursuant to the Articles of
Incorporation and bylaws of EC, and the applicable state and
federal securities laws, no later than effective date.
3.2-14 Resolutions. EC will deliver
to AT a certified copy of resolutions
adopted by its Board of Directors
authorizing the execution, delivery and
performance of this Agreement and all
documents to be executed and delivered
<PAGE>
by it on the Closing Date.
3.2-15 Legal Matters. All legal matters in connection with
the consummation of the transaction contemplated by this
Agreement and all documents and instruments delivered in
connection therewith shall be reasonably satisfactory in form and
substance to Thomas A. Zena and such counsel shall have received
authenticated copies of such corporate documents and certificates
by public officials concerning EC as such counsel may reasonably
request.
3.2-16 Execution of Lease. On the Closing Date, a third party
(who may be James R. Cataland or an affiliate of James R.
Cataland) shall purchase the assets described in Section 1.1.2 of
the Lumara Purchase Agreement from Lumara and shall thereupon
enter into a lease with AT upon economic terms no less favorable
to AT as those set forth in Section 1.1-4 above and such other
terms and conditions as are mutually acceptable to such third
party and AT.
ARTICLE IV
TERMINATION
4.1 Automatic Termination. Except as otherwise provided in
the Escrow Agreement as described in Section 3.2- 4, this
Agreement shall automatically terminate (i) in the event the
holders of the requisite number of shares of EC or AT do not
approve this Agreement, or (ii) unless previously extended by
written agreement of all parties hereto at the close of business
on February 10,
<PAGE>
1984, if all conditions set out in Article III have not been
satisfied or waived by the party having the option to waive the
same and this Agreement consummated on or prior to such date.
4.2 Termination by Boards of Directors. Except as otherwise
provided n the Escrow Agreement as described in Section 3.2-4,
this Agreement shall terminate in the event the Board of
Directors of either party, prior to the Closing Date, decide that
merger is undesirable and vote to terminate this Agreement,
whether or not theretofore approved by the EC or AT stockholders.
4.3 Effect of Termination. Except as otherwise provided in
the Escrow Agreement as described in Section 3.2-4, upon
termination of this Agreement as provided in Article VI, all
parties shall be released from all further liability hereunder,
provided that such termination shall not release any party from
any lia bility which such party may have for any breach
theretofore occurring of any covenants or agreement herein made
by such party or for any willful misstatement contained in any
representation and warranty herein made by such party or for any
expense which under the provisions of this Agreement such party
agrees to bear.
ARTICLE V
MISCELLANEOUS
5.1 Notice. Any notice, request,
instruction or other document to be given
<PAGE>
hereunder shall be in writing and, except as otherwise provided
for herein, shall be delivered personally or sent by registered
or certified mail as follows:
(a) If to EC:
3457 Federal Boulevard Denver,
Colorado 80211
Attention: President
with a copy to:
Brenman, Epstein, Zerobnick,
Raskin & Friedlob, P.C.
1400 Glenarm Place
Denver, Colorado 80202
Attention: Thomas Tenenbaum
(b) If to AT:
James R. Cataland
Arthur Treacher's, Inc.
4959 Mahoning Avenue
Youngstown, Ohio 44515
with a copy to:
Thomas E. Zena
407 Legal Arts Center
Youngstown, Ohio 44503
(c) Nadler & Nadler
Attn: Michael Gallo
900 Dollar Bank Building
Youngstown, Ohio 44503
5.2 Survival of Representations. The representations, warranties, covenants
and agreements herein contained shall survive the execution of this Agreement
and the Closing Date and the consummation of the Merger.
<PAGE>
5.3 Benefit. This Agreement shall be binding upon and shall inure to the
benefit of EC, AT and their respective successors and assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any person, other than
EC, AT and their successors and assigns, any rights or remedies under or by
reason thereof.
5.4 Fees. EC and AT shall pay their own costs and expense incident to the
negotiation, preparation and performance of this Agreement, and compliance with
all agreements and conditions contained herein, including all fees, expenses and
disbursements of their respective counsel, whether or not the transactions
contemplated hereby are consummated.
5.5 Waiver of Terms. If any of the conditions specified in Section 3.1 of
Article III hereof has not been satisfied, EC may, nevertheless, at its
election, proceed with the transactions contemplated hereby and if any of the
conditions specified in Section 3.2 of Article III hereof has not been
satisfied, AT may, nevertheless, at its election, proceed with the transactions
contemplated hereby. Any such election to proceed shall be evidenced by a
certificate executed by the President or Vice President and the Secretary or
Treasurer of the respective corporation.
5.6 Modification. This Agreement cannot be modified, changed, discharged or
terminated except by an instrument in writing, signed by the party against whom
the enforcement of any waiver, change, discharge or termination is sought. This
Agreement contains the entire understanding between the parties with respect to
the transactions covered hereby.
5.7 Applicable Law. This Agreement will be
construed and governed in accordance with the laws
of the State of Colorado (excluding laws relating to
conflict of laws).
<PAGE>
5 .8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
5.9 Status. "Status" as such term is used in this Agreement is a default or
breach in specific shall denote whether there contractual obligations and s hall
include a description of the character type of such default/breach and the
amount thereof in terms of money, if applicable.
5.10 Broker' s Fee. No agent, broker, person or party, acting on behalf of
AT or EC or under either of their respective authority, is or will be entitled
to any commission or broker' s or finder' s fee or financial advisory fee or
other compensation from any of the parties hereto or any other party in
connection with any of the transactions described or contemplated herein, except
James Holmes and Freeport Financial Services, Inc. , or their assigns, who, upon
consummation of the said transactions, are in the aggregate to receive 500,000
shares of EC common stock, $.001 par value, and $5,000 cash 30 days after the
closing and three additional deferred payments of $5,000 each commencing 120
days after the closing and each 90 days thereafter until paid in full except
that such deferred payments shall be accelerated if EC receives $200,000 from
the exercise of its warrants by April 30, 1984.
IN WITNESS WHEREOF, the parties have caused
this Agreement to
be executed as of the day and year first above
written.
ATTEST: EL CHARRO, INC.
By /s/ Steven P.
<PAGE>
Levine, President
ATTEST:
<PAGE>
ARTHUR
TREACHER'S, INC.
By:/s/ James R.
Cataland
James R. Cataland,
President
FIRST ADDENDUM TO AGREEMENT AND
PLAN OF REORGANIZATION
Dated December 5, 1983 between El Charro, Inc.
and Arthur Treacher's, Inc.
El Charro, Inc. and Arthur Treacher's, Inc. agree
as follows:
1. If any provision in the above described
Agreement and Plan of Reorganization (the "Plan') is
inconsistent with any provision in this Addendum, the provision in this
Addendum shall control.
2. The following provisions are added to
Article V of the Plan: 5.11 Principal office. The
principal office of the Surviving Corporation shall be
located at 4959 Mahoning Avenue, Youngstown,
Ohio
44515.
5.12 Consent to Suit and Service of Process. As of the Effective Date
of the Merger, the Surviving Corporation consents to be sued and served with
process in the State of Ohio, and irrevocably appoints the Secretary of State of
Ohio as its agent to accept service of process in any proceeding in the State of
Ohio to enforce against the Surviving Corporation any obligation of Arthur
Treacher's, Inc. or to enforce the rights of a dissenting shareholder of Arthur
Treacher's, Inc.
3. The parties hereto hereby ratify and confirm
<PAGE>
all terms and conditions of the Plan, except as
modified herein.
4 . The terms hereof shall be binding upon and
shall inure to the benefit of El Charro, Inc. and
Arthur Treacher's, Inc. and their heirs, personal
representatives, successors and assigns.
This Addendum may be executed in counterparts and all so executed shall
constitute one Addendum, binding on all the parties hereto, notwithstanding that
all the parties are not signatory to the same counterpart.
Dated: January 23, 1984
EL
CHARRO, INC.
ATTEST:
By: /s/ Steven P. Levine
Steven P. Levine, President
ATTEST:
ATTEST:
ARTHUR TREACHER'S, INC
/s/ William F. Saculla
By:/s/ James S. Cataland
William F. Saculla , Secretary
James S. Cataland, President
<PAGE>
EXHIBIT 3.1.3 Certificate of Merger dated January 23, 1984
<PAGE>
CERTIFICATE OF MERGER
Pursuant to the provisions of the Ohio General Corporation Law, Section
1701-81, the undersigned corporations adopt this Certificate of Merger for the
purpose of merging Arthur Treacher's, Inc., an Ohio corporation, with and into
El Charro, Inc., a Utah corporation.
1. A copy of the Agreement and Plan of Reorganization dated December 5,
1983, between Arthur reacher's, Inc. and El Charro, Inc. is attached as Exhibit
A.
2. The Boards of Directors of both El Charro, Inc. and Arthur Treacher's,
Inc. voted unanimously to pass resolutions concerning the merger.
3. The number of shares issued and outstanding and entitled to vote on
the merger was as follows:
Number of
Shares entitled shares
Name of corporation to vote outstanding
El Charro, Inc. Common stock, 13,875,000
$.001 par value
Arthur Treacher's, Inc. Common stock, 100
no par value
There were no issued and outstanding shares of either corporation entitled to
vote as a class on the merger.
4. The shareholders' meeting of El Charro, Inc. was held on January 13,
1984. The shareholders' meeting of Arthur Treacher's, Inc. was held on
December 5, 1983. Shareholder votes were as follows:
Shares Shares
Name of corporation voted for voted against
El Charro, Inc. 8,355,299 -0-
Arthur Treacher's, Inc. 100 -0-
There were no issued and outstanding shares of either corporation entitled to
vote as a class on the merger.
5. Articles of Merger have been duly filed with the Secretary of the State
of Utah, as required by the laws of that state.
Dated: January 23, 1984
<PAGE>
ATTEST: EL CHARRO, INC.
By: /s/ Steven P. Levine
/s/ Neil Bernstein Steven P. Levine, President
Neil Bernstein, Secretary
ATTEST:
/s/ William F. Saculla ARTHUR TREACHER'S, INC
William F. Saculla, Secretary
By: /s/ James R. Cataland
James R. Cataland, President
I, A.J. Hammock, a Notary Public, certify that Steven P.Levine, President
of El Charro, Inc., a Utah corporation, personally appeared before me and
swore that he signed these Articles of Merger on behalf of El Charro,
Inc., a Utah corporation.
Subscribed and sworn to before me on January 23, 1984.
/s/ A.J. Hammock
Notary Public
State of Colorado
County of Denver
My commission expires: September 2, 1986
I , MARLENE TRAVIS, a Notary Public, certify that James R. Cataland,
President of Arthur Treacher's, Inc., an Ohio corporation, personally
appeared before me and swore that he signed these Articles of Merger on
behalf of Arthur Treacher's, Inc., an Ohio corporation.
<PAGE>
Subscribed and sworn to before me on January 23, 1984
My commission expires: July 2, 1986
<PAGE>
EXHIBIT 3.1.4 Articles of Merger dated January 27, 1984
<PAGE>
ARTICLES OF MERGER
Pursuant to the provisions of the Utah Business
Corporation Act, Section 16-10-69, the undersigned
corporations adopt these Articles of Merger for the purpose
of merging Arthur Treacher's, Inc., an Ohio corporation, with
and into El Charro, Inc., a Utah corporation.
1. A copy of the Agreement and Plan of
Reorganization dated December 5, 1983, between El
Charro, Inc. and Arthur Treacher's Inc. is attached as
Exhibit A.
2. The Boards of Directors of both El Charro, Inc.
and Arthur Treacher's, Inc. voted unanimously to pass
resolutions concerning the merger.
3. The number of shares issued and outstanding and
entitled to vote on the merger was as follows:
Number of
Shares entitled
shares
Name of corporation to vote
outstanding
El Charro, Inc. Common stock,
13,875,000
$.001 par value
Arthur Treacher's, Inc. Common stock,
100
no par value
There were no issued and outstanding shares of either
corporation entitled to vote as a class on the merger.
4. The shareholders' meeting of El Charro, Inc. was
held on January 13, 1984. The shareholders' meeting of
Arthur Treacher's, Inc. was held on December 5, 1983.
Shareholder votes were as follows:
<PAGE>
Shares Shares
Name of corporation voted for
voted against
El Charro, Inc . 8,355,229 -0-
Arthur Treache's, Inc. 100 -0-
There were no issued and outstanding shares of either
corporation entitled to vote as a class on the merger.
5. A Certificate of Merger has been duly filed with
the Secretary of the State of Ohio, as required by the laws
of that state.
Dated: January 23, 1984.
EL
CHARRO, INC
ATTEST:
By:/s/
Steven P. Levine
/s/ Neil Bernstein
Steven P. Levine, President
Neil Bernstein, Secretary
ATTEST:
ARTHUR
TREACHER'S, INC.
By:/s/
/s/ William F. Saculla
William F. Saculla
James R.
Cataland, President
I, A.J. Hammock, a Notary Public, certify that Steven
P.Levine, President of El Charro, Inc., a Utah
corporation, personally appeared before me and swore
that he signed these Articles of Merger on behalf of El
<PAGE>
Charro, Inc., a Utah corporation.
Subscribed and sworn to before me on January 23,
1984.
/s/ A.J. Hammock
Notary Public
State of Colorado
County of Denver
My commission expires: September 2, 1986
I , MARLENE TRAVIS, a Notary Public, certify that
James R. Cataland, President of Arthur Treacher's, Inc.,
an Ohio corporation, personally appeared before me and
swore that he signed these Articles of Merger on behalf
of Arthur Treacher's, Inc., an Ohio corporation.
Subscribed and sworn to before me on January 23, 1984
My commission expires: July 2, 1986
<PAGE>
EXHIBIT 3.1.5 Articles of Amendment to the
Articles of Incorporation
<PAGE>
Articles of Amendment to the Articles of Incorporation
Pursuant to the provisions of the Utah Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is: El Charro, Inc.
SECOND: The following amendment was adopted by the shareholders
of the corporation on January 13, 1984, in the manner prescribed by the
Utah Business Corporation Act:
Article I
Name. The name of the Corporation (hereinafter called the
"Corporation") is ARTHUR TREACHER'S, INC.
Article IV
Capitalization - The Corporation shall have the authority to issue
100,000,000 shares of stock each having a par value of $.001. All stock of the
Corporation shall be of the same class and shall the same rights and
preferences . Fully paid stock of this Corporation shall not be liable for
further call or assessment. The authorized trading be issued at the discretion
of the Directors.
THIRD: The number of shares of the corporation outstanding at the time
of such adoption was 13,875,000; and the number of shares entitled to vote
thereon was 13,875,000.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows:
Class Number of Shares
Common Stock, 13,875,000
$.001 par value
FIFTH: The number of shares voted for the amendment of Article I was
8, 355,299 and the number of shares voted against such amendment was -0-.
The number of shares voted for the amendment of Article IV was 8,351,299; and
the number of shares voted against such amendment was 4,000.
SIXTH: The number of shares of each class entitled to vote thereon as
a class voted for and against such amendment, respectively, was:
Class Number of Shares
For Against
None
SEVENTH: The manner, if not set forth in such amendment, in which any
exchange, reclassification or cancellation of issued shares provided for in the
amendment shall be effected is
<PAGE>
as follows: None.
EIGHTH: The manner is which such amendment effects a change is the
amount of stated capital and the amount of stated capital as changed by such
amendment are as follows: None
EL CHARRO, INC.
By: /s/ Steven P. Levine
Steven P. Levine, President
By:/s/ Neil S. Bernstein
Neil S. Bernstein, Secretary
STATE OF COLORADO )
)
CITY AND COUNTY OF DENVER )
Before me, A.J. Hammock Notary Public in and for the said county and
state, personally
appeared Steven and Neil S. Bernstein, who acknowledged before me that they are
the President
and Secretary, respectively of El Charro, Inc., a Utah corporation, and that
each signed the
foregoing Articles of Amendment as his free and voluntary act and deed for the
uses and purposes
therein set forth, and that the facts contained therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 23rd day
of January,
1984.
My commission expires: September 2, 1986
/s/A.J.Hammock
Notary Public
<PAGE>
EXHIBIT 3.1.6 Amendment to Articles of
Incorporation dated January 27, 1986
<PAGE>
ARTICLE OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Utah Business Corporation
Act, the undersigned
corporation adopts the following Articles of Amendment to its Articles of
Incorporation:
FIRST: The name of the corporation is ARTHUR TREACHER'S, INC.
SECOND: The following amended Articles of Incorporation were
adopted by the
shareholders of the corporation on January 20, 1986, in the manner prescribed
by the Utah
Business Corporation Act:
ARTICLE I
Name. The name of the Corporation (hereinafter called the
"Corporation") is
ARTHUR TREACHER'S, INC.
ARTICLE II
Period of Duration. The period of duration of the Corporation
is perpetual.
ARTICLE III
Purposes and Powers. The purpose for which this Corporation is
organized is to
invest in all forms of investments and engage in all types of business,
including the restaurant
business, real and personal property, stocks and bonds, minerals and oil, and
to acquire options to
purchase such properties, and to engage in all other lawful business.
ARTICLE IV
Capitalization. The Corporation shall have the authority to issue 11,000,000
(eleven
million) shares of stock of which 1,000,000 (one million) shares shall be
Serial Preferred Stock, par
value $.01 per share, and 10,000,000 (ten million) shares shall be Common
Stock, par value $.01 per
<PAGE>
share. Fully paid stock of this Corporation of either class shall not be
liable for further call or
assessment. The authorized trading shares of each class shall be issued at the
discretion of the
Directors.
Reverse Split. Each ten shares of Common Stock of the
Corporation, each having a par
value of one tenth of one cent, issued and outstanding or held by the
Corporation as treasury stock,
immediately prior to the issuance by the Division of Corporations and
Commercial Code of the State of
Utah of a certificate of revision pursuant to which these 1986 Revised Articles
of Incorporation shall
become effective, shall, upon such issuance, thereby, and thereupon be
automatically changed into one
share of' Common Stock, par value $.01 per share. The Corporation shall not
issue fractional shares
which may result from the foregoing change but, in lieu thereof, shall pay to
the holder of a fractional
share interest an amount in cash, equivalent to such fraction, based upon the
mean of the closing bid
and asked prices of the Corporation's shares of stock traded on the over-the-
counter market, as of the
close of business on the date such certificate of revision is issued, adjusted
to reflect the foregoing
change. The stated capital of the Corporation shall not change as a result of
the foregoing change,
other than in respect of fractional shares that are not issued as herein
provided.
DIVISION A
RIGHTS, PREFERENCES, AND LIMITATIONS OF THE SERIES PREFERRED
STOCK
The designations, rights, preferences, and limitations of
the Series Preferred Stock are
as follows:
1. The Series Preferred Stock may be issued as may be
permitted by law, without
action by any shareholders, from time to time in one or more series and
with such designation for
each such series, as shall be stated and expressed in the resolution or
resolutions providing for the
<PAGE>
issue of each series adopted by the Board of Directors. All shares of
Series Preferred Stock of any
one series shall be identical with each other share of the same series
from and after the date of
issuance. All shares of Series Preferred Stock shall rank equally and
shall be identical, except in
respect of the matters that may be fixed by the Board of Directors as
hereinafter provided. Subject
to the provisions of Sections 2 through 8, inclusive, of this Division A,
which shall apply to all
shares of Series Preferred Stock, the Board of Directors is hereby
authorized to cause such shares
of Series Preferred Stock to be issued in one or more series and with
respect to each such series
prior to the issuance thereof to fix and determine:
(a) The division of the Series Preferred Stock into series and
the designation of the
series, which may be by distinguishing number, letter or title.
(b) The number of shares of the series, which number the Board of
Directors may
increase or decrease, except where otherwise provided in the creation of
the series.
(c) The dividend rate of the series, the dates at which
dividends, if declared, shall be
payable, and the dates from which dividends shall be cumulative.
(d) The amount payable upon shares of the series in the
event of involuntary liquidation.
(e) The amount payable upon shares of the series in the
event of voluntary liquidation.
(f) The price at and the terms and conditions on which
shares of the series may be
redeemed, if the shares of the series are to be redeemable.
(g) Sinking fund provisions for the purchase or
redemption of shares of the series, if any.
(h) The terms and conditions on which shares of the
series shall be convertible into
shares of Common Stock, if the shares of any series are issued with the
privilege of conversion..
<PAGE>
The Board of Directors is authorized to adopt from time to time amendments
to the Articles of
Incorporation of the Corporation fixing, with respect to each such series,
the matters specified in
clauses (a) to (h) both inclusive of this Section 1 of this Division A.
2. The holders of Series Preferred Stock of each
series,
in preference to the
holders of shares of Common Stock and any other class of shares ranking
junior to the Series
Preferred Stock, shall be entitled to receive out of any funds legally
available and when and as
declared by the Board of Directors cash dividends at the rate (and no more)
for such series fixed in
accordance with the provisions of Section 1 of this Division A, payable
quarterly on the dates fixed
for such series. Such dividends shall be cumulative, in the case of shares
of each particular series,
from and after the payment date or dates fixed with respect to such series.
No dividends may be
paid upon or declared and set apart for any of the Series Preferred Stock
for any dividend period
unless at the same time a like proportionate dividend for the same dividend
period, ratably in
proportion to the respective annual dividend rates fixed therefor, shall be
paid upon or declared or
set apart for all Series Preferred Stock of all series then outstanding and
entitled to receive such
dividend.
3. So long as any Series Preferred Stock is
outstanding,
no dividend, except a
dividend payable in shares of Common Stock or any other shares of the
Corporation ranking junior
to the Series Preferred Stock, shall be paid or declared or any
distribution be made, nor shall any
shares of Common Stock or any other shares of the Corporation ranking
junior
to the Series
Preferred Stock be purchased, retired or otherwise acquired by the
Corporation:
(a) Unless all accrued and unpaid dividends on
the Series Preferred Stock, including
the full dividends for the current dividend period, shall have been
declared and paid or a sum
sufficient for payment thereof set apart; and
(b) Unless there shall be no default with respect to the
redemption of Series
<PAGE>
Preferred Stock of any series from, and no default with respect to
any required payment into,
any sinking fund provided for shares of such series in accordance
with the provisions of
Section 1 of this Division A.
4. Subject to the express terms of each
series
and to the provisions of
Section 6 of this Division A, the Corporation (1) may from time to
time redeem all or any part
of the Series Preferred Stock of any series at the time outstanding
at the option of the Board
of Directors at the applicable redemption price for such series and
on the terms and conditions
for such redemption fixed in accordance with the provisions of
Section 1 of this Division A,
or (2) shall from time to time make such redemptions of the as may
be required to fulfill the
Series Preferred Stock as may be required to fulfill the
requirements of any sinking fund
provided for shares of such series at the applicable sinking fund
redemption price fixed in
accordance with the provisions of Section 1 of this Division A,
together in each case with
accrued and unpaid dividends to the redemption date.
5. (a) The holders of Series Preferred Stock
of any series shall, in case of
liquidation, dissolution or winding up of the Corporation, be
entitled to receive, from the
assets of the Corporation, including its capital, before any amount
shall be paid or distributed
among the holders of shares of Common Stock or any other shares
ranking junior to the
Series Preferred Stock, the amounts fixed with respect to shares of
such series in accordance
with Section 1 of this Division A, plus in any such event an amount
equal to all dividends
accrued and unpaid thereon to the date of payment of the amount due
pursuant to such
liquidation, dissolution or winding up of the Corporation. In case
the net assets of the
Corporation legally available therefor are insufficient to permit
the payment-upon all
outstanding shares of Series Preferred Stock of the full
preferential amount to which they are
<PAGE>
respectively entitled, then such net assets shall be distributed
ratably upon outstanding shares
of Series Preferred Stock in proportion to the full preferential
amount to which each such
share is entitled.
After payment to holders of Series Preferred Stock
of the full preferential
amounts as aforesaid, holders of Series Preferred Stock as such
shall have no right or claim to
any of the remaining assets of the Corporation.
(b) The merger or consolidation of the
Corporation into or with any other
corporation, or the merger of any other corporation into it, or the
sale, lease, or conveyance
of all or substantially all of the property or business of the
Corporation, shall not be deemed
to be a dissolution, liquidation or winding up of the Corporation
for the purposes of this
Section 5 of this Division A.
6. The holders of Series Preferred Stock shall
not be entitled to vote upon
any matters presented to shareholders except as otherwise required
by law
7. For the purposes of this Division A:
(a) Whenever reference is made to
shares "anking prior to the Series
Preferred Stock,"such reference shall mean and include all shares
of the Corporation in
respect of which the rights of the holders thereof as to the payment
of dividends or as to
distributions in the event of a voluntary or involuntary
liquidation,
dissolution or winding up
of the Corporation are given preference over the rights of the
holders of Series Preferred
Stock.
(b) Whenever reference is made
to shares "n a parity with the
Series Preferred Stock,"such reference shall mean and include all
shares of the Corporation in
respect of which the rights of the holders thereof as to the payment
of dividends or as to
<PAGE>
distributions in the event of a voluntary or involuntary
liquidation,
dissolution or winding up
of the Corporation are on an equality with the rights of the holders
of Series Preferred Stock.
(c) Whenever reference is made
to shares "anking junior to the
Series Preferred Stock,"such reference shall mean and include all
shares of the Corporation in
respect of which the rights of the holders thereof as to the payment
of dividends and as to
distributions in the event of a voluntary or involuntary
liquidation,
dissolution or winding up
of the Corporation are junior or subordinate to the rights of the
holders of Series Preferred
Stock.
8. (a) No holder of Series Preferred Stock of
any series shall be entitled as
such as a matter of right to subscribe for or purchase any part of
any issue of shares of the
Corporation, of any class whatsoever, or any part of any issue of
securities convertible into
shares of the Corporation, of any class whatsoever, and whether
issued for cash, property,
services or otherwise.
(b) The Corporation is
authorized to purchase any shares of any
series of Serial Preferred Stock from time to time and at such
times,
in such manner, for such
reasons and on such terms and conditions as shall be deemed
appropriate by the Board of
Directors.
DIVISION B
RIGHTS, PREFERENCES AND LIMITATIONS OF COMMON STOCK
The shares of Common Stock of the Corporation shall be subject
to the rights and
preferences of the Series Preferred Stock and any series thereof. Each share of
Common Stock shall
be equal to every other share of Common Stock. Each outstanding share of Common
Stock of the
Corporation shall be entitled to one vote on each matter submitted to a vote at
the meeting of the
<PAGE>
stockholders. Each holder of shares of Common Stock shall be entitled to vote
his or its shares in
person or by proxy, executed in writing by such stockholder, or by his duly
authorized attorney in fact.
At each election of directors, every stockholder entitled to vote in such
election shall have the right to
vote, in person or by proxy, the number of shares owned by him or it for as
many persons as there are
Directors to be elected and for whose election he or it has the right to vote,
but the stockholder shall
have no right to accumulate his or its votes with regard to such election.
ARTICLE V
Preemptive Rights. There shall be no preemptive rights to
acquire unissued and/or
treasury shares of the stock of the Corporation of any class.
ARTICLE VI
1986 Revised Articles to Supersede Existing Articles. These
1986 Revised Articles of
Incorporation shall supersede the original Articles of Incorporation of the
Corporation and all
amendments thereto.
THIRD: The number of shares of the corporation
outstanding at the time the amended
Articles of Incorporation were adopted was 50,331,500 and the number of shares
entitled to vote
thereon was 50,331,500.
FOURTH: The designation and number of outstanding
shares of each class entitled
to vote thereon as a class were as follows:
Class Number of
Common Stock Shares
50,331,500
. FIFTH: The number of shares voted for such amendment was 36,169,820
and the number of
shares voted against such amendment was 3,000.
SIXTH: The manner in which the exchange of issued shares provided for
in the amendment
<PAGE>
shall be effected is set forth in Article IV of the amended Articles of
Incorporation. As soon as
practicable after the effectiveness of the amended Articles of Incorporation
(the "Effective Date"), the
corporation will mail to all holders of record on the Effective Date a Letter
of Transmittal used by such
holders in exchanging their share certificates.
SEVENTH: The amended Articles of Incorporation effect no change in
the amount of stated
capital, other than in respect of cash that is paid to holders of a fractional
share interest, in accordance
with Article IV of the amended Articles of Incorporation.
Dated: January 23, 1986
ARTHUR TREACHER'S, INC.
By:/s/ James R. Cataland
James R. Catland
Its President
and /s/ William F. Saculla
Its Secretary
<PAGE>
STATE OF OHIO )
) SS.
COUNTY OF MAITONING)
BEFORE ME, a Notary Public in and for the said County and State,
personally appeared
JAMES CATALAND who acknowledged before me that he is the PRESIDENT
of Arthur
Treacher's, Inc. , a Utah corporation and that he signed the
foregoing Articles of
Amendment as his free and voluntary act and deed for the uses and
purposes therein set
forth.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 23rd
day of January,
A.D. 1986.
My commission expires No Expiration
/s/ Notary Public
Notary Public
<PAGE>
EXHIBIT 3.1.7 Articles of Amendment to Articles
of Incorporation dated June 28, 1996
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
ARTHUR TREACHE'S INC.
To the Secretary of State:
Pursuant to the provisions of the Utah Business Corporation Act,
Section 16-10a-1006,
the undersigned corporation hereby amends its Articles of Incorporation, and
for that purpose, submits
the following statement:
(1) The name of the corporation is ARTHUR TREACHER'S, INC..
(2) The text to the amendment adopted is:
"FOURTH: The total number of shares of capital stock which the
corporation shall have
the authority to issue is 27,000,000 of which 2,000,000 shall be
Preferred Stock, par
value $0.01 per share, and 25,000,000 shall be Common Stock, par value
$0.01 per
share."
(3) The amendment was duly adopted on June 28, 1996 by the
shareholders in
accordance with the provisions of Section 16-10a-1000.
(a) Of the 8,076,157 shares of Common Stock, $0.1 par value,
entitled to vote on the
amendment, 5,813,246 were indisputably represented at a special meeting of
shareholders on June 28,
1996; and (b) The following number of shares of Common Stock
have been voted in favor of and
against the adoption of the Resolution:
5,801,796 Shares in Favor 5,799,796
10,550 Shares Against 12,550
900 Abstain 900
<PAGE>
The number of voted casted for the amendment was sufficient for the
approval of the
amendment by all the shareholders entitled to vote thereon.
ARTHUR TREACHER'S, INC.
Date:6/28/96 By: /s/ R. Frank Brown
Name: R. Frank Brown
Title: President
<PAGE>
EXHIBIT 3.2 Registrant's By-Laws
<PAGE>
EXHIBIT 'B'
BY-LAWS
OF
ARTHUR TREACHE'S, INC.
ARTICLE I - OFFICES
The principal office of the corporation in the State of Utah shall be
located in the City of Salt Lake,
County of Salt Lake. The corporation may have such other offices, either
within or without the State of
Incorporation as the Board of Directors may designate or as the business of the
corporation may from time
to time require.
ARTICLE 11 - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on the 23rd day of
September in each year,
beginning with the year 1983 at the hour of one o'clock p.m. for the purpose of
electing directors and for
the transaction of such other business as may come before the meeting. If the
day fixed for the annual
meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day.
2. SPECIAL MEETINGS. UCS 16-10-26
Special meetings of the stockholders, For any purpose or purposes, unless
otherwise prescribed by
statute, may be called by the president or by the directors, and shall be
called by the president at the
request of the holders of not less than ten percent of all the outstanding
shares of the corporation entitled
to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or without the State
unless otherwise prescribed
by statute, as the place of meeting for any annual meeting or for any special
meeting called by the directors
A waiver of notice signed by all stockholders entitled to vote at a meeting may
designate any place, either
within or without the State unless otherwise prescribed by statute, as the
place for holding such meeting.
If no designation is made, or if a special meeting be otherwise called the
place of meeting shall be the
principal office of the corporation.
4. NOTICE OF MEETING. UCA 16-10-27
Written or printed notice stating the place, day and hour of the meeting
and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten
nor more than fifty days before the date of the meeting, either personally or
by mail, by or at the
direction of the president, or the secretary, or the officer or persons calling
the meeting, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be
delivered when deposited in the United States mail, addressed to the
stockholder at his address as it
<PAGE>
appears on the stock transfer books of the corporation, with postage thereon
prepaid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. UCA 16-20-28
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of
stockholders or any adjournment thereof, or stockholders entitled to receive
payment of any dividend, or
in order to make a determination of stockholders for any other proper purpose,
the directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed,
in case, fifty days. If the stock transfer books shall be closed for the
purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books shall
be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock transfer
books, the directors may fix in
advance a date as the record date for any such determination of stockholders.
When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this section,
such determination shall apply to any adjournment thereof.
6. VOTING LISTS. UCA 16-10-29
The officer or agent having charge of the stock transfer books for shares
of the corporation shall
make, at least ten days before each meeting of stockholders, a complete list of
the stockholders entitled
to vote at such meeting, or any adjournment thereof, arranged in alphabetical
order, with the address
of and the number of shares held by each, which list, for a period of ten days
prior to such meeting,
shall be kept on file at the principal office of the corporation and shall be
subject to inspection by any
stockholder at any time during usual business hours. Such list shall also be
produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
stockholder during the
whole time of the meeting. The original stock transfer book shall be prima
facie evidence as to who
are the stockholders entitled to examine such list or transfer books or to vote
at the meeting of
stockholders.
7. QUORUM. UCA 16-10-30
At any meeting of stockholders a majority of the outstanding shares of
the corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of stockholders. If less
than said number of the outstanding shares are represented at a meeting, a
majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been
transacted at the meeting as originally notified. The stockholders present at
a duly organized meeting may
continue to transact business until adjournment notwithstanding the withdrawal
of enough stockholders
to leave less than a quorum.
8. PROXIES. UCA 16-10-30
At all meetings of stockholders, a stockholder may vote by proxy executed
in writing by the
stockholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the
secretary of the corporation before or at the time of the meeting.
<PAGE>
9. VOTING. UCA 16-10-30
Each stockholder entitled to vote in accordance with the terms and
provisions of the Certificate of ,Incorporation and these by-laws shall be
entitled to one vote, in person or by proxy, for each share of stock
entitled to vote held by such stockholders. Upon the demand of any
stockholder, the vote for directors
and upon any question before the meeting shall be by ballot. All elections for
directors shall be decided
by majority vote except as otherwise provided by the Certificate of
Incorporation or the laws of this State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders shall be as
follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7 Unfinished Business.
8. New Business.
11. INFORMAL ACTION BY STOCKHOLDERS. UCA 16-10-138
Unless otherwise provided by law, any action required to be taken at a
meeting of the
shareholders, or any other action which may be taken at a meeting of
the shareholders, may be
taken without a meeting if a consent in writing, setting forth the
action so taken, shall be signed
by all of the shareholders entitled to vote with respect to the subject
matter thereof.
ARTICLE III BOARD OF DIRECTORS
1. GENERAL POWERS. UCA 16-10-33
The business and affairs of the corporation shall be managed by its board
of directors. The directors
shall in all cases act as a board, and they may adopt such rules and
regulations for the conduct of their
meetings and the management of the corporation, as they may deem proper, not
inconsistent with these
by-laws and the laws of. this State.
<PAGE>
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall be not more than nine
(9) or less than three (3).
Each director shall hold office until the next annual meeting of stockholders
and until his successor
shall have been elected and qualified.
3. REGULAR MEETINGS. UCA 16-10-40
A regular meeting of the directors shall be held without other notice
than this by-law
immediately after, and at the same place as, the annual meeting of
stockholders. The directors may
provide, by resolution, the time and place for the holding of additional
regular meetings without other
notice than such resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the request of
the president or any two
directors. The person or persons authorized to call special meetings of the
directors may fix the place
for holding any special meeting of the directors called by them.
5. NOTICE UCA 16-10-40
Notice of any special meeting shall be given at least two days
previously thereto by written
notice delivered personally or by telegram or mailed to each director at his
business address. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice
shall be deemed to be
delivered when the telegram is delivered to the telegraph company. The
attendance or a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting
for the express purpose of objecting to the transaction of any business because
the meeting is not
lawfully called or convened.
6. QUORUM. UCA 16-10-38
At any meeting of the directors a majority shall constitute a quorum for
the transaction of business,
but if less than said number is present at a meeting, a majority of the
directors present may adjourn the
meeting from time to time without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting at which a
quorum is present shall be
the act of the directors.
<PAGE>
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies
occurring in the board for any reason except the removal of directors without
cause may be filled by a
vote of a majority of the directors then in office, although less than a
quorum exists. Vacancies
occurring by reason of the removal of directors without cause shall be filled
by vote of the
stockholders. A director elected to fill a vacancy caused by resignation,
death or removal shall be
elected to hold office for the unexpired term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
stockholders or by action of
the board. Directors may be removed without cause only by vote of the
stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to the
board, the president or the
secretary of the corporation. Unless otherwise specified in the notice, the
resignation shall take effect
upon receipt thereof by the board or such offer, and the acceptance of the
resignation shall not be
necessary to make it effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for their
services, but by resolution of the
board a fixed sum and expenses for actual attendance at each regular or special
meeting of the board
may be authorized. Nothing herein contained shall be construed to preclude any
director from serving
the corporation in any other capacity and receiving compensation therefor.
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the
directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with
the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such
dissent by registered mail to the secretary of the corporation immediately
after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
<PAGE>
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members an
executive committee and
other committees, each consisting of three or more directors. Each such
committee shall serve at the
pleasure of the board.
14. ACTION WITHOUT A MEETING. UCA 16-10-40
Any action that may be taken by the Board of Directors at a meeting
may be taken without a
meeting if a consent in writing, setting forth the action so to be taken, shall
be signed before such action by
all of the Directors.
ARTICLE IV - OFFICERS
1 . NUMBER.
The officers of the corporation shall be a president, a vice president,
a secretary and a treasurer,
each of whom shall be elected by the directors. Such other officers and
assistant officers as may be
deemed necessary may be elected or appointed by the directors.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors shall be
elected annually at the first
meeting of the directors held after each annual meeting of the stockholders.
Each officer shall hold
office until his successor shall have been duly elected and shall have
qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
3. REMOVAL
Any officer or agent elected or appointed by the directors may be
removed by the directors
whenever in their judgment the best interests of the corporation would be
served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may
be filled by the directors for the unexpired portion of the term.
<PAGE>
5. PRESIDENT.
The president shall be the principal executive officer of the
corporation and, subject to the control
of the directors, shall in general supervise and control all of the business
and affairs of the corporation.
He shall, when present, preside at all meetings of the stockholders and of the
directors. He may sign,
with the secretary or any other proper officer of the corporation thereunto
authorized by the directors,
certificates for shares of the corporation, any deeds, mortgages, bonds,
contracts, or other instruments
which the directors have authorized to be executed, except in cases where the
signing and execution
thereof shall be expressly delegated by the directors or by these by-laws to
some other officer or agent
of the corporation, or shall be required by law to be otherwise signed or
executed; and in general shallperform all duties incident to the office of
president and such other duties as may be prescribed by the
directors from time to time.
6. VICE PRESIDENT.
In the absence of the president or in event of his death, inability or
refusal to act, the vice president
shall perform the duties of the president, and when so acting, shall have all
powers of and be subject to
all the restrictions upon the president. The vice president shall perform such
other duties as from time
to time may be assigned to him by the president or by the directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders' and of the
directors' meetings in one or
more books provided for that purpose, so that all notices are duly given in
accordance with the
provisions of these by-laws or as required, by custodian of the corporate
records and of the seal of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished
to the secretary by such stockholders, have general charge of the stock
transfer books of the
corporation and in general perform all duties incident to the office of
secretary and such other duties as
from time to time may be assigned to him by the president or by the directors.
8. TREASURER.
If required by the directors, the treasurer shall give a bond for the
faithful discharge of his duties in
such sum and with such surety or sureties as the directors shall determine.
He shall have charge and
custody of and be responsible for all funds and securities of the corporation;
receive and give receipts
for monies due and payable to the corporation from any source whatsoever, and
deposit all such
monies in the name of the corporation in such banks, trust companies or other
depositories as shall be
selected in accordance with these by-laws and in general perform all of the
duties incident to the office
of treasurer and such other duties as from time to time may be assigned to him
by the president or by
the directors.
<PAGE>
9 . SALARIES.
The salaries of the officers shall be fixed from time to time by the
directors and no officer shall
be prevented from receiving such salary by reason of the fact that he is also a
director of the
corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or officers, agent or agents, to
enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
corporation, and such authority
may be general or confined to specific instances.
2 . LOANS.
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall
be issued in its name unless authorized by a resolution of the directors.
Such authority may be general
or confined to specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of
indebtedness issued in the name of the corporation, shall be signed by such
officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of
the directors.
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be deposited
from time to time to the
credit of the corporation in such banks, trust companies or other depositories
as the directors may
select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in such form
as shall be determined by the
directors. Such certificates shall be signed by the president and by the
secretary or by such other officers
authorized by law and by the directors. All certificates for shares shall be
consecutively numbered or
otherwise identified. The name and address of the stockholders, the number of
shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in case of a lost,
destroyed or mutilated certificate a new one may be issued therefore upon such
terms and indemnity to
the corporation as the directors may prescribe.
<PAGE>
2. TRANSFER OF SHARES.
(a) Upon Surrender to the corporation or the transfer agent of the
corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the
person entitled thereto, and cancel the old certificate; every such transfer
shall be entered on the transfer
book of the corporation which shall be kept at its principal office.
(b) The corporation shall be entitled to treat the holder of -record of
any share as the holder in fact
thereof, and, accordingly, shall not be bound to recognize an equitable or
other claim to or interest in such
share on the part of any other person whether or not it shall have express or
other notice thereof, except
as permissive provided by the laws of this State.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of
January in each year.
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may
pay, dividends on its
outstanding shares in the manner and upon the terms and conditions
provided by law.
ARTICLE IX - SEAL
The directors may provide a corporate seal which shall be circular in
form and shall have inscribed
thereon the name of the corporation, the state of incorporation, year of
incorporation and the words,
"Corporate Seal."
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or
director of the corporation under the provisions of these by-laws or under the
provisions of the Articles
of Incorporation, a waiver to such notice, whether before or after the time-
stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI - AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may be
adopted by a vote of the
stockholders representing a majority of all the shares issued and outstanding,
at any annual stockholders'
meeting or at any special stockholders' meeting when the proposed amendment has
been set out in the
notice of such meeting.
<PAGE>
ARTICLE XII - INDEMNIFICATION
The Corporation shall, to the maximum extent permitted from time to time
under the law of the State
of Utah, indemnify and upon request may advance expenses to any person who is
or was a party to any
threatened, pending or completed action, suit, proceeding or claim, whether
civil, criminal, administrative
or investigative, by reason of the fact that he or she is or was or has agreed
to be a trustee, director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as
a trustee, director, officer, employee or agent of another corporation,
partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees and expenses),
judgments, fines, penalties and
amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense
of any such action, suit, proceeding or claim. Such indemnification shall not
be exclusive of other
indemnification rights arising under any by-law, agreement, vote of directors
or stockholders or otherwise
and shall inure to the benefit of the heirs and legal representatives of such
person.
The Corporation may purchase and maintain insurance on any person who is
or was a trustee,
director, officer, employee or agent of the Corporation or is or was serving at
the request of the
Corporation as a trustee, director, officer, employee or agent of another
corporation, partnership, joint
venture, trust or other enterprise, against any liability incurred by him in
any such position or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such
liability under this Article XII.
<PAGE>
EXHIBIT 4.1 Form of Common Stock Certificate
<PAGE>
COMMON STOCK
COMMON STOCK
PAR VALUE $.001
PAR VALUE $.001
SHARES
SEE REVERSE FOR CERTAIN
DEFINITIONS AND LIMITATIONS CUSIP 042901 30 6
ARTHUR TREACHER'S, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF UTAH
THIS CERTIFIES THAT MCLAUGHLIN & STERN, LLP
IS THE OWNER OF THIRTEEN THOUSAND SHARES
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, OF
ARTHUR TREACHER'S, INC.
Dated: NOVEMBER 11, 1996
<PAGE>
EXHIBIT 4.2 Certificate of Designation on Series
A Preferred Stock
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF 10% CUMULATIVE
CONVERTIBLE PREFERRED STOCK,
SERIES A OF
ARTHUR TREACHER'S, INC.
ARTHUR TREACHER'S, INC., a corporation organized and existing under the Utah
Business
Corporation Act,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation (as
amended) of said Corporation, and pursuant to the provisions of Section
16-10-15 of the Utah Business
Corporation Act, said Board of Directors at a meeting duly held on January 20,
1986, adopted a resolution
providing for the designation, number, voting powers, preferences and rights of
the 10% Cumulative
Convertible Preferred Stock, Series A and the qualifications, limitations, or
restrictions thereof, which
resolution is as follows:
RESOLUTION FIXING
EXPRESS TERMS
OF
10% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
OF
ARTHUR TREACHER'S, INC.
RESOLVED, that there is hereby established a second series of
Preferred Stock, the
designation, number, voting powers, preferences and rights and the
qualifications, limitations, or
restrictions thereof are as follows:
Section 1. Designation of Series.
The series shall be designated "10% Cumulative Convertible Preferred Stock,
Series A" ("Series A
Preferred Stock").
Section 2. Number of Shares.
The number of shares of Series B Preferred Stock is 187,000, which
number the Board of
Directors may increase or decrease (but not below the number of shares of the
series then
outstanding).
<PAGE>
Section 3. Dividends.
(a) The holders of shares of Series B Preferred Stock shall be
entitled to receive, when and
as declared by the Board of Directors out of any funds legally available for
the declaration of
dividends, cumulative dividends at the annual rate of $.10 per share, and no
more, payable quarterly in
cash, on the fifteenth day of March, June, September, and December of each
year, hereinafter referred
to as the "quarterly dividend dat", to stockholders of record on such dates
respectively preceding the
payment thereof as may be fixed by the Board of Directors in declaring any such
dividends. Such
dividends shall be cumulative from the date of issuance, and the first such
dividend shall be prorated
from the date of Issuance. Accumulations of dividends on shares of Series A
Preferred Stock shall not
bear Interest.
(b) So long as any shares of Series A Preferred Stock shall
remain outstanding, no
dividends or other distributions (other than dividends payable In shares
ranking junior to the Series A
Preferred Stock, both as to dividends and In liquidation) shall be paid upon or
set apart for or
distributed with respect to any shares ranking junior to the Series A Preferred
Stock (either as to
dividends or assets) at any time when there exists a default with respect to
the payment of dividends
with respect to outstanding shares of Series A Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution, or winding up
of the Corporation, or any
distribution of its capital, the holders of shares of the Series A Preferred
Stock shall be entitled to
receive, from the assets of the Corporation, payment in cash of an amount equal
to $1.00 per share,
plus a further amount equal to all accrued and unpaid cumulative dividends on
the Series A Preferred
Stock to the date of payment of the amount due pursuant to such liquidation,
dissolution, or winding
up of the Corporation, before any distribution of assets shall be made to the
holders of any class of
shares ranking junior to the Series A Preferred Stock, either as to dividends
or assets. If, upon such
liquidation, dissolution, winding up, or distribution of capital, the assets
thus distributable to the
holders of shares of Series A Preferred Stock shall be insufficient to permit
the payment to such
holders of the preferential amounts aforesaid, then such assets or the proceeds
thereof shall be
distributed ratably among the holders of shares of Series A Preferred Stock
according to the number of
such shares held by each. After such payment to the holders of shares of
Series A Preferred Stock, the
remaining assets and funds of the Corporation shall be divided and distributed
among the holders of
shares ranking junior to the Series A Preferred Stock, then outstanding,
according to their respective
interests.
(b) The liquidation, dissolution, winding up, or distribution of
capital, as such terms are
used In the foregoing paragraph, shall not be deemed to include any
consolidation or merger of the
Corporation with another corporation or any transfer of substantially the
entirety of the property and
assets of the Corporation to another corporation.
<PAGE>
Section 5. Redemption and Purchase.
(a) At the election of the Corporation, to be exercised by
resolution adopted by its Board
of Directors, all or any part of the shares of Series A Preferred Stock may be
redeemed, for one year
after the date of issuance, on any quarterly dividend payment date upon not
lets than 30 days' nor more
than 60 days' previous notice given by first-class mail, postage prepaid, to
the holders of record thereof
at their addresses as the same appear on the records of the Corporation and by
(a) paying for each
share thereof called for redemption $1.00, plus a further amount equal to all
accrued and unpaid
cumulative dividends on the Series A Preferred Stock to the date fixed for
redemption, or, in lieu of
such payment, by (b) depositing the redemption price in cash on or prior to
said redemption date with
such bank or trust company In the City of Cleveland, Ohio, as may be designated
by the Board of
Directors of the Corporation in trust for payment on the redemption date to the
holders of the shares
of Series A Preferred Stock so to be redeemed. In case of the redemption of
less than all of the
outstanding shares of Series A Preferred Stock, the shares to be redeemed may
be selected by lot or
pro rata, or by call of all or any part of the shares owned by one or more
holders of such shares, or by
such other method as the Board of Directors In its discretion may determine,
and notice, as above
provided, shall be given to the holders of record whose shares have been so
selected for redemption.
On and after the date fixed in any such notice as the date of redemption of the
shares of Series A
Preferred Stock, unless default shall be made by the Corporation in the payment
and/or deposit-of the
redemption price pursuant to such notice and to the provisions hereof, all
dividends on the shares of
Series A Preferred Stock so called for redemption shall cease to accrue, and
on such date or on deposit
In trust as aforesaid of funds sufficient for such redemption (notice of
redemption having been given as
aforesaid), whether said deposit shall have been made on said redemption date
or prior thereto, all
rights of the holders of said shares of Series A Preferred Stock as
stockholders of the Corporation shall
cease except the right to receive the redemption price and no more - from the
Corporation or from a
depositary as above described, upon surrender of their certificates properly
endorsed. If the holders of
the shares of Series A Preferred Stock which shall have been called for
redemption shall not, within six
years after such deposit, claim the amount deposited for the redemption of
their shares, any such bank
or trust company shall, upon demand, pay over to the Corporation such
unclaimed amounts, and
thereupon such bank or trust company and the Corporation shall be relieved of
all responsibility in
respect thereof and to such holders.
(b) The Corporation may also, from time to time, purchase or otherwise
acquire outstanding
shares of Series A Preferred Stock.
(c) Any shares of Series A Preferred Stock which are redeemed or
purchased by the
Corporation or which are converted into Common Stock of the Corporation
pursuant to the
conversion privilege shall have the status of authorized but unissued shares of
Preferred Stock without
designation of any series.
<PAGE>
Section 6. Conversion Privilege.
(a) Subject to and upon compliance with the provisions of this
Section 6, the shares of
Series A Preferred Stock may, at the option of the holder, at any time (in the
case of shares called for
redemption, then until and including the close of business on the date fixed
for redemption but not
thereafter if payment of the redemption price has been duly provided for by the
date fixed for
redemption), be converted into shares of Common Stock (as such shares shall be
constituted at the
conversion date) at the conversion ratio in effect at the conversion date.
(b) The holder of each share of Series A Preferred Stock may
exercise the conversion
privilege in respect thereof by delivering to any transfer agent of the shares
of Series B Preferred Stock
the certificate for the share to be converted accompanied by written notice
that the holder elects to
convert such share. Conversion shall be deemed to have been effected
Immediately prior to the close
of business on the date when such delivery is made, and such date is referred
to in this Section 6 as the
"Conversion Date." On the Conversion Date or as promptly thereafter as
practicable the Corporation
shall issue and deliver to the holder of the shares of Series A Preferred Stock
surrendered for
conversion, or on his written order, a certificate for the number of full
shares of Common Stock
issuable upon the conversion of such shares of Series II-Preferred Stock and a
check or cash in respect
of any fraction of a share as provided in paragraph (c) of this Section 6.
The person in whose name the
stock certificate is to be issued shall be deemed to have become a holder of
shares of Common Stock
of record on the Conversion Date. No adjustment shall be made for any
dividends accrued on shares
of Series A Preferred Stock surrendered for conversion or for dividends on the
shares of Common
Stock issued on conversion.
(c) The Corporation shall not be required to issue fractional
shares of Common Stock upon
conversion of Series A Preferred Stock. If more than one share of Series B
Preferred Stock shall be
surrendered for conversion at one time by the same holder, the number of full
shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate number of
shares so surrendered. If any fractional interest in a share of Common Stock
would otherwise be
delivered upon the conversion of any shares of Series A Preferred stock, the
Corporation, in lieu of
delivering a fractional share therefore, shall pay to the owner of a fractional
share interest an amount in
cash (computed to the nearest cent), equivalent to such fraction, based upon
the mean of the closing
bid and asked prices of the Corporation's shares of stock traded on the
over-the-counter market, as of
the close of business on the Conversion Date.
(d) Unless and until an adjusted conversion ratio is required to
be computed as hereinafter
provided, the conversion ratio of Series A Preferred Stock for Common Shares
shall be 9:10. For
example, a holder of 9 shares of Series A Preferred Stock may covert such
shares into 10 shares of
Common Stock.
<PAGE>
(e) In the event of a stock dividend, stock split, or other
subdivision, reclassification or
combination of the Common Stock, the conversion ratio shall be adjusted
proportionately.
(f) The issuance of stock certificates on conversions of shares
of Series A Preferred Stock
shall be without charge to the converting stockholder for any tax in respect
to the issuance thereof.
The Corporation shall not, however, be required to pay any tax which may be
payable In respect to any
transfer involved in the issuance and delivery of shares In any name other than
that of the holder of the
shares of Series A Preferred Stock converted, and the Corporation shall not be
required to issue or
deliver any such stock certificates unless and until the person or persons
requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall have
established to the
satisfaction of the Corporation that such tax has been paid.
(g) The Corporation hereby reserves and shall at all times
reserve and keep available, free
from pre-emptive right, out of its authorized but unissued stock, for the
purpose of effecting the
conversion of the shares of Series A Preferred Stock, such number of its duly
authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding
shares of Series A Preferred Stock.
Section 7. Voting Rights.
The holders of shares of Series A Preferred Stock shall not be
entitled to vote, except as
otherwise required by law.
IN WITNESS WHEREOF, said ARTHUR TREACHER'S, INC. has caused this
certificate to
be signed by JAMES R. CATALAND, its PRESIDENT and by WILLIAM F. SACULLA, its
SECRETARY, this 24th day of January, 1986.
ARTHUR TREACHER'S, INC.
/s/ James R. Cataland
James R. Cataland, President
/s/ William F. Saculla
William F. Saculla, Secretary
<PAGE>
STATE OF OHIO )
COUNTY OF TRUMHILL, ) SS
BE IT REMEMBERED that on this 24th day of April, 1986 , personally came before
me, a Notary
Public in and for the County dnd State aforesaid, James R. Cataland, President
of Arthur Treacher's,
Inc., a corporation of the State of Utah, and he duly executed said certificate
before me and
acknowledged the said certificate to be the free act and deed of said
Corporation and the facts stated
therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office
the day and year
aforesaid.
/s/ Cynthia A. Saculla
<PAGE>
EXHIBIT 4.3 Certificate of Designation on Series
B Preferred Stock
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF 10%
CUMULATIVE CONVERTIBLE PREFERRED STOCK,
SERIES B OF
ARTHUR TREACHER'S, INC.
ARTHUR TREACHER'S, INC., a corporation organized and existing under the Utah
Business Corporation Act,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by the
Articles of
Incorporation (as amended) of said Corporation, and pursuant to the provisions
of Section
16-10-15 of the Utah Business Corporation Act, said Board of Directors at a
meeting duly
held on September 10, 1987, adopted a resolution providing for the designation,
number,
voting powers, preferences and rights of the 10% Cumulative Convertible
Preferred Stock,
Series B and the qualifications, limitations, or restrictions thereof, which
resolution Is as
follows:
RESOLUTION FIXING
EXPRESS TERMS
OF
10% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B
OF
ARTHUR TREACHER'S, INC.
RESOLVED, that there is hereby established a second series of
Preferred Stock, the
designation, number, voting powers, preferences and rights and the
qualifications, limitations,
or restrictions thereof are as follows:
Section 1. Designation of Series.
The series shall be designated "10% Cumulative Convertible Preferred Stock,
Series B" ("Series B
Preferred Stock").
Section 2. Number of Shares.
The number of shares of Series B Preferred Stock is 600,000, which
number the Board of
Directors may increase or decrease (but not below the number of shares of the
series then
outstanding).
<PAGE>
Section 3. Dividends.
(a) The holders of shares of Series B Preferred Stock shall be
entitled to receive, when and
as declared by the Board of Directors out of any funds legally available for
the declaration of
dividends, cumulative dividends at the annual rate of $.10 per share, and no
more, payable quarterly in
cash, on the fifteenth day of March, June, September, and December of each
year, hereinafter referred
to as the "quarterly dividend date", to stockholders of record on such dates
respectively preceding the
payment thereof as may be fixed by the Board of Directors in declaring any such
dividends. Such
dividends shall be cumulative from the date of issuance, and the first such
dividend shall be prorated
from the date of Issuance. Accumulations of dividends on shares of Series B
Preferred Stock shall not
bear Interest.
(b) So long as any shares of Series B Preferred Stock shall
remain outstanding, no
dividends or other distributions (other than dividends payable In shares
ranking junior to the Series B
Preferred Stock, both as to dividends and In liquidation) shall be paid upon or
set apart for or
distributed with respect to any shares ranking junior to the Series B Preferred
Stock (either as to
dividends or assets) at any time when there exists a default with respect to
the payment of dividends
with respect to outstanding shares of Series B Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution, or winding up
of the Corporation, or any
distribution of its capital, the holders of shares of the Series B Preferred
Stock shall be entitled to
receive, from the assets of the Corporation, payment in cash of an amount equal
to $1.00 per share,
plus a further amount equal to all accrued and unpaid cumulative dividends on
the Series B Preferred
Stock to the date of payment of the amount due pursuant to such liquidation,
dissolution, or winding
up of the Corporation, before any distribution of assets shall be made to the
holders of any class of
shares ranking junior to the Series B Preferred Stock, either as to dividends
or assets. If, upon such
liquidation, dissolution, winding up, or distribution of capital, the assets
thus distributable to the
holders of shares of Series B Preferred Stock shall be insufficient to permit
the payment to such
holders of the preferential amounts aforesaid, then such assets or the proceeds
thereof shall be
distributed ratably among the holders of shares of Series B Preferred Stock
according to the number of
such shares held by each. After such payment to the holders of shares of
Series B Preferred Stock, the
remaining assets and funds of the Corporation shall be divided and distributed
among the holders of
shares ranking junior to the Series B Preferred Stock, then outstanding,
according to their respective
interests.
(b) The liquidation, dissolution, winding up, or distribution of
capital, as such terms are
used In the foregoing paragraph, shall not be deemed to include any
consolidation or merger of the
Corporation with another corporation or any transfer of substantially the
entirety of the property and
assets of the Corporation to another corporation.
<PAGE>
Section 5. Redemption and Purchase.
(a) At the election of the Corporation, to be exercised by
resolution adopted by its Board
of Directors, all or any part of the shares of Series B Preferred Stock may be
redeemed, for one year
after the date of issuance, on any quarterly dividend payment date upon not
lets than 30 days' nor more
than 60 days' previous notice given by first-class mail, postage prepaid, to
the holders of record thereof
at their addresses as the same appear on the records of the Corporation and by
(a) paying for each
share thereof called for redemption $1.00, plus a further amount equal to all
accrued and unpaid
cumulative dividends on the Series B Preferred Stock to the date fixed for
redemption, or, in lieu of
such payment, by (b) depositing the redemption price in cash on or prior to
said redemption date with
such bank or trust company In the City of Youngstown, Ohio, as may be
designated by the Board of
Directors of the Corporation in trust for payment on the redemption date to the
holders of the shares
of Series B Preferred Stock so to be redeemed. In case of the redemption of
less than all of the
outstanding shares of Series B Preferred Stock, the shares to be redeemed may
be selected by lot or
pro rata, or by call of all or any part of the shares owned by one or more
holders of such shares, or by
such other method as the Board of Directors In its discretion may determine,
and notice, as above
provided, shall be given to the holders of record whose shares have been so
selected for redemption.
On and after the date fixed in any such notice as the date of redemption of the
shares of Series B
Preferred Stock, unless default shall be made by the Corporation in the payment
and/or deposit-of the
redemption price pursuant to such notice and to the provisions hereof, all
dividends on the shares of
Series B Preferred Stock so called for redemption shall cease to accrue, and on
such date or on deposit
In trust as aforesaid of funds sufficient for such redemption (notice of
redemption having been given as
aforesaid), whether said deposit shall have been made on said redemption date
or prior thereto, all
rights of the holders of said shares of Series B Preferred Stock as
stockholders of the Corporation shall
cease except the right to receive the redemption price and no more - from the
Corporation or from a
depositary as above described, upon surrender of their certificates properly
endorsed. If the holders of
the shares of Series B Preferred Stock which shall have been called for
redemption shall not, within six
years after such deposit, claim the amount deposited for the redemption of
their shares, any such bank
or trust company shall, upon demand, pay over to the Corporation such
unclaimed amounts, and
thereupon such bank or trust company and the Corporation shall be relieved of
all responsibility in
respect thereof and to such holders.
(b) The Corporation may also, from time to time, purchase or otherwise
acquire outstanding
shares of Series B Preferred Stock.
(c) Any shares of Series B Preferred Stock which are redeemed or
purchased by the
Corporation or which are converted into Common Stock of the Corporation
pursuant to the
conversion privilege shall have the status of authorized but unissued shares of
Preferred Stock without
designation of any series.
<PAGE>
Section 6. Conversion Privilege.
(a) Subject to and upon compliance with the provisions of this
Section 6, the shares of
Series B Preferred Stock may, at the option of the holder, at any time (in the
case of shares called for
redemption, then until and including the close of business on the date fixed
for redemption but not
thereafter if payment of the redemption price has been duly provided for by the
date fixed for
redemption), be converted into shares of Common Stock (as such shares shall be
constituted at the
conversion date) at the conversion ratio in effect at the conversion date.
(b) The holder of each share of Series B Preferred Stock may
exercise the conversion
privilege in respect thereof by delivering to any transfer agent of the shares
of Series B Preferred Stock
the certificate for the share to be converted accompanied by written notice
that the holder elects to
convert such share. Conversion shall be deemed to have been effected
Immediately prior to the close
of business on the date when such delivery is made, and such date is referred
to in this Section 6 as the
"Conversion Date." On the Conversion Date or as promptly thereafter as
practicable the Corporation
shall issue and deliver to the holder of the shares of Series B Preferred Stock
surrendered for
conversion, or on his written order, a certificate for the number of full
shares of Common Stock
issuable upon the conversion of such shares of Series II-Preferred Stock and a
check or cash in respect
of any fraction of a share as provided in paragraph (c) of this Section 6.
The person in whose name the
stock certificate is to be issued shall be deemed to have become a holder of
shares of Common Stock
of record on the Conversion Date. No adjustment shall be made for any
dividends accrued on shares
of Series B Preferred Stock surrendered for conversion or for dividends on the
shares of Common
Stock issued on conversion.
(c) The Corporation shall not be required to issue fractional
shares of Common Stock upon
conversion of Series B Preferred Stock. If more than one share of Series B
Preferred Stock shall be
surrendered for conversion at one time by the same holder, the number of full
shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate number of
shares so surrendered. If any fractional interest in a share of Common Stock
would otherwise be
delivered upon the conversion of any shares of Series B Preferred stock, the
Corporation, in lieu of
delivering a fractional share therefore, shall pay to the owner of a fractional
share interest an amount in
cash (computed to the nearest cent), equivalent to such fraction, based upon
the mean of the closing
bid and asked prices of the Corporation's shares of stock traded on the
over-the-counter market, as of
the close of business on the Conversion Date.
(d) Unless and until an adjusted conversion ratio is required to
be computed as hereinafter
provided, the conversion ratio of Series B Preferred Stock for Common Shares
shall be .625:1 one
year after the anniversary of the Issuance date and during the year following
thereafter, .750:1 two
years after the anniversary of the issuance date and during the year following
thereafter .875:1 three
years after the anniversary of the issuance date and during the year following
thereafter, and 1:1
thereafter. For example, a holder of 625 shares of Series B Preferred Stock
may convert such shares
into 1,000 shares of Common Stock one year after the anniversary of the
issuance date and during the
<PAGE>
year following thereafter.
(e) In the event of a stock dividend, stock split, or other
subdivision, reclassification or
combination of the Common Stock, the conversion ratio shall be adjusted
proportionately.
(f) The issuance of stock certificates on conversions of shares
of Series B Preferred Stock
shall be without charge to the converting stockholder for any tax in respect to
the issuance thereof.
The Corporation shall not, however, be required to pay any tax which may be
payable In respect to any
transfer involved in the issuance and delivery of shares In any name other than
that of the holder of the
shares of Series B Preferred Stock converted, and the Corporation shall not be
required to issue or
deliver any such stock certificates unless and until the person or persons
requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall have
established to the
satisfaction of the Corporation that such tax has been paid.
(g) The Corporation hereby reserves and shall at all times
reserve and keep available, free
from pre-emptive right, out of its authorized but unissued stock, for the
purpose of effecting the
conversion of the shares of Series B Preferred Stock, such number of its duly
authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding
shares of Series B Preferred Stock.
Section 7. Voting Rights.
The holders of shares of Series B Preferred Stock shall not be
entitled to vote, except as
otherwise required by law.
IN WITNESS WHEREOF, said ARTHUR TREACHER'S, INC. has caused this
certificate to
be signed by JAMES R. CATALAND, its PRESIDENT and by WILLIAM F. SACULLA, its
SECRETARY, this 7th day of April, 1990
ARTHUR TREACHER'S, INC.
/s/ James R. Cataland
James R. Cataland, President
/s/ William F. Saculla
William F. Saculla, Secretary
<PAGE>
STATE OF OHIO )
COUNTY OF MAHONING, ) SS
BE IT REMEMBERED that on this 17th day of April, 1990 , personally came before
me, a Notary
Public in and for the County dnd State aforesaid, James R. Cataland, President
of Arthur Treacher's,
Inc., a corporation of the State of Utah, and he duly executed said certificate
before me and
acknowledged the said certificate to be the free act and deed of said
Corporation and the facts stated
therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office
the day and year
aforesaid.
/s/ Amy L. Plowden
Amy L. Plowden
Notary Public
<PAGE>
EXHIBIT 10.1 Purchase Agreement dated May
31, 1996 between James Cataland and Registrant
<PAGE>
PURCHASE AGREEMENT
MAY 31, 1996
TABLE OF CONTENTS
Section Page
Introduction 2
1. Purchase of Stock and Consideration.................2
2. Representations and Warranties of the Seller........3
3. Representations and Warranties of the Buyer........15
4. Conduct of the Business of the Company.............18
5. Conditions Precedent to Buyer's Obligations........19
6. Conditions Precedent to Seller's Obligations.......20
7. Indemnification and Resolution of Disputes.........20
8. Termination and Abandonment........................22
9. Closing Date.......................................22
10. Other Provisions...................................24
Exhibits
Exhibit A - Option Agreement
Exhibit B - Consulting Agreement
Schedules
Schedule A - States of Incorporation and Qualification
Schedule B - Financial Statements
Schedule C - Taxes
Schedule D - Contracts
Schedule E - Accounts Receivable
Schedule F - Litigation
Schedule G - Conflicting Interests
Schedule H - Leases
Schedule I - Franchises
Schedule J - Trademarks
Schedule K - Payroll Register
Schedule L - Employment Contracts
Schedule M - Insurance Policies
<PAGE>
AGREEMENT made as of the 31st day of May, 1996, by and among
Skuli Thorvaldsson,
an individual residing at P.O. Box 355, 121 Reykjavik, Iceland (the "Buyer")
and James Cataland, an
individual residing at 2219 Alicia Lane, Atlantic Beach, Florida 32233
(the "Seller").
INTRODUCTION
A. Seller owns 2,134,250 shares of the presently issued
and outstanding shares of
common stock of Arthur Treacher's, Inc., a Utah corporation (the "Company").
B. Seller has entered into an Option Agreement dated
March 29, 1996, with Buyer
whereby Seller granted Buyer the option (the "Option") to purchase 2,000,000
shares of common
stock (the "Stock") presently held by Seller for an aggregate purchase price of
$1,200,000 (the
"Option Agreement"). A copy of the Option Agreement is attached hereto as
Exhibit A.
C. Simultaneous with the closing hereunder, the Company
shall retain Seller as a
consultant to the Company pursuant the terms of an agreement in the form
attached hereto as Exhibit
B to the Option Agreement (the "Consulting Agreement").
NOW, THEREFORE, in consideration of the promises
and the mutual covenants
herein contained, the sufficiency of which is hereby acknowledged, the parties
hereto do hereby agree
as follows:
1.Purchase of Stock and Consideration.
a. Exercise of Option, Purchase and Sale of Stock. In reliance on the
representations and
warranties, and subject to the terms and conditions hereinafter set forth, in
the event that Buyer elects
to exercise the Option, in his discretion, Seller shall sell and deliver to
Buyer and its designees, and
Buyer and its designees shall purchase and take delivery from Seller, on the
Closing Date (as
hereinafter defined), 2,000,000 shares of Stock owned by the Seller. Each
certificate representing the
Stock shall be duly endorsed for transfer or accompanied by an appropriate
instrument of transfer
duly executed with appropriate documentary tax stamp affixed. The Buyer shall
notify Seller of its
designees upon exercise of the Option.
b. Purchase Price. The purchase price for the Stock shall be One Million
Two Hundred Dollars
($1,200,000) which, after credit for $10,000 previously paid to Seller, the
balance of One Million
One Hundred Ninety Thousand Dollars ($1,190,000) shall be paid by certified or
bank cashier's check
or wire transfer on the Closing Date to the order of Seller.
2. Representations and Warrants of the Seller. The Seller represents,
warrants and agrees as
follows:
a. Corporate.
(1) The Company and its subsidiaries (the "Subsidiaries", the Company and
the Subsidiaries are
hereinafter referred to as the "Companies") are corporations duly organized,
validly existing and in
good standing under and by virtue of the laws of the states of their
incorporation. The Companies
are qualified to do business as foreign corporations in such other states in
which the ownership of
their assets or the nature and conduct of their businesses requires such
qualification. Each of the
Subsidiaries are wholly-owned by the Company and the Company does not own any
interest in any
other entities. The Subsidiaries and the states in which the Companies are
incorporated and qualified
to do business are set forth in Schedule "A".
<PAGE>
(2) The Companies have the power to own their property and to carry on
their businesses as and
where such is now conducted.
(3) The Seller owns 2,134,250 issued and outstanding shares of the
Company's Common Stock
and all of the Stock being sold hereunder are validly issued, fully paid and
nonassessable. Seller owns
no options, warrants, rights, convertible securities or other securities of the
Company. All of such
shares of Stock are owned free and clear of all liens, charges, encumbrances,
restrictive agreements
and assessments and are not subject to any restrictions with respect to
transferability, except as may
be required by law. Upon transfer and delivery of said shares of Stock to
Buyer and its nominees,
Buyer and its nominees will receive good and absolute title thereto free from
all liens, charges,
encumbrances, equities, restrictive agreements and claims of any nature
whatsoever.
(4) The authorized capital stock of the Company consists of 10,000,000
shares of common stock,
par value $.01 per share, of which 8,076,157 shares are presently outstanding
and 1,000,000 shares
of preferred stock, par value $.01 per share, of which 577,800 shares are
issued and outstanding.
(5) There are no outstanding options, contracts, calls, commitments,
preemptive rights or
commitments of nature relating to the authorized but unissued capital stock of
the Company.
b. Financial.
(1) To the knowledge of Seller, the unaudited interim consolidated
financial statement of the
Company as of March 26, 1996 and the unaudited consolidated financial
statements as of the year
ended June 30, 1995 attached hereto as Schedule "B," are materially complete
and correct and
present fairly the financial condition of each of the Company as of the date of
this Agreement and are
in conformity with generally accepted accounting principles applied on a basis
consistent with that of
preceding periods.
(2) To the knowledge of Seller, since March 26, 1996 there has not been
with respect to the
Company:
(i) any material adverse change in the financial condition or in
the operations or the business of
the Companies from that shown on the unaudited financial statements as of
March 26, 1996 referred
to in subsection (b)(1) of this Section 2;
(ii) any damages, destruction or loss, whether covered by
insurance or not, materially and
adversely affecting the business, property or assets of the Companies;
(iii) any declaration, setting aside or payment of any dividend,
or any distribution with respect to
the capital stock of the Company or any direct or indirect redemption,
purchase or other acquisition
by the Company of any such stock;
(iv) any increase in the compensation payable or to become payable
by the Companies to
directors, officers, employees or any advisors or consultants to the Companies,
or in the payment of
any bonus, or in any insurance, pension or other benefit plan, payment or
arrangement made to, for or
with any of such officers, employees or agents; or
<PAGE>
(v) any other event or condition materially and adversely
affecting the results of operations or
business or financial condition of the Company.
Undisclosed Liabilities.
(1) To the knowledge of Seller, the Companies have no liabilities or
obligations, either accrued,
absolute, contingent or otherwise, except:
(i) to the extent set forth
in the financial statements referred to in
subsection (b)(1) of this Section 2, and not heretofore paid or
discharged;
(ii) to the extent specifically
set forth in any of the Schedules
delivered to Buyer or elsewhere in this Agreement; and
(iii) those incurred in or as a
result of the normal and ordinary
course of business since March 26, 1996, all of which have been
consistent with past practices and
none of which are material and adverse.
To the knowledge of Seller, there is no basis for
any claim against the Companies or
any liability of any nature or in any amount not fully set forth in the
financial statements referred to in
subsection (b)(1) of this Section 2 or disclosed by this Agreement and the
Schedules previously
delivered to Buyer.
d. Tax Returns.
(1) To the knowledge of Seller, the Companies have filed with the
appropriate governmental
agencies all the returns required to be filed by the Companies or with respect
to its business and has
paid, or made provision for the payment of, all taxes as well as penalties and
interest related thereto,
if any, which have or may become due pursuant to said returns, except taxes
which have not yet
accrued or otherwise become due or for which adequate provision has been made
on the books of the
Company and taxes set forth on Schedule "C".
(2) To the knowledge of Seller, none of such returns has been examined
and settled, and no
waivers of statutes of limitation have been given or requested.
(3) To the knowledge of Seller, all such returns and reports have been
prepared on the same basis
as those of previous years, and all federal, state, city and foreign income,
profits, franchise, sales, use,
occupation, property, excise or other taxes due in connection with the
Companies' business have been
fully paid or adequately reserved for in the financial statements referred to
in subsection (b)(1) of this
Section 2 of the Agreement.
e) Contracts and Commitments.
1) To the knowledge of Seller, the Companies have no written or oral
contracts or commitments
involving a consideration in excess of $10,000, except as set forth in
Schedules "D" and "H"
previously delivered to the Buyer.
<PAGE>
2) To the knowledge of Seller, the Companies have not given any revocable
or irrevocable
power of attorney to any person, firm or corporation for any purpose
whatsoever.
3) To the knowledge of Seller, the Companies are not restricted by
agreement from carrying on
their business anywhere in the world.
4) To the knowledge of Seller, the Companies are not in default, nor is
there any known basis
for any claim of default, under any contracts or commitments made or
obligations owed by them
which are required to be set forth on Schedule "D", except as set forth on
Schedule "D" and except
the past due payables set forth on Schedule "D" and the line of credit
agreement with Bank One (the
"Bank One Loan").
5) To the knowledge of Seller, all accounts receivable (billed ) of the
Companies are current and
collectible, except to the extent reserved against in the financial statements
heretofore referred to in
subsection (b)(1) of this Section 2. Schedule "E" previously delivered to
Buyer is an aging Schedule
with respect to such accounts receivable.
f. Disclosure. To the knowledge of Seller,
no representation or warranty by the
Companies or the Seller in this Agreement, nor any statement, certificate or
Schedule furnished, or to
be furnished, by or on behalf of the Company or the Seller pursuant to this
Agreement, nor any
document or certificate delivered to Buyer pursuant to this Agreement, or in
connection with actions
contemplated hereby, contains or shall contain any untrue statement of a
material fact, or omits, or
shall omit to state a material fact necessary to make the statements contained
therein not misleading.
g. No Breach of Statute or Contract. To the
knowledge of Seller, and upon
receipt of the consent of Bank One, , neither the execution and delivery of
this Agreement by the
Seller, nor compliance with the terms and provisions of this Agreement or the
Option Agreement on
the part of the Companies or the Seller, will violate any statute, license, or
regulation of any
governmental authority, domestic or foreign, or will result in the default by
the Companies or the
Seller of any judgment, order, writ, decree, rule or regulation of any court or
administrative agency,
or will breach, conflict with, or result in a breach of any of the terms,
conditions or provisions of any
material agreement or instrument to which either the Companies or the Seller is
a party, or by which
any of them is or may be bound, or constitute a default thereunder, or result
in the creation or
imposition of any claim, lien, charge or encumbrance of any nature whatsoever
upon, or give to
others any claim, interest or rights, including rights of termination or
cancellation in, or with respect
to, any of their property, assets, contracts, licenses or businesses.
To the best knowledge of the
Seller, the conduct of the Companies' business does not violate any law or
regulation applicable to
such business.
h. No Litigation. To the knowledge of Seller,
except as set forth in Schedule
"F" which has been delivered to the Buyer, there is no suit, action or legal,
administrative, arbitration
or other proceeding or governmental investigation, or any change in the zoning
or building
ordinances affecting the real property or leasehold interests of the Companies,
pending or threatened
against the Company.
I. Conflicting Interests. Neither the Seller
nor any relative of the Seller has any
direct or indirect interest in any competitor, customer, supplier or other
person, firm or corporation
which has had any material business relationship or material transaction with
the Companies during
the last year or which is a party to or has a property which is the subject of
any business arrangement
with the Companies, except as fully set forth in Schedule "G" previously
delivered to the Buyer. For
the purposes hereof, a spouse, lineal descendant, parent, brother or sister of
the Seller shall be
<PAGE>
deemed to be a relative of such Seller. Neither Seller nor any relative of
Seller is a creditor of any of
the Companies and neither Seller nor any relative of Seller is owed any
compensation by any of the
Companies, except for a maximum of $40,000 in accrued salaries owed Seller.
j. Title to Property, Leases.
1) To the knowledge of Seller, each of the Companies owns all right,
title and interest in and to
all of its respective properties and assets, regardless of such properties
market value, including
intangibles, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature
whatsoever, except as set forth in Schedule "H" previously delivered to Buyer;
and has taken all steps
necessary or otherwise required to perfect and protect its rights in and to
their respective properties
and assets, including intangibles.
2) To the knowledge of Seller, none of the Companies leases any real or
personal property as
lessee, except as set forth in Schedule "H." The leases of the Companies are
valid and enforceable
with respect to the parties thereto and neither the Companies nor any other
party has received notice
of any in breach of any provisions of any such lease, except with respect to
the past due payables set
forth in Schedule "D". To the knowledge of Seller, the Company has received no
notice that any of
the lessors of leases which the Company guarantees are in default under such
leases, except as set
forth in Schedule "H".
3) To the knowledge of Seller, all currently used property and assets of
the Companies, or in
which any of the Companies has an interest, or which any of the Companies has
in its possession, are
in good operating condition and repair and conform to all applicable laws,
including without
limitation building and zoning laws, statutes, ordinances or regulations and no
notice of any such
violation relating to such business, property or assets have been received.
To the best of Seller's
knowledge, each of the Companies has provided regular maintenance of any leased
equipment, has
maintained the leased equipment in accordance with the maintenance schedules,
if any, of the
manufacturers of such leased equipment and all of the leased equipment is in
good operating
condition and repair and is suitable for the purposes for which it is intended.
4) To the knowledge of Seller, the conduct of the Companies' businesses a
s heretofore carried
on is free from any infringement by them of patents, trademarks, trade name
rights, copyrights or
publication rights of others and no notice of any infringement has been
received by any of the
Companies.
k. Franchises.
1) Schedule "I," which has been delivered to the Buyer, sets forth all
franchisees of the Company
and the locations of such franchisees stores. To the knowledge of Seller, such
franchisees are not in
default, nor is there any known basis for any claim of default, under any
contracts or commitments
made or obligations owed by them to the Companies except as set forth on
Schedule "I."
2) To the knowledge of Seller, the information set forth in the Uniform
Franchise Offering
Circular ("UFOC") effective January 1, 1996 is materially true and correct,
except for any material
changes in the financial statements attached to the UFOC or any information set
forth in any of the
Schedules attached to this Agreement.
<PAGE>
l. Patents and Trademarks. To the knowledge
of Seller and unless otherwise
indicated in Schedule "J", Schedule "J" sets forth all letter patents, patent
applications, inventions
upon which patent applications have not yet been filed, trade names,
trademarks, trademark
registrations in applications, copyrights, copyright registrations and
applications, both domestic and
foreign, presently owned, possessed, used or held by each of the Companies and
to the knowledge of
Seller, , each of the Companies owns the entire right, title and interest into
the same. Such Schedule
also sets forth, to the knowledge of Seller, all patents, patent applications,
inventions upon which
patent applications have not yet been filed, trade names, trademarks, trademark
registration and
applications, and licenses, both domestic and foreign, which in any way relate
to the businesses of the
Companies, and which are owned or controlled by any director, officer,
stockholder or employee of
any of the Companies. Such Schedule also correctly sets forth a list of all
licenses granted to any of
the Companies by others and to others by any of the Companies.
To Seller's knowledge, none of
the letters patents, patent applications, trade names, trademark registrations
and applications,
copyrights, copyright registrations and applications, and grants of licenses
set forth in such Schedule
are subject to any pending or threatened challenge.
m. Employee Relations.
1) To the knowledge of Seller, the Seller has heretofore furnished to
Buyer a true and complete
payroll roster (Schedule "K") of all employees of each of the Companies
as of April 6, 1996 whose
compensation for 1996 per year showing the rate of pay for each such person
entitled to receive
compensation from the Companies, and the gross payments to which each such
person is entitled.
No increases in such salaries have been given since April 6, 1996.
(i) To the knowledge of Seller, none of the Companies is a party
to any collective bargaining
agreement covering or relating to any of its employees except as set forth in
Schedule "K", previously
delivered to Buyer. The Companies are not required to recognize and have not
received a demandfor recognition by any collective bargaining representative.
(ii) To the knowledge of Seller, none of the Companies is a party
to any contract with any of its
employees, agents, consultants, officers, salesmen, sales representatives,
distributors or dealers that is
not cancelable by the Companies without penalty or premium on not more than
thirty days' notice,
except as set forth in Schedule "L" attached hereto; and
(iii) To the knowledge of Seller, and except as contained in the
Schedule L and the employment
agreement of James Cataland, the President of the Company, none of
the Companies has
promulgated any policy or entered into any agreements relating to the payment
of severance pay to
employees whose employment is terminated or suspended, voluntarily or
otherwise.
(2) Each of the Companies has complied with all applicable laws, rules or
regulations relating to
employment, including those relating to wages, hours, collective bargaining
and the withholding and
payment of taxes and contributions, and the Companies have complied in all
material respects with
the Occupational Safety and Health Act. Each of the Companies has, and will
have at the Closing
Date, withheld all amounts required by law or agreement to be withheld from the
wages or salaries of
its employees and there are no arrearages of wages or any tax or penalty for
failure to comply with
the foregoing owed by all of them with respect to employees, except with
respect to $27,568 for
withholding taxes which have been withheld but not yet paid. There are no
material controversies
pending or threatened, between any of the Companies and any of their respective
employees or any
<PAGE>
labor unions or other collective bargaining agents representing or purporting
to represent their
respective employees.
(3) Except for the employee stock purchase plan, none of the Companies has
promulgated any
profit-sharing, retirement, stock purchase, deferred compensation or other
similar plan providing
benefits for its employees and none of the Companies has announced the
prospective promulgation
thereof. There is no unfunded past service credit liability or any other
liability with respect to any
such plans. No reportable event as defined in Title IV of the Employee
Retirement Income Security
Act of 1974, as amended by the Multi employer Pension Plan Amendments Act of
1980, has
occurred with respect to any such plan subject to the minimum funding
requirement of Section 412 of
the Internal Revenue Code of 1954.
n. Insurance. The Companies have in full
force and effect fire, casualty,
workers' compensation and general liability insurance policies, with extended
coverage, as set forth in
Schedule M .
3. Representations and Warranties of Buyer.
a. Due Authorization The execution and delivery by Buyer of this
Agreement executed or to
be executed and delivered by Buyer and its performance thereunder do not and
will not conflict with
or constitute a default, breach or violation under any provision of applicable
law or regulation or of
any agreement, judgment, injunction, order, decree or other instrument binding
upon Buyer or to
which his properties is subject, this Agreement when executed and delivered by
Buyer will constitute
the legal, valid and binding agreements of Buyer and is enforceable in
accordance with its terms.
b. Investment Representations. Buyer
represents and warrants that it is
acquiring the Stock for his own account, for investment and not with a view
to, or for sale in
connection with, any distribution of such Stock or any part thereof.
c. Investment Experience. Buyer represents and warrants that it is an
investor experienced in
the evaluation of businesses similar to the Company, has such knowledge and
experience in financial
business matters as to be capable of evaluating the merits and risks of this
investment. The foregoing,
however, does not limit or modify the representations and warranties of the
Seller in this Agreement.
Buyer represents and warrants that, during
the course of this transaction and
prior to the purchase of any Stock, he has had the opportunity to ask questions
of and receive
answers from the Seller concerning the terms and conditions of the offering of
the Stock.
d. Absence of Registration. The Buyer understands that:
1) The Stock to be sold and issued hereunder is unregistered and may be
required to be held
indefinitely unless it is subsequently registered under the Securities Act, or
an exemption from such
registration is available.
2) Rule 144 promulgated under the Securities Act ("Rule 144"), which
provides for certain
limited sales of unregistered securities, is not presently available with
respect to the Stock.
e. Restrictions on Transfer. Except as
contemplated by this Agreement, the
Buyer agrees that he will not offer, sell, pledge, hypothecate, or otherwise
dispose of the Stock
unless such offer, sale, pledge, hypothecation or other disposition is
(i) registered under the Securities
Act, or (ii) such offer, sale, pledge, hypothecation or other disposition
thereof does not violate the
Securities Act, and (b) the certificate(s) representing the Stock shall bear a
legend with respect to the
restrictions on transfer.
<PAGE>
4. Conduct of the Business of the Company P
ending the Closing Date.
a. Full Access. As set forth in Paragraph 3
of the Option Agreement, during the
time granted to Buyer to exercise his option, Buyer and its authorized
representatives shall have full
access, during normal business hours, to all properties, books, records,
contracts and documents of
the Company, and the Company shall furnish or cause to be furnished to Buyer
and its authorized
representatives all information with respect to the affairs and business of the
Company as Buyer may
request. The Buyer and Messrs. Frank Brown, George Koo, Bruce Galloway,
and Gudmundur
Jonsson have executed a confidentiality agreement in the form attached to the
Option Agreement and
previously delivered to Seller.
b. Carry On In Regular Course. The Companies
shall carry on their business
diligently and substantially in the same manner as heretofore and shall not
make or institute any
unusual or novel methods of trade, purchase, sale, lease, management,
accounting or operation which
may have a material impact on the financial condition or operating results of
the Companies.
c. No Default. The Company shall not do any
act or omit to do any act, or
permit any act or omission to act, which will cause a breach of any contract,
commitment or
obligation by it.
d. Sale of Capital Assets. The Companies will not, since
March 29, 1996, have entered into
any transactions outside of the normal course of business (including, but not
limited to the closing or
sale of any store or the sale of any assets of the Company with a value of
over $30,000), issue any
shares of capital stock or options, warrants, rights, or other securities
convertible into shares of
capital stock, or enter into any agreements or amendments to existing
agreements with any officers or
directors of the Company or any of their affiliates.
5. Conditions Precedent to Buyer's
Obligations. Each and every obligation of
Buyer to be performed on the Closing Date or thereafter, as the case may be,
shall be subject to the
satisfaction prior thereto of the following conditions:
a. Representations and Warranties True at the Closing Date,
Conduct of the Company.
The representations and warranties made by the Seller in this Agreement as of
the date hereof shall be
true as through such representations and warranties had been made or given on
and as of the Closing
Date and the Company shall have complied with the obligations pursuant to
Section 4.
b. All Documents. All documents required by Section 9(a) and
9(d) of this Agreement shall
have been delivered to the Seller.
6. Conditions Precedent to the Seller's
Obligations. a.
Satisfaction of Conditions Set forth in Option Agreement The
conditions set forth in
Paragraphs 6, 7 and 10 of the Option Agreement shall be satisfied as of the
Closing Date.
b. All Documents. All documents required by Section 9(b) and
9(c) of this Agreement shall
have been delivered to the Seller.
7. Indemnification and Resolution of Disputes.
a. Indemnification. The Seller shall indemnify Buyer and hold
him harmless at all times after
the date of this Agreement and in respect of any of the following:
(1). Misrepresentation. Any and all damage or deficiency in excess of
$5,000 resulting from any
misrepresentation, breach of warranty, or non-fulfillment of any obligation on
the part of the Seller or
the Company under this Agreement or the Option Agreement or contained in any
Schedule to this
Agreement or from any misrepresentation in or omission from any certificate,
schedule or other
instrument furnished to Buyer hereunder.
<PAGE>
(2). Actions, Etc. All demands, assessments, judgments, costs and legal
and other expenses
arising from, or in connection with, any action, suit, proceeding or claim
incident to any of the
foregoing.
(3). Limitation on Liability. Notwithstanding anything herein to the
contrary, Seller's aggregate
liability to all parties entitled to indemnification under this Section 7 shall
not exceed $750,000.
a. Each party entitled to indemnification hereunder (the
"indemnified party") shall give notice to
the party required to provide indemnification (the "indemnifying party")
promptly after such
indemnified party has actual knowledge of any claim as to which indemnity may
be sought, and shall
permit the indemnifying party (at its expense) to assume the defense of any
claim or any litigation
resulting therefrom, provided that counsel for the indemnifying party, who
shall conduct the defense
of such claim or litigation, shall be satisfactory to the indemnified party,
and the indemnified party
may participate in such defense at such party's expense, provided, further,
that the omission by any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its
obligations under this Section except to the extent that the omission results
in a failure of actual
notice to the indemnifying party and such indemnifying party is damaged solely
as a result of the
failure to give notice. No indemnifying party, in the defense of any such
claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
An indemnified party must commence any action pursuant to this section within
two years of the
Closing Date in order for such party to be entitled to indemnification
hereunder with respect to the
claim asserted in such action.
b. Nothing in this Section 7 shall limited the rights of either
party hereunder to receive
indemnification as provided in the Option Agreement.
8. Termination and Abandonment. This Agreement may be
terminated without liability on
the part of any party to the other if a Closing hereunder does not take place
on or before May 31,
1996.
9. Closing Date. In the event that the Buyer
elects to exercise the Option, the
closing with respect to the transactions contemplated hereunder shall take
place at the offices of the
Company at 1:00 p.m. local time on May 30, 1996, or on such earlier date as
determined by Buyer
on at least two (2) days' prior written notice to the Seller. Such date
(or such earlier date) is
hereinafter referred to as the "Closing Date".
At the Closing,
a. The Seller shall deliver to Buyer the
following:
(i) certificates representing all of the Stock as set forth in Section
1(a) hereof, duly endorsed for
transfer to Buyer and its nominees;
(ii) the resignation of Seller as an officer of the Company, and, if so
notified by Buyer, as a
Director of the Company;
(iii) acknowledgment of the termination of any voting agreements to which
Seller is a party,
(iv) resignations of all members of the Board of Directors other than
Seller; and
<PAGE>
(v) a certified copy of resolutions of the Board of Directors which
provides for such resignations
of the existing Directors as are requested by Buyer and the election of such
nominees of Buyer to the
Board of Directors as Buyer may notify Seller in writing prior to the Closing
Date;
(vi) such other and further documents, instruments and certificates not
inconsistent with the
provisions of this Agreement and the Option Agreement, executed by Seller as
Buyer shall reasonably
require to carry out and effectuate the purposes and terms of this Agreement
and the Option
Agreement; and
(vii) acknowledgment of termination of Seller's employment agreement with
the Company and
that the Companies have no further obligations with respect to any payments to
Seller, except for a
maximum of $40,000 in accrued compensation and the Company's obligations under
the Consulting
Agreement.
b. Buyer shall deliver to the Seller the
following: (i) the sum of One Million One
Hundred Ninety Thousand ($1,190,000) by bank cashier's check or wire transfer
to the order of the
Seller, after deduction of the $10,000 previously paid by Buyer.
(ii)such other and further
documents, instruments and certificates not inconsistent with the provisions of
this Agreement and
the Option Agreement, executed by Seller as Buyer shall reasonably require to
carry out and
effectuate the purposes and terms of this Agreement and the Option Agreement.
c. The Company shall deliver to Seller the
Consulting Agreement.
d. The Company shall deliver to Buyer an
acknowledgment of termination of any
voting agreements to which it is a party.
10. Other Provisions.
a. Nature and Survival of Representations.
All statements contained in any
certificate, instrument, schedule or document delivered by or on behalf of any
of the parties pursuant
to this Agreement and the transactions contemplated hereby shall be deemed
representations and
warranties by the respective parties hereunder. All representations and
warranties made by the
parties to each other in this Agreement or pursuant hereto shall survive,
except to the extent waived
in writing by the parties hereto, the consummation of the transactions
contemplated by this
Agreement, for a period of two years thereafter, notwithstanding any
investigation heretofore or
hereafter made by any of them or on behalf of any of them. Each Schedule
delivered in accordance
with this Agreement shall be deemed to include and refer to every other
Schedule hereto.
b. Entire Agreement. This Agreement, the
Option Agreement, and the
Consulting Agreement, together with the Exhibits and Schedules delivered
pursuant such
Agreements, set forth the entire agreement and understanding between the
parties as to the subject
matter hereof, and merge and supersede all prior discussions, agreements and
understandings of every
and any nature between them, and no party shall be bound by any condition,
definition, warranty, or
representation, other than expressly set forth or provided for in the
aforementioned Agreements, or
as may be, on or subsequent to the date hereof, set forth in writing and
signed by the party to be
bound thereby. This Agreement may not be changed or modified, except by
agreement in writing,
signed by all of the parties hereto.
c. Parties in Interest. All the terms and
provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the successors
in interest of the
respective parties hereto.
d. Conduct Following the Closing.
The parties acknowledge and agree that
the provisions of Paragraphs 8 and 11 of the Option Agreement shall survive the
Closing Date.
<PAGE>
e. Laws Governing. This Agreement shall be
construed and interpreted
according to the law of the State of New York.
f. Notices. All notices, requests, demands
and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed,
certified or registered mail, with first-class postage page, (a) if to the
Seller or the Company,
James Cataland
c/o Arthur Treacher's, Inc.
7400 Baymeadows Way
Suite 300
Jacksonville, Florida 32255
with a copy to Greg Seeley, Esq.
Seeley, Savage & Aussem
800 Bank One Center
600 Superior Avenue East
Cleveland Ohio 44114-2655
or to such other person and place as the Seller shall furnish to Buyer in
writing; and, (b) if to Buyer,
Skuli Thorvaldsson
P.O. Box 355
121 Reykjavik, Iceland
with a copy to:
Steven Schuster, Esq.
McLaughlin & Stern LLP
380 Lexington Avenue
New York, New York 10168
or to such other person and place as Buyer shall furnish to the Seller in
writing.
g. Counterparts. This Agreement may be executed
simultaneously in two (2) or
more counterparts, each of which shall be deemed an original, but all of which
together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly
executed as of the day and year first above written.
/s/James Cataland
James Cataland
/s/ Skuli Thorvsldsson
Skuli Thorvaldsson
<PAGE>
EXHIBIT 10.12 Form of Warrant to Burnham Securities, Inc.
-1-
<PAGE>
The securities represented hereby have been acquired for investment purposes
only, have not
been registered for offer or sale under the Securities Act of 1933, as amended,
and may not be
sold, exchanged, hypothecated or transferred in any manner whatsoever, except
in compliance
with Section 4 hereof.
Warrant Certificate No. A-1
Warrant to Purchase 296,891 Shares of Common Stock
(subject to
adjustment)
Original Issue Date: November 21, 1996
Purchase Price: $3.30
WARRANT TO PURCHASE COMMON STOCK
OF
ARTHUR TREACHER'S INC.
This certifies that Burnham Securities Inc. and/or registered
assigns is entitled,
subject to the terms set forth herein, at any time from the Original Issue Date
set forth above
until 5:00 P.M., New York, New York time, on November 21, 2001 (the "Expiration
Date"),
to purchase from Arthur Treacher's Inc., a corporation organized and existing
under the laws of
Utah (hereinafter called the "Company"), up to 296,891 fully paid and
non-assessable shares of
the Company's common stock, par value $0.01 per share (the "Common Stock"),
upon surrender
of this Warrant, at the principal-office of the Company, with the form of
election to purchase
annexed hereto duly executed by or on behalf of the holder of this Warrant, and
simultaneous
payment therefor in lawful money of the United States of the purchase price per
share set forth
above (such amount being herein called the "Purchase Price"). The number and
character of
<PAGE>
such shares of Common Stock issuable upon exercise of this Warrant and the
Purchase Price are
subject to adjustment as provided below.
The Warrants. The term "Warrants" as used herein
means this Warrant
and any Warrants delivered in substitution or exchange therefor as provided
herein. The term
"Warrant Stock" as used herein means as of any date all shares of Common Stock
of the
Company theretofore issued or at the time issuable upon exercise of the
Warrants which
Common Stock is not at such time registered under the Securities Act of 1933,
as amended (the
"1933 Act"); provided, however, that the term "Warrant Stock" shall not include
shares of
Common Stock that shall have been sold in a transaction exempt from the
registration and
prospectus delivery requirements of the 1933 Act so that all transfer
restrictions and restrictive
legends with respect thereto are removed upon consummation of such sale.
The holder of the
Warrants as of any date shall be deemed the holder of the Warrant Stock
issuable at such time
upon exercise of the Warrants.
Exercise. This Warrant may be exercised at any time or
from time to time, on
any day which is a business day, for the full number of shares of Common Stock
called for
hereby, by surrendering it at the principal office of the Company, 7400
Baymeadows Way,
Jacksonville, FL 32256 Attention: President, with the subscription form duly
executed by or on
behalf of the holder of this Warrant, together with payment in cash or
immediately available
funds of the sum obtained by multiplying (i) the number of shares of Common
Stock called for
on the face of this Warrant (without giving effect to any adjustment therein)
by (ii) the Purchase
Price. In the event that the Warrant is exercised at a time when the
Common Stock issuable
upon such exercise has not been registered under the 1933 Act, the Common
Stock issued upon
<PAGE>
such exercise shall contain a legend substantially similar to that appearing on
the face of this
Warrant.
This Warrant may be exercised at any time or from time to time, on
any day which is
a business day, for less than the full number of shares of Common Stock called
for hereby (but
not as to fractional shares of Common Stock) in the manner set forth in
subsection 2(a). Upon
any partial exercise, the number of shares of Common Stock receivable upon the
exercise of this
Warrant as a whole, and the sum payable upon the exercise of this Warrant as a
whole, shall be
proportionately reduced. Upon such partial exercise, this Warrant shall be
surrendered, and a
new Warrant of the same tenor for the same aggregate number of shares of
Common Stock, with
the same Expiration Date, bearing the same legend appearing on the face of
this Warrant, and
for the purchase of the number of such shares of Common Stock not purchased
upon such
exercise shall be issued by the Company to the registered holder hereof.
A Warrant shall be deemed to have been exercised immediately prior
to the close of
business on the date of its surrender for exercise as provided above, and the
person entitled to
receive the shares of Common Stock issuable upon such exercise shall be treated
for all purposes
as the holder of such shares of record as of the close of business on such
date, or if later, the date
on which all applicable Regulatory Requirements (as defined below) related to
such issuance
shall have been complied with. As soon as practicable on or after such date,
the Company shall
issue and deliver to the person or persons entitled to receive the same a stock
certificate or
certificates for the number of full shares of Common Stock issuable upon such
exercise, together
with cash, in lieu of any fraction of a share of Common Stock equal to such
fraction of the then
current market value of one full share of Common Stock.
<PAGE>
Payment of Taxes. All shares of Common Stock issued upon
the exercise of a
Warrant shall be validly issued, fully paid and non-assessable, and the Company
shall pay all
issuance taxes and other similar governmental charges that may be imposed in
respect of the
issue or delivery thereof, but in no event shall the Company pay a tax on or
measured by the net
income or gain attributed to such exercise; neither shall the Company be
required to pay any tax
or other charge imposed in connection with any transfer of a Warrant or any
transfer involved
in the issuance of any certificate for shares of Common Stock in any name other
than that of the
registered holder of the Warrant surrendered in connection with the purchase of
such shares, and
in such case the Company shall not be required to issue or deliver any stock
certificate until such
tax or other charge has been paid or it has been established to the
satisfaction of the Company
that no tax or other charge is due.
Transfer and Exchange.
The holder of this Warrant
represents and warrants that
it is acquiring this Warrant for its own account and for the purpose of
nvestment only and not
with a view to any distribution or resale thereof within the meaning of the
1933 Act. Neither this
Warrant nor any Warrant Stock shall be transferable, in whole or in part,
except as hereinafter
provided. The holder acknowledges that, in taking this unregistered Warrant,
it must continue
to bear the economic risk of its investment for an indefinite period of time
because of the fact
that such Warrant has not been registered under the 1933 Act. The holder
realizes that such
Warrant cannot be sold, transferred or otherwise disposed of unless it is
subsequently registered
under the 1933 Act or an exemption from such registration is available, and the
holder further
recognizes that the Company is not assuming any obligation to register such
Warrant, nor does
<PAGE>
the Company have any present intention to so register the Warrant.
The holder of this Warrant
acknowledges that the only registration rights provided in connection with the
Warrant are those
rights relating to the Warrant Stock contained in Section 8 of this Warrant.
The holder also
acknowledges that appropriate legends reflecting the status of the Warrant
under the 1933 Act
may be placed on the face of the Warrant certificates at the time of their
transfer and delivery to
the holder hereof. The holder agrees that it will not sell, assign or transfer
any Warrant or any
Warrant Stock in violation of the 1933 Act or any applicable rule or regulation
promulgated
thereunder or the applicable securities laws of any state within the United
States (collectively
referred to herein as the "Regulatory Requirements") and that it will not sell,
assign or transfer
any Warrant or any Warrant Stock (other than pursuant to an effective
registration statement
under the 1933 Act and in full compliance with all Regulatory Requirements)
unless and until it
shall have notified the Company of the proposed transfer and if requested by
the Company, shall
have furnished to the Company an opinion or opinions of counsel, reasonably
satisfactory to the
Company, to the effect that such transfer may be made without registration
under the 1933 Act
and will not result in a violation of any applicable Regulatory Requirements;
provided, however,
that this Warrant may be transferred in whole or in part within 90 days of the
Original Issue Date
to (x) any person who is (or was as of the Original Issue Date) an officer or
employee of
Burnham Securities Inc. or (y) any registered broker/dealer or affiliate t
hereof that participated
as a dealer in connection with the offer, issuance and sale by the Company of
up to 4,000,000
shares of Common Stock pursuant to that certain Confidential Private Placement
Memorandum
dated October 18, 1996, as amended.
<PAGE>
This Warrant is exchangeable at the principal office of the Company
for Warrants of the
same tenor for the same aggregate number of shares of Common Stock and with
the same
Expiration Date, each new Warrant to represent the right to purchase such
number of shares as
the holder shall designate at the time of such exchange and to bear the same
legend appearing
on the face of this Warrant.
Adjustment of Purchase Price and Number of Shares.
Adjustment for Stock Splits,
Stock Dividends,
Recapitalization, etc. The exercise price of this Warrant shall be subject to
adjustment, upward
or downward, pro rata, to reflect any stock dividend, stock split, combination
of shares,
recapitalization or other similar event, and the number of shares issuable upon
exercise shall be
adjusted such that the aggregate dollar amount determined by multiplying the
Purchase Price by
the number of shares purchasable on exercise of the Warrant shall be the same
after the
adjustment event as before. Thus, for example, if there should be a 2-for-1
stock split, the
exercise price would be divided by two and the number of shares issuable upon
exercise would
be doubled.
Adjustment for Reorganization,
Merger, Consolidation
or Disposition of Assets. In case after the Original Issue Date the Company
shall reorganize its
capital (other than in a recapitalization as to which an adjustment is made
pursuant to subsection
5(a) above), consolidate, amalgamate or merge with or into another corporation
(as a result of
which the Company is not the surviving corporation or there is a distribution
with respect to the
Common Stock of the Company of the type described in subsection 5(c) below),
or sell, transfer
or otherwise dispose of all or substantially all of its property, assets or
business to another
<PAGE>
corporation and, pursuant to the terms of such reorganization, merger,
amalgamation,
consolidation or disposition of assets, shares or common stock of the successor
or acquiring
corporation, or any cash, shares of stock or other securities or property of
any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common
stock of the successor or acquiring corporation ("Other Property"), are to be
received by or
distributed to the holders of Common Stock of the Company, then each holder
shall have the
right thereafter to receive, upon exercise of this Warrant and payment of the
Purchase Price as
provided for herein, the number of shares of common stock of the successor or
acquiring
corporation or of the Company, if it is the surviving corporation, and Other
Property receivable
upon or as a result of such reorganization, merger, amalgamation, consolidation
or disposition
of assets by a holder of the number of shares of Common Stock for which this
Warrant is
exercisable immediately prior to such event. In case of any such
reorganization, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the
Company) shall expressly assume the due and punctual observance and performance
of each and
every covenant and condition of this Warrant to be performed and observed by
the Company and
all of the obligations and liabilities hereunder, subject to such modification
as may be deemed
appropriate (as determined by resolution of the Board of Directors of the
Company) in order to
provide for adjustments of shares of the Common Stock for which this Warrant is
exercisable
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section
5. For purposes of this subsection 5(b), "common stock of the successor or
acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to
redemption, and shall also include any evidences of indebtedness, shares of
stock or other
<PAGE>
securities which are convertible into or exchangeable for any such stock,
either immediately or
upon the arrival of a specified date or the happening of a specified event,
and any warrants or
other rights to subscribe for or purchase any such stock. The foregoing
provisions of this
subsection 5(b) shall similarly apply to successive reorganizations,
amalgamations, mergers,
consolidations or dispositions of assets.
Certain Other Distributions.
(i) If at any time the Company shall make
any extraordinary
dividend or distribution of cash (other than a cash distribution or dividend
payable out of
earnings or earned surplus legally available for the payment of dividends under
the laws of the
jurisdiction of incorporation of the Company) to the holders of Common Stock,
then from and
effective after the record date established for such distribution, the per
share Purchase Price in
effect immediately prior to such record date shall be reduced by an amount
equal to the amount
of cash per share of Common Stock which is so distributable; provided,
however, if, for any
reason, such extraordinary cash dividend or distribution is not effected,
then no adjustment of
the Purchase Price of the Warrant shall be deemed to have been made under this
subsection (c)(i)
and the Purchase Price in effect immediately before the aforesaid record date
shall remain and
continue in effect at all times until subsequently adjusted pursuant to the
provisions of this
Section 5. Notwithstanding any provision to the contrary contained herein,
the per share
Purchase Price of this Warrant shall not be reduced to below one cent ($.01)
per share of
Common Stock.
<PAGE>
(ii) If at any time the Company shall make any
dividend or distribution
of any evidences of its indebtedness or any shares of capital stock (other than
shares of Common
Stock) to the holders of Common Stock, then from and effective after the record
date established
for such distribution, the per share Purchase Price in effect immediately prior
to such record date
shall be reduced by an amount deemed to be the fair market value allocable to
each share of
Common Stock as a result of such dividend or distribution, such fair market
value to be
determined in good faith by the Board of Directors of the Company; provided,
however, if, for
any reason, any such dividend or distribution is not effected, then no
adjustment of the Purchase
Price of the Warrant shall be deemed to have been made under this subsection
(c)(ii) and the
Purchase Price in effect immediately before the aforesaid record date shall
remain and continue
in effect at all times until subsequently adjusted pursuant to the provisions
of this Section 5.
Notwithstanding any provision to the contrary contained herein, the per share
Purchase Price of
this Warrant shall not be reduced to below one cent ($.01) per share of
Common Stock.
(iii) Notwithstanding any provision to the
contrary contained
herein, in the event that at any time the Company shall make any dividend or
distribution of any
warrants, options or rights to subscribe for any evidences of its indebtedness,
any shares of its
capital stock (including, without limitation, shares of Common Stock) or any
other securities or
property of any nature whatsoever to the holders of Common Stock, the Purchase
Price in effect
immediately before the making by the Company of any such dividend or
distribution shall remain
unchanged and shall continue in full force and effect at all times un
til subsequently adjusted
pursuant to the provisions of this Section 5.
-
<PAGE>
Record Date Deemed Issue Date.
In case the Company
shall take a record of the holders of shares of its stock of any class for the
purpose of entitling
them (A) to receive a dividend or a distribution payable in Common Stock or any
rights or
options to subscribe for, purchase, or otherwise acquire any Common Stock, or
(B) to subscribe
for, purchase or otherwise acquire any Common Stock, or any rights or options
to subscribe for,
purchase or otherwise acquire any Common Stock, then such record date shall be
deemed to be
the date of the issue or sale of the Common Stock, or such rights or options
issued or sold, or
deemed to have been issued or sold, upon the declaration of such dividend or
the making of such
other distribution, or the date of the granting of such rights or subscription,
purchase or other
acquisition, as the case may be.
Duration of Adjusted Purchase
Price. Following each
computation or readjustment of the Purchase Price as provided in subsection
5(a) or 5(c) hereof,
the new Purchase Price shall remain in effect until a further computation or
readjustment thereof
is required by subsection 5(a) or 5(c) hereof.
Officer's Certificate as to
Adjustments. In each case of
an adjustment in the Purchase Price or the number of shares of Common Stock
receivable upon
the exercise of this Warrant, the Company shall, if requested by any holder of
this Warrant, at
the Company's expense, cause an officer of the Company to compute such
adjustment in
accordance with the terms of the Warrant and prepare a certificate setting
forth such adjustment
and showing in detail the facts upon which such adjustment is based, including
a statement of:
(i) the consideration, if any, received or to be received by the Company for
any additional shares
of Common Stock issued or sold or deemed to have been sold; (ii) the number of
shares of
<PAGE>
Common Stock outstanding or deemed to be outstanding; (iii) the number of
shares of Common
Stock receivable upon the exercise of such Warrant; and (iv) the new Purchase
Price. The
Company will forthwith mail a copy of each certificate to each holder of a
Warrant at the time
outstanding. Notices of Record Date. In case the Company shall
take a record of the
holders of its Common Stock for the purpose of entitling them to receive any
extraordinary
dividend or other distribution (as described in subsection 5(c)(i), or any
right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any securities,
or to receive any other right; or ( of any capital reorganization of the
Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company
with or into another corporation, except for mergers into the Company of wholly
owned
subsidiaries, or any conveyance of all or substantially all of the assets of
the Company to another
corporation; or (of any voluntary dissolution, liquidation or winding-up of the
Company then,and in each such case, the Company will mail or cause to be
mailed, at the Company's expense
to each holder of a Warrant at the time outstanding a notice specifying, as
the case may be (A)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right,
and stating the amount and character of such dividend, distribution or right,
or (B) the date on
which such reorganization, reclassification, consolidation, merger, conveyance,
dissolution,
liquidation or winding up is to take place, and the time, if any, to be fixed
as of which the holders
of record of Common Stock shall be entitled to exchange their shares of Common
Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up. Such notice
shall be mailed to each
holder of a Warrant at least 20 days prior to the date therein specified.
<PAGE>
Loss or Mutilation. Upon receipt by the Company of
evidence satisfactory to
it (in the exercise of reasonable discretion) of the ownership of and the loss,
theft, destruction
or mutilation of any Warrant and (in the case of loss, theft or destruction) of
indemnity
satisfactory to it (in the exercise of reasonable discretion), and (in the case
of mutilation) upon
surrender and cancellation thereof, the Company will execute and deliver in
lieu thereof a new
Warrant of like tenor.
Reservation and Listing of Common Stock. The Company shall
at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized
but unissued shares of Common Stock as will be sufficient to permit the
exercise in full of all
outstanding Warrants. If any shares of Common Stock required to be reserved
for issuance upon
exercise of this Warrant require registration or qualification with any
governmental authority or
other governmental approval or filing under any law before such shares may be
so issued, the
Company will in good faith and as expeditiously as possible and at its expense
endeavor to cause
such shares to be duly registered or qualified or to take such other action as
may be reasonably
necessary to effectuate the issuance of such shares. The Company will, at its
expense, list on
each securities exchange on which shares of Common Stock are presently listed
or are hereafter
listed (if requested in writing to do so by the holder of this Warrant as to
such future listings),
maintain and, when necessary, increase such listing of, all shares of Common
Stock issued or,
to the extent permissible under the applicable securities exchange rules,
issuable upon the
exercise of this Warrant so long as any shares of Common Stock shall be so
listed at any time
prior to the Expiration Date.
Registration Rights.
<PAGE>
Optional Registration. If the
Company at any time prior
to the date three (3) years after the Expiration Date proposes to file a
registration statement
under the 1933 Act respecting a sale of Common Stock, it will each such time
give written notice
(the "Registration Notice") to all holders of Warrants and Warrant Stock of its
intention to do
so not later than 30 days prior to the date such registration statement is
proposed to be filed and,
upon the written request of the holders of more than 30% of the Warrants or
Warrant Stock
given within 15 days after receipt of any such notice (which request shall
specify the Warrant
Stock intended to be sold or disposed of by each such holder and shall describe
the nature of any
proposed sale or other disposition thereof), the Company shall include therein
or shall cause the
managing underwriter or underwriters, if any, of a proposed underwritten
offering to include
therein all such Warrant Stock specified in such request to be so registered on
the same terms
and conditions as the other shares of Common Stock of the Company included in
such
registration statement; provided, however, that the aggregate number of shares
requested to be
included therein is greater than 30% of all shares of Warrant Stock.
Notwithstanding any
provision to the contrary contained herein, the Company shall not be required
to include any
Warrant Stock in any registration statement filed by the Company which relates
solely to shares
of capital stock issued or to be issued pursuant to or in connection with any
employee or
incentive stock ownership plan or any employee benefit plan or in any
registration statement on
Form S-4 filed by the Company which relates solely to a business combination.
The Company
may at any time elect not to file any proposed registration statement or to
withdraw any
proposed registration statement after giving the Registration Notice to the
holders of Warrants
and the Warrant Stock and shall not be liable to any such holder for any losses
caused by such
election or withdrawal.
<PAGE>
Required Registration. In the
event that after the
expiration of three (3) years from the Original Issue Date, either (i) the
Company shall not have
effected a registered offering of shares of Common Stock with respect to
which a Registration
Notice shall have been given to all holders of Warrants or Warrant Stock or
(ii) the holders of
Warrant Stock shall not have been permitted to include in such an offering all
Warrant Stock
held by such holders as to which a request for registration shall have been
given to the Company
pursuant subsection 8(a), then, at any time and from time to time thereafter,
if the Company shall
receive a written request (specifying that it is being made pursuant to this
subsection 8(b) from
the holders of more than 30% of the Warrant Stock that the Company file a
registration
statement on an appropriate form under the 1933 Act covering the registration
of the Warrant
Stock held by such holders, then the Company shall promptly notify all other
holders of Warrants
and Warrant Stock of such request for the purpose of allowing such other
holders to participate
in such requested registration under this subsection 8(b) and shall use its
best efforts to register
under the 1933 Act all Warrant Stock that the holders thereof have requested be
registered and
take such other action as may be required to have such registration statement
declared effective
and to qualify or register such Warrant Stock for offering and sale under the
securities or blue
sky laws of such states as are reasonably requested by the holders of such
Warrant Stock;
provided, however, that the Company shall not be required to proceed with the
filing of any
proposed registration statement if less than 30% of the outstanding Warrant
Stock is covered
by such registration statement.
<PAGE>
Notwithstanding anything to the contrary contained herein,
the Company may be
obligated to file more than one registration statement pursuant to this
ubsection 8(b), but only
the first such registration statement shall be at the Company's expense.s
Limitation of Shares in
Underwritten Offering. If the
managing underwriter or underwriters of an underwritten pubic offering made
pursuant to any
registration statement pursuant to subsection 8(a) above deliver a written
opinion to a holder of
Warrant Stock seeking to include its Warrant Stock in a registration pursuant
to subsection 8(a)
above that the total number or kind of securities which such holder and the
Company and any
other persons or entities intend to include in such offering would adversely
affect such offering
(including, without limitation, the marketing of or the price obtainable for
the shares of Common
Stock of the Company to be sold by the Company thereunder), then the number of
such holder's
Warrant Stock and the number of other shares of Common Stock of the Company to
be included
in such offering (other than shares of Common Stock to be issued by the
Company) may be
reduced or excluded in their entirety to the extent necessary to reduce the
total number of shares
of Common Stock of the Company to be included in such offering to the number
recommended
by such managing underwriter or underwriters. Any such reduction shall be a
proportionate
reduction to all such persons (other than the Company) based upon the number of
shares
proposed to be registered by each such person (other than the Company).
Other Registrations. Upon any
registration of Common
Stock pursuant to subsection 8(a) or 8(b), if any Warrant Stock requires
registration or
qualification with or approval of any United States or state governmental
official or authority
other than registration under the 1933 Act (or any similar federal statute or
other Regulatory
<PAGE>
Requirement at the time in force) before such Warrant Stock may be issued or
may be sold, the
Company will take all requisite action in connection with such registration
and will use its best
efforts to cause any such shares to be duly registered or approved as may be
required.
Upon any registration of Common Stock pursuant to
subsection 8(a) or
8(b), the Company shall also utilize its best efforts to comply with such state
securities laws, if
any, as are applicable to any such registration; provided, however, that it
shall not be required
to give a general consent to the service of process or to qualify as a foreign
corporation or
subject itself to taxation as doing business in any such state.
Registration Obligations. The
Company will deliver to
the holders of Warrant Stock so registered, after the effectiveness of any
registration statement
filed pursuant to this Section 8, such reasonable number of copies of any
preliminary and final
prospectus included in such registration statement and of any revised or
supplemental prospectus
filed and such other reports and documents as such holders may from time to
time reasonably
request. The Company agrees that it shall keep effective any registration
statement filed
pursuant to subsection 8(a) or subsection 8(b) above during the period
commencing on the initial
effective date of such registration statement and ending on the earliest to
occur of (i) the date
on which updated financial statements of the Company would be required to be
filed with the
Securities and Exchange Commission in a post-effective amendment to such
registration
statement, (ii) the completion of the sale of the Warrant Stock registered
under such registration
statement, or (iii) the date which is nine months from the initial effective
date of such registration
statement. After such period, the Company may withdraw such Warrant Stock
from registration
and shall not be liable to any holder of Warrant Stock for any losses caused by
such withdrawal.
<PAGE>
In the case of each registration, qualification or
compliance effected by
the Company pursuant to this Section 8, the Company will keep each holder of
Warrant Stock
which is the subject of such registration, qualification or compliance, advised
in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof.
Expenses of Demand and Optional
Registration. In the
case of any registration pursuant to subsection 8(a) and the first registration
pursuant to
subsection 8(b) hereof, the Company shall pay all of the expenses in connection
therewith,
including, without limitation, costs of complying with federal and state
securities laws and
regulations, accounting and legal fees and expenses of the Company and legal
fees and expenses
in connection with blue sky matters, printing expenses and filing fees, but s
hall not be responsible
for the payment of any transfer taxes, underwriting commissions and discounts
in respect of the
Warrant Stock, legal fees and expenses for counsel to the registered holders
and other expenses
of the registered holders. All expenses incurred in connection with the second
and any
subsequent registration pursuant to subsection 8(b) hereof including, without
limitation, all
registration and qualification fees, underwriter's discounts and commissions,
costs of complying
with Regulatory Requirements, printing expenses and filing fees, accounting and
legal fees and
expenses of the Company, and the fees and expenses of counsel for the selling
holders of
Warrant Stock shall be borne by such holders in proportion to the am
ount of Warrant Stock sold
by each such holder.
Indemnity. In connection with
any registration statement
which pursuant to this Section 8 includes any Warrant Stock, the Company will
indemnify and
hold harmless each holder of Warrant Stock and each underwriter of
Warrant Stock being sold
<PAGE>
by any such holder (and will indemnify and hold harmless any person who
controls such holder
or underwriter within the meaning of Section 15 of the 1933 Act) against and
in respect of any
and all claims, losses, damages, liabilities and expenses, joint or several,
(including, without
limitation, legal or other expenses reasonably incurred by each such holder in
connection with
investigating or defending any such loss, claim, damage, liability or action)
resulting from any
untrue statement or alleged untrue statement of any material fact contained in
such registration
statement or prospectus or from any omission or alleged omission to state
therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except
insofar as the same may have been based upon information furnished in writing
to the Company
by such holder or underwriter or any controlling person thereof expressly for
inclusion in such
registration statement or prospectus and is used in conformity with such
writing.
In connection with any registration statement which pursuant
to this Section 8
includes any Warrant Stock, each holder of any Warrant Stock (the
"Indemnifying Holder")
agrees to indemnify and hold harmless the Company, its directors and its
officer and such
persons, if any, who control the Company within the meaning of the 1933 Act
against and in
respect of any and all claims, losses, damages, liabilities and expenses, joint
or several (including,
without limitation, legal or other expenses incurred by any of them in
connection with
investigating or defending any such claim, loss, damage, liability or action),
to which the
Company or any such person may become subject under the 1933 Act or otherwise
insofar as
such claims, losses, damages, liabilities or expenses (or actions with respect
thereto) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact
contained in such registration statement or prospectus or from any omission or
alleged omission
<PAGE>
to state therein a material fact relating to the Indemnifying Holder required
to be stated therein
or necessary to make the statements therein not misleading, but only to the
extent that any such
untrue statement or omission is based upon information furnished in writing to
the Company by
such Indemnifying Holder or any of its authorized representatives for inclusion
in such
registration statement or prospectus.
If the indemnification provided for in this subsection (h)
from the indemnifying
party is unavailable to an indemnified party hereunder in respect of any
losses, claims, damages,
liabilities or expenses which are indemnified hereunder, then the indemnifying
party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified
parties in connection with the actions which resulted in such losses, claims,
damages, liabilities
or expenses, as well as any other relevant equitable considerations. The
relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other
things, whether any action in question, including any untrue or alleged untrue
statement of a
material fact or omission or alleged omission to state a material fact, has
been made by, or relates
to information supplied by, such indemnifying party or indemnified parties,
and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages,
liabilities and expenses referred to above shall be deemed to include any legal
or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
<PAGE>
The parties hereto agree that it would not be just and
equitable if contribution
pursuant to the immediately preceding paragraph were determined by pro rata
allocation or by
any other method of allocation which does not take account of the equitable
considerations
referred to in the immediately preceding paragraph. No party guilty of
fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to
contribution from any party which was not guilty of such fraudulent
misrepresentation.
Defense of Claims. Any
party(ies) seeking
indemnification (the "Indemnitee") shall give prompt written notice to the
party(ies) from whom
it is seeking indemnification (the "Indemnitor") of any claim by the Indemnitee
against the
Indemnitor based on the indemnities contained in Section 8(g) hereof, or any
claim against the
Indemnitee, which might give rise to a claim based on the aforesaid
indemnities. The notice shall
set forth in reasonable detail the nature and basis of the claim and the actual
or estimated amount
thereof. Failure by the Indemnitee to give the Indemnitor prompt written
notice of any such
claim shall not release the Indemnitor from liability with respect thereto
unless such failure to
give notice has a materially adverse effect on the Indemnitor's ability to
defend such claim.
Prompt written notice shall mean within (3) days after the Indemnitee receives
notice of the claim
from the person asserting such claim. The Indemnitee shall permit the
Indemnitor a reasonable
opportunity to assume the defense, settlement or compromise (herein called
"defense" or
"defend"), of any such claim. Failure by the Indemnitor to notify the
Indemnitee of its election
to defend within thirty (30) days after such notice thereof shall have been
given shall be deemed
a waiver by the Indemnitor of its right to defend any such claim. If the
Indemnitor elects to
defend such claim, it shall do so at its own expense and with counsel
reasonably acceptable to
<PAGE>
the Indemnitee and the Indemnitee shall have the right to participate, at its
own expense and with
counsel of its choosing, in the defense of any such claim and it shall be kept
fully informed with
respect thereto. The Indemnitee shall not make any settlement of any claim
which might give rise
to liability of the Indemnitor without the prior written consent of the
Indemnitor, which consent
shall not be unreasonably withheld. The Indemnitor will not agree to any
settlement of any
indemnified claim pursuant to this subsection 8(h) unless such settlement
expressly releases the
Indemnitee from any further liability or responsibility with respect to any
action, suit or
proceeding and the underlying claim. Any registered holder of Warrant Stock
involved in such
action, suit or proceeding shall make available to the Company, its attorneys
and accountants,
all of its books and records relating to any such action, suit or proceeding,
and the Company
shall make available to any such registered holder, its attorneys and
accountants, all books and
records of the Company relating to any such action, suit or proceeding, as the
case may be. In
connection with any such action, suit or proceeding such registered holder and
the Company
shall render to each other such assistance as may reasonably be required in
order to ensure the
proper and adequate defense of any such action, suit or proceeding.
Information to be Furnished to
the Company. Each
holder of any Warrant Stock, by acceptance thereof, agrees to furnish to the
Company such
information and material concerning such holder as may be reasonably requested
by the
Company or its counsel in connection with any registration or qualification of
shares of Warrant
Stock proposed to be made by the Company pursuant to this Section 8, and
further agrees to
take all reasonable steps to comply with the 1933 Act and the applicable rules
and regulations
thereunder and with the securities laws of the states in which any such public
offering is made.
<PAGE>
Termination of Registration
Obligations. If the Company shall receive a "no-action" letter from the staff
of the Securities and
Exchange Commission or shall receive an opinion or opinions of its counsel to
the effect that the
Warrant Stock owned by a particular holder or a proposed disposition by such
party is not
required to be registered under the 1933 Act or any other applicable Regulatory
Requirements,
the provisions of this Section 8 shall be terminated with respect to such
particular Warrant Stock,
provided that (i) the restrictions imposed by Section 4 hereof shall terminate
as to this Warrant
and the Warrant Stock and the holder hereof shall be entitled to receive from
the Company, at
the expense of the Company, certificates representing the shares of the Warrant
Stock or
certificates evidencing Warrant Stock without the restrictive legend referred
to in Section 4
hereof, and (ii) such opinion of counsel shall be reasonably satisfactory to
the holders of a
majority of the Warrants or the Warrant Stock; provided further, that if such
"no-action" letter
or such opinion relates to a particular disposition of Warrant Stock, the
provisions of this Section
8 shall be applicable to such Warrant Stock and any holder thereof until final
consummation of
such disposition and if such "no-action" letter or opinion is terminated
expressly or impliedly or
subject to any condition, the Company will comply promptly with any such
condition as is
applicable to it and within its control, and the provisions of this Section 8
will be applicable to
such Warrant Stock and to any holder thereof if the terms of such "no-action"
letter or opinion
terminate or the conditions thereof are not met.
Notices. All notices and other communications from the
Company to the holder
of this Warrant shall be deemed validly given, made or served if in writing
and delivered (as of
such delivery) or sent by certified mail (as of three days after deposit in a
United States post
<PAGE>
office), postage prepaid, return receipt requested, or by facsimile or
overnight courier service,
charges prepaid (as of the date of confirmation of receipt), to the address or
telecopy number
furnished to the Company in writing by the last holder of this Warrant who
shall have furnished
an address or telecopy number to the Company in writing.
Change; Waiver. Neither this Warrant nor any term hereof
may be changed,
waived, discharged or terminated orally but only by an instrument in writing
signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
No Rights or Liability as a Shareholder. This Warrant does
not entitle the
holder hereof to any voting rights or other rights as a shareholder of the
Company. No provision
hereof, in the absence of affirmative action by the holder hereof to purchase
Common Stock, and
no enumeration herein of the rights or privileges of the holder hereof shall
give rise to any
liability of such holder as a shareholder of the Company.
Certain Information as to the Company. Promptly after the
same become
publicly available, the Company shall deliver to the holder of this Warrant
copies of such annual,
periodic and other reports, and such proxy statements and other information,
as shall be filed by
the Company with the Securities and Exchange Commission pursuant to the
requirements of theSecurities Exchange Act of 1934, as amended.
Headings. The headings in this Warrant are for purposes of
convenience in
reference only and shall not be deemed to constitute a part hereof or to affect
the interpretation
of any provision of this Warrant.
<PAGE>
Law Governing. This Warrant shall be construed and
enforced in accordance
with and shall be governed by the laws of the State of New York.
ARTHUR TREACHER'S, INC.
By:___________________
Name:
Title:
Attest:
_____________________________
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by
this Warrant Certificate, to purchase __________ shares of Common Stock and
herewith tenders
in payment for such securities a certified or official bank check payable in
New York Clearing
House Funds to the order of ARTHUR TREACHER'S, INC. in the amount of
$__________,
all in accordance with the terms of the Warrant Certificate No. ___ dated as
of ________ __,
1996 issued by ARTHUR TREACHER'S, INC. The undersigned requests that a
certificate for
such securities be registered in the name of __________ whose address is
__________ and that
such Certificate be delivered to __________ whose address is __________.
Dated:
Signature
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
(Insert Social Security or Other Identifying Number of
Holder)
<PAGE>
EXHIBIT 10.3 Purchase Agreement dated
November 27, 1996 between M.I.E. and Registrant
<PAGE>
PURCHASE AGREEMENT
AGREEMENT made as of the 27th day of November, 1996, by and
among Arthur
Treacher's, Inc., a corporation duly organized, validly existing and in good
standing under and by virtue
of the laws of the State of Utah, with executive offices at 7400 Baymeadows
Way, Suite 300,
Jacksonville, Florida 32255 (hereinafter referred to as the "Buyer"), and the
individuals and entities set
forth on Schedule 1(b) attached hereto (hereinafter referred to as the
"Sellers").
INTRODUCTION
A. The Sellers own one hundred percent (100%) of the
presently issued and
outstanding shares of capital stock (hereinafter referred to as the
"Company Stock") of M.I.E.
Hospitality, Inc., a corporation duly organized, validly existing and in good
standing under and by virtue
of the laws of the State of Pennsylvania, with executive offices at 480 W.
Fifth Street, Bloomsburg,
Pennsylvania 17815 ("M.I.E." or the "Company").
B. The Sellers are willing to sell the Company Stock to
Buyer, and Buyer is willing
to purchase the Company Stock from Sellers, for a purchase price of One Million
Six Hundred Thirty-
One Thousand Five Hundred Sixty Three Dollars ($1,631,563) in cash, subject to
the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the promises and
the mutual covenants
herein contained, the sufficiency of which is hereby acknowledged, the parties
intending to be legally
bound do hereby agree as follows:
1. Purchase of Stock and Consideration.
(a) Purchase and Sale of Stock. In reliance on
the representations and
warranties, and subject to the terms and conditions hereinafter set forth, the
Sellers shall sell and deliver
<PAGE>
to Buyer, and the Buyer shall purchase and take delivery from Sellers, on the
Closing Date (as
hereinafter defined), all of the Company Stock owned by the Sellers. Each
certificate representing the
Company Stock shall be duly endorsed for transfer or accompanied by an
appropriate instrument of
transfer duly executed.
(b) Purchase Price. Subject to the adjustment
at Closing in accordance with
Section 1(c) below, the Purchase Price for the Company Stock shall be One
Million Six Hundred Thirty
One Thousand Five Hundred Sixty Three Dollars ($1,631,563), of which One
Million Three Hundred
Eighty One Thousand Five Hundred and Sixty Three Dollars ($1,381,563) which
shall be paid by
certified or bank cashier's check or wire transfer on the closing date (the
"Closing Date") to the order
of each of the Sellers in proportion to their ownership of the Company Stock,
as set forth on Schedule
1(b) attached hereto (the"Sellers Distribution Schedule") in accordance with
the instructions set forth
on the Sellers Distribution Schedule and (ii) $250,000 which shall be paid by
certified or bank cashier's
check or wire transfer on the Closing Date to Brown Brothers Harriman (the
"Escrow Agent") in
accordance with Section 7.
(c) Additional Investment. Subject to
adjustment at Closing as set forth
below, on the Closing Date, Buyer agrees to invest $618,437 (the "Investment")
into M.I.E. which
amount shall be for the repayment at Closing of a portion of the indebtedness
owed to Magee Industrial
Enterprises, Inc. ("Magee") by M.I.E. (such portion of the total indebtedness
referred to herein as the
"Target Intercompany Debt"). The parties acknowledge and agree that the Target
Intercompany Debt
shall be equal to the dollar amount at Closing by which the total amount of
indebtedness of M.I.E. to
Magee on the M.I.E. books exceeds $1,091,563 (the "Remaining Debt").
Buyer agrees that in the event
that as of the Closing Date the amount of the Target Intercompany Debt is other
than $618,437 the
amount of the Purchase Price and Investment shall each be adjusted so that the
total cash paid by the
<PAGE>
Buyer at Closing, in the aggregate, for the Investment and the Purchase Price,
equals $2,250,000, as
follows:
(1) in the event that on the Closing
Date the Target Intercompany Debt is
greater than $618,437, then the amount of the Purchase Price shall be
decreased, and the amount of the
Investment shall be increased, by the dollar amount by which the Target
Intercompany Debt exceeds
$618,437; and
(2) in the event that on the Closing
Date the Target Intercompany Debt is less
than $618,437, then the amount of the Purchase Price shall be increased, and
the amount of the
Investment shall be decreased, by the dollar amount by which the $618,437
exceeds the Target
Intercompany Debt. On or before Closing, Company shall send written notice to
Buyer confirming the
amount at Closing of the Target Intercompany Debt. The Remaining Debt owed by
M.I.E. to Magee
shall be evidenced by a promissory note to be delivered by Company to Magee at
Closing in accordance
with Section 1(d) below.
(d) Conversion of Debt. On the Closing Date,
M.I.E. shall deliver a
promissory note to Magee in the principal amount of the sum of the Remaining
Debt and $48,000 (the
"M.I.E. Note"). The principal amount of the M.I.E. Note shall be payable in
10 equal semiannual
installments, with the first payment being due 18 months after the Closing Date
and the final payment
being due on the sixth anniversary of such date. The principal amount of the
promissory note shall bear
interest at the rate of eight percent (8%) per annum and interest shall be
payable every six months from
the Closing Date. In the event of a closing of (i) any debt or equity
financing, or series of financings, by
the Company or Buyer for gross proceeds in excess of (A) $15,000,000 in the
aggregate, (other than any
purchase money financing in connection with the acquisition of any assets) or
(B) $10,000,000, in the
aggregate, provided that the debt or equity financing which results in equaling
or exceeding the aggregate
<PAGE>
gross proceeds of $10,000,000 is a financing for gross proceeds of a minimum of
$5,000,000 (other than
any purchase money financing in connection with the acquisition of any assets),
or (ii) the sale of all or
substantially all of the capital stock or assets of the Company or Buyer, the
balance of all outstanding
principal and interest under the promissory note shall be prepaid in full by
the Company. In the event
that the Buyer or Company or any affiliate receives cash from the sale, or
series of sales, of any interest
in Company assets owned by the Company at the Closing Date, including, but not
limited to franchise
rights, for an amount in excess of $1,000,000, then 30% of the amount of cash
received by the Buyer
or the Company in consideration for the sale of such assets in excess of
$1,000,000 shall be used to
prepay the principal then remaining due under the M.I.E. Note, which payment
shall be applied to the
first payment of principal then remaining due, then to each successive payment
of principal then
remaining due and then to accrued interest. The Buyer shall guaranty all of
the Company's obligations
under the M.I.E. Note pursuant to a guaranty to be delivered to the Sellers at
Closing (the "Buyer
Guaranty"). The forms of the M.I.E. Note and Buyer Guaranty are attached hereto
as Exhibits A and B,
respectively.
(e) Transfer of Stock and Company Payment to Magee.
On or before the Closing
Date, M.I.E. shall transfer 490,000 shares of Series B Preferred Stock of the
Buyer owned by M.I.E. (the
"Relevant Preferred Stock") to Magee, which stock is convertible into 765,625
shares of Common Stock
of the Buyer, the consent to such transfer the Company and Buyer hereby
acknowledges. The Buyer
agrees to pay Magee an amount equal to the accrued dividend on the Series B
Preferred Stock of
$390,417, the adjusted accrued dividend amount through November 30, 1996 in
full on September 1,
1998, in accordance with the terms of the promissory note (the "Buyer Note")
attached hereto as Exhibit
C. Such obligation shall not bear interest (except as otherwise provided in
the Buyer Note) and no
dividends shall accumulate on such Preferred Stock after November 30, 1996.
The Sellers, Company
<PAGE>
and Buyer acknowledge that (i) commencing six months from the Closing Date, the
Buyer can require
the then holder of the Relevant Preferred Stock to convert such preferred stock
into 765,625 shares of
Common Stock of Buyer for no additional consideration, and (ii) at any time
after Closing, the holder
of the Relevant Preferred Stock may convert such preferred stock into 765,625
shares of Common Stock
of Buyer for no additional consideration.
2. Representations and Warrants of the Company and the
Sellers. Subject to
the provisions of Section 7(e), below, the Company and the Sellers jointly and
severally represent,
warrant and agree as follows:
(a) Corporate.
(1) M.I.E. is a corporation duly
organized, validly existing and in good
standing under and by virtue of the laws of the State of Pennsylvania. The
Company is qualified to do
business as a foreign corporation in such other states in which the ownership
of its assets or the nature
and conduct of its businesses requires such qualification and which are set
forth in Schedule "2(a)(1)"
previously delivered to Buyer.
(2) The Company has the power to own
its property and to carry on its
business as and where such are now conducted. Except for the Relevant
Preferred Stock, the Company
does not have any equity interest in any other corporation, partnership,
joint venture or association or
control, directly or indirectly, of any other entity.
(3) The authorized capital stock of
M.I.E. (the "Company Capital Stock")
consists of 850,000 shares of non-voting common stock, par value $0.01 per
share, of which
780,152.260 shares of non-voting common stock are presently outstanding and 12
shares of voting
common stock, par value $0.01 per share, of which 11.650 are issued and
outstanding. The issued and
outstanding shares of the Company's voting common stock and non-voting common
stock are as stated
<PAGE>
in Schedule 2(a) (the "Company's Outstanding Capital Stock"). Each of the
Sellers owns, beneficially
and of record, the shares of the Company's Outstanding Capital Stock set forth
beside their respective
names on Schedule 1(b), free and clear of all liens, claims, charges, security
interests and encumbrances
("Free and Clear Title"). Except as set forth on Schedule 2(a), no shares of
the Company's Outstanding
Capital Stock are held in its treasury. The Company's Outstanding Capital
Stock has been duly
authorized and validly issued and is fully paid and nonassessable; with no
liability on the part of the
holders thereof. Except as set forth on Schedule 2(a), there are no preemptive
rights on the part of any
holder of any class of securities of the Company and no options, warrants,
conversion or other rights,
agreements or commitments of any kind obligating the Company, contingently or
otherwise, to issue or
sell any shares of its capital stock of any class or any securities convertible
into or exchangeable for any
such shares and no authorization therefor has been given.
(4) The copy of the Articles of
Incorporation certified by the Secretary of the
Commonwealth of Pennsylvania on or about November 7, 1996 as being a true and
current copy of the
Articles of Incorporation and all amendments thereto as of this date, and its
By-Laws, and lists of officers
and directors of the Company previously delivered by the Sellers to Buyer, are
true and correct copies
as of the date hereof.
(5) This Agreement and the other
documents contemplated or referenced
under this Agreement (the "Transaction Documents") to which Sellers are parties
have been duly
executed and delivered by the Sellers and constitute the legal, valid and
binding obligation of the Sellers,
enforceable in accordance with their terms, except as may be limited by
(i) bankruptcy, insolvency,
reorganization, moratorium or laws affecting the rights and remedies of
creditors generally, and (ii) the
availability of the remedy of specific performance, injunctive relief or other
equitable relief, whether
<PAGE>
applicable applied by a court of law or equity, including the exercise of
judicial discretion in accordance
with general principles of equity.
(b) Financial.
(1) The unaudited balance sheet of the
Company as of December 31, 1995,
the related unaudited statement of earnings for the twelve months ended
December 31, 1995, and the
unaudited balance sheet as of September 29, 1996 and the related statement of
earnings for the nine
months then ended prepared by the Company, labeled Exhibit "2(b)" and
previously delivered to Buyer,
are materially complete and correct and present fairly the financial condition
of the Company as of
December 31, 1995 and September 29, 1996, and with respect to the statement of
earnings the results
of its operations for the periods then ended, in conformity with accounting
principles applied on a basis
consistent with that of preceding periods, and the application of such
principles has been consistent with
generally accepted accounting principles except as set forth on Schedule 2(b)
(the "Company's
Accounting Principles").
(2) Since September 29, 1996, except as
specified in Schedule 2(b), the
business of the Company has been carried on in the ordinary course in
substantially the same manner as
prior to that date, and the Company has not:
(i) undergone any material
adverse change in the financial condition
of the Company from that shown on the unaudited financial statements as of
September 29, 1996
referred to in subsection (b)(1) of this Section 2, or disclosed on Schedule
2(b), including, but not limited
to, any reduction in excess of $20,000 in the Company's cash or cash
equivalents, it being understood
that changes in the financial condition after September 29, 1996 until Closing
will not be considered
materially adverse to the extent that an audit of the Company's books and
records to be conducted by
the Buyer's independent certified accountants after Closing, applying the
Company's Accounting
<PAGE>
Principles, concludes that the Effective Date Working Capital is no less than
$216,000 as shall be
determined in accordance with the provisions of Section 12(i) below, subject to
(A) the remedies
available to Buyer and Sellers and to (B) Sellers' and Buyer's obligations as
described at Section 12(i)
below.
(ii) sustained any damages,
destruction or loss, whether covered by
insurance or not, which in the aggregate materially and adversely affecting the
business, property or
assets of the Company;
(iii) made any declaration,
setting aside or payment of any dividend,
or any distribution with respect to the capital stock of the Company or any
direct or indirect redemption,
purchase or other acquisition by the Company of any such stock;
(iv) made any increase in the
compensation payable or to become
payable by the Company to directors, officers or employees other than as
mandated by law with respect
to minimum wages, or in the payment of any bonus, or in any insurance, pension
or other benefit plan,
payment or arrangement made to, for or with any of such officers, employees or
agents; or
(v) encountered any other event or
condition of any character, not in the
ordinary course of business, that in the aggregate materially and adversely
affecting the results of
operations or business or financial condition of the Company.
(c) Undisclosed Liabilities.
(1) To the best of Sellers' knowledge,
the Company has no liabilities or
obligations, either accrued, absolute, contingent or otherwise, except:
(i) to the extent reflected or
reserved against in the financial statements
referred to in subsection (b)(1) of this Section 2, and not heretofore paid or
discharged;
<PAGE>
(ii) to the extent specifically
set forth in any of the Schedules, including
Schedule 2(c), delivered to Buyer or elsewhere in this Agreement; and
(iii) those incurred in or as a
result of the normal and ordinary course
of business since September 29, 1996, all of which have been consistent with
past practices and none of
which in the aggregate are material and adverse.
(d) Tax Returns.
Except as otherwise described on attached
Schedule 2(d):
(1) The Company has filed with the
appropriate governmental agencies all the
returns required to be filed by it or with respect to its business and has
paid, or made provision for the
payment of, all taxes as well as penalties and interest related thereto,
if any, which have or may become
due pursuant to said returns, except taxes which have not yet accrued or
otherwise become due or for
which adequate provision has been made on the books of the Company.
(2) None of such returns has been
examined and settled, and no waivers of
statutes of limitation have been given or requested.
(3) All such returns and reports have
been prepared on the same basis as those
of previous years, and all federal, state, city and foreign income, profits,
franchise, sales, use, occupation,
property, excise or other taxes due in connection with the Company's
business has been fully paid or
accrued or adequately reserved for in the financial statements referred to in
subsection (b)(1) of this
Section 2 of the Agreement.
(4) No deficiency or assessment with
respect to or proposed adjustment of
the Company's Federal, state, county or local taxes are pending or, to the
best of the Company's
knowledge, threatened. There are no tax liens, whether imposed by any Federal,
state, county or local
taxing authority, outstanding against the assets, properties or businesses of
the Company.
<PAGE>
(e) Title to Property.
(1) A list of all real and personal
property owned by the Company is set forth
on Schedule 2(e) attached hereto (hereinafter referred to as the "Assets").
The Company owns all right,
title and interest in and to all of its respective properties and assets,
including intangibles, free and clear
of all mortgages, liens, pledges, charges or encumbrances of any nature
whatsoever, except as set forth
in Schedule 2(e) previously delivered to Buyer.
(2) The Company does not lease any
real or personal property as lessee,
except as set forth in Schedule 2(e), attached hereto. Each of these leases
(the "Leases") are in good
standing, valid, binding, and in full force and effect and have not been
modified. To the best of Sellers'
knowledge, M.I.E. is not in default under any of the Leases and M.I.E.
has not received any notice of
its default under any of the Leases and the Company has not given any notice of
any default by any otherparty under any of the Leases, nor, to the best of
Sellers' knowledge, has any event occurred which, with
notice or the passage of time, or both, would constitute a default by it or any
other party under any of
the Leases. With respect to any Leases regarding which Company has received an
estoppel certificate
before or after Closing that satisfies the closing condition at Section 8(a)
(8), below, the parties
acknowledge and agree that Buyer shall make no claim for indemnification
relating to any breach of the
representation and warranty in the foregoing sentence or similar
representation or warranty in this
Section 2 (to the extent the landlord under such Lease is estopped from
asserting its rights with respect
thereto in accordance with such estoppel certificate) unless prior to receipt
of any such estoppel
certificate under any Lease Company had received written notice of a default
under such lease that
remains uncured. Except as set forth on Schedule 2(e), to the best of Sellers'
knowledge, the Company's
rights in the property covered under the Leases (including any improvements and
appurtenances thereto)
are paramount to the rights of any other person or entity other than the
landlords under the leases. The
<PAGE>
Company has received no notices other than periodic rent, common area
maintenance and other operating
expense bills from the landlord under each lease and as included in the
Company's leases file given to
Buyer for Buyer's review, it being understood that any such notices for
payments that are not yet due,
including periodic notices for adjustments for any such charges (which in the
past has resulted in positive
or negative adjustment payments made or received by Company) shall be the sole
obligation of Company
with no further liability on behalf of, and no claim for reimbursement that
can be made against, the
Sellers. No consent or approval of any third party is required with respect
to the Leases has not yet been
obtained, including certain leases previously identified to Sellers by Buyer
(the "Identified Leases"), in
order to avoid a default thereunder by reason of the transactions contemplated
by this Agreement, except
as set forth on Schedule 2(e).
(3) To the best of Sellers' knowledge,
except as set forth on Schedule 2(e),
all personal property in which the Company has an ownership or leasehold
interest is in all material
respects in good operating condition and repair and in all material
respects conform to all applicable
laws, including without limitation building and zoning laws, statutes,
ordinances or regulations and no
notice of any violation of such matters relating to the business,
property or assets of the Company has
been received by the Company. Except as set forth on Schedule 2(e),
none of the premises owned or
leased by the Company are in need of maintenance or repairs except for
reasonable wear and tear and
ordinary routine maintenance and repairs that are not material in
nature or cost.
(4) Neither the whole nor any
portion of any of the Assets has been
condemned or otherwise taken by a public authority, nor do the Sellers know
or have any reasonable
grounds to believe that any such condemnation or taking is threatened or
contemplated.
(f) The inventories of the Company existing
on the Closing Date, consist of
items of a quality and quantity usable or saleable in the normal course
of its business, subject to usability
<PAGE>
and salability exceptions described on attached Schedule 2(f) which are
consistent with past business
experience. The present inventories of the Company are maintained at levels
that are consistent with past
practices to this point of the fiscal year.
(gContracts and Commitments.
Except as set forth on attached Schedule
2(g):
(1) The Company has no written or oral
contracts or commitments involving
a consideration in excess of $5,000.
(2) The Company has received no written
notice under any service warranties,
whether express or implied, by the customers of the Company.
(3) The Company has not given any
revocable or irrevocable power of
attorney to any person, firm or corporation for any purpose whatsoever.
(4) To the best of Sellers'
knowledge, the Company is not restricted by
agreement from carrying on its business anywhere in the states of
Pennsylvania, New York, New Jersey
and Delaware (it being understood that Company is not the sole and
exclusive franchisee in the above-
referenced states, and has previously disclosed the existence of pre-existing
franchisees therein).
(5) Set forth in Schedule 2(g)(5)
previously delivered to Buyer are all
insurance policies and bonds in force with respect to the Company and
the date on which such policies
were to be in force and the date on which such policies expire.
(6) Set forth in Schedule 2(g)(6)
previously delivered to Buyer are the names
and locations of all banks in which the Company has accounts and the names of
persons authorized to
sign checks, drafts or other instruments drawn thereon.
<PAGE>
(7) Except as set forth on Schedule
2(g)(7), no director, officer, employee or
stockholder of the Company, or member of the family of any such person,
or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such
person, has a substantial interest or is an officer, director, trustee,
partner or holder of more than 5% of
the outstanding capital stock thereof, in an entity who is a competitor,
customer, supplier or other, entity,
who, during the past 12 months has been a party to any transaction with the
Company, including any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by,
rental of real or personal property from or otherwise requiring payments to
any such person or firm,
except for indebtedness owed to and transactions (which transactions are
also set forth on Schedule
2(g)(7)) with Magee, or any of its affiliates; as of the Closing Date,
the Remaining Debt (defined at
Section 1(c), above) and all other amounts due Magee will be in the
principal amount of $1,139,563.
For the purposes hereof, a spouse, lineal descendant, parent, brother
or sister of any Seller shall be
deemed to be a member of the family of such Seller.
(8) To the best of Sellers'
knowledge, the Company is not in default, nor is
there any known basis for any claim of default, under any contracts or
commitments made or obligations
owed by it. The Company has not received any written notice of any
breach or anticipated breach by any
other party to any contract or commitment to which the Company is a party.
To the best of Sellers'
knowledge, no consent or approval of any third party is required with
respect to such contract in order
to avoid a default thereunder by reason of the transactions contemplated
by this Agreement, except as
set forth on Schedule 2(g)(8).
(9) Except as disclosed on Schedule
2(g)(9), all accounts receivable of the
Company reflected in the balance sheet as of September 29, 1996
(attached as part of Schedule "2(b)"),
except those collected since such date, and such additional accounts receivable
as are reflected on the
<PAGE>
books of the Company on the date hereof, net of applicable reserves, are
collectible in the ordinary course
based upon the best of Sellers' knowledge as of the Closing Date.
Schedule 2(g)(9) previously delivered
to Buyer is an aging Schedule with respect to such accounts receivable,
as of the date thereof.
(h) Disclosure. No representation or warranty
by the Company or the Sellers
in this Agreement, nor any statement, certificate or Schedule furnished,
or to be furnished, by or on
behalf of the Company or the Sellers pursuant to this Agreement,
nor any document or certificate
delivered to Buyer pursuant to this Agreement, contains or shall
contain any untrue statement of a
material fact, or omits, or shall omit to state a material fact
necessary to make the statements contained
therein not materially misleading.
(i) Employee Relations.
(1) The Sellers have heretofore
furnished to Buyer a true and complete payroll
roster (Schedule 2(i)) of all employees of the Company for the nine months
of 1996 showing the rate of
pay for each such person entitled to receive compensation from the Company,
and the gross payments
made to each such person for the periods set forth above.
No increases in such salaries, other than as
set forth on Schedule 2(i), or the increase in federal minimum wage,
have been given since September
29, 1996.
(2) (i) The Company is not a party to
any collective bargaining agreement
covering or relating to any of its employees except as set forth in Schedule
2(i), previously delivered to
Buyer. The Company is not required to recognize and have not received a
written demand for
recognition by any collective bargaining representative.
(ii) The Company is not a
party to any contract with any of its
employees, agents, consultants, officers, salesmen, sales representatives,
distributors or dealers that is
<PAGE>
not cancelable by the Company without penalty or premium on not more than
thirty days' notice, except
as set forth in Schedule 2(i) attached hereto; and
(iii) The Company has not
promulgated any policy or entered into any
agreements relating to the payment of severance pay to employees whose
employment is terminated or
suspended, voluntarily or otherwise.
(3) Except as set forth in the
Schedule 2(i) attached hereto, to the best of
Sellers' knowledge:
(i) The Company has complied in
all material respects with all applicable
laws, rules or regulations relating to employment, including those relating
to wages, hours, collective
bargaining and the withholding and payment of taxes and contributions, and
(ii) the Company has
complied in all material respects with the National Labor Relations Act, as
amended, Title VII of the Civil
Rights Act of 1964, as amended, the Occupational Safety and Health Act,
Executive Order 11246, the
regulations under such acts and all other Federal and state laws applicable
to the Company relating to
the employment of labor, including any provisions thereof relating to
discrimination or harassment. The
Company has, and will have at the Closing Date, withheld all amounts
required by law or agreement to
be withheld from the wages or salaries of its employees and there are
no arrearages of wages, payments
under any pension or insurance plan or any other benefit, or any tax or
penalty for failure to comply with
the foregoing owed by all of them with respect to employees which are not
either accrued or adequately
reserved for in the financial statements referred to in Subsection 2(b)(i)
of this Agreement. Except as
may be referenced in the Schedules to this Agreement, the Company has not
received any written notice
of any material controversies pending or threatened, between the Company
and any of its employees or
any labor unions or other collective bargaining agents representing or
purporting to represent its
employees.
<PAGE>
(4) The Company has not promulgated
any profit-sharing, retirement, stock
purchase, deferred compensation or other similar plan providing benefits
for its employees and the
Company has not announced the prospective promulgation thereof except
as set forth in Schedule 2(i).
There is no unfunded past service credit liability or any other liability
with respect to any such plans other
than as set forth on Schedule 2(i). No reportable event as defined in Title
IV of the Employee Retirement
Income Security Act of 1974, as amended by the Multiemployer Pension
Plan Amendments Act of 1980,
has occurred with respect to any such plan subject to the minimum
funding requirement of Section 412
of the Internal Revenue Code of 1954.
(j) No Breach of Statute or Contract. To
the best of Sellers' knowledge, neither
the execution and delivery of this Agreement, nor compliance with the terms
and provisions of this
Agreement on the part of the Company or the Sellers, will (i) violate any
statute, license, or regulation
of any governmental authority, domestic or foreign, or (ii) result in the
default by the Company or any
of the Sellers of any judgment, order, writ, decree, rule or regulation of
any court or administrative
agency, or (iii) breach, conflict with, or result in a breach of any of the
terms, conditions or provisions
of any material agreement or instrument to which either the Company or
the Sellers is a party, or by
which any of them is or may be bound, or (iv) constitute a default thereunder,
or (v) result in the creation
or imposition of any claim, lien, charge or encumbrance of any nature
whatsoever upon, or (vi) give to
others any claim, interest or rights, including rights of termination or
cancellation in, or with respect to,
any of their property, assets, contracts, licenses or businesses.
The Company has not received written
notice alleging that the conduct of its business violates any law or
regulation applicable to such business,
except as otherwise set forth in the Schedules attached hereto.
To the best of Sellers' knowledge, the
conduct of the Company's business does not violate any law or
regulation applicable to such business.
To the best of Sellers' knowledge, the Company has complied with all laws,
rules, regulations and orders
<PAGE>
applicable to its business, operations, properties, assets, products and
services, and the Company has all
necessary permits, licenses and other authorizations required to conduct
its business as conducted and
as proposed to be conducted. To the best of Seller' knowledge, there is
no existing law, rule, regulation
or order, whether Federal or state, which would prohibit or materially
restrict the Company from, or
otherwise materially adversely affect the Company in, conducting its business
in any jurisdiction in which
it is now conducting business.
(k) No Litigation. Except as set forth in
Schedule 2(k) previously delivered
to Buyer, the Company has received no written notice of any, action or legal,
administrative, arbitration
or other proceeding or governmental investigation, or any change in the zoning
or building ordinances
affecting the real property or leasehold interests of the Company, pending or
threatened against the
Company. The Company is not in default with respect to any order, writ,
injunction or decree known
to or served upon the Company of any court or of any Federal, state, municipal
or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. There is no
action or suit by the Company pending or threatened against others.
(l) Patents and Trademarks. Schedule 2(l)
previously delivered to Buyer
correctly sets forth a list of all letters patent, patent applications,
inventions upon which patent
applications have not yet been filed, trade names, trademarks, trademark
registrations and applications,
copyrights, copyright registrations and applications, both domestic and
foreign, presently owned,
possessed, used or held by the Company and, except for licenses from the
Buyer or unless otherwise
indicated in such Schedule, the Company owns the entire right, title and
interest in and to the same. Such
Schedule also correctly sets forth all patents, patent applications,
inventions upon which patent
applications have not yet been filed, trade names, trademarks, trademark
registration and applications,
and licenses, both domestic and foreign, which materially relate to the
business of the Company, and
<PAGE>
which are owned or controlled by any director, officer, stockholder or employee
of the Company. Such
Schedule also correctly sets forth a list of all licenses materially relating
to the business of the Company
granted to the Company by others, except by the Buyer, and to others by
the Company. Company has
not received written notice of any pending or threatened challenges
regarding any letters patent, patent
applications, trade names, trademark registrations and applications,
copyrights, copyright registrations
and applications, and grants of licenses set forth in such Schedule, except as
set forth in said Schedule.
The Company has not received written notice that the conduct of its business
as heretofore carried
infringe upon the patents, trademarks, trade name rights, copyrights or
publication rights of others,
except as set forth in said Schedule
(m) Trademark Indemnification. Except as set
forth in Schedule 2(m), to
the best of Sellers' knowledge, the Company has not given any indemnification
for, patent, trademark or
copyright infringement as to any equipment, materials or supplies manufactured,
produced, used or sold
by it or with respect to services rendered by it.
(n) Absence of Undisclosed Liabilities.
xcept as otherwise disclosed in the
Schedules referenced in this Agreement, the Company has no material
liabilities, in the aggregate, of any
nature, whether accrued, absolute, contingent or otherwise (including
without limitation any affirmative
obligations under its Leases and liabilities as guarantor or otherwise not
disclosed to the Buyer pursuant
to this Agreement with respect to obligations of others, or liabilities
for taxes due or accrued or to
become due in each case to the extent not disclosed to the Buyer
pursuant to this Agreement).
(o) Insurance. The Company holds policies in
the amounts and for the
coverage set forth on Schedule 2(o), which coverage is consistent with
Company's past business
practices. Except as disclosed on the Schedules hereto, Company has
received no written notice of any
claims pending against the Company under any insurance policies currently in
effect and covering the
<PAGE>
property, business or employees of the Company, and all premiums
with respect to the policies
maintained by the Company due and payable through the date hereof have
been paid by the Company,
or on behalf of the Company.
(p) Loans and Advances. Except as set forth
on Schedule 2(p), the Company
does not have any outstanding loans or advances to any person and is not
obligated to make any such
loans or advances, except, in each case, for advances to employees of the
Company in respect of
reimbursable business expenses anticipated to be incurred by it in connection
with its performance of
services for the Company.
(q) Significant Customers and Suppliers. No
supplier to the Company of
more than $50,000 of products or services for any month during the period
covered by the Financial
Statements or thereafter, has terminated, materially reduced or provided
written notice of its intent to
terminate or materially reduce its purchases from or provision of products or
services to the Company
or any subsidiary, as the case may be.
(r)Environmental Protection.
(1) Definitions. For purposes of this
Agreement, the following terms shall
have the following meanings:
(i) "Environmental Law" means
any federal, state, provincial, foreign,
or local statute, law, rule, regulation, ordinance, code or policy having the
force of law relating to
pollution or protection of the environment or natural resources, existing
as of the Closing Date,
including, without limitation; the Comprehensive Environmental Response,
Compensation and Liability
Act, 42 U.S.C. 9601 et seq. ("CERCLA"); the Superfund Amendments and
Reauthorization Act, Public
Law 99-499, 100 Stat. 1613); Resource Conservation and Recovery
Act ("RCRA"), 42 U.S.C. 6901,
<PAGE>
et seq.; the National Environmental Policy Act, 42 U.S.C. 4321;
the Safe Drinking Water Act, 42
U.S.C. 300f et seq.; the Toxic Substances Control Act ("TSCA"), 15
U.S.C.2601 et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. 136, et seq.; the
Hazardous Materials
Transportation Act, 49 U.S.C. 1801; the Federal Water Pollution
Control Act, 33 U.S.C. 1251 et seq.;
the Occupational Safety and Health Act, 29 U.S.C. 651 et seq.; and
counterpart state and local laws;
and any regulations or orders adopted thereunder.
(ii) "Governmental Agency"
means any agency of the United States
Government, any state, or political subdivision thereof, and any entity
exercising executive, legislative,
judicial, regulatory or administrative functions of a government with
jurisdiction over the matter in
question.
(iii) "Pre-Closing Environmental
Condition" means the presence of a
Regulated Substance (other than a naturally-occurring substance or cooking oil,
fat or lard(("Cooking
Oil")) used in the ordinary course of Company's operations) on or in
environmental media at a property
(including the presence in surface water, groundwater, soils or subsurface
strata, or air) as of the Closing
Date, including the previous or subsequent migration of any such Regulated
Substance. (Pre-Closing
Environmental Condition does not include the mere presence of substances at
the property, such as parts
of building materials or equipment.)
(iv) "Regulated Substance"
means any pollutant, contaminant,
hazardous substance, hazardous material, toxic substance, toxic pollutant,
solid waste, municipal waste,
industrial waste, or hazardous waste, that is defined as such and is subject
to regulation under any
applicable Environmental Law, excluding cooking oil.
<PAGE>
(v) "Release" shall mean the
spilling, leaking, pumping, pouring,
emitting, discharging, injecting, escaping, leaching, dumping or disposal of
any Regulated Substance into
surface water, groundwater, soil, the land surface or subsurface, or
ambient air.
(vi) "Required by Law" means an
action that is specifically mandated
by an injunction, order, consent order, permit or license condition, or other
legally-binding document
issued by a government agency, or that is specifically mandated by a statute or
by an applicable regulation
or standard issued by a Governmental Agency.
(vii) "Response" or
"Response Actions" means any action taken in the
investigation, removal, confinement, remediation or cleanup of a Release
or any Environmental
Condition. "Response" and "Response Actions" include, without limitation,
any action which constitutes
a "removal" action or "remedial action" as defined by Section 101 of
CERCLA 42 U.S.C. 6901(23) and
(24), or the New Jersey Industrial Sites Recovery Act.
(viii) "Third Party" means a
person or entity other than Buyer, Buyer's
officers, directors, shareholders, or employees.
(2) Except as set forth in Schedule
2(r):
(1) The Company has
obtained or applied for all permits, licenses and
other governmental approvals (collectively, "Governmental Approvals")
which are required to be
obtained by it as of the Closing Date under applicable Environmental Laws
for the operation of the
Company's business and the ownership and use of all properties owned or
leased by the Company, the
absence of which would have a material adverse effect on such business.
To the best knowledge of the
Company and Sellers, the sale of the Company Stock will not cause the
termination or lapse of any such
Governmental Approvals, and such Governmental Approvals are either
transferrable to Buyer or, upon
appropriate application, without material cost may be reissued in Buyer's name.
<PAGE>
(ii) To the best knowledge of
the Company and Sellers, the Company
is in compliance in all material respects with all applicable Environmental
Laws, the terms and conditions
of all Governmental Approvals issued to the Company, and the terms of any
orders, decrees, or
judgments issued to the Company under such Environmental Laws.
(iii) The Company has not
received written notice of any claim from
any Governmental Agency or any third party that the Company, the Company's
Business, or any property
owned or leased by the Company are in violation of any applicable
Environmental Law, or any written
notification to the effect that the Company is or may be liable for damages,
Response or other liabilities
relating to the Release or threatened Release of any Regulated Substance
at any property currently or
previously leased, owned or operated by the Company or at any other site.
(iv) To the best knowledge of
Company and Sellers, there are no past
or present conditions, circumstances, activities, practices, incidents, or
actions, or the existence of any
Pre-Closing Environmental Condition at any property currently or
previously owned, leased or operated
by the Company, which under any Environmental Law currently in effect
(a) would interfere with or
prevent continued compliance with applicable Environmental Law;
(b) would impose or could reasonably
be expected to impose liability for a Response, damages or other claims
under Environmental Law; (c)
could have a material adverse effect on the value of
the property, the Company or the Company's
Business; or (d) could reasonably be expected to result in the imposition of a
lien on any property of the
Company.
(v) Except for permitted
discharges to sanitary or septic systems and
air emissions conducted in compliance with applicable Environmental Laws,
the Company has not
disposed, discharged or Released into the environment at any property owned,
leased or operated by the
Company any "hazardous waste," "hazardous substances" or "toxic substances"
(as those terms are
<PAGE>
defined under applicable Environmental Law). To the best knowledge of the
Company and Sellers, any
property currently or previously owned, leased or operated by the Company was
not used prior to the
Company's ownership, lease or operations, for the disposal of hazardous waste
or hazardous substances.
3. Representations and Warranties of Buyer. Buyer
represents and warrants as
follows:
(a) Organization, Power and Qualification.
Buyer is a corporation duly organized
and validly existing, and is in good standing, under the laws of the State of
Utah, has the power and
authority to own its property and to carry on its business as now being
conducted and hereafter proposed
to be conducted and is duly qualified and is in good standing as a
foreign corporation or partnership, and
authorized to do business, in all jurisdictions in which the character
of its properties and assets or the
nature of its business as now being conducted requires
such qualification or authorization.
(b) Ability to Carry Out the Agreement, Etc.
Buyer is not subject to or bound by
any provision of any certificate or articles of incorporation
or by-laws, or to the best of Buyerss
knowledge any mortgage, deed of trust, lease, note, bond,
indenture, other instrument or agreement,
license, permit, trust, custodianship, other restriction, or any
applicable provision of any law, statute, rule,
regulation, judgment, order, writ, injunction or decree of
any court, governmental body, administrative
agency or arbitrator which could prevent or be violated by
or under which there would be a default as a result of,
nor, except as expressly disclosed on the attached Schedule 3(b)
is the consent of any person
which has not been obtained required for the execution, delivery and
performance by the Buyer under
this Agreement, or any agreements, contemplated hereunder.
(c) Validity of Agreement, Authority, Etc. The
execution and delivery of, and
performance by Buyer of its obligations under the Transaction Documents,
including but not limited to
<PAGE>
the M.I.E. Note, Buyer Note, Buyer Guaranty and the Relevant Preferred Stock
Rights and Preferences,
have been duly authorized by all necessary action of Buyer, except with respect
to any shareholder action
that may be required regarding any changes to the Company's Certificate of
Incorporation regarding the
Relevant Preferred Stock Rights and Preferences. This Agreement has been, and
each other Transaction
Document has been, or will be at the Closing Date, duly executed and delivered
by Buyer and (assuming
valid execution and delivery by the other party) the Transaction Documents are,
or will be at the Closing
Date, the valid and binding obligation of it, enforceable in accordance with
their terms, except as may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium or laws
affecting the rights and
remedies of creditors generally, and (ii) the availability of the remedy of
specific performance, injunctive
relief or other equitable relief, whether applicable applied by a court of
law or equity, including the
exercise of judicial discretion in accordance with general principles of
equity.
(d) Relevant Preferred Stock.
(i) The Relevant Preferred Stock has all of
the preferences and rights set forth in
the Stock Purchase and Exchange Agreement originally entered into as of
April 18, 1989 (the "Stock
Purchase Agreement") by and between Company and Buyer, in addition to all of
the preferences and
rights set forth in Buyer's Articles of Incorporation and the Certificates of
Designations, Preferences and
Rights of 10% Cumulative Convertible Preferred Stock, Series B of Arthur
Treacher's, Inc. filed with
the Utah Department of Commerce, which rights and preferences are restated on
the attached Schedule
3(d) (the "Relevant Preferred Stock Rights and Preferences");
(ii) Pursuant to agreement with the holder of
the Relevant Preferred Stock,
(A) the unpaid cumulative cash dividends on the Relevant Preferred Stock is an
amount equal to
$390,417; and (B) 765,625 shares of the Common Stock of Buyer are issuable
upon conversion of the
Relevant Preferred Stock in accordance with this Agreement; and
<PAGE>
(iii) Buyer has at least 765,625 authorized and
unissued shares of its Common
Stock available and authorized under its Articles of Incorporation, and that
no further corporate, board
or shareholder action by Buyer, or any other third party action or consent, is
required to consummate
the conversion of the Relevant Preferred Stock as contemplated under this
Agreement.
(e) Financial Statements, Disclosures to Landlords,
Solvency. Buyer's Audited
Consolidated Financial Statements as of June 30, 1996 and 1995 and attached
hereto as Schedule 3(e),
and previously delivered to Company, present fairly the financial condition of
Buyer as of June 30, 1996,
and the results of its operations for the period then ending, in conformity
with generally accepted
accounting principles applied on a basis consistent with that of preceding
periods. Buyer is solvent, and
the entering into of this Agreement and Buyer's performance under this
Agreement and the other
Transaction Documents, shall not render Buyer insolvent as determined in
accordance with federal and
state laws governing determination of the insolvency of debtors. The
disclosures made by Buyer in the
letter and enclosures provided by Buyer or its advisors to Company for
distribution to the landlords under
the Identified Leases, and included by Company in their requests for
consents sent to said landlords on
or about November 20,1996 (the "Buyer Landlord Disclosures"),
are true and correct.
(f) Litigation. There are no judicial or
administrative actions, suits, proceedings or
investigations pending, or threatened, which question the validity
of or conflict with the terms of this
Agreement or of any action taken or to be taken pursuant to or in
connection with the provisions of this
Agreement, nor does any basis exist for any such action,
suit, proceeding or investigation.
(g) Disclosure. No representations or
warranties by the Buyer in this Agreement, nor
any statement or certificate furnished, or to be furnished,
by the Buyer pursuant to this Agreement, or
in connection with the actions contemplated hereby,
contains or shall contain any untrue statement of
<PAGE>
material facts or omit, or shall omit to state a material fact necessary to
make the statements contained
therein not misleading.
(h) Notice of Breach of Company and Notice of
Breach of Company or Sellers'
Representations and Warranties. To the best of its knowledge, Buyer (i)
has disclosed, based on its
and counsel's review of documentation it has received from Company, Sellers
or counsel, in connection
with its due diligence review of Company, any information, condition or
factor (a "Contrary Factor"),
to the extent such Contrary Factor is disclosed in such documentation
that is contrary to any of
Company's or Sellers' representations or warranties made in this Agreement or
that otherwise makes any
of the foregoing representations and warranties untrue or materially
misleading, and (ii) Buyer shall make
no claim as to any breach of any foregoing representations or warranties, or
any related claim for
indemnification, to the extent related to or arising from any such
Contrary Factor.
4. Survival of Representations and Warranties. All
representations, warranties,
and agreements of the Sellers, the Company and Buyer contained herein
(including all schedules and
exhibits hereto) or in any document, statement, certificate or other
instrument referred to herein or
delivered hereunder in connection with the transactions contemplated;
hereby shall survive until
November 30, 1998; provided, however, that the representations and warranties
contained in Sections
2(a) (1), 2 (a) (2), 2(a) (3), 2(a) (4), 2(d) and 2(r) and Sections 3(a), 3(b),
3(c), 3(d) and 3(e)
(collectively, the "Surviving Representations") shall survive indefinitely
and shall not be subject to the
termination of indemnification provisions set forth in at Section 7(d) (i),
below.
5. Conditions Precedent to Buyer's Obligations.
Each and every obligation of
Buyer to be performed on the Closing Date or thereafter, as the case may be,
shall be subject to the satis
faction prior thereto of the following conditions:
<PAGE>
(a) Representations and Warranties True at the
Closing Date. The
representations and warranties made by the Company and the Sellers in this
Agreement or given on their
behalf hereunder shall be true on and as of the Closing Date in all material
respects with the same effect
as through such representations and warranties had been made or given on
and as of the Closing Date.
(b) Compliance with Agreement. The Company
shall have performed and
complied in all material respects with all of its obligations under this
Agreement which are to be
performed or complied with by it prior to or on the Closing Date.
(c) Certificate of Fulfillment of Conditions.
There shall be delivered to
Buyer a certificate of the Company certifying in such detail as Buyer may
specify the fulfillment of
conditions set forth in subsections (a) and (b) of this Section 5.
(d) Opinion of Counsel for Sellers. Buyer
shall have received a written
opinion of counsel of Sellers dated as of the Closing Date, addressed to Buyer
in form and substance
reasonably satisfactory to Buyer and its counsel as to the matters addressed
at Sections 2(a)(1), 2(a)3
and 2(a)5.
(e) Certificates of Good Standing. The
Sellers shall have delivered to Buyer
a certificate issued by appropriate governmental authorizes evidencing the
good standing of the Company
as of a date or not more than thirty (30) days prior to the Closing Date as a
corporation of the state of
its incorporation and in each state where it is qualified to do business and a
confirming telegram with
respect to Delaware as of a date not more than four (4) days prior to the
Closing Date.
(f) Proceedings and Instruments Satisfactory.
All proceedings, corporate
or other, to be taken in connection with the transaction contemplated by this
Agreement, and all
documents incident thereto, shall be satisfactory in form and substance to
Buyer, and the Company shall
have made available to Buyer for examination the originals or true and
correct copies of all records and
<PAGE>
documents relating to the business and affairs of the Company, which Buyer
may request in connection
with said transaction. The Company and the Sellers shall have complied
with all statutory requirements
for the valid consummation by the Company or the Sellers of the transaction
contemplated by this
Agreement.
(g) No Litigation. No investigation, suit,
action or other proceeding shall
be threatened or pending before any court or governmental agency which in the
opinion of Buyer's
counsel is likely to result in the restraint, prohibition or the obtaining of
damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby, or in
connection with any claim against the Company, not disclosed by the Schedules
attached hereto.
(h) Prior Consents and Release of Guarantees.
Except with respect to the
landlord consents and the guarantee listed on Schedule 5(i), receipt of which
has been waived by Buyer
as a condition to closing under this Agreement, the Company shall have received
the written consents
to this transaction, from the landlords, guarantors and other third parties,
as set forth on the attached
Schedule 5.
(i) All Documents. All documents required by
Section 9(a) of this Agreement
shall have been delivered to the Buyer.
6. Conditions Precedent to the Sellers' Obligations.
Each and every obligation
of the Sellers to be performed on the Closing Date shall be subject to the
satisfaction prior thereto of the
following conditions:
(a) Representations and Warranties True at the
Closing Date. Buyer's
representations and warranties contained in this Agreement shall be true at
and as of the Closing Date
in all material respects as though such representations and warranties were
made at and as of the Closing
Date.
<PAGE>
(b) Compliance with Agreement. Buyer shall
have performed and complied
with its obligations under this Agreement which are to be performed or
complied with prior to or on the
Closing Date.
(c) All Documents. All documents required
by Section 8(b) of this
Agreement shall have been delivered to the Sellers.
(d) Certificate of Fulfillment of
Conditions. There shall be delivered to
Sellers a certificate of the Buyer certifying in such detail as Sellers
may specify the fulfillment of
conditions set forth in subsections (a) and (b) of this Section 6.
(e) Opinion of Counsel for Buyer. Sellers
shall have received a written
opinion of counsel of Buyer dated as of the Closing Date, addressed to
Sellers in form and substance
reasonably satisfactory to Sellers and their counsel as to the
matters addressed at Sections 3(a) and (c).
(f) Proceedings and Instruments
Satisfactory. All proceedings, corporate
or other, to be taken in connection with the transaction contemplated
by this Agreement, and all
documents incident thereto, shall be satisfactory in form and substance
to Buyer, and the Company shall
have made available to Buyer for examination the originals or true and
correct copies of all records and
documents relating to the business and affairs of the Company, which
Buyer may request in connection
with said transaction. The Company and the Sellers shall have
complied with all statutory requirements
for the valid consummation by the Company or the Sellers of the
transaction contemplated by this
Agreement.
(g) No Litigation. No investigation,
suit, action or other proceeding shall
be threatened or pending before any court or governmental agency
which in the opinion of Sellers
counsel is likely to result in the restraint, prohibition or
the obtaining of damages or other relief in
<PAGE>
connection with this Agreement or the consummation of the
transactions contemplated hereby, or in
connection with any claim against the Buyer, not
disclosed to Sellers.
(h) Prior Consents and Release of
Guarantees. Except with respect to the
landlord consents and the guarantee listed on Schedule 5(i), receipt
of which has been waived by Sellers
as a condition to closing under this Agreement, the Company shall
have received the written consents
to this transaction, from the landlords, guarantors and other
third parties, as set forth on the attached
Schedule 5.
(i) Acknowledgment with Respect to
Relevant Preferred Stock.
(i) Buyer hereby covenants
and agrees that (A) the Board of Directors has
taken, and (B) at any time period after the Closing Date,
if reasonably requested by Holder to enable
Holder to enforce any of the Relevant Preferred Stock
Rights and Preferences, shall cause its
shareholders to take, all such action as necessary or desirable
(including, without limitation, the filing of
additional documents or certificates with the Utah
Department of Commerce and/or the creation of a new
series of preferred stock) to confirm the Relevant Preferred
Stock Rights and Preferences, provided,
however, that any such filing shall provide that (1) the Holder
is entitled to no dividend rights under the
Relevant Preferred Stock Rights and Preferences, and (2)
that the number of shares of common stock
of Buyer into which the Holder is entitled to convert the
Relevant Preferred Stock is limited to 765,625
shares, subject only to the provisions of Section 6(e) of
the Relevant Preferred Stock Rights and
Preferences.
(ii) Buyer shall take all a
ction to ensure that the representations and warranties
made by Buyer at Section 3(d)(iii) are true and correct through
such date when the conversion of the
Relevant Preferred Stock shall have been effected in
accordance with the provisions of this Agreement;
and
<PAGE>
(iii) Buyer shall take all action
reasonably necessary to reflect on its books,
records and stock ledger, the transfer of the Relevant Preferred Stock
as contemplated under Section 1(e)
of this Agreement.
7. Indemnification and Resolution of Disputes.
(a) Indemnities of Sellers.
(1) Subject to the provisions
of this Section 7, Sellers hereby agree to
indemnify and hold harmless Buyer against and in respect of the
following (hereinafter called a "Loss"
or "Losses"):
(i) any loss, liability,
claim, damage or expense (collectively,
"Damages"), arising from or in connection with (A) any failure by the
Sellers to perform or comply with
any agreement or covenant set forth in any Transaction Document; or
(B) any misrepresentation in or
omission from any representation or warranty set forth in this
Agreement or any schedule, list, document,
statement, certificate or other instrument furnished by Sellers
to Buyer under the Transaction Documents,
(c) claims arising with respect to the pending New York sales
tax audit and claims in excess of $48,000
net of any insurance proceeds received by the Company
arising from the action entitled "Fettig, et al. vs.
M.I.E. Hospitality, et al.".
(ii) any and all
actions, suits, proceedings, demands, assessments,
judgment, costs, expenses and damages arising from claims
made by third parties, including without
limitation reasonable attorneys' fees, incident to any of the foregoing;
(2) Notwithstanding
any other provision of this Agreement, with respect to
any breach of the representations and warranties
contained in Section 2(r), in addition to the other
limitations and provisions set forth at Subsections
7(c), 7(d) and 7(e), Seller's indemnification obligations
shall be limited to:
<PAGE>
(i) the costs of any
Response Action ("Response Action Cost")
Required by Law with respect to a Pre-Closing Environmental
Condition not disclosed in Schedule 2(r),
incurred as the result of any action by a Governmental
Agency or any Third Party requiring a Response
Action with respect to any such undisclosed Pre-Closing Environmental
Condition, but only to the extent
that the alleged violation or condition resulting in such Response
Action Costs constitutes a breach of
the representations and warranties of Section 2(r);
(ii) any Damages arising
from claims asserted by a Third Party prior
to the Release Date for property damage or personal injury to a
Third Party arising from a Pre-Closing
Environmental Condition, but only to the extent that notice of any
such third party claims or disclosure
of the existence of any such Pre-Closing Environmental Condition
was not referenced in Schedule 2(r)
and such failure to disclose constitutes a breach of the representations
and warranties of Section 2(r); and
(iii) any Damages related to
enforcement proceedings or penalties
arising from the alleged violations of Environmental Laws that
occurred prior to the Closing Date,
resulting from the operation of the Company's business or use of
the company's properties prior to the
Closing Date, but only to the extent that any such alleged
violations constitutes a breach of the
representations and warranties contained in Section 2(r).
(b) Indemnities of Buyer. Subject to
the provisions of this Section 7, Buyer
hereby agrees to indemnify and hold harmless Sellers, individually and
collectively, against and in respect
of the following (a "Loss" or "Losses"):
(1) any Damages (as defined above)
arising from or in connection with (i) any
failure by the Company or Buyer to perform or comply with any agreement or
covenant set forth in any
Transaction Document; (ii) any misrepresentation in or omission from
any representation or warranty set
forth or contemplated under this Agreement; (iii) the guaranty
by Magee to Doris Dillon of the
<PAGE>
obligations of the Company under a certain lease for the premises
in Bloomsburg, Pennsylvania (the
"Dillon Guaranty Indemnity"); or (iv) the failure to obtain the prior
written consent to the transaction
contemplated under this Agreement under the Pyramid Company lease
(as defined in Schedule 5) and
Buyer 's or Company's negotiations and agreements reached with the landlord
thereunder in connection
with obtaining such consents (the "Pryamid Indemnity"); and
(2) any and all actions,
suits, proceedings, demands, assessments, judgment,
costs, expenses and damages arising from claims made
by third parties, including without limitation
reasonable attorneys' fees, incident to any of the foregoing.
(c) Measure of Liability of Sellers in
Respect of Losses. The amount of
the Sellers' liability for any Loss for which indemnification obligations exist
under Section 7(a) and the
amount of the Buyer's liability for any Loss for which indemnification
obligations exist under Section
7(b), shall be (1) net of any insurance proceeds received by the party
or parties seeking indemnification
with respect to such Loss, and (2) measured taking into account the
present value (discounted at 8%)
of any income tax or other savings which might reduce the overall
impact of the Loss whether income
tax or other saving is realized in the year such tax is due or in a
subsequent year. Notwithstanding
anything contained in this Agreement to the contrary, (1) the Sellers
shall have no obligation to indemnify
the Buyer, and (2) the Buyer shall have no obligation to indemnify
the Sellers, for any Losses unless and
until any such Losses exceed in the aggregate $50,000, and in such
event only to the extent such Losses
in the aggregate exceed $50,000 (except that such $50,000 minimum
amount of Losses shall not apply
to any amounts that may be payable by (A) Sellers pursuant to
(i) Net Current Adjustment under Section
12(i), (ii) claims arising with respect to the Williamsport
Good Title Representation, (iii) claims arising
with respect to the pending New York State sales tax audit and
(iv) claims in excess of $48,000 net of
any insurance proceeds received by the Company arising from the
action entitled "Fettig, et al. vs. M.I.E.
<PAGE>
Hospitality, et al.", or (B) Buyer pursuant to (i) Net Current Adjustment
under Section 12(i), (ii) claims
arising with respect to the Pyramid Indemnity, (iii) claims arising with
respect to the Dillon Guaranty
Indemnity, and (iv) any claims arising under or relating to Buyer's failure
to make payment or perform
under the M.I.E. Note, Buyer Note, Buyer Guaranty or any other Transaction
Document requiring
performance by Buyer or Company after the Closing).
(d) Limitation of Liabilities.
Notwithstanding any other provision in this
Agreement:
(i) except for Losses asserted in
accordance with this Section 7 prior to
November 30, 1998 (the "Release Date") and as provided in Section 12(hh),
below, no claim can be
made or lawsuit instituted by any party to this Agreement for any
indemnification claim under this
Agreement after the Release Date; provided, however, that
indemnification relating to the Surviving
Representations, as defined in Section 4, shall survive as specified in
Section 4; and
(ii) in no event shall either the
Buyer's liability, on one hand, or the Sellers'
liability, on the other hand, in the aggregate, under this Section 7
exceed $1,900,000.
(iii) with respect to any claim for
indemnification relating to the representation
and warranty regarding Free and Clear Title as defined in and made under
Section 2(a)(3), above, Buyer
acknowledges and agrees to first file a claim against the individual Seller
or Sellers who or which transfer
to Buyer the shares of Company's Outstanding Capital Stock as to which
such indemnification claim
arises (the "Individual Claim") and pursues such Individual Claim for
at least 30 days, prior to seeking
any remedies against any other Seller under this Agreement.
(e) Sellers Knowledge. All
warranties made in this Agreement and the
Transaction Documents to "Sellers' or Company's knowledge" or
"to the best knowledge of the
Company or Sellers'" or "to the best of Sellers' or Company's
knowledge", or any similar qualification
<PAGE>
regarding the knowledge of Sellers and/or Company shall mean (i) to the
actual knowledge of Mike
Katerman, Robert Abbott, Thomas Hoffman and (ii) with respect to
any information requested on the
questionnaire attached hereto as Exhibit D, the actual knowledge of the
individuals set forth on Schedule
7(e), which knowledge shall be deemed to be the information disclosed in
the Response to the
Questionnaire Memorandum attached hereto as Exhibit D-1 and any written
notices or correspondence
the existence of which was requested in the Questionnaire Memorandum.
The Sellers or any of them
shall be deemed to have knowledge of the inaccuracy of a warranty if
any Seller has actual knowledge
of same or has actual knowledge of facts which would have caused a
reasonable person in the position
of such Seller to determine the inaccuracy of the responsibilities
with the Company or the management
of his, her or its investment in the Company. The parties acknowledge
and agree that (i) the disclosure
schedules and exhibits referenced in Section 2 of this Agreement are
hereby amended, where appropriate
to specifically include any and all information included or
referenced in the attached Exhibit D-1 as if such
information is also set forth on the appropriate schedules or
exhibits; and (ii) in the event that any
information is required to be disclosed in more than one
schedule or exhibit or elsewhere in this
Agreement with respect to any representation or warranty,
such information shall be deemed disclosed
in each such schedule, exhibit or appropriate section of this Agreement in
which such disclosure may be
required or appropriate, but only to the extent disclosed on at least one
schedule or exhibit; and (iii) the
parties acknowledge and agree that notwithstanding any provision to the
contrary contained in Section
2, Buyer shall make no claim for indemnification against Sellers relating to
any information or condition
disclosed in Exhibit D-1, unless such disclosure contains any untrue
statement of material fact or omits
to state a material fact necessary to make the disclosure not
materially misleading.
No claim based on the inaccuracy of any
representation or warranty that either (i)
to the extent relating to any breach of any representation or warranty made
by Buyer, or (ii) pertaining
<PAGE>
to the requirement of any landlord consent to this transaction under the
leases identified on Item 3 of
Schedule 3(e) (the "Company's Leases") shall be made against the Sellers,
provided with respect to any
landlord consent claim the claim relates to or arises under the provisions
of the Identified Lease or related
documents previously delivered to Buyer or its agents.
(f) Certification of Losses. If any party
to this Agreement is of the opinion
that any Loss has occurred or will or may occur, such party shall so
notify the other party or parties and
each such notice shall specify the circumstances of such asserted Loss.
(g) Procedure for Indemnification.
Promptly after receipt by an indemnified
party under Section 7(a) or 7(b) above, of notice of the commencement
of any action, such indemnified
party shall, if a claim in respect thereof is to be made against
an indemnifying party under such section,
give notice to the indemnifying party of the commencement thereof,
but the failure so to notify the
indemnifying party shall not relieve it of any liability that it
may have to any indemnified party except to
the extent the defense of such action by the indemnifying party
is prejudiced thereby. In case any such
action shall be brought against an indemnified party and it
shall give notice to the indemnifying party of
the commencement thereof, the indemnifying party shall be
entitled to defend such action, but the
indemnifying party shall not be bound by any determination
of an action so defended or any compromise
or settlement thereof effected without its consent (which
shall not be unreasonably withheld). thereto and,
to the extent that it shall wish, to assume the defense
thereof with counsel reasonable satisfactory to such
indemnified party and, after notice from the indemnifying
party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party
shall not be liable to such indemnified party
under such section for any fees of other counsel or any
other expenses, in each case subsequently
incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs
of investigation. If an indemnifying party assumes
the defense of such an action, (a) no compromise or
<PAGE>
settlement thereof may be effected by the indemnifying party
without the indemnified party's consent
(which shall not be unreasonable withheld) unless (i) there
is no finding or admission of any violation of
law or any violation of the rights of any person which
is not fully remedied by the payment referred to
in clause (ii) and no adverse effect on any other claims
that may be made against the indemnified party
and (ii) the sole relief provided is monetary damages
that are paid in full by the indemnifying party, (b)
the indemnifying party shall have no liability with
respect to any compromise or settlement thereof
effected without its consent (which shall not be
reasonably withheld).
(h) Reimbursement
Except with respect to Net Current Asset Adjustments
which shall be made in accordance with the provisions
of Section 12(i), below, the parties acknowledge
and agree that indemnification obligations due and
payable under this Section 7 shall be paid upon the
occurrence of the following events, in accordance
with the time frames set forth below:
(i) with respect to Losses that
are alleged to be less than $200,000, upon final
determination by the Arbitrators in accordance with Section 11
(a "Loss Subject to Arbitration"), and
(ii) with respect to all other
Losses, on the date that a court of competent
jurisdiction shall enter a final judgment, order or decree (after exhaustion
of appeal rights establishing
such liability).
Within thirty (30) days of the
occurrence of either of the foregoing events (the
"Indemnification Payment Period"), the indemnifying party hereunder
shall pay the amount of the
indemnity claim, subject to the right, but not the obligation, of
Sellers to satisfy the indemnification
obligations in accordance with Section 7(k), below.
(i) Escrow Agreement.
(1) Creation of Escrow.
Subject to the other provisions of this
Section 7, Buyer, Sellers and Brown Brothers Harriman
("Escrow Agent") shall execute an escrow
<PAGE>
agreement at the Closing substantially in the form of Exhibit E, which
shall provide that Buyer shall
deposit with Escrow Agent the sum of Two Hundred Fifty Thousand
Dollars ($250,000) (hereinafter
referred to as the "Escrow Fund"), for the following claims asserted
by Buyer (i) any claim asserted by
Buyer as soon as practical but not later than April 30, 1997,
for payment of any Deficiency amount under
Section 12(i), below (a "Deficiency Claim"), which claim shall be
made within ten (10) days following
the determination of the Final Asset and Liability Statement
in accordance with Section 12(i), below, or
(ii) any other claim for indemnification under this Agreement
asserted by Buyer on or before March 15,
1997 that arises from (A) any other misrepresentations by Sellers
under Section 2, (B) any breach of the
Williamsport Good Title Representation, (c) any claims arising
with respect to the pending New York
State sales tax audit, and (D) any claims arising from the action
entitled "Fettig, et al. vs M.I.E.
Hospitality, et al". (collectively, the claims described at clauses
(ii)A, (ii)B, (ii)C and (ii)D shall be
referred to as "Other Permitted Claim"). For purposes of this
Agreement and the Escrow Agreement,
a Deficiency Claim and the Other Permitted Claims referenced above
shall collectively be defined as
"Financial Claims". The Escrow Fund is included solely for the
convenience of the parties hereto, the
existence of the Escrow Fund shall in no way limit the
remedies of any party for a breach under this
Agreement. Escrow Agent shall disburse the Escrow Fund in
accordance with the terms and conditions
of the Escrow Agreement and this subsection. Any and all notices of
Financial Claims shall be sent by
Buyer to Sellers and to Escrow Agent in accordance with the provisions
of the Escrow Agreement.
Disbursement of any portion of the Escrow Fund shall be made only in
accordance with the Escrow
Agreement.
(j) Set-Off. After the release of the
Escrow Fund to Buyer or Sellers, Buyer shall
have the right to deduct any amounts which become due under
Section 7(a) from its obligations under
<PAGE>
the M.I.E. Note but only after a determination that Buyer is entitled to
reimbursement under Section 7(h).
(k) Sellers' Election to Require Set-Off.
In the event that Buyer is entitledto indemnification under Section 7(a),
Sellers may elect, in their sole discretion, to satisfy the
indemnification obligation arising under Section 7(a), as follows:
(1) by sending before the end of
Indemnification Payment Period written
notice to Buyer in accordance with this subsection 7(k)
(the "Set-Off Notice"). Upon
receipt of any Set-Off Notice, without further action on
behalf of Sellers, Company,
Magee or Buyer, the outstanding principal balance
under the M.I.E. Note shall be
automatically reduced by the amount of the Sellers'
indemnification obligation under
Section 7(a); and
(2) within thirty (30)
days of receipt of the Set-Off Notice, Buyer shall send
to the holder of the M.I.E. Note (the "Holder")
a promissory note to replace the original
M.I.E. Note, which replacement note shall
set forth an outstanding principal balance
reduced by the amount of the Sellers'
indemnification obligation under 7(a) (the "New
Balance"); as soon as practical thereafter,
the Holder shall mark the original M.I.E. Note
NULL AND VOID and return same to
Company; it being understood that if the holder
does not receive the replacement M.I.E. Note
within the time frame contemplated in this
clause (B), Mike Katerman is hereby
authorized by Buyer, as Buyer's attorney-in-fact for
the limited purposes contemplated in this Subsection 7(i)(B),
to modify the M.I.E. Note
on behalf of Buyer to reflect the New Balance.
It being understood that in the event that the amount of Sellers'
indemnification obligation under Section
7(a) exceeds the principal balance then outstanding under the M.I.E. Note,
Sellers shall reimburse Buyer
<PAGE>
in the amount of any such deficiency in accordance with Section 7(h), above.
The parties acknowledge
that (i) Mike Katerman has been authorized by the Sellers or send any Set-Off
Notice contemplated
hereunder, on their behalf, to Buyer, and (ii) that any such Set-Off Notice
shall be sent in accordance with
the provisions of Section 14(f) , below.
(l) Net Current Asset Adjustment - Buyer's Exclusive
Indemnification Remedy. The parties
acknowledge and agree that in the event that Sellers are obligated to
pay to Buyer a Deficiency Payment
in accordance with Section 12(i), the payment of such Deficiency
from the Escrow Fund in accordance
with Section 7(i) shall be Sellers' sole obligation to Buyer under this
Agreement with respect to the facts
and circumstances giving rise to such Deficiency, notwithstanding any
other misrepresentation in, or
omission from any, representation or warranty set forth in this
Agreement or any other Transaction
Agreement or related claim for indemnification under Section 7(a)
that may also arise or relate to the
facts or circumstances giving rise to such Deficiency, provided
however, that Sellers shall remain liable
to Buyer for the amount of a Deficiency Payment to the extent
that the Deficiency Payment is greater
than the Escrow Fund.
8. Closing Date. The closing with respect
to the transactions contemplated
hereunder (the "Closing") shall take place at the offices of
McLaughlin & Stern, LLP, 260 Madison
Avenue, New York, New York, at the close of business as of
November 27, 1996 (the "Closing Date");
At the Closing,
(a) The Sellers shall deliver to
Buyer the following:
(1) a certificate of fulfillment
of conditions signed by the President and
Treasurer of the Company, referred to in subsection (e) of Section 5 hereof;
(2) the opinion of counsel
for the Company, described in subsection (f) of
Section 5 hereof;
<PAGE>
(3) a certificate of good standing and
telegram, referred to in subsection (g)
of Section 5 hereof;
(4) certificates representing all of
the Company Stock as set forth in Section
1(a) hereof;
(5) the Escrow Agreement executed by
the Sellers;
(6) a general mutual release
executed by the Sellers and Magee, in favor of
the Company and Buyer, and Company and Buyer in favor of the Sellers
and the officers and directors
of the Company in the form attached hereto and labeled
Exhibit "F" (the "General Mutual Release");
(7) resignations of the officers
and directors of the Company;
(8) Except for those listed on
Schedule 5(i), consents of any party to any lease
or contract to which M.I.E. is a party and whose consent is required by
reason of the transactions
contemplated by this Agreement, as set forth on Schedule .
(9) Except for those listed
on Schedule 5(i), estoppel certificates from each
landlord which provide that M.I.E. is not in default and no event
has occurred, which, with notice or the
passage of time, would constitute a default by M.I.E.
(10) such other and further
documents, instruments and certificates not
inconsistent with the provisions of this Agreement, executed by
Sellers as Buyer shall reasonably require
to carry out and effectuate the purposes and terms of this
Agreement, including the letter agreements
executed by Magee and Company regarding the transitional
services to the Company (the "Letter
Agreement).
(b) Buyer shall deliver to the Sellers the
following
(1) the sum of One Million Three Hundred Eighty-One Thousand
Five Hundred Sixty-Three
<PAGE>
Dollars ($1,381,563) by wire transfer or certified or bank cashier's
check to an account designated by
the Sellers;
(2) Two Hundred Fifty Thousand Dollars
($250,000) by wire, certified or bank
cashier's check to the order of Escrow Agent;
(3) M.I.E. Note executed by the Company;
(4) the Buyer Note executed by the Buyer;
(5) the Escrow Agreement executed by Buyer.
(6) the General Mutual Release;
(7) a certificate of fulfillment of conditions
signed by the Chairman and
President of Buyer, referred to in Section 6(d) above;
(8) the opinion of counsel for the
Buyer, described in Section 6(e) hereof;
(9) the Buyer Guaranty;
(10) The Preferred Stock Rights and
Preferences; and
(11) Letter Agreements executed by the
Company.
9. Brokerage. The Sellers represent and warrant that
they have not engaged the
services of any broker or finder hereunder, and agree to indemnify and hold
the Buyer harmless against
any claim for brokers' or finders' fees or compensation in connection with
the transactions herein
provided for by any person, firm or corporation claiming a right to the
same because engaged by the
Sellers. Buyer represents and warrants to the Sellers that it has not
engaged the services of any broker
or finder in connection with the transactions herein provided for and
agrees to indemnify and hold
harmless Sellers against any claims for brokers' or finders' fees or
compensation in connection with the
transactions herein provided for by any other person, firm or corporation
claiming a right to the same
because engaged by Buyer or its subsidiaries.
<PAGE>
10. Restriction on Negotiation
The Sellers and the Company agree that
until the earlier of (a) the Closing Date
or (b) December 31, 1996, neither the Company nor the Sellers will
sign any agreement or have any
negotiations regarding the sale of the Company or any of its assets.
11. Arbitration.
(a) Unless the parties shall
mutually agree to an alternative method of dispute
resolution, any Loss Subject to Arbitration, as defined in Section
7(h)(i), above, shall be referred to
Arbitration under the rules of the American Arbitration Association,
to the extent such rules are not
inconsistent with this paragraph (a), in accordance with this Section 11.
Judgment upon the award of
the arbitrators may be entered in any court having jurisdiction thereof
or such court may be asked to
judicially confirm the award and order its enforcement, as the case may be.
The demand for arbitration
shall be made within a reasonable time after the claim, dispute or
other matter in questions has arisen,
and in any event shall not be made after the later of (i) the date
when institution of legal or equitable
proceedings, based on such claim, dispute or other matter in
questions, would be barred by the applicable
stature of limitations, or (ii) after the Release Date.
(b) An issue shall be submitted to
arbitration by one party giving the other
party ten (10) days notice of the intent to arbitrate such issue
in accordance with this Section 11(b).
Within twenty (20) days after such notice, each party shall select a
disinterested arbitrator. If one party
does not so select such an arbitrator within the time specified,
then the notice issue shall be resolved
solely by the arbitrator chosen by the other party in accordance
with the foregoing procedure. If each
party selects such an arbitrator as provided herein, then within ten
(10) days after the appointment of the
second of the two arbitrators, the two arbitrators shall select
a third arbitrator. If the two original
arbitrators are unable to agree upon the selection of a third
arbitrator, then any party may request that
<PAGE>
the American Arbitration Association appoint a third arbitrator.
All arbitrators selected for arbitration
hereunder shall be members of the American Arbitration Association,
shall not be affiliated with either
of the parties and shall have expertise in the subject matter w
hich is the basis of the dispute.
(c) Within forty-five (45) days after notice
of the intent to arbitrate a dispute,
the parties and the three (3) arbitrators selected to arbitrate the dispute
shall meet. Each party shall
submit to the three (3) arbitrators a written statement regarding the
Loss Subject to Arbitration to be
decided by the arbitrators, and shall be allowed to present such
evidence and testimony to support his,
her or its position as is allowed under the rules of the American
Arbitration Association. The arbitrators
shall be instructed that within thirty (30) days after the date on
which the parties and the arbitrators
conclude such meeting, the arbitrators shall render their decision.
(d) The right to settle disputes by
arbitration under this Section 11(d) shall be
an ongoing right exercisable from time to time with respect to
all disputes arising between the parties that
are subject to arbitration under this Agreement, and the
parties shall have no other remedy except as
otherwise provided in this Agreement, and hereby waive
their rights to any other remedy for such
disputes which may arise between them.
(e) The place of arbitration shall
be Philadelphia with respect to disputes
arising in Pennsylvania, New York City, with respect to
disputes arising in New York and Trenton with
respect to disputes arising in New Jersey,
unless otherwise agreed by the parties.
12. Post-Closing Covenants and Agreements
of Company and Buyer
Company and Buyer covenant and agree
with Magee and the Sellers that until
payment in full of all outstanding principal and interest under
both the M.I.E. Note and the Buyer Note
and fulfillment of any and all payment obligation
under the Buyer Guarantee, each will:
<PAGE>
(a) Operation of Business. At all times
operate the businesses of Company
and Buyer consistent with industry standards, and perform and satisfy the
obligations and liabilities of
Company consistent with past practices, as such become due and payable so
long as such obligations and
liabilities are not being contested in good faith by Company or Buyer.
(b) Legal Existence. Do or cause to be
done all things necessary to preserve,
renew and keep in full force the legal existence of Company and Buyer,
good standing and due foreign
qualification in all jurisdictions where such foreign qualification
is required.
(c) Insurance. Maintain insurance for
Company and Buyer in amounts and
for coverage consistent with Company's and Buyer's past business practices.
(d) Taxes. Pay and discharge promptly
when due all taxes, assessments and
governmental charges or levies imposed upon Company and Buyer or upon
their income or profits or
respect of their property before the same shall become delinquent or in
default (except to the extent any
such taxes, assessments and governmental charges or levies are
diligently contested in good faith by
appropriate proceedings and adequate cash reserves are established).
(e) Financial Covenants, Reports, Etc.
Furnish to Magee and Mike
Katerman, as agent for the Sellers:
(1) within ninety
(90) days after the end of its fiscal year, audited consolidated
balance sheets and consolidated income statements showing the
financial condition of Buyer and
Company as of the close of such fiscal year and the results
of their operations during each year; and
(2) promptly after the
same become publicly available, copies of registration
statements, annual, periodic and other reports, and such
proxy statements and other information as shall
be filed by Buyer with the Securities and Exchange
Commission, NASDAQ Exchange, or any other
securities regulatory agency, pursuant to the requirements
of the Securities Act of 1933 or the Securities
<PAGE>
Exchange Act of 1934, or similar requirements promulgated by NASDAQ or
otherwise relating to
Buyer's status as a publicly traded company.
(3) Beginning with fiscal year
July 1, 1997 through and including June 30,
1998, Buyer shall not experience an Operating Loss on a consolidated basis
of greater than $250,000 and
have a shareholder's equity of less than $2,500,000. For purposes of
this covenant, an Operating Loss
shall mean earnings before depreciation and amortization and taxes and
before any extraordinary charges.
(f) Notice of Default. Provide Magee,
and Mike Katerman, as agent for the
Sellers, any (i) written notice of any default received by Buyer
or Company (1) regarding any banking,
lending or credit relationship with any third party or otherwise
relating to any loan documentation or
other documentation evidencing indebtedness entered into by the
Company or Buyer, and (2) under or
relating to any obligation of Company or Buyer, which obligation
exceeds $5,000.00 and (ii) any notice
of default from the landlord of the premises leased by the
Company in Bloomsburg, Pennsylvania.
(g) Access to Properties and
Inspection; Right to Audit; Dillon
Guarantee. At all reasonable times, upon a minimum of two days
written notice to the Buyer, and as
often as Magee or Mike Katerman, as agent for the Sellers may
reasonably request, permit any authorized
representative designated by Magee and Mike Katerman,
as agent for the Sellers, to visit and inspect the
properties and financial records of Company and Buyer,
and permit any authorized representative so
designated to discuss the affairs, finances and condition
of Company and Buyer with the officers of Buyer
and Buyer's authorized representatives. Such right of
access shall be available for (i) two years from the
Closing Date with respect to the properties of the
Company and Buyer, (ii) so long as either the
Company or Buyer have any outstanding obligations
under the M.I.E. Note, Buyer Guaranty or Buyer
Note, with respect to the financial records of
Company or Buyer, and (iii) with respect to any information
regarding the Dillon Guarantee or Company's Bloomsburg
Lease, for as long as Magee has any possible
<PAGE>
liability or obligation under the Dillon Guarantee, it being understood that
at the expiration of the
Bloomsburg Lease Company covenants and agrees to cause the release of the
Dillon Guarantee effective
as of such expiration and not renew the current lease or enter into a new
lease with the landlord under
the Bloomsburg Lease that requires the Dillon Guarantee remain in place.
(h) Notice. Buyer and Company shall give
written notice, within five (5)
business days of an occurrence pursuant to which any of the covenants or
agreements set forth in this
Section 12, have been rendered inaccurate or the result of which occurrence
either Buyer or Company
is in material default of any of the covenants and agreements set forth in
this Section 12.
(hh) Survival. The parties acknowledge and
agree that the covenants and
agreements set forth in this Agreement that are subject to performance after
Closing shall survive Closing
and the Release Date, and with respect to the post-Closing covenants and
agreements set forth in this
Section 12 shall survive Closing and the Release Date and shall remain in
full force and effect as long as
there remains any payment obligations on behalf of Company or Buyer under
the M.I.E. Note, Buyer
Note or Buyer Guarantee.
(hhh) Change of Control. Not
consummate a transaction or series of
transitions whereby more than 50% of the outstanding voting securities of
Buyer or the Company are
sold or engage in a merger or consolidation in which the Buyer or the
Company is not the surviving entity
(a "Control Transaction") unless the purchaser of the Company's or the
Buyer's voting securities or the
surviving entity of such merger or consolidation is responsible for the
then outstanding obligations of
Buyer under the Buyer Guaranty and under the Buyer Note, which shall
become due and payable at the
closing of the Control Transaction.
<PAGE>
(i) Net Current Asset Adjustment.
(1) Asset and Liability Statement.
As soon as practical after Closing, Sellers
or their agent shall deliver to Buyer a statement, prepared in a
manner consistent with the Company's
Accounting Principles setting forth the Target Working Capital Account
Balances, as defined below, as
of the Effective Date." Within fifteen (15) days after March 1, 1997
(hereinafter the "Settlement Date"),
Buyer shall deliver to Mike Katerman, as agent for the Sellers
("Sellers' Agent") a statement (the "Asset
and Liability Statement") in a manner consistent with the Company's
Accounting Principles and the
accounting principles, procedures, policies and methods as to allocations
and related matters utilized in
the Target Working Capital Statement attached hereto as Schedule 12(i), and
which Asset and Liability
Statement shall set forth the balances as of the close of business
November 27, 1996 (the "Effective
Date") of the following Company's accounts with respect to its business
as of the Effective Date that
shall constitute the "Target Working Capital Account Balances" for
the purposes of this Section 7(i):
accounts receivable, inventory, prepaid expenses, current portion of
notes receivable, accounts payable,
accrued expenses and accrued taxes payable.
Sellers' Agent, on behalf of
Sellers, shall have thirty (30) days from its
receipt of the Asset and Liability Statement to notify Buyer if it
objects to any item or items in the Asset
and Liability Statement. During this 30-day period, Sellers' Agent
shall be given reasonable access to
the books and records of Company during regular business hours in order
to verify the accuracy of the
Asset and Liability Statement. Any such objection notice shall
specify the item or items in dispute (a
"Disputed Item" or "Disputed Items"). Any Disputed Item shall be
resolved in the manner set forth in
Section 12(i)(3) hereof. If either (i) Sellers' Agent does not deliver to
Buyer any objections in writing
to the Asset and Liability Statement within 30 days of Sellers' Agent's
receipt of such Statement, or (ii)
Sellers' Agent acknowledges in writing that the Asset and Liability
Statement is accurate, the Asset and
<PAGE>
Liability Statement provided by Buyer shall be final, binding and
conclusive on all parties. When the
Asset and Liability Statement has been finally determined in
accordance with the above or when all
Disputed Items are resolved in accordance with Section 12(i)(3) hereof,
the Asset and Liability Statement
as modified in accordance therewith shall be deemed the
"Final Asset and Liability Statement."
(2) Settlement. Within ten
(10) days following the determination of the Final
Asset and Liability Statement:
(i) If the assets less
the liabilities, excluding cash and cash equivalents,
as set forth on the Final Asset and Liability Statement
(the "Effective Date Working Capital") is greater
than $264,000 (the "Target Working Capital Amount"),
Buyer shall pay Sellers the amount by which the
Effective Date Working Capital exceeds $264,000
(such excess amount hereinafter the "Excess")
together with interest thereon.
(ii) If the Effective
Date Working Capital is less than $264,000 Sellers
shall pay Buyer from escrow the amount by which $216,000 exceeds the
Effective Date Working Capital
(such amount hereinafter the "Deficiency") together with interest thereon.
(iii) Any payment of Excess
shall be made by wire transfer of
immediately available funds to the account or accounts designated by
Seller, and shall be accompanied
by a payment of simple interest thereon calculated at the annual
rate of 7% (assuming a 360 day year)
from the Closing Date to the actual date of payment.
(iv) Any payment of
Deficiency shall be made by wire transfer of the
Escrow Fund in accordance with Section 7(i) and the
Escrow Agreement to the account or accounts
designated by Buyer, and shall be accompanied by a payment of
simple interest thereon calculated at the
annual rate of 7% (assuming a 360 day year) from the Closing
Date to the actual date of payment.
<PAGE>
(3) Arbitration. If Buyer
and Sellers' Agent shall be unable to resolve any
Disputed Items within thirty (30) days after notice from Seller
to Buyer that a dispute exists, then Sellers'
representative, Deloitte &Touche ("D&T"), and Lytkowski &
Pease, Inc. (the "Buyer's Representative")
shall endeavor in good faith to resolve any Disputed Item
or Disputed Items. Either party may change
its representative to a "Big 6" accounting firm other than D&T
at any time prior to the thirtieth (30th)
day after any notice as set forth in the preceding sentence, by
notice in writing to the other party, in
which event the references in this Agreement shall be to such
substitute representative. In the event that
D&T and Buyer's Representative are unable to resolve the Disputed Item(s)
within thirty (30) days, D&T
and Buyer's Representative shall together, within ten (10) business days,
appoint a representative from
the New York office of a nationally recognized major accounting firm
(other than D&T) to arbitrate the
dispute (the "Arbitrator"). Sellers' Agent and Buyer and their advisors
shall, within the next twenty (20)
days thereafter, present their positions with respect to the
Disputed Item or Items to the arbitrator
together with such other materials as the Arbitrator deems
appropriate. The Arbitrator shall, after the
submission of the evidentiary materials, submit his written
decision on each Disputed Item to Sellers'
Agent and Buyer. Any determination by the Arbitrator with
respect to any Disputed Items shall be final
and binding on each party to this Agreement. Except as specifically set
forth to the contrary in this
Section 12, the Arbitrator shall comply, and the arbitration shall be
conducted in New York in
accordance with the commercial arbitration rules of the American
Arbitration Association ("AAA") as
in effect for commercial arbitrations conducted in Manhattan by the AAA.
Sellers' Agent and Buyer
agree that the cost of the Arbitrator shall be borne 50% by
Sellers and 50% by Buyer.
13. Post-Closing Covenants of Sellers
Sellers covenant and agree as follows:
<PAGE>
(a) Fettig et al v. M.I.E. Hospitality
Inc., et al. Sellers shall be
responsible, or shall cause Magee to be responsible for all attorney's
fees submitted by the attorney
retained by Company prior to Closing, incurred in connection with the
action entitled Fettig et al v.
M.I.E. Hospitality, Inc., et al., and shall cause such fees to be paid
upon receipt of any invoice by the
Company. In the event that the Sellers, Magee or any of their
affiliates receive any payment under any
insurance policy with respect to such action, or a payment is made
under any insurance policy directly
to plaintiffs, or Company or Buyer receives any payment under any
insurance policy with respect to such
action, which Company or Buyer shall immediately pay or reimburse
to Sellers (the "Insurance
Payment"), the principal amount of the M.I.E. Note
shall be reduced by the amount of the Insurance
Payment. Buyer shall send to the holder of the M.I.E. Note
(the "Holder") a promissory note to replace
the original M.I.E. Note, which replacement note shall set forth
an outstanding principal balance reduced
by the amount of such Insurance Payment; as soon as practical
thereafter, the Holder shall mark the
original M.I.E. Note NULL AND VOID and return same to
Company; it being understood that if the
holder does not receive the replacement M.I.E. Note within the
time frame contemplated in this clause
(B), Mike Katerman is hereby authorized by Buyer, as Buyer's
attorney-in-fact for the limited purposes
contemplated in this Subsection 13(a), to modify the M.I.E.
Note on behalf of Buyer to reflect the new
balance.
14. Other Provisions.
(a) Entire Agreement. This Agreement,
together with the Exhibits and
Schedules delivered pursuant to this Agreement and the documents
contemplated under this Agreement,
including but not limited to the M.I.E. Note, Buyer Note, Buyer Guaranty
and Relevant Preferred Stock
Rights and Preferences, sets forth the entire agreement and understanding
between the parties as to the
subject matter hereof, and merges and supersedes all prior discussions,
agreements and understandings
<PAGE>
of every and any nature between them, and no party shall be bound by
any condition, definition, warranty,
or representation, other than expressly set forth or provided for in
this Agreement, or as may be, on or
subsequent to the date hereof, set forth in writing and signed by the
party to be bound thereby. This
Agreement may not be changed or modified, except by agreement in
writing, signed by all of the parties
hereto.
(c) Parties in Interest. All the terms
and provisions of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the
successors in interest of the
respective parties hereto.
(d) Laws Governing. This Agreement shall
be construed and interpreted
according to the law of the Commonwealth of Pennsylvania as applied to
contracts executed and
performed in the Commonwealth of Pennsylvania..
(e) Assignment. Neither this Agreement,
any Transaction Document nor any
other benefits or obligations arising under this Agreement or any
Transaction Document shall be assigned
or delegated by the Sellers, Company or Buyer, without the prior
written consent of the other party.
(f) Notices. All notices, requests,
demands and other communications
hereunder shall be in writing and shall be deemed to have been duly
given if delivered by hand ("Hand
Deliveries"), or overnight courier by a national overnight delivery
service, or mailed, certified or
registered mail, with first-class postage paid, (a) if to the Sellers or
Magee, 480 W. 5th Street,
Bloomsburg, Pennsylvania 17815, c/o Harry M. Katerman, marked "personal
and confidential", or to
such other person and place as the Sellers shall furnish to Buyer
in writing, with a copy to Gary Biehn,
White and Williams, 1800 One Liberty Place, Philadelphia, Pennsylvania
19103; and, (b) if to Buyer,
7400 Baymeadows Way, Suite 300, Jacksonville, Florida 32255, or to
such other person and place as
Buyer shall furnish to the Seller in writing with a copy to Steven W.
Schuster, Esq., McLaughlin & Stern,
<PAGE>
LLP, 260 Madison Avenue, New York, New York 10016. All notices shall be
deemed given (i) upon
receipt with respect to Hand Deliveries, (ii) one (1) day from when
sent by overnight delivery service,
or (iii) three (3) days from when mailed as provided above.
(g) Further Instruments. The parties
will, on the Closing Date or such other
date as the other party may reasonably request, without cost or expense
to the other party, execute and
deliver or cause to be executed and delivered to the other party such
other action as the other party may
reasonably request to more effectively consummate and confirm and
assure the transactions contemplated
by this Agreement.
(h) Counterparts. This Agreement may
be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original, but
all of which together shall
constitute one and the same instrument.
(i) Headings. The headings in the sections
of this Agreement are inserted for
convenience only and shall not constitute a part hereof.
(j) Expenses. Buyers, on one hand, and
Sellers and Company on the other hand,
shall bear their own respective expenses, including professional fees,
incurred in connection with this
Agreement and the Transaction Documents, it being understood that the
Company's legal fees may be
paid by the Company at Closing provided that such payments do not result
in a violation of the financial
representation found at Section 2(b)(2) above.
(k) Transfer Taxes. Except as specifically
provided below, Company, on
one hand, and Sellers, on the other hand, shall each pay one-half (1/2)
of any state or local sales, transfer
or like taxes, including but not limited to real estate transfer taxes,
payable in connection with the
transactions contemplated pursuant to this Agreement, it being understood
that each Seller is solely
<PAGE>
responsible for his or her personal income tax obligations arising
from the sale of his or her stock as
contemplated hereunder.
(l) Mail. Buyer and company agree
that from and after the Closing Date all mail
addressed to any of the Sellers or former officers or
directors of Company shall be immediately
forwarded to Mike Katerman, as agent for the Sellers.
(m) Confidentiality.
Each party shall maintain the existence of this Agreement
and the other Transaction Documents, and the terms and conditions
described therein ("Confidential
Information") strictly confidential. No party may disclose any Confidential
Information to any third party
(other than to its legal, accounting or financial advisors) without the prior
consent of the other party.
Any press release will be subject to the prior consent of the parties.
However, the parties acknowledge
that any press release or other disclosure required to be made by Buyer
in order for it to comply with any
federal or state securities laws shall only be subject to Mike
Katerman's prior review and
comment but
that the contents of such disclosure shall be at
Buyer's discretion.
(n) Books and Records; Further Assurances.
The parties acknowledge and
agree that Sellers may retain (but keep confidential) copies of business
records of the Company as are
reasonably necessary to Sellers in connection with (x) the preparation of
Sellers' tax returns or other
filings prepared by Seller, (y) Sellers' performance of its obligations
hereunder, and (z) Sellers' and
Magee's continuing businesses. After the Closing, each party shall provide
to the other party any
reasonably requested copies of any contracts, agreements, commitments,
books, records, files or other
data not provided to such party at the time of the Closing that such
party may reasonably require inconnection with (i) the preparation of such
party's tax returns or other filings prepared by such party,
(ii) such party's performance of its obligations hereunder, (iii) such
party's continuing businesses, or (iv)
any litigation, tax audit or threatened litigation relating to such party's
continuing or former businesses,
<PAGE>
provided that such party shall reimburse the party providing copies for all
reasonable costs incurred in
connection with the provision thereof.
(o) Severability. If any provision of this
Agreement is held by any court of
competent jurisdiction to be illegal, invalid or unenforceable, such provision
shall be of no force and
effect, but the illegality, invalidity or unenforceability shall have no effect
upon and shall not impair the
enforceability of any other provision of this Agreement.
(p) Compliance with Bulk Sales Law. Buyer,
on one hand, and Sellers and
Company, on the other hand, waive compliance, if applicable, with the
provisions of any bulk sales law
of any jurisdiction, if and to the extent applicable to the transactions
contemplated by this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly
executed as of the day and year first above written.
ARTHUR TREACHERsS, INC.
By:________________________
Name:
Title:
/s/ James A Magee
James A Magee
/s/ Audrey R. Magee
Audrey R. Magee
/s/ Joanne M. Katerman
Joanne M. Katerman
/s/ Myles W. Katerman
Myles W. Katerman
/s/ James R. Magee
James R. Magee
/s/ Elizabeth C. Magee
Elizabeth C. Magee
/s/ Drue Magee
Drue Magee
/s/ Harry M. Katerman
Harry M. Katerman
/s/ Barbara J. Paule
Barbara J. Paule
/s/ Christine K. Wheadon
Christine K. Wheadon
<PAGE>
/s/ Thomas Wheadon
Thomas Wheadon
/s/ Joanne M. Katerman
Joanne M. Katerman and
Myles W. Katerman, T/U/D
Harry L. Magee dated
April 24, 1968, James R.
Magee, Remainderman
/s/ Joanne M. Katerman
Joanne M. Katerman and
Myles W. Katerman, T/U/D
Harry L. Magee dated
April 24, 1968,
Elizabeth C. Magee,
Remainderman
/s/ Joanne M. Katerman
Joanne M. Katerman and
Myles W. Katerman, T/U/D
Harry L. Magee dated
April 24, 1968, Drue M.
Hummel, Remainderman
/s/ James A. Magee
James A. Magee and Audrey
R. Magee, T/U/D Harry L.
Magee dated April 24, 1968,
Harry M. Katerman,
Remainderman
<PAGE>
Audrey R. Magee, T/U/D
Harry L. Magee dated
April 24, 1968,
Christine K. Wheadon,
Remainderman
James A. Magee and
Audrey R. Magee, T/U/D
Harry L. Magee dated
April 24, 1968,
Barbara J. Paule,
Remainderman
James A. Magee, Joanne M.
Katerman and Commonwealth
National Bank (formerly
Harrisburg Trust Co.),
T/U/A Harry L. Magee,
Trust "A" f/b/o James A. Magee
James A. Magee, Joanne M.
Katerman and Commonwealth
National Bank (formerly
Harrisburg Trust Co.),
T/U/A Harry L. Magee,
Trust "A" f/b/o Joanne M. Katerman
James A. Magee, Joanne M.
Katerman and Commonwealth
National Bank (formerly
Harrisburg Trust Co.),
T/U/A Harry L. Magee,
Trust "B" f/b/o James A. Magee
<PAGE>
James A. Magee, Joanne M.
Katerman and Commonwealth
National Bank (formerly
Harrisburg Trust Co.),
T/U/A Harry L. Magee,
Trust "B" f/b/o Joanne M. Katerman
<PAGE>
EXHIBIT 10.4 Guaranty Surety Agreement dated
November 27, by Arthur Treacher's, Inc.
<PAGE>
PERSONAL GUARANTY
For good and valuable consideration (the receipt and sufficiency of
which are hereby
acknowledged) and in consideration for, and as an inducement for Franchisor to
enter into the Franchise
Agreement with the Franchisee, the undersigned personally guarantees to
Franchisor, its successors and
assigns the full performance and observance of all of the terms, provisions,
covenants, conditions, and
agreements, therein provided to be performed and observed by the Franchisee.
The undersigned further
covenants and agrees that this personal guarantee and indemnity shall remain
and continue in full force
and effect as to any renewal, modification, or extension of this Franchise
Agreement and shall remain in
full force and effect notwithstanding any assignment of the Franchise
Agreement in whole or in part. This
Guaranty shall be a continuing, absolute, and unconditional Guaranty and
shall remain in full force and
effect as to the obligations under any Agreements until all such obligations
have been satisfied, and as
to all other obligations owed by Franchisee to Arthur Treacher's, Inc.
In the event this Agreement shall
terminate as set forth above, the obligation of the Guarantor shall
nevertheless continue until any and all
indebtedness or any extensions or renewals thereof existing before
receipt of such notice, and any
expenses in connection therewith, shall be paid.
The death or dissolution of any one or more of the undersigned
shall not terminate this Guaranty
until notice of any such death or dissolution given as above provided,
shall actually be received by Arthur
Treacher's, Inc., and until all such indebtedness, or extensions or
renewals thereof existing before receipt
of such notice shall be fully paid. In the event of any such death or
dissolution and notice thereof to
Arthur Treacher's, Inc., this Guaranty shall continue and remain in force
against the survivor or survivors,
or the remainder of the undersigned shall terminate
as hereinabove provided.
Arthur Treacher's, Inc., is hereby expressly authorized to make,
from time to time and without
notice to anyone, any extensions, renewals, compromises, settlements,
releases, or dispositions of all or
any part of said indebtedness, and the liability of the undersigned shall
not be in any manner affected,
diminished, or impaired thereby, nor shall the liability of the
undersigned be affected, diminished or
impaired by the failure, neglect or omission on the part of Arthur
Treacher's, Inc., to make any demand
or protest or give any notice of dishonor or default. Arthur Treacher's,
Inc., shall be under no obligation
at any time to first resort to, make demand on, or make claim against,
or exhaust its remedies against the
Franchisee, any one or more of the undersigned, or any other person
or corporation, or to resort to, or
exhaust its remedies against any collateral, security, or
other rights whatsoever.
The undersigned confirms that he shall be liable to the
Franchisor in the same manner and to the
same extent as if the undersigned had executed the
Franchise Agreement as Franchisee.
The undersigned hereby expressly waives all notices of
non-performance, non-payment and non-
observance on the part of the Franchisee of the terms, provisions,
covenants, conditions, and agreements
contained in the Franchise Agreement. It is expressly agreed that
Arthur Treacher's, Inc., may at any
time make demand for payment on, or bring suit against the undersigned,
jointly or severally, or any one
or more of the further liability to Arthur Treacher's, Inc., hereunder,
without impairing the right of Arthur
<PAGE>
Treacher's, Inc., in any respect to demand and collect the balance of the
indebtedness form any of the
other undersigned not so released.
The terms of this agreement shall be interpreted and construed in
accordance with the laws of the
State of Florida. Should Arthur Treacher's, Inc., institute an action that
in any way arises out of this
agreement or any alleged breach thereof, Arthur Treacher's, Inc., if it
prevails, shall recover from
Guarantor, in addition to any other relief, its costs and reasonable
attorney's fees incurred in prosecuting
said action. Guarantor agrees that any action relating to this agreement
may be instituted and prosecuted
in either the state or federal courts located in Duval County, Florida,
and further agrees to waive any
rights or obligations to the jurisdiction or venue of any such actions
when filed in such courts.
The undersigned acknowledges having been informed by Franchisor
that it would not have
entered into this Franchise Agreement had the undersigned not agreed to
execute this Guaranty and
Indemnity.
IN WITNESS WHEREOF the undersigned has signed and sealed this
Guaranty and Indemnity.
____________________
Guarantor
____________________
Guarantor
STATE OF FLORIDA :
:
COUNTY OF DUVAL :
The foregoing instrument was acknowledged before me this _____ day
of __________, 1995, by
__________________________________ and _____________________________________.
Personally known _________ OR Produced Identification _______________
_______________________
Notary
<PAGE>
EXHIBIT 10.5 Escrow Agreement dated
November 27, 1996 among Arthur Treacher's,
Inc., Seller and Brown
Brothers Harriman & Co.
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of November 27, 1996,
among
Arthur Treacher's, Inc., a Utah corporation (the "Purchaser"), the individuals
listed on the
attached Schedule "A" (collectively referred to herein as the "Sellers"),
and Brown Brothers
Harriman & Co., as escrow agent (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, Purchaser has entered into a Purchase Agreement dated as of
November 27,
1996 (the "Purchase Agreement"), among Sellers and Purchaser, pursuant to which
Sellers will
sell and Purchaser will purchase all outstanding shares of M.I.E. Hospitality,
Inc., a corporation
formed under the laws of the Commonwealth of Pennsylvania (the "Company");
WHEREAS, Purchaser and the Sellers have agreed, pursuant to the
Purchase Agreement,
that Purchaser and the Sellers shall execute and deliver this Agreement; and
WHEREAS, the Escrow Agent is willing to act as Escrow Agent in respect
of the
Financial Escrow Funds (as hereinafter defined) upon the terms and conditions
hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein
contained and intending to be legally bound,, the parties hereto agree as
follows:
Defined Terms. Except as otherwise defined herein, terms defined
in the Purchase
Agreement are used herein with their defined meanings.
Deposit of Security.
At the time of execution of this Agreement, Purchaser shall deliver
to and deposit with the
Escrow Agent in escrow, to be held on the terms and conditions hereinafter
set forth, cash in the
amount of Two Hundred Fifty Thousand Dollars ($250,000) (together with
investment income
earned thereon pursuant to Section 2(c) hereof, the "Financial Escrow Funds").
The deposit of
Financial Escrow Funds shall be made to the Escrow Agent by wire transfer
of immediately
available funds to the account or accounts specified in writing by the
Escrow Agent. The
Financial Escrow Funds shall secure the obligations of the Sellers under the
Purchase Agreement.
The parties agree that the Financial Escrow Funds shall be held in
escrow by the Escrow
Agent as security pursuant to 7(i) of the Purchase Agreement on account of
"Deficiency Claims"
and "Other Permitted Claims" which collectively comprise "Financial Claims,"
as such terms are
defined in the Purchase Agreement.
Sellers have appointed and designated Harry M. Katerman as their Agent
("Seller's
Representative"), who has the authority to execute this Agreement on their
behalf and give,
receive and respond to notices pursuant to this Agreement on their behalf.
Purchaser designates
<PAGE>
Frank Brown ("Purchaser's Representative") to give, receive and respond
to notices pursuant to
this Agreement on its
behalf. Escrow Agent designates Donald H. Roberts, Jr. or in his absence,
Diane E. Janders to give,
receive and respond to notices under this Agreement on its behalf.
Sellers may, from time to time,
designate another person or persons to give, receive and respond to
notices by written notice to
Purchaser and the Escrow Agent, and Purchaser may from time to time
designate another person or
persons to give, receive and respond to notices by written notice to Sellers
and the Escrow Agent.
Purchaser and Sellers shall provide to the Escrow Agent specimen signatures
with respect to the persons
designated from time to time in this section.
The Escrow Agent shall invest and reinvest from time to time all of
the Financial Escrow Funds,
upon receipt of written direction executed by Seller's Representative
("Written Investment Direction")
in any one or more of the following: (i) obligations issued or guaranteed
by the United States
Government or the Commonwealth of Pennsylvania, or the agencies or
instrumentalities of each, which
shall have maturities not in excess of 90 days; (ii) certificates of
deposit issued by a bank or trust
company having a combined capital and surplus of at least $100,000,000
(a "Bank") which shall have
maturities not in excess of 90 days; (iii) a deposit reserve or such other
money market account available
from time to time from a Bank; (iv) mutual funds investing in any of the
foregoing, including any mutual
funds from which the Escrow Agent or any of its affiliate organizations
may receive compensation and
(v) any other investments approved in writing by Purchaser and Sellers.
Absent receipt of Written
Investment Direction, the Escrow Agent shall invest the Financial Escrow
Funds in 59 Wall Street Money
Market Mutual Fund.
Disbursement of Financial Escrow Funds. The Escrow Agent shall
disburse the Financial Escrow
Funds in the following manner:
Subject to Section 3(b) hereof, and in consideration of the
agreements set forth herein, the
Escrow Agent shall pay (i) to Purchaser or Sellers such amount of the
Financial Escrow Funds as
specified at any time in written instructions executed by both Purchaser's
Representative and Seller's
Representative and, (ii) on May 20, 1997, and at any time thereafter, to
Sellers all Unrestricted Financial
Escrow Funds (as hereinafter defined) held by the Escrow Agent upon receipt
of written instruction
executed by Seller's Representative. For the purposes of the Agreement,
Unrestricted Financial Escrow
Funds shall mean the amount of Financial Escrow Funds less all unpaid
Financial Claimed Amounts (as
hereinafter defined).
In the event that the Escrow Agent shall receive from the
Purchaser's Representative one or more
notices of (i) Other Permitted Claims on or before March 15, 1997 or
(ii) Deficiency Claims on or before
May 20, 1997, the Escrow Agent will promptly send a copy of such
notice (a "Financial Claims Notice")
to Seller's Representative by United States registered or certified
mail, return receipt requested, or by
telecopy confirmed by voice or personal delivery, and upon the tenth
(10th) business day after Escrow
Agent confirms to its satisfaction receipt by the Seller's Representative
of such Financial Claims Notice,
the Escrow Agent shall disburse that portion of the Financial Escrow
Funds set forth in such Financial
Claims Notice (the "Financial Claimed Amount") to the Purchaser,
unless on or before such date, the
<PAGE>
Escrow Agent shall receive a written objection from the Seller's
Representative. Purchaser's
Representative shall send to Seller's Representative a copy of any such
Financial Claims Notice at the
same time such notice is sent to the Escrow Agent. If the Escrow Agent
receives any such objection,
the Escrow Agent shall disburse to the Purchaser any undisputed portion
of the Financial Claimed
Amount expressly acknowledged by the Seller's Representative to be undisputed,
and the balance of such
Financial Claimed Amount shall be disbursed as provided in Section 3(c) below.
In the event that the Seller's Representative submits a written
objection as provided in Section
3(b) hereof, the rights of the parties in and to the disputed portion of the
Financial Claimed Amount shall
be either: (i) determined by a written direction to the Escrow Agent
signed by both Purchaser's
Representative and Seller's Representative; (ii) if arising from Other
Permitted Claims, determined by
final arbitration judgment or decree of an arbitration panel constituted
and pursuant to procedures
described at Section 11 of the Purchase Agreement ("Other Permitted Claims
Arbitration Decision") a
copy of which Section is attached hereto; or (iii) if arising from Deficiency
Claims, determined by final
arbitration as provided by Section 12(i)(3) of the Purchase Agreement
(a "Deficiency Claims Arbitration
Decision"), a copy of which Section is attached hereto. The Other Permitted
Claims Arbitration Decision
and the Deficiency Claims Arbitration Decision when rendered in accordance
with the provisions of
Sections 11 or 12 (as applicable) of the Purchase Agreement shall be deemed
final. Promptly upon
determination pursuant to this Section 3(c), the Escrow Agent shall disburse
the amount to which the
Purchaser or the Sellers is entitled as determined hereunder either by (i)
joint written direction of the
Purchaser's Representative and the Seller's Representative or (ii) an Other
Permitted Claims Arbitration
Decision or a Deficiency Claims Arbitration Decision directing such
disbursement. To the extent it is
determined that, in accordance with this Section 3(c), the Purchaser or the
Sellers are entitled to less than
the disputed portion of the Financial Claimed Amount, then the portion
thereof to which the party is not
entitled shall cease to be a Financial Claimed Amount and shall become
Unrestricted Financial Escrow
Funds for purposes of this Agreement.
Termination. This Agreement shall terminate, and all obligations
hereunder shall cease, upon the
date that all Financial Escrow Funds have been disbursed by the Escrow
Agent in accordance with the
provisions hereof.
Payment Upon Joint Written Instructions. Notwithstanding
anything in this Escrow Agreement
to the contrary, the Escrow Agent shall make payment of all amounts
which it receives and holds under
this Escrow Agreement in accordance with the terms of any written
instructions, notices or certificates
jointly executed by Purchaser's Representative and by Seller's
Representative, unless a court of competent
jurisdiction has ordered otherwise.
Compensation, etc.
The Escrow Agent shall serve without compensation prior to
August 31, 1997. The Escrow
Agent shall be entitled to receive compensation from Sellers and Purchaser,
in an amount mutually agreed
to among the parties hereto, if this Agreement shall not have terminated
on or before August 31, 1997.
The Escrow Agent shall be reimbursed upon request for
all reasonable fees, expenses,
disbursements and advances incurred or made by it in connection with
this Agreement, including without
limitation, the fees and expenses of its counsel.
<PAGE>
Sellers and Purchaser shall each pay one-half of the compensation
and reimbursements payable
to the Escrow Agent under this Agreement.
Escrow Agent's Responsibilities.
The Escrow Agent shall not be liable for any action or inaction taken
or omitted by it in good
faith and believed by it to be authorized or within the rights or powers
conferred upon it by this
Agreement. The Escrow Agent may rely on an opinion of counsel of its own
choice regarding the
Escrow Agent's authorization for action or inaction. The Escrow Agent, its
partners, officers, employees
and attorneys shall be jointly and severally indemnified and held harmless by
Purchaser and Sellers against
any liability, loss, cost or expense for any action or inaction taken or
omitted or suffered, except liability
resulting from its or their own willful misconduct or gross negligence,
and against the cost and expense
of defending any legal proceedings which may be instituted against it or
any of them (other than any such
proceeding which shall have resulted in judgment against the Escrow Agent
against which the Escrow
Agent is not indemnified hereunder), including legal fees, in respect of
the subject matter of this
Agreement. The indemnification contained in this Section 7(a) shall
survive the termination of this
Agreement. The Escrow Agent shall not be required to institute legal
proceedings of any kind. The
Sellers and the Purchaser hereby authorize the Escrow Agent, if the Escrow
Agent is threatened with
litigation or is sued, to interplead all interested parties in any court of
competent jurisdiction.
Specifically and without limiting the foregoing, the Escrow
Agent shall in no event have
any liability in connection with its investment or reinvestment of any
Financial Escrow Funds held by it
hereunder, made in good faith and in accordance with the terms hereof,
including without limitation any
liability for any delay not resulting from gross negligence or willful
misconduct or for any loss of income
incident to any such delay.
The Escrow Agent shall not be held liable under this Agreement to
the extent that it shall have
complied with the terms hereof, nor be deemed to owe any fiduciary duty to
Purchaser and Sellers. The
Escrow Agent shall be obligated to perform only such duties as are expressly
set forth in this Agreement.
No implied covenants or obligations shall be inferred from this Agreement
against the Escrow Agent, nor
shall the Escrow Agent be bound by the provisions of any agreement
(including the Purchase Agreement
except for the attached Sections 11 and 12) between Purchaser and
Sellers beyond the specific terms
hereof.
The Escrow Agent shall be entitled to rely upon any order, judgment,
certification, instruction,
notice or other writing delivered to it in compliance with the provisions of
this Agreement believed by
it in good faith to be genuine without being required to determine the
authenticity of the writing, the
correctness of any fact stated therein or the propriety, validity or
service thereof. The Escrow Agent may
rely upon any instrument comporting with the provisions of this
Agreement or signature believed by it
to be genuine and may assume that any person purporting to give notice,
receipt or advice or to make
any statement or execute any document in connection with the provisions
hereof has been duly authorized
to do so. Specifically and not by way of limitation, the Escrow Agent
may rely on the identity and
authority of the designated persons set forth in Section 2(c) of this
Agreement and any person purporting
to act as arbitrator under Sections 11 or 12 of the Purchase Agreement, until
it receives written notice
to the contrary from Purchaser's Representative or Seller's Representative.
The Escrow Agent does not have any interest in the Financial
Escrow Funds deposited hereunder
but is serving as escrow holder only and has only possession thereof.
The Escrow Agent makes no
representation as to the validity, value, genuineness or collectability of
any security or other document
<PAGE>
or instrument held by or delivered to it. The Escrow Agent shall not be
called upon to advise any party
as to selling or retaining, or taking or refraining from taking any action with
respect to, any securities or
other property deposited hereunder.
In the event that any provision governing the Financial Escrow Funds
is ambiguous or that the
Escrow Agent is uncertain as how to proceed, and the Escrow Agent, in its
reasonable judgment, deems
it necessary for its protection, the Escrow Agent may refrain from taking any
action other than to retain
custody of the Financial Escrow Funds deposited hereunder until it shall
have received joint written
instructions signed by Purchaser's Representative and Seller's Representative,
or, in the alternative, to
deposit the Financial Escrow Funds with a court of competent jurisdiction and
to have no further duties
or responsibilities in connection therewith.
Resignation, Removal and Succession of Escrow Agent.
The Escrow Agent may resign at any time by giving thirty (30) days'
prior written notice to
Purchaser's Representative and Seller's Representative. The Escrow Agent may
be removed at any time
upon ten (10) days' prior written notice given jointly by Purchaser's
Representative and Seller's
Representative to the Escrow Agent. If 30 days after written notice is given
for resignation or removal,
the Escrow Agent has not received a written designation of a successor Escrow
Agent, the Escrow Agent
may, in its sole discretion, either (i) retain custody of the Financial Escrow
Funds and invest such funds
as provided herein until it receives such designation and thereupon, pay over
the Financial Escrow Funds
to such successor Escrow Agent, (ii) or to deposit the Financial Escrow Funds
with a court of competent
jurisdiction. Upon compliance with either (i) or (ii) above, the Escrow Agent
shall be discharged from
all obligations or liabilities under this Agreement other than those resulting
from the Escrow Agent's
willful misconduct or gross negligence, and shall have no further duties or
responsibilities in connection
with this Agreement.
If notice of resignation or removal shall have been given
pursuant to subparagraph (a)
above, then a successor Escrow Agent shall be appointed jointly by Purchaser's
Representative and
Seller's Representative.
Upon appointment and acceptance as Escrow Agent, each successor Escrow
Agent shall
forthwith, without further act or deed, succeed to all the rights and duties
of its predecessor under this
Agreement. Such predecessor shall promptly deliver to the successor Escrow
Agent all sums held
hereunder, together with all records and other documents necessary or
appropriate for the successor
Escrow Agent to perform its duties under this Agreement. The Escrow Agent may,
however, retain a
reasonable reserve fund for the payment of fees and expenses rendered under
this Agreement. Upon the
written request of the successor Escrow Agent, Purchaser's Representative or
Seller's Representative and
upon payment of all amounts due such predecessor Escrow Agent under this
Agreement, the predecessor
shall transfer to, assign to and confirm with the successor Escrow Agent
all its rights under this
Agreement by executing and delivering from time to time to the successor
Escrow Agent any instruments
and by taking any other action as may reasonably be requested by the
successor Escrow Agent,
Purchaser's Representative or Seller's Representative.
Governing Law. This Agreement shall be governed and interpreted and
enforced in accordance
with the laws of the Commonwealth of Pennsylvania without regard to conflict
of law principles.
<PAGE>
Notices. All notices and other communications under or respecting
this Agreement or its subject
matter shall be in writing and shall be deemed given when delivered personally,
three (3) days from when
mailed by registered mail, return receipt requested, one (1) day from when sent
by documented overnight
delivery service or, to the extent receipt is confirmed, when sent by telecopy,
to the parties at the
following addresses or telecopy numbers (or to such other address or number as
a party may have
specified by notice given to the other party pursuant to this provision):
Escrow Agent: Donald H. Roberts, Jr./
Diane E. Janders
Brown Brothers Harriman & Co.
1531 Walnut Street
Philadelphia, PA 19102
Telecopier (215) 864-3989
Purchaser's Representative: Mr. Frank Brown
Arthur Treacher's, Inc.
7400 Baymeadows Way
Suite 300
Jacksonsville, FL 32255
Telecopier (904) 739-2500
with a copy to: Steven Schuster, Esquire
McLaughlin and Stern, LLP
260 Madison, 18th Floor
New York, NY 10016
Telecopier (212) 448-0066
Seller's Representative: Mr. Harry M. Katerman
Magee Industrial Enterprises, Inc.
480 Fifth Avenue
Bloomsburg, PA 17815
Telecopier (717) 784-5222
with a copy to: White and Williams
1800 One Liberty Place
Philadelphia, PA 19103
Attention: Gary P. Biehn, Esq.
Telecopy No.: (215) 864-7123
Confirmation No.: (215) 864-7007
Miscellaneous.
This Agreement shall not be assignable by any party.
<PAGE>
This instrument contains the entire agreement and understanding of the
parties hereto. It
may not be amended, modified or supplemented and none of its provisions may
be waived except
by an agreement in writing signed by the parties hereto.
If any term, condition or provision of this Agreement shall be
declared, to any extent, invalid
or unenforceable, the remainder of the Agreement shall not be affected thereby,
shall be considered
in full force and effect and shall be valid and enforced to the fullest extent
permitted by law.
The captions set forth in this Agreement are used solely for
convenience or reference and
shall not control or affect the meaning or interpretation of any of the
provisions.
This Agreement may be signed in any number of counterparts each of
which shall be deemed
an original.
In the event that any payment becomes due on a day that is a
Saturday, Sunday or legal
holiday in the Commonwealth of Pennsylvania, such payment shall be made on
the next succeeding
day that is not a Saturday, Sunday or legal holiday.
Specimen signatures for the Purchaser's Representative and Seller's
Representative are set
forth below:
Frank Brown
Harry M. Katerman
The Escrow Agent shall obtain a Taxpayer Identification Number from
the Purchaser for
the Financial Escrow Funds, which shall be used for all investments under
Section 2(c) hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date
first above written.
ARTHUR TREACHER'S, INC.
By:/s/ Frank Brown
Title:
Sellers
By:
Harry M. Katerman, as agent
for Sellers
BROWN BROTHERS HARRIMAN & CO.
<PAGE>
By:
Title:
<PAGE>
SCHEDULE "A"
A. Non-Voting:
Name of Shareholder Number of Shares Certificate Number
James A. Magee 9,726.988 NV 2
Audrey R. Magee 259.460 NV 3
Joanne M. Katerman 8,209.742 NV 4
Myles W. Katerman 1,864.605 NV 5
James R. Magee 70,888.077 NV 6
Elizabeth C. Magee 70,888.077 NV 7
Drue Magee 70,888.077 NV 8
Harry M. Katerman 68,494.144 NV 9
Barbara J. Paule 68,494.144 NV 10
Christine K. Wheadon 68,494.144 NV 11
Thomas Wheadon 2,312.300 NV 12
Joanne M. Katerman and 55,614.961 NV 13
Myles W. Katerman, T/U/D
Harry L. Magee dated
April 24, 1968, James R.
Magee, Remainderman
Joanne M. Katerman and 55,614.961 NV 14
Myles W. Katerman, T/U/D
Harry L. Magee dated
April 24, 1968,
Elizabeth C. Magee,
Remainderman
Joanne M. Katerman and 55,614.961 NV 15
Myles W. Katerman, T/U/D
Harry L. Magee dated
April 24, 1968, Drue
Magee, Remainderman
<PAGE>
James A. Magee and Audrey 55,614.961 NV 16
R. Magee, T/U/D Harry L.
Magee dated April 24, 1968,
Harry M. Katerman,
Remainderman
James A. Magee and 55,614.961 NV 17
Audrey R. Magee, T/U/D
Harry L. Magee dated
April 24, 1968,
Christine K. Wheadon,
Remainderman
James A. Magee and 55,614.961 NV 18
Audrey R. Magee, T/U/D
Harry L. Magee dated
April 24, 1968,
Barbara J. Paule,
Remainderman
James A. Magee, Joanne M. 2,625.012 NV 19
Katerman and Mellon Bank,
N.A. (formerly Commonwealth
National Bank) T/U/A Harry
L. Magee, Trust "A" f/b/o
James A. Magee
James A. Magee, Joanne M. 2,625.012 NV 20
Katerman and Mellon Bank,
N.A. (formerly Commonwealth
National Bank) T/U/A Harry
L. Magee, Trust "A" f/b/o
Joanne M. Katerman
James A. Magee, Joanne M. 346.356 NV 21
Katerman and Mellon Bank,
N.A. (formerly Commonwealth
National Bank) T/U/A Harry
L. Magee, Trust "B" f/b/o
James A. Magee
James A. Magee, Joanne M. 346.356 NV 22
Katerman and Mellon Bank,
N.A. (formerly Commonwealth
National Bank) T/U/A Harry
L. Magee, Trust "B" f/b/o
<PAGE>
Joanne M. Katerman
__________
TOTAL 780,152.260
<PAGE>
B. Voting:
Name of Shareholder Number of Shares Certificate Number
Audrey R. Magee .103 V3
Joanne M. Katerman 5.737 V4 (5.7)
Myles W. Katerman .088 V5
James A. Magee 5.722 V6
Total: 11.650
<PAGE>
EXHIBIT 10.6 Mutual Release Agreement
dated November 27, 1996, among M.I.E.
Hospitality, Inc., Arthur Treacher's,
Inc. And Magee Industrial Enterprises.
<PAGE>
MUTUAL RELEASE AGREEMENT
RELEASE AGREEMENT made this 27th day of November 1996, by
and among
M.I.E. Hospitality, Inc., a corporation organized and existing under the
laws of the State of
Pennsylvania, ("M.I.E." or the "Company"), the shareholders of the Company
listed on the
signature pages attached hereto (the "Sellers"), Arthur Treacher's, Inc.,
a corporation organized
and existing under the laws of the State of Utah (the "Buyer"), and
Magee Industrial Enterprises,
Inc. ("Magee").
R E C I T A L S
WHEREAS, Sellers and Buyer entered into a Stock Purchase
Agreement dated as
of November 27, 1996 (the "Purchase Agreement") whereby Buyer purchased from
Sellers all the
issued and outstanding shares of capital stock of the Company.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants
hereinafter set forth, the sufficiency of which is hereby acknowledged and
intending to be legally
bound, the parties hereto agree as follows:
1. By reason of this Mutual Release Agreement, the
parties expressly
acknowledge, agree and stipulate that neither the Sellers and Magee
(the "Selling Group") nor the
Company and the Buyer (the "Buying Group") owes any sums to the other
group with respect to
the operation or management of the Company or under any agreement or
understanding except as
contemplated by the Purchase Agreement, and that neither the Selling
Group nor the Buying Group
has any claim or cause of action against the other groups arising
out of, pursuant to, or in
connection with, the operation or management of the Company or
otherwise, except as
contemplated by the Purchase Agreement through and as of the date hereof.
<PAGE>
2. M.I.E. and Buyer fully and forever release,
acquit and discharge Sellers,
Magee and the Company's officers and directors from any and all manner of
actions and causes of
action, suits, chooses in action, contracts, covenants, claims, bonds,
bills, debts, dues, sums of
money, obligations, judgments, executions, damages, demands and rights
whatsoever, in law or in
equity, now existing or which may hereafter accrue in favor of M.I.E. or
Buyer, and/or by reason
of any other matter, cause or thing whatsoever to the date of this
Mutual Release Agreement,
except for any such actions and causes of action, suits, chooses in action,
contracts, covenants,
claims, bonds, bills, debts, dues, sums of money, obligations, judgments,
executions, damages,
demands and rights whatsoever, in law or in equity by reason of, arising out
of, or in connection
with, the Purchase Agreement or the transactions contemplated thereby,
including, but not limited
to, the promissory note executed by the Company in favor of Magee in the
principal amount of
$1,139,563, the guaranty executed by Buyer in favor of Magee, the promissory
note executed by
the Buyer in favor of Magee in the principal amount of $390,417, and the
Series B Preferred Stock
held by Magee as of the Closing Date, and the Transitional Letter Agreement.
3. Sellers fully and forever release, acquit and
discharge the Company and
Buyer and their respective officers and directors from any and all manner of
actions and causes of
action, suits, chooses in action, contracts, covenants, claims, bonds, bills,
debts, dues, sums of
money, obligations, judgments, executions, damages, demands and rights
whatsoever, in law or in
equity, now existing or which may hereafter accrue in favor of Sellers and/or
by reason of any other
matter, cause or thing whatsoever to the date of this Mutual Release
Agreement, except for any
such actions and causes of action, suits, chooses in action, contracts,
covenants, claims, bonds, bills,
debts, dues, sums of money, obligations, judgments, executions, damages,
demands and rights
whatsoever, in law or in equity by reason of, arising out of, or in connection
with, the Purchase
<PAGE>
Agreement or the transactions contemplated thereby, including, but not limited
to, the promissory
note executed by the Company in favor of Magee in the principal amount of
$1,139,563, the
guaranty executed by Buyer in favor of Magee, the promissory note executed by
the Buyer in favor
of Magee in the principal amount of $390,417, the Series B Preferred Stock
held by Magee as of
the Closing Date, and the Transitional Letter Agreement.
4. Magee fully and forever releases, acquits and
discharges the Company and
it's officers and directors from any and all manner of actions and causes of
action, suits, chooses
in action, contracts, covenants, claims, bonds, bills, debts, dues, sums of
money, obligations,
judgments, executions, damages, demands and rights whatsoever, in law or in
equity, now existing
or which may hereafter accrue in favor of Magee, and/or by reason of any
other matter, cause or
thing whatsoever to the date of this Mutual Release Agreement, except for
any such actions and
causes of action, suits, chooses in action, contracts, covenants, claims,
bonds, bills, debts, dues,
sums of money, obligations, judgments, executions, damages, demands and
rights whatsoever, in
law or in equity by reason of, arising out of, or in connection with, the
Purchase Agreement or the
transactions contemplated thereby, including, but not limited to, the
promissory note executed by
the Company in favor of Magee in the principal amount of $1,139,563,
the guaranty executed by
Buyer in favor of Magee, the promissory note executed by the Buyer in favor of
Magee in the
principal amount of $390,417, and the Series B Preferred Stock held by Magee
as of the Closing
Date, and the Transitional Letter Agreement .
5. The parties expressly agree that this Release
Agreement shall be governed
by and shall be interpreted, construed and enforced in accordance with the
laws of the
Commonwealth of Pennsylvania without giving effect to provisions as to
conflicts of law and with
<PAGE>
the same force and effect as if this Mutual Release Agreement were fully
executed and to be
performed wholly within the Commonwealth of Pennsylvania.
6. All the terms and provisions of this Mutual Release
Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties hereto
and their respective
successors and assigns.
7. This Mutual Release Agreement constitutes the
entire agreement of the
parties hereto with respect to the matters herein contained and may not be
altered, modified or
amended except in writing, executed and delivered by or on behalf of
the parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be
duly executed as of the day and year first above written.
ARTHUR TREACHER'S, INC.
By:
Title:
M.I.E. HOSPITALITY, INC.
By:
Title:
MAGEE INDUSTRIAL ENTERPRISES, INC.
By:
Title:
Michael Katerman, as agent for the
Sellers set forth on Schedule A
<PAGE>
EXHIBIT 10.6 Mutual Release Agreement
dated November 27, 1996, among M.I.E.
Hospitality, Inc., Arthur Treacher's,
Inc. And Magee Industrial Enterprises.
<PAGE>
MUTUAL RELEASE AGREEMENT
RELEASE AGREEMENT made this 27th day of November 1996, by and
among
M.I.E. Hospitality, Inc., a corporation organized and existing under the laws
of the State of
Pennsylvania, ("M.I.E." or the "Company"), the shareholders of the Company
listed on the
signature pages attached hereto (the "Sellers), Arthur Treacher's, Inc.,
a corporation organized
and existing under the laws of the State of Utah (the"Buyer"), and Magee
Industrial Enterprises,
Inc. ("Magee").
R E C I T A L S
WHEREAS, Sellers and Buyer entered into a Stock Purchase
Agreement dated as
of November 27, 1996 (the "Purchase Agreement") whereby Buyer purchased from
Sellers all the
issued and outstanding shares of capital stock of the Company.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants
hereinafter set forth, the sufficiency of which is hereby acknowledged and
intending to be legally
bound, the parties hereto agree as follows:
1. By reason of this Mutual Release Agreement, the
parties expressly
acknowledge, agree and stipulate that neither the Sellers and Magee (the
"Selling Group") nor the
Company and the Buyer (the "Buying Group") owes any sums to the other group
with respect to
the operation or management of the Company or under any agreement or
understanding except as
contemplated by the Purchase Agreement, and that neither the Selling Group
nor the Buying Group
has any claim or cause of action against the other groups arising out of,
pursuant to, or in
connection with, the operation or management of the Company or otherwise,
except as
contemplated by the Purchase Agreement through and as of the date hereof.
<PAGE>
2. M.I.E. and Buyer fully and forever release,
acquit and discharge Sellers,
Magee and the Company's officers and directors from any and all manner of
actions and causes of
action, suits, chooses in action, contracts, covenants, claims, bonds, bills,
debts, dues, sums of
money, obligations, judgments, executions, damages, demands and rights
whatsoever, in law or in
equity, now existing or which may hereafter accrue in favor of M.I.E. or
Buyer, and/or by reason
of any other matter, cause or thing whatsoever to the date of this
Mutual Release Agreement,
except for any such actions and causes of action, suits, chooses in action,
contracts, covenants,
claims, bonds, bills, debts, dues, sums of money, obligations, judgments,
executions, damages,
demands and rights whatsoever, in law or in equity by reason of, arising
out of, or in connection
with, the Purchase Agreement or the transactions contemplated thereby,
including, but not limited
to, the promissory note executed by the Company in favor of Magee in the
principal amount of
$1,139,563, the guaranty executed by Buyer in favor of Magee, the promissory
note executed by
the Buyer in favor of Magee in the principal amount of $390,417, and the
Series B Preferred Stock
held by Magee as of the Closing Date, and the Transitional Letter Agreement.
3. Sellers fully and forever release, acquit and
discharge the Company and
Buyer and their respective officers and directors from any and all manner of
actions and causes of
action, suits, chooses in action, contracts, covenants, claims, bonds, bills,
debts, dues, sums of
money, obligations, judgments, executions, damages, demands and rights
whatsoever, in law or in
equity, now existing or which may hereafter accrue in favor of Sellers and/or
by reason of any other
matter, cause or thing whatsoever to the date of this Mutual Release
Agreement, except for any
such actions and causes of action, suits, chooses in action, contracts,
covenants, claims, bonds, bills,
debts, dues, sums of money, obligations, judgments, executions, damages,
demands and rights
whatsoever, in law or in equity by reason of, arising out of, or in connection
with, the Purchase
<PAGE>
Agreement or the transactions contemplated thereby, including, but not limited
to, the promissory
note executed by the Company in favor of Magee in the principal amount of
$1,139,563, the
guaranty executed by Buyer in favor of Magee, the promissory note executed by
the Buyer in favor
of Magee in the principal amount of $390,417, the Series B Preferred Stock
held by Magee as of
the Closing Date, and the Transitional Letter Agreement.
4. Magee fully and forever releases, acquits and
discharges the Company and
it's officers and directors from any and all manner of actions and causes
of action, suits, chooses
in action, contracts, covenants, claims, bonds, bills, debts, dues, sums
of money, obligations,
judgments, executions, damages, demands and rights whatsoever, in law or in
equity, now existing
or which may hereafter accrue in favor of Magee, and/or by reason of any other
matter, cause or
thing whatsoever to the date of this Mutual Release Agreement, except for any
such actions and
causes of action, suits, chooses in action, contracts, covenants, claims,
bonds, bills, debts, dues,
sums of money, obligations, judgments, executions, damages, demands and
rights whatsoever, in
law or in equity by reason of, arising out of, or in connection with, the
Purchase Agreement or the
transactions contemplated thereby, including, but not limited to, the
promissory note executed by
the Company in favor of Magee in the principal amount of $1,139,563,
the guaranty executed by
Buyer in favor of Magee, the promissory note executed by the Buyer in
favor of Magee in the
principal amount of $390,417, and the Series B Preferred Stock held by
Magee as of the Closing
Date, and the Transitional Letter Agreement .
5. The parties expressly agree that this Release
Agreement shall be governed
by and shall be interpreted, construed and enforced in accordance
with the laws of the
Commonwealth of Pennsylvania without giving effect to provisions as to
conflicts of law and with
<PAGE>
the same force and effect as if this Mutual Release Agreement were fully
executed and to be
performed wholly within the Commonwealth of Pennsylvania.
6. All the terms and provisions of this Mutual Release
Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties hereto
and their respective
successors and assigns.
7. This Mutual Release Agreement constitutes the
entire agreement of the
parties hereto with respect to the matters herein contained and may not be
altered, modified or
amended except in writing, executed and delivered by or on behalf of the
parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be
duly executed as of the day and year first above written.
ARTHUR TREACHER'S, INC.
By:
Title:
M.I.E. HOSPITALITY, INC.
By:
Title:
MAGEE INDUSTRIAL ENTERPRISES, INC.
By:
Title:
Michael Katerman, as agent for the
Sellers set forth on Schedule A
<PAGE>
EXHIBIT 10.7 Promissory Note dated
November 27, 1996 for $390,417 from M.I.E.
Hospitality, Inc.in favor of
Magee Industrial Enterprises, Inc.
<PAGE>
PROMISSORY NOTE
$390,417 Philadelphia, Pennsylvania
November 27, 1996
FOR VALUE RECEIVED, the undersigned, Arthur
Treacher's, Inc. , a Utah
corporation (the "Maker"), hereby promises to pay to the order of Magee
Industrial Enterprises,
Inc. (the "Holder") on the 1st day of September, 1998 (the "Maturity Date"), at
480 W. 5th Street,
Bloomsburg, Pennsylvania 17815, or such other address as may be designated by
the Holder, the
principal sum of Three Hundred Ninety Thousand Four Hundred Seventeen Dollars
($390,417) in such coin or currency of the United States of America as at the
time of payment shall
be legal tender for the payment of public and private debts.
Section 1. Prepayment
The principal amount of this Note may be prepaid by
the Maker, in whole or in part,
without premium or penalty, at any time. All prepayments shall be applied
first to principal and then
to accrued interest.
Section 2. Interest
This Note shall not bear interest unless an Event
of Default, as defined herein, has
occurred. Upon the occurrence of an Event of Default, this Note shall bear
interest at the rate of
thirteen percent (13%) per annum ("Default Rate") from the date of the
Event of Default until paid
in full. Accrued interest shall be due and payable on the Maturity Date or
as otherwise provided
in this Note.
Section 3. Events of Default
The occurrence of any of the following events
shall constitute a default hereunder
(hereinafter collectively referred to as "Events of Default" and
individually as "Event of Default").
(a) Failure of Maker to pay when due any payment
of interest or principal or both
as provided in this Note or the failure to pay when due any other sums
required to be paid herein
or the failure to pay when due any other sums required to be paid
under the provisions of the
Purchase Agreement dated November 27, 1996 between Maker and certain
Sellers ("Purchase
Agreement") and continuation of such failure to pay under the Purchase
Agreement for a period of
thirty (30) days after notice from Holder.
(b) Any proceeding under the Bankruptcy Code or
any law of the United States of
America or of any state relating to insolvency, receivership, reorganization,
or debt adjustment is
instituted by Maker; or such proceeding is instituted against Maker is
consented to by the Maker
or remains undismissed for sixty (60) days; or if there is an Order for Relief
entered against Maker;
or if a trustee or receiver is appointed for any substantial part of the
property of Maker or a
custodian, as that term is defined under Section 101 (10) of the Bankruptcy
Code, is appointed to
<PAGE>
take charge of all or less than all of the property of Maker; or Maker makes
an assignment for the
benefit of creditors, or becomes insolvent.
(c) Failure of Maker to observe and perform any
of the other terms, covenants and
conditions of this Note or of the Purchase Agreement and the continuation of
such breach for a
period of thirty (30) days after notice from Holder.
(d) The occurrence of an Event of Default under
the $1,139,563 Note from M.I.E.
Hospitality, Inc. to Holder.
UPON the occurrence of an Event of Default, at the
option of Holder the whole
unpaid principal sum and all accrued and unpaid interest thereon, and all
other sums payable under
this Note shall become due and payable immediately, and Holder may forthwith
and without demand
exercise or cause to be exercised the warrant as hereinafter set forth, in
addition to such rights and
remedies as may herein be provided, or which may be available to Holder by law,
without further
stay, any law, usage or custom to the contrary notwithstanding.
MAKER DOES HEREBY AUTHORIZE AND EMPOWER THE
PROTHONOTARY, CLERK OF COURT OR ANY ATTORNEY OF ANY COURT OF
RECORD OF THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE,
AFTER AN EVENT OF DEFAULT (AS SUCH TERM IS DEFINED IN THIS NOTE), TO
APPEAR FOR AND CONFESS JUDGEMENT AGAINST MAKER AND IN FAVOR OF
HOLDER, ITS SUCCESSORS OR ASSIGNS, AS OF ANY TERM, PAST, PRESENT OR
FUTURE, WITH OR WITHOUT DECLARATION, FOR EACH AND ALL OF THE
FOLLOWING:
(A) THE UNPAID PRINCIPAL SUM EVIDENCED BY THIS
NOTE WITH
ALL OF THE ACCRUED AND UNPAID INTEREST THEREON;
(B) ALL OTHER SUMS AS ARE DUE AND PAYABLE TO
HOLDER
UNDER THE TERMS OF THIS NOTE WHETHER BY ACCELERATION OR
OTHERWISE;
(c) THE AGGREGATE OF ALL SUMS EXPENDED BY HOLDER
AT ANY
TIME AND FROM TIME TO TIME, IN CONNECTION WITH THE COLLECTION OF
AMOUNTS DUE UNDER THIS NOTE WHETHER PERMITTED UNDER THE TERMS
OF THE NOTE, PERMITTED BY LAW, OR PERMITTED BY STATUTE, DUE TO AN
EVENT OF DEFAULT UNDER THIS NOTE; AND
(D) THE COSTS OF SUIT AND REASONABLE ATTORNE'S
FEES IN
CONNECTION WITH THE COLLECTION OF AMOUNTS DUE UNDER THIS NOTE,
WITH RELEASE OF ALL ERRORS, AND ON WHICH JUDGEMENT HOLDER MAY
ISSUE OR CAUSE TO BE ISSUED AN EXECUTION OR EXECUTIONS, WAIVING
APPRAISEMENT AS TO ANY PROPERTY LEVIED UPON BY VIRTUE OF ANY SUCH
JUDGEMENT, AND ALL EXEMPTION FROM LEVY AND SALE OF ANY PROPERTY
WHICH IS NOW OR HEREINAFTER IS EXEMPT UNDER ANY ACT OF THE STATE
<PAGE>
WHEREIN THE JUDGEMENT IS ENTERED. NO SINGLE EXERCISE OF THIS
WARRANT AND POWER TO CONFESS JUDGEMENT SHALL BE DEEMED TO
EXHAUST THIS POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE
STRICKEN, VACATED, REMOVED OR OTHERWISE HELD BY ANY COURT TO BE
INVALID, VOIDABLE OR VOID, BUT THIS POWER SHALL CONTINUE
UNDIMINISHED AND MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS
HOLDER SHALL ELECT UNTIL THIS NOTE AND ALL SUMS DUE HEREUNDER
SHALL BE PAID IN FULL, AND MAKER HAS PERFORMED ALL OF THE
PROVISIONS HEREUNDER. MAKER HEREBY AUTHORIZES HOLDER TO RE-
ASSESS DAMAGES FROM TIME TO TIME AND AS OFTEN AS HOLDER DEEMS
NECESSARY SO THAT ANY AND ALL JUDGEMENTS CONFESSED HEREUNDER
SHALL INCLUDE ALL SUMS LISTED UNDER SUBPARAGRAPHS (A) THROUGH (D)
ABOVE AS THE SAME ARE INCURRED FROM TIME TO TIME, EVEN AFTER
ENTRY OF JUDGEMENT UNDER THIS WARRANT OF ATTORNEY.
NOTWITHSTANDING ANY NOTICE AND OPPORTUNITY TO CURE
UNDER THIS NOTE, HOLDER SHALL PROVIDE MAKER WITH NO LESS THAN
FIVE (5) BUSINESS DAYS PRIOR WRITTEN NOTICE BEFORE EXERCISING ITS
RIGHTS UNDER THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT.
Section 4. Covenants and Agreements
Maker further covenants and agrees as follows:
(a) All rights and remedies hereby granted or
otherwise available to Holder in the
Purchase Agreement or available at law or in equity (including the warrants of
attorney contained
herein) shall be cumulative and concurrent and may be pursued singly,
successively or together at
Holder's sole option, and may be exercised from time to time and as often as
occasion therefor shall
occur until the indebtedness hereby evidenced, with all interest thereon, is
paid in full; and the failure
to exercise any such right or remedy shall in no event be construed as a waiver
or release of same
by Holder. Holder may resort to any security it holds in such order and manner
as Holder sees fit.
(b) If at any time Holder shall deem or shall be
advised that any further instruments,
documents or acts or things are necessary or desirable to vest or confirm any
right or remedy herein
granted, Maker will execute, acknowledge when appropriate and deliver any such
instrument or
document and so or cause to be done any act or thing deemed necessary or
desirable by Holder for
any such purpose.
(c) If Holder shall refer to counsel because of
any default thereunder, then Maker
shall reimburse Holder for reasonable attorney's fees and costs incurred, and
if at any time judgment
be entered under this Note, then a reasonable attorney's fee shall be
payable by Maker and shall be
computed upon and be recovered in addition to all principal, interest and
other recoverable sums
then due, in addition to costs of suit. Upon the occurrence of an Event
of Default until final
payment of all sums evidenced hereby, all sums due hereunder shall bear
interest at the Default Rate
from the date of the occurrence of an Event of Default. Notwithstanding the
provisions of 42 Pa.
C.S.A. Section 8101 to the contrary, the Default Rate shall apply to all sums
evidenced hereby after
<PAGE>
an Event of Default and also after entry of a judgement or judgements against
Maker (whether by
confessions of judgement under a warrant of attorney or otherwise), and whether
or not any event
of default has occurred. Said judgement(s) shall bear interest at the Default
Rate until it is satisfied
in full.
(d) To the fullest extent permitted by law,
Maker hereby waives and releases all
errors, defects and imperfections in any proceedings instituted by Holder
under the terms of this
Note. Maker waives presentment for payment, protest and demand, notice of
protest, demand and
dishonor and non-payment of this Note, and all other notices in connection
with the delivery,
acceptance, performance, default or enforcement of the payment of this Note,
and agrees that its
liability shall be unconditional, without regard to any extension of time,
renewal, waiver or
modification granted or consented to by Holder. No extension of the time for
the payment of this
Note or any installment hereof made by agreement with any person or entity now
or hereafter liable
for the payment of this Note shall operate to release, discharge, modify,
change or affect the original
liability under this Note, either in whole or in part, of any person or entity
not a party to such
agreement. Holder shall not be deemed, by any act of omission or commission,
to have waived any
of its rights or remedies hereunder unless such waiver is in writing and
signed by Holder, and then
only to the extent specifically set forth in writing. A waiver of one event
shall not be construed as
continuing or as a bar to or waiver of any rights or remedy to a subsequent
event.
Section 5. Miscellaneous
(a) This Note shall be construed and enforced in
accordance with the laws of the
Commonwealth of Pennsylvania. Maker and Holder hereby consent to the
jurisdiction of the
Courts of the Commonwealth of Pennsylvania and the United States District
Courts for the
Eastern District of Pennsylvania in connection with any action concerning the
provisions of this
Note instituted by the Holder against Maker.
(b) This Note may be altered only by prior
written agreement signed by the party
against whom enforcement of any waiver, change, modification, or discharge is
sought. This
Note may not be modified by an oral agreement, even if supported by new
consideration.
(c) The covenants, terms and conditions contained
in this Note apply to and bind
the heirs, successors, executors, administrators and assigns of the parties.
(d) This Note constitutes a final written
expression of all the terms of the
agreement between the parties regarding the subject matter hereof, are a
complete and exclusive
statement of those terms, and supersedes all prior and contemporaneous
agreements,
understandings, and representations between the parties. If any provision or
any word, term,
clause, or other part of any provision of this Note shall be invalid for any
reason, the same shall
be ineffective, but the remainder of this Note shall not be affected and shall
remain in full force
and effect.
(e) All notices, consents, or other communications
provided for in this Note or
otherwise required by law shall be in writing and may be given to or made upon
the respective
parties at the following mailing addresses:
<PAGE>
Holder: Magee Industrial Enterprises, Inc.
480 W. 5th Street
Bloomsburg, Pennsylvania 17815
With a copy to: Gary P. Biehn, Esq.
White and Williams
1800 One Liberty Place
Philadelphia, PA 19103
Maker: M.I.E. Hospitality, Inc.
7400 Baymeadows Way
Suite 300
Jacksonville, Florida 32255
With a copy to: Steven W. Schuster
McLaughlin & Stern, LLP
260 Madison Avenue, 18th Floor
New York, New York 10016
Such addresses may be changed by notice given as
provided in this Subsection.
Notice may be given personally, by overnight courier or by certified or
registered U.S. mail.
Notices shall be effective upon the date of receipt; provided, however, that a
notice (other than
a notice of a changed address) sent by certified or registered U.S. mail, with
postage prepaid,
shall be presumed received no later than three (3) business days following the
date of sending.
MAKER ACKNOWLEDGES THAT THIS NOTE CONTAINS AN
AUTHORIZATION TO CONFESS JUDGEMENT ON NO LESS THAN FIVE (5)
BUSINESS DAYS PRIOR WRITTEN NOTICE, THAT IT HAS CONSULTED LEGAL
COUNSEL WITH RESPECT THERETO (OR KNOWINGLY WAIVED ITS RIGHT TO
DO SO), AND THAT IT UNDERSTANDS THAT THE EXERCISE BY HOLDER OF THE
CONFESSION WILL RESULT IN THE ENTRY OF A JUDGEMENT AGAINST MAKER
AND THE SALE OR ATTACHMENT OF, OR EXECUTION UPON, MAKER'S
PROPERTY AND BANK ACCOUNTS WITHOUT PRIOR NOTICE OR THE
OPPORTUNITY FOR A HEARING.
IN WITNESS WHEREOF, Arthur Treacher's, Inc., has
caused this Note to be
signed in its name by its President as of the day first set forth above.
ARTHUR TREACHER'S, INC.
By: /s/ Bruce Galloway
Name: Bruce Galloway
Title: Chairman of the Board
<PAGE>
EXHIBIT 10.8 Promissory Note dated
November 27, 1996 for $1,139,563 from M.I.E.
Hospitality, Inc. In favor of
Magee Industrial Enterprises, Inc.
<PAGE>
PROMISSORY NOTE
$1,139,563 Philadelphia, Pennsylvania
8% November 27, 1996
FOR VALUE RECEIVED, the undersigned, M.I.E.
Hospitality, Inc. ("Maker"),
promises to pay to the order of Magee Industrial Enterprises, Inc. ("Holder")
at 480 W. 5th
Street, Bloomsburg, Pennsylvania 17815, or at such other place as Holder may
from time to time
designate by written notice to Maker, in lawful money of the United States of
America, the
aggregate sum of One Million One Hundred Thirty-Nine Thousand Five Hundred
Sixty-Three
Dollars ($1,139,563) bearing interest at 8% per annum.
Section 1. Payments
Principal shall be payable in Ten (10) equal
semiannual installments of One
Hundred Thirteen Thousand Nine Hundred Fifty-Six Dollars ($113,956) each,
with the first
payment being due June 1, 1998 and the final payment being due on
December 1, 2002.
Maker shall have the right to prepay this Note
in full or in part at any time,
without premium or penalty. All prepayments shall be applied first to
principal and then to accrued
interest.
Section 2. Interest The principal amount of this Note shall
bear interest at the rate of eight
percent (8%) per annum commencing on the date hereof. Interest on the
outstanding principal
amount shall be payable every six months on the first day of each month
commencing June 1, 1997.
Section 3. Guaranty The Maker's obligations under this
Note are guaranteed by and entitled
to the benefits of a certain guaranty executed by Arthur Treacher's, Inc.
(the "Guarantor") of even
date herewith (the "Guaranty"). In the event of any conflict between the
terms of this Note and the
terms of the Guaranty, the terms of this Note shall govern.
Section 4. Mandatory Prepayment In the event of a closing
of (i) any debt or equity financing,
or series of financings, by the Maker or Guarantor for gross proceeds in
excess of (A) $15,000,000
in the aggregate, (other than any purchase money financing in connection with
the acquisition of any
assets) or (B) $10,000,000, in the aggregate, provided that the debt or
equity financing which
results in equaling or exceeding the aggregate gross proceeds of $10,000,000
is a debt or equity
financing
for gross proceeds of a minimum of $5,000,000 (other than any purchase
money financing in
connection with the acquisition of any assets) or (ii) the sale of all or
substantially all of the capital
stock or assets of the Maker or Guarantor, the balance of all outstanding
principal and interest under
this Note shall be prepaid in full by the Maker. In the event that the
Maker or Guarantor receives
cash from the sale, or series of sales, of any assets owned by the Maker or
Guarantor at the closing
date of a certain purchase agreement (the "Purchase Agreement") dated
November 27, 1996 by and
between Guarantor and certain Sellers, including, but not limited to
franchise rights, for an amount
in excess of $1,000,000, then 30% of the amount of cash received by the
Guarantor or the Maker
in consideration for the sale of such assets in excess of $1,000,000 shall
be used to prepay the
<PAGE>
principal then remaining due under this Note, which payment shall be applied to
the first payment
of principal then remaining due and then to each successive payment of
principal then remaining due
and then to accrued interest.
Section 5. Subsequent Adjustment In the event that Holder or
any of its affiliates receives
payment under any insurance policy arising out of the litigation captioned
Fettig, et. al. v.
M.I.E. Hospitality, Inc., et. al.3:CV-96-808, the principal amount due under
this Note shall be
reduced to reflect any payment received with respect thereto but only in
accordance with Section
13(a) of the Purchase Agreement.
Section 6. Default.
The occurrence of any of the following events shall
constitute a default hereunder
(hereinafter collectively referred to as "Events of Default" and
individually as "Event of Default").
(a) Failure of Maker to pay when due any payment
of interest or principal or both
as provided in this Note or the failure to pay when due any other sums
required to be paid herein
or the failure to pay when due any other sums required to be paid under
the provisions of the
Purchase Agreement and the continuation of such failure to pay under
the Purchase Agreement
for a period of thirty (30) days after notice from Holder.
(b) The breach by Guarantor or Maker of any
covenant requiring performance
after November 27, 1996 and set forth in the Purchase Agreement and the
continuation of such
breach for a period of thirty (30) days after notice from Holder.
(c) Any proceeding under the Bankruptcy Code or
any law of the United States of
America or of any state relating to insolvency, receivership, reorganization,
or debt adjustment is
instituted by Maker; or such proceeding is instituted against Maker is
consented to by the Maker
or remains undismissed for sixty (60) days; or if there is an Order for Relief
entered against Maker;
or if a trustee or receiver is appointed for any substantial part of the
property of Maker or a
custodian, as that term is defined under Section 101 (10) of the Bankruptcy
Code, is appointed to
take charge of all or less than all of the property of Maker; or Maker makes
an assignment for the
benefit of creditors, or becomes insolvent.
(d) Failure of Maker to observe and perform any
of the other terms, covenants and
conditions of this Note or of the Purchase Agreement and the continuation of
such breach for a
period of thirty (30) days after notice from Holder.
(e) The occurrence of an "Event of Default" under
the $1,139,563 Note from
Guarantor to Holder.
UPON the occurrence of an Event of Default, at the
option of Holder the whole
unpaid principal sum and all accrued and unpaid interest thereon, and all other
sums payable under
this Note shall become due and payable immediately, and Holder may forthwith
and without demand
exercise or cause to be exercised the warrant as hereinafter set forth, in
addition to such rights and
<PAGE>
remedies as may herein be provided, or which may be available to Holder by law,
without further
stay, any law, usage or custom to the contrary notwithstanding.
MAKER DOES HEREBY AUTHORIZE AND EMPOWER THE
PROTHONOTARY, CLERK OF COURT OR ANY ATTORNEY OF ANY COURT OF
RECORD OF THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE,
AFTER AN EVENT OF DEFAULT (AS SUCH TERM IS DEFINED IN THIS NOTE), TO
APPEAR FOR AND CONFESS JUDGEMENT AGAINST MAKER AND IN FAVOR OF
HOLDER, ITS SUCCESSORS OR ASSIGNS, AS OF ANY TERM, PAST, PRESENT OR
FUTURE, WITH OR WITHOUT DECLARATION, FOR EACH AND ALL OF THE
FOLLOWING:
(a) THE UNPAID PRINCIPAL SUM EVIDENCED BY THIS
NOTE WITH
ALL OF THE ACCRUED AND UNPAID INTEREST THEREON;
(b) ALL OTHER SUMS AS ARE DUE AND PAYABLE TO
HOLDER
UNDER THE TERMS OF THIS NOTE WHETHER BY ACCELERATION OR
OTHERWISE;
(c) THE AGGREGATE OF ALL SUMS EXPENDED BY
HOLDER AT ANY
TIME AND FROM TIME TO TIME, IN CONNECTION WITH THE COLLECTION OF
AMOUNTS DUE UNDER THIS NOTE WHETHER PERMITTED UNDER THE TERMS
OF THE NOTE, PERMITTED BY LAW, OR PERMITTED BY STATUTE, DUE TO AN
EVENT OF DEFAULT UNDER THIS NOTE; AND
(d) THE COSTS OF SUIT AND REASONABLE ATTORNEY'S
FEES IN
CONNECTION WITH THE COLLECTION OF AMOUNTS DUE UNDER THIS NOTE,
WITH RELEASE OF ALL ERRORS, AND ON WHICH JUDGEMENT HOLDER MAY
ISSUE OR CAUSE TO BE ISSUED AN EXECUTION OR EXECUTIONS, WAIVING
APPRAISEMENT AS TO ANY PROPERTY LEVIED UPON BY VIRTUE OF ANY SUCH
JUDGEMENT, AND ALL EXEMPTION FROM LEVY AND SALE OF ANY PROPERTY
WHICH IS NOW OR HEREINAFTER IS EXEMPT UNDER ANY ACT OF THE STATE
WHEREIN THE JUDGEMENT IS ENTERED. NO SINGLE EXERCISE OF THIS
WARRANT AND POWER TO CONFESS JUDGEMENT SHALL BE DEEMED TO
EXHAUST THIS POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE
STRICKEN, VACATED, REMOVED OR OTHERWISE HELD BY ANY COURT TO BE
INVALID, VOIDABLE OR VOID, BUT THIS POWER SHALL CONTINUE
UNDIMINISHED AND MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS
HOLDER SHALL ELECT UNTIL THIS NOTE AND ALL SUMS DUE HEREUNDER
SHALL BE PAID IN FULL, AND MAKER HAS PERFORMED ALL OF THE
PROVISIONS HEREUNDER. MAKER HEREBY AUTHORIZES HOLDER TO RE-
ASSESS DAMAGES FROM TIME TO TIME AND AS OFTEN AS HOLDER DEEMS
NECESSARY SO THAT ANY AND ALL JUDGEMENTS CONFESSED HEREUNDER
SHALL INCLUDE ALL SUMS LISTED UNDER SUBPARAGRAPHS (a) THROUGH (d)
ABOVE AS THE SAME ARE INCURRED FROM TIME TO TIME, EVEN AFTER
ENTRY OF JUDGEMENT UNDER THIS WARRANT OF ATTORNEY.
<PAGE>
NOTWITHSTANDING ANY NOTICE AND OPPORTUNITY TO CURE
UNDER THIS NOTE, HOLDER SHALL PROVIDE MAKER WITH NO LESS THAN
FIVE (5) BUSINESS DAYS PRIOR WRITTEN NOTICE BEFORE EXERCISING ITS
RIGHTS UNDER THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT.
Section 8. Covenants and Agreements
Maker further covenants and agrees as follows:
(a) All rights and remedies hereby granted or
otherwise available to Holder in the
Purchase Agreement or available at law or in equity (including the warrants of
attorney contained
herein) shall be cumulative and concurrent and may be pursued singly,
successively or together at
Holder's sole option, and may be exercised from time to time and as often as
occasion therefor shall
occur until the indebtedness hereby evidenced, with all interest thereon, is
paid in full; and the failure
to exercise any such right or remedy shall in no event be construed as a waiver
or release of same
by Holder. Holder may resort to any security it holds in such order and manner
as Holder sees fit.
(b) If at any time Holder shall deem or shall be
advised that any further instruments,
documents or acts or things are necessary or desirable to vest or confirm any
right or remedy herein
granted, Maker will execute, acknowledge when appropriate and deliver
any such instrument or
document and so or cause to be done any act or thing deemed necessary or
desirable by Holder for
any such purpose.
(c) If Holder shall refer to counsel because of
any default thereunder, then Maker
shall reimburse Holder for reasonable attorney's fees and costs incurred,
and if at any time
judgement be entered under this Note, then a reasonable attorney's
fee shall be payable by Maker
and shall be computed upon and be recovered in addition to all principal,
interest and other
recoverable sums then due, in addition to costs of suit. Upon the occurrence
of an Event of Default
until final payment of all sums evidenced hereby, interest payable hereunder
on the outstanding
principal balance and all other sums due hereunder shall bear interest at
the rate of 13% per annum
("Default Rate")from the date of occurrence of an Event of Default.
Notwithstanding the
provisions of 42 Pa. C.S.A. Section 8101 to the contrary, the Default Rate
shall apply to all sums
evidenced hereby after an Event of Default and also after entry of a judgement
or judgements
against Maker (whether by confessions of judgement under a warrant of attorney
or otherwise), and
whether or not any event of default has occurred. Said judgement(s) shall
bear interest at the
Default Rate until it is satisfied in full.
(d) To the fullest extent permitted by law,
Maker hereby waives and releases all
errors, defects and imperfections in any proceedings instituted by Holder
under the terms of this
Note. Maker waives presentment for payment, protest and demand, notice of
protest, demand and
dishonor and non-payment of this Note, and all other notices in connection
with the delivery,
acceptance, performance, default or enforcement of the payment of this Note,
and agrees that its
liability shall be unconditional, without regard to any extension of time,
renewal, waiver or
modification granted or consented to by Holder. No extension of the time for
the payment of this
Note or any installment hereof made by agreement with any person or entity now
or hereafter liable
for the payment of this Note shall operate to release, discharge, modify,
change or affect the original
<PAGE>
liability under this Note, either in whole or in part, of any person or
entity not a party to such
agreement. Holder shall not be deemed, by any act of omission or commission,
to have waived any
of its rights or remedies hereunder unless such waiver is in writing and
signed by Holder, and then
only to the extent specifically set forth in writing. A waiver of one event
shall not be construed as
continuing or as a bar to or waiver of any rights or remedy to a subsequent
event.
Section 9. Miscellaneous
(a) This Note shall be construed and enforced in
accordance with the laws of the
Commonwealth of Pennsylvania. Maker and Holder hereby consent to the
jurisdiction of the Courtsof the Commonwealth of Pennsylvania and the
United States District Courts for the Eastern District
of Pennsylvania therein in connection with any action concerning the
provisions of this Note
instituted by the Holder against Maker.
(b) This Note may be altered only by prior
written agreement signed by the party
against whom enforcement of any waiver, change, modification, or
discharge is sought. This Note
may not be modified by an oral agreement, even if supported by new
consideration.
(c) The covenants, terms and conditions contained
in this Note apply to and bind
the heirs, successors, executors, administrators and assigns of the parties.
(d) This Note constitutes a final written
expression of all the terms of the agreement
between the parties regarding the subject matter hereof, are a complete and
exclusive statement of
those terms, and supersedes all prior and contemporaneous agreements,
understandings, and
representations between the parties. If any provision or any word, term,
clause, or other part of any
provision of this Note shall be invalid for any reason, the same shall be
ineffective, but the remainder
of this Note shall not be affected and shall remain in full force and effect.
(e) All notices, consents, or other communications
provided for in this Note or
otherwise required by law shall be in writing and may be given to or made upon
the respective
parties at the following mailing addresses:
<PAGE>
Holder: Magee Industrial Enterprises, Inc.
480 W. 5th Street
Bloomsburg, Pennsylvania 17815
With a copy to: Gary P. Biehn, Esq.
White and Williams
1800 One Liberty Place
Philadelphia, PA 19103
Maker: M.I.E. Hospitality, Inc.
7400 Baymeadows Way
Suite 300
Jacksonville, Florida 32255
With a copy to: Steven W. Schuster
McLaughlin & Stern, LLP
260 Madison Avenue, 18th Floor
New York, New York 10016
Such addresses may be changed by notice given as
provided in this Subsection. Notice
may be given personally, by overnight courier or by certified or registered
U.S. mail. Notices shall
be effective upon the date of receipt; provided, however, that a notice (other
than a notice of a
changed address) sent by certified or registered U.S. mail, with postage
prepaid, shall be presumed
received no later than three (3) business days following the date of sending.
MAKER ACKNOWLEDGES THAT THIS NOTE CONTAINS AN
AUTHORIZATION TO CONFESS JUDGEMENT ON NO LESS THAN FIVE (5)
BUSINESS DAYS PRIOR WRITTEN NOTICE, THAT IT HAS CONSULTED LEGAL
COUNSEL WITH RESPECT THERETO (OR KNOWINGLY WAIVED ITS RIGHT TO
DO SO), AND THAT IT UNDERSTANDS THAT THE EXERCISE BY HOLDER OF THE
CONFESSION WILL RESULT IN THE ENTRY OF A JUDGEMENT AGAINST MAKER
AND THE SALE OR ATTACHMENT OF, OR EXECUTION UPON, MAKER'S
PROPERTY AND BANK ACCOUNTS WITHOUT PRIOR NOTICE OR THE
OPPORTUNITY FOR A HEARING.
IN WITNESS WHEREOF, Maker has executed this Note
effective as of the date first
set forth above.
M.I.E. HOSPITALITY, INC.
By: /s/ Bruce Galloway
Name: Bruce Galloway
Title: Chairman of the Board
<PAGE>
EXHIBIT 10.9 Uniform Franchise Offering
Circular
[GRAPHIC OMITTED]
<PAGE>
Franchise
Offering Circular
[GRAPHIC OMITTED]
FRANCHISE OFFERING CIRCULAR
For Prospective Florida Franchisees
Arthur Treacher's, Inc.
A Utah Corporation
7400 Baymeadows Way, Suite 300
Jacksonville, Florida 32256
Phone: 1-904-739-1200
Brief Description of the Franchised Business: You will operate a unique fast
food restaurant
with a specialized menu and system. This systems includes a method of
operation, customer service,
quality control, trade secrets, technical knowledge, specially designed decor,
equipment, layout
plans, signs, food distribution program, and accounting systems, together with
business techniques
and practices.
Total Amounts from Items 5 and 7: The initial franchise fee is $19,500.00.
The estimated initial
investment required ranges from $72,500.00 to $157,500.00.
RISK FACTORS:
THE FRANCHISE AGREEMENT REQUIRES BOTH PARTIES TO WAIVE
THEIR RIGHT TO A JURY. THIS MEANS THAT ALL LITIGATION MUST
BE HEARD AND DECIDED BY A JUDGE.
THE FRANCHISE AGREEMENT LIMITS DAMAGES TO ACTUAL OUT-OF-
POCKET LOSSES UPON ANY BREACH BY THE FRANCHISOR. THIS
MEANS THAT YOU CANNOT SUE FOR PUNITIVE OR CONSEQUENTIAL
DAMAGES, INCLUDING LOST PROFITS.
THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Information comparing franchisors is available. Call the state administrators
listed in Exhibit ST
or your public library for sources of information.
DISCLOSURES REQUIRED BY FLORIDA LAW
The state of Florida has not reviewed and does not approve, recommend, endorse
or sponsor
any business opportunity. The information contained in this disclosure has not
been verified
by the state. If you have any questions about this investment, see an attorney
before you sign
a contract or agreement.
January 1, 1997
ii
<PAGE>
Registration of this franchise by a state does not mean that the state
recommends it or has verified
the information in this offering circular. If you learn that anything in the
offering circular is untrue,
contact the Federal Trade Commission and your state agency listed in
Exhibit ST.
<PAGE>
TABLE OF CONTENTS
Item Page
1 THE FRANCHISOR ,TS PREDECESSORS & AFFILIATES 1,2
2 BUSINESS EXPERIENCE 2-4
3 LITIGATION 4-7
4 BANKRUPTCY 7
5 INITIAL FRANCHISE FEE 7,8
6 OTHER FEES 9-11
7 INITIAL INVESTMENT 11-13
8 RESTRICTIONS ON SOURCES OF
PRODUCTS AND SERVICES 13,14
9 FRANCHISEE'S OBLIGATIONS 15,16
10 FINANCING 17
11 FRANCHISOR'S OBLIGATIONS 17-22
12 TERRITORY 23
13TRADEMARKS 23-25
14 PATENTS, COPYRIGHTS & PROPRIETARY INFORMATION 25,26
15 OBLIGATIONS TO PARTICIPATE IN THE
ACTUAL OPERATION OF THE FRANCHISED BUSINESS 26
16 RESTRICTIONS ON WHAT THE FRANCHISEE MAY
SELL 27
17 RENEWAL, TERMINATION, TRANSFER
& DISPUTE RESOLUTION 28-31
iv
<PAGE>
Table of Contents cont.
Item Page
18 PUBLIC FIGURES 31,32
19 EARNINGS CLAIMS 32
20 LIST OF OUTLETS 33,34
22 CONTRACTS 36
23 RECEIPT (2) 37
Exhibits (in alphabetical order)
AG Sample Training Agenda
FA Franchise Agreement
FIN Financial Statements
LIST List of Franchisees
RR Regional Development Representatives
ST State Information Page
v
<PAGE>
Item 1
THE FRANCHISOR, IT'S PREDECESSORS AND
AFFILIATES
To simplify the language in this Offering Circular, "Arthur Treacher's" means
Arthur Treacher's,
Inc., the franchisor. "You" means the person who buys the franchise.
If you are a corporation,
partnership, or other entity, "you" includes the franchisee's owners.
The Franchisor, It's Predecessors and It's Affiliate.
Arthur Treacher's is a Utah corporation, incorporated on February 2, 1984.
Arthur Treacher's does
business as "Arthur Treacher's Fish & Chips" and "Arthur Treacher's Seafood
Grille". Arthur
Treacher's subsidiaries are Arthur Treacher's Advertising, Inc., Arthur
Treacher's Management, Inc.
and MIE Hospitality, Inc. MIE Hospitality, Inc. was formerly a franchisee.
Arthur Treacher's
purchased the stock of MIE in November, 1996. The business conducted by Arthur
Treacher's was
originally started in 1969 by Arthur Treacher's Fish & Chips, Inc., a Delaware
corporation. In 1979,
Mrs. Paul's Frozen Foods of Philadelphia, PA, purchased Arthur Treacher's Fish
& Chips, Inc. In
1982, Lumara Foods of America, Inc., an Ohio corporation, bought the assets of
Arthur Treacher's
Fish & Chips, Inc., from Mrs. Paul's. In February, 1984, Arthur Treacher's,
Inc., was formed when
it purchased the assets of Lumara Foods of America, Inc., and the assets of
Arthur Treacher's Fish
& Chips, Inc. In July 1996, Arthur Treacher's opened its new concept
"Arthur Treacher's Seafood
Grille". The principal business address of Arthur Treacher's is 7400
Baymeadows Way, Suite 300,
Jacksonville, Florida 32256. Arthur Treacher's agent for service of process
is disclosed in Exhibit
ST.
The Franchisor's Business
Arthur Treacher's offers and sells franchises for Arthur Treacher's Seafood
Grille fast food
restaurants. Arthur Treacher's Seafood Grille focuses on grilled seafood and '
chicken items and will
carry a more health conscious product line. Arthur Treacher's also has
franchised units which
operate under the name "Arthur Treacher's Fish & Chips. Arthur Treacher's
Fish & Chips focuses
on the traditional English Fish & Chips dinners as well as offers chicken and
other seafood items.
Arthur Treacher's does not engage in any other business. Arthur Treacher's,
Inc., does own and
operate several Arthur Treacher's fast food restaurants.
The Arthur Treacher's Franchise
Under the Franchise Agreement, which is Exhibit FA to this Offering Circular,
Arthur Treacher's
offers qualified purchasers the right to establish and operate, from a single
location ("Location")
within a specified territory ("Territory") a unique fast food restaurant with
a limited menu and
system ("Franchised Business"). This system includes a method of operation,
customer service,
quality control, trade secrets, technical knowledge, specially designed decor,
business techniques
and practices.
The Franchise Agreement gives you the right to operate the Franchised Business
under the name
and mark "Arthur Treacher's Seafood Grille" and other marks designated by
Arthur Treacher's from
time to time (all referred to as the "Proprietary Marks"). You must operate
in accordance with all
the standards and procedures designated by Arthur Treacher's, at a given
location (see Item 12,
Territory).
The services and products of Arthur Treacher's restaurants are used primarily
by the local public for
quick service meals. If you open an Arthur Treacher's franchise, your
competition will include
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similar food and services, including a number of national and regional
franchise concerns and local
restaurants.
In addition to laws and regulations that apply to businesses generally,
the Franchised Business is
subject to Federal Securities Regulations and State Franchise and/or
Business Opportunities laws.
You should also be aware of federal, state and local labor regulations,
including minimum-age and
minimum-wage laws. Federal, state and local occupational health and safety
regulations may also
apply. These requirements may vary from place to place.
Prior Business Experience of Franchisor, It's Predecessor and It's Affiliates
Arthur Treacher's or its predecessors have been offering and selling Arthur
Treacher's franchises
since 1969. Arthur Treacher's has never engaged in any business other than
offering and selling
Arthur Treacher's franchises.
Mrs. Paul's Frozen Foods ("Mrs. Paul's"), a predecessor has never engaged in a
business that is
similar to the franchise offered. Mrs. Paul's sells frozen food items to
consumers, primarily through
grocery stores.
Lumara Foods of America, Inc. ("Lumara"), never engaged in a business that
was similar to the
franchise offered. Lumara ceased doing business in January of 1984.
Item 2
BUSINESS EXPERIENCE
The following is a list of directors, principal officers, and other executives
who have management
responsibility in connection with the operation of Arthur Treacher's. It
includes the name, principal
occupation and business experience of each for the last five years.
R. Frank Brown, President, Chief Executive Officer and Member of the
Board of Directors
Mr. Brown has served as President, Chief Executive Officer and Board Member
since June 1996.
From May 1995 to June 1996, Mr. Brown worked as a consultant to an
investment group
associated with Arthur Treacher's. Prior to Arthur Treacher's, Mr.
Brown was associated with
Shoney's and Captain D's. From August 1992 to May 1995, he operated, as a
franchisee, two
Shoney's restaurants in northern Utah. From November 1985 to August 1992,
Mr. Brown was
President of Captain D's. From August 1978 through November 1985, Mr. Brown
held numerous
positions within the Captain D's organization, including Group Vice
President, Vice President of
Franchise Operations, Director of Franchise Operations, Director of Personal
and Training, Personal
Recruiter and Unit Manager. Mr. Brown is a 1972 Graduate of Purdue University,
where he
received a Bachelor of Arts degree in Psychology.
Bruce Galloway, Chairman of the Board of Directors
Mr. Galloway became Chairman of the Board in June 1996. Prior to that,
Mr. Galloway was a
financial advisor to the Arthur Treacher's Board of Directors from August 1993
through June 1996.
Mr. Galloway also serves as a Managing Director at Burnham Securities, a
position he has held
since November 1993. Subsequently, Mr. Galloway was the Senior Vice President
at Oppenheimer
& Co., from June 1991 through November 1993. Mr. Galloway earned a Masters of
Business
Administration in Finance from New York University's Stern School of Business
in 1993, and a
Bachelor of Science degree in Economics from Hobart College in 1979. Mr.
Galloway's MBA
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Thesis at NYU examined the feasibility of starting a quick-serve seafood chain
offering non-fried
items.
Skuli Thorvaldsson, Member of the Board of Directors
Mr. Thorvaldsson became a Member of the Board in June 1996. Mr. Thorvaldsson
has been
President of REK S.F. which owns and operates food and beverage hospitality
outlets in Iceland
and Denmark. Mr. Thorvaldsson earned a Degree in Law from the University of
Iceland in 1968.
He is a 1962 graduate from the Commercial College of Iceland and a 1963
graduate from the
University of Barcelona, where he studied Spanish History and Literature.
William F. Saculla, Secretary of the Corporation
Mr. Saculla has served as Secretary of Arthur Treacher's since 1984. He was a
Director of the
corporation from 1984 to June 1996. Mr. Saculla is a 1978 graduate of
Youngstown State
University, where he earned a Bachelor of Science degree in Accounting.
Jeff Balitsos, Operations Specialist
Mr. Balitsos joined Arthur Treacher's in June 1996 as the Operations
Specialist. From June 1995
to June 1996, Mr. Balitsos served as the Head Baker Trainer
with equipment and product at
Einstein's Bagels, a subsidiary of Boston Market. From July 1993 to June
1995, Mr. Balitsos was
an Operations Manager for Mr. Brown's two Shoney's restaurants in
northern Utah.
Mr. Balitsos
earned a Bachelor of Arts degree in Communication Arts, with a minor in
Business Administration,
from Carson-Newman College in Jefferson City, Tennessee in 1993.
Aaron Cain, Regional Director of Northern Operations
Mr. Cain joined Arthur Treacher's in June 1996 as the Director of Northern
Operations. From
March 1992 to June 1996, Mr. Cain served as General Manager for Mr.
Brown's franchised
Shoney's units in Layton, Utah. From September 1990 to March 1992,
Mr. Cain served as General
Manager for Partners in Ogden, Utah. Mr. Cain served in the U.S. Army as
Sergeant First Class,
Special Forces from June 1984 to July 1989.
Dan Cheatham, Director of Purchasing
Mr. Cheatham has served as Director of Purchasing since June 1996. Prior to
joining Arthur
Treacher's, Mr. Cheatham served as Director of Purchasing, as well as,
Research & Development
for Skipper's Restaurants, based in Seattle, Washington, from January
1993 through April 1996.
From March 1990 through January 1993, Mr. Cheatham was Senior Vice
President of Sales and
Marketing for Mike Rose Corporation, a division of Shoney's, Inc., based
in Nashville, Tennessee.
Mr. Cheatham earned a Bachelor of Science Degree in Business and
Economics at Huntingdon
College in Montgomery, Alabama in 1966.
Debra S. Hill, General Counsel
Ms. Hill has served as General Counsel since April 1994. From November 1991
through March
1994, Ms. Hill practiced corporate and business litigation with the law
firm of Javitch, Block, Eisen
& Rathbone in Cleveland, Ohio. Ms. Hill earned a Doctorate of
Jurisprudence from Case Western
Reserve University in 1991, a Master of Arts degree in History from
Kent State University in 1986
and a Bachelor of Arts degree in Psychology from Kent State University in 1983.
Thomas K. Hoffman, Regional Director of Operations, Eastern Division
Mr. Hoffman has served Director of Operations for the Eastern Division since
November 1996.
From ---- to November 1996, Mr. Hoffman was Vice President of MIE Hospitality,
Inc., Arthur
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Treacher's largest franchisee. In November, Arthur Treacher's purchased MIE
Hospitality and Mr.
Hoffman joined the Arthur Treacher's executive staff. Mr. Hoffman earned a
Bachelor of Science
in Business Management from Bloomsburg University in 1975. He has been a
member of the
Bloomsburg Chamber of Commerce since and a member of the National Restaurant
Association
since 1980.
Michael D. Proulx, Director of Franchise Services; Regional Director of
Southern Operations
Mr. Proulx has served as Director of Franchise Development and Regional
Director of Southern
Operations since January 1994. He was the owner of an Arthur Treacher's
franchise from
December 1992 through August 1996. Prior to October 1992, Mr. Proulx was
a Commissioned
Officer serving as a Pilot and Intelligence Officer in the United States Army
with assignments that
included that of Company Commander, Airfield Commander and Brigade
Operations Officer. Mr.
Proulx is a 1973 graduate of Cornell University where he received a Bachelor
of Science degree in
Economics. Mr. Proulx also received a Masters of Science degree in
International Relations from
Troy State University in 1988.
Jana Williams, Director of Marketing
Ms. Williams rejoined Arthur Treacher's as the Director of Marketing in
June 1996. Prior to this,
Ms. Williams was the Marketing and Media Coordinator for Arthur Treacher's
from December
1993 to January 1996. From January 1996 to June 1996, she was an Account
Coordinator at Harte
Hanks Direct Marketing. From January 1992 to June 1993, Ms. Williams
served as a Convention
Coordinator for Technol Medical Products, Inc., in Fort Worth, Texas.
From May 1986 through
January 1992, she served as Women's Services Specialist for the Team Bank in
Dallas, Texas. Ms.
Williams is a 1990 graduate of the University of Texas, Arlington where she
earned a Bachelor of
Business Administration in Marketing.
Item 3
LITIGATION
Arthur Treacher's has the following present ongoing claims:
ATAC Corporation and Patrick Cullen v. Arthur Treacher's, Inc. and James
Cataland, Case No.
1:95CV 1032, In the U.S. District Court, Northern District, Ohio Eastern
Division. On November
16, 1994, Arthur Treacher's terminated the agency agreement of a
Regional Development
Representative, ATAC Corporation, on the grounds of assigning the agency
agreement to a third
party without the consent of Arthur Treacher's. On May 9, 1995, ATAC filed
the above lawsuit;
however, ATAC did not inform Arthur Treacher's of the lawsuit (via service
of process as
proscribed by the Ohio Rules of Civil Procedure). On August 31, 1995, ATAC's
counsel finally
informed Arthur Treacher's that a lawsuit had been filed. ATAC alleges that
Arthur Treacher's
breached the contracts, tortiously interfered with the right to assign the
agency contracts and
violated the Ohio Business Opportunity Act. Arthur Treacher's maintains that
the lawsuit is an
attempt to regain the territory by forcing expensive litigation with Arthur
Treacher's and the claims
have absolutely no merit. ATAC and Patrick Cullen claims damages in the sum
of $6 million.
Ryeh, Inc. v. Arthur Treacher's, Inc., Ryeh, Inc. was an Ohio Corporation
which operated a unit
in Buffalo, New York for five years (1989 - 1994). Ryeh sued Arthur Treacher's
on May 8, 1995
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in the Mahoning County, Ohio Court of Common Pleas, Case no. 95 CV 575.
Ryeh claims that
Ohio law requires that a notice of cancellation must be given when a franchise
is sold. Ryeh claims
that no notice of cancellation was given to Ryeh. It further claims that it
received no UFOC
disclosure document. Arthur Treacher's disputes that the Ohio notice provision
is applicable in this
case. Arthur Treacher's further disputes that it did not give a disclosure
document to Ryeh, since
Ryeh signed that such a document was received. Ryeh claims damages in the
amount of
$557,000.00. Arthur Treacher's has filed a counterclaim for moneys owed by
Ryeh for unpaid
royalties and rent paid to the landlord under a suretyship agreement.
Donald Huber, Jennifer Huber and D&J Enterprises, Inc. v. Arthur Treacher's,
David Bandomer
and Susan Bandomer, Case No. A 9606983 in the Hamilton County, Ohio Court of
Common Pleas.
D&J Enterprises, Inc. was an Ohio Corporation which operated a unit In
Cincinnati, Ohio. Donald
& Jennifer Huber were the owners of D&J Enterprises, Inc. In November 1992,
the Hubers signed
a franchise agreement. In June 1995, Arthur Treacher's terminated the franchise
for failure to pay
royalties. On December 10, 1996, the plaintiffs filed suit claiming that
Arthur Treacher's made
certain representations regarding opening a unit which were untrue. Plaintiffs
seek damages in the
sum of $150,000. Arthur Treacher's believes the claim is frivolous and
maintains that the alleged
"misrepresentations" are accurately stated in the UFOC given the Hubers.
Arthur Treacher's has
filed a counterclaim against Plaintiffs for unpaid royalties, breach of
contract and other related
claims.
Taher Zarti v. Arthur Treacher's, Inc., Case no. A-96-04248 in the
Hamilton County, Ohio Court
of Common Pleas. Mr. Zarti purchased a franchise in February 1993.
However, Mr. Zarti failed
to open a unit. In January 1995, Mr. Zarti requested a refund on his
franchise fee. Arthur
Treacher's denied the request stating that the franchise fee is non-refundable.
Mr. Zarti sued Arthur
Treacher's on July 31, 1996 for a refund of the franchise fee. Mr. Zarti
also alleges that the UFOC
was defective and misleading. Plaintiff seeks damages in the sum of
$19,500 in compensatory
damages and $100,000 in punitive damages. The Court dismissed the claim and
ordered it to be filed
in Arbitration.
Concluded litigation:
Cress Diglio, Germaine Diglio and Diglio Enterprises, Inc. v. Arthur
Treacher's, Inc., No. 33 114
00104 94 (American Arbitration Association), On February 10, 1992,
Arthur Treacher's, Inc.,
terminated the agency agreement of a Regional Development
Representative, Diglio Enterprises,
Inc., ("Diglio"), on the grounds of non-performance, conflict of
interest, and conduct detrimental
to the Arthur Treacher's system. Diglio was not a franchise
restaurant owner but was under
contract with Arthur Treacher's, Inc., to provide various services to and
on behalf of Arthur
Treacher's, Inc., for the franchisees. On April 30, 1992, Diglio Enterprises,
Inc., filed a Demand for
Arbitration claiming "a disagreement between the parties" and seeking
relief in the sum of
$12,474,000.00. The claimants primarily asserted a claim of wrongful
termination and
misrepresentation. In November, 1996, the Arbitration Board awarded the
claimants $133,000 but
did not explain the reasons for the reward.
Arthur Treacher's, Inc. v. Mahesh Shetty and Sheltex, Inc., Case No. 285874,
in the Cuyahoga
County, Ohio Common Pleas Court. On January 15, 1995, Arthur Treacher's, Inc.,
terminated the
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agency agreement of a Regional Development Representative, Sheltex, Inc, and
Mahesh Shetty, on
the grounds of non-performance and conduct detrimental to the Arthur Treacher's
system.
Defendants were not a franchise restaurant owner but were under contract with
Arthur Treacher's,
Inc., to provide various services to and on behalf of Arthur Treacher's, Inc.,
for the franchisees. On
March 6, 1995, Arthur Treacher's, Inc., filed a lawsuit against Defendants for
breach of contract,
conversion, tortious interference with contracts between Arthur Treacher's,
Inc., and other third
parties and libel. Mr. Shetty and Sheltex filed the following: 1) a counter
claim against Arthur
Treacher's, Inc., alleging that it breached the agreement and misrepresented
the potential in the
Dallas market; 2) a third party complaint against William Saculla alleging
that he misrepresented
the potential of the Dallas market; and 3) a counterclaim against James R.
Cataland, the former
President and Chief Executive Officer of Arthur Treacher's, alleging that
Mr. Cataland slandered
Mr. Shetty. On May 25, 1995, Mahesh Shetty filed a third party claim against
Arthur Treacher's,
Inc., in a lawsuit, ATAC v. Mahesh Shetty, Case No. 280501 in the
Cuyahoga County, Ohio
Common Pleas Court. In January 1996, Arthur Treacher's agreed to settle this
case with Mr.
Shetty for the sum of $125,000. Arthur Treacher's agreed to the settlement in
order defray attorney
fees and costs of litigation.
Tri-Centers Associates, Ltd. v. Arthur Treacher's of Prestonwood, Inc. and
Andy Hansen v. Arthur
Treacher's, Inc., Ernest W. Hahn, Inc. Ernest Hahn, Inc. d.b.a. Prestonwood
Town Center and
James R. Cataland, Case Number 95-7700 in the District Court of Dallas
County, Texas, 193d
Judicial District. Arthur Treacher's terminated the franchise agreement for
non-payment of
royalties, selling unauthorized product, attempting to transfer the franchise
without the permission
of Arthur Treacher's, and failure to adhere to the Arthur Treacher's standards
of operation. The
landlord, Tri-Centers Associations, Ltd. filed a lawsuit against the franchisee
for past due rent left
unpaid upon vacation of the premises. The parties settled both cases when
Arthur Treacher's
agreed to pay Hahn Corporation the sum of $6,400.00. Arthur Treacher's
agreed to pay this
settlement to defray legal costs of going to trial on the matter.
Washington, v. Arthur Treacher's, Inc., No. 53 Y114 00035 94 (American
Arbitration Association).
On March 2, 1994, Calvin & Nicole Washington, former franchisees, brought a
claim in arbitration
in Cleveland, Ohio. The Washingtons claimed that Arthur Treacher's, Inc.,
had breached the
Franchise Agreement by failing to provide a protected territory for their
restaurant, by failing to
establish a national advertising fund, by failing to properly negotiate a lease
on their behalf, and by
failing to provide advertising support. The Washingtons sought damages in the
amount of $2.48
million. After a hearing on the merits of this claim, the Arbitrator ruled
that Arthur Treacher's agent
under contract has negligently negotiated the lease. The Arbitrator further
ruled that the
Washingtons contributed to their damages by negligently running the business.
The Arbitrator
determined Arthur Treacher's share of damages was the sum of $61,914.85.
The Arbitrator also
permitted the Washingtons the right to cancel their franchise in exchange for
the sum of $16,575.
Other than these actions, no litigation is required to be disclosed in this
Offering Circular.
Item 4
BANKRUPTCY
Neither Arthur Treacher's, nor any person previously identified in Items 1 or 2
of this Offering
Circular has been involved as a debtor in proceedings under the U.S. Bankruptcy
Code required to
be disclosed under this Item.
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Item 5
INITIAL FRANCHISE FEE
The initial franchise fee for a one unit Arthur Treacher's franchise is
$19,500.00.
Arthur Treacher's will consider a qualified candidate for an Area Development
Agreement. This
is a new program for Arthur Treacher's, Inc. The initial fee for these
agreements vary and are
determined by the area size, population density and other such considerations.
The initial fee is
consideration for the Area Development Agreement only. The Area Development
Agreement will
guarantee a franchisee exclusive development rights within a defined area.
The franchisee must
agree to a development schedule for a set number of franchised units.
The franchisee will be
required to purchase franchises pursuant to the development scheduled.
The above stated Fee
Schedule will be applied to the purchase of these franchises.
The franchise fee for a single unit franchise is payable in two installments:
First Installment. You must pay the first installment in the amount of
$5,000.00 when you
sign the Franchise Agreement. Arthur Treacher's will refund this first
installment, upon your
request, any time before you complete the Arthur Treacher's Orientation program
("Orientation
Program").
Second Installment. When you successfully complete the Orientation
Program, you will
be required to pay a second installment of $14,500. At this time, the total
franchise fee will be
deemed fully earned and non-refundable.
Except as described above, the initial franchise fee is non-refundable under
any circumstances
unless specifically stated otherwise, in writing, by Arthur Treacher's.
The remainder of this page was intentionally left blank.
7
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Item 6
OTHER FEES
All fees listed below are imposed by and payable to Arthur Treacher's except
your minimum
monthly expenditure for advertising. All fees are non-refundable.
NAME OF FEE AMOUNT DUE DATE
Royalty (1) 4% of total Gross Sales Payable monthly on the 10th day of the
next month.
Advertising (2) $2,500 Payable within 30 days of opening.
3% minimum of monthly Required expenditure by you.
Gross Sales
Transfer (3) $10,000 Payable before transfer is effective.
Offering (4) $1,000 Payable when you wish to sell securities
and partnership interests in the franchise.
Accounting (5)Cost of audit plus interest payable immediately if audit shows an
on overdue amount. underpayment of 3% or more of Gross
Sales for any month.
Late Payment (6) $150 plus 1.5% per Interest accrues once payment is
month on the past due overdue.
amount $150 late fee is charged once the
account is referred to our legal
department.
1. Royalty Fees: Your monthly royalty fee shall be an amount equal to four
percent (4%) of the
gross sales. This fee cannot be increased during the life of your franchise
agreement without your
consent. This fee is fully earned at the due date and non-refundable under any
circumstance. All
monthly payments are required to be paid by the tenth (10th) day of each month
on the gross sales
for the preceding month, and shall be submitted with any monthly reports or
statements required
by the Franchise Agreement. "Gross sales" shall include all revenue from the
sale of all products
and performance of services from the Franchised Business, whether for cash or
credit and regardless
of collection in the case of credit, and income of every kind and nature
related to the Franchised
Business; provided, however, that "gross sales" from customers shall not
include monies that are
collected and submitted by you for transmittal to the appropriate taxing
authority. In computing
the gross sales, you shall be permitted to deduct the amount of cash refunds
to, and coupons used
by customers, provided such amounts have been included in sales.
Franchise Agreements signed
in previous years may have a royalty fee different than your own,
depending on the age of the
contract.
2. Advertising Fees: You must pay to Arthur Treacher's $2,500.00 within
thirty (30) days after
the opening of each unit Franchised Business, to promote the opening of
your restaurant. Arthur
Treacher's requires you to contribute or spend at least 3% of your
monthly gross sales for
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advertising purposes. After the first twelve months of operation of your
restaurant, Arthur
Treacher's may increase or decrease your minimum percentage at it's discretion.
However, Arthur
Treacher's will not increase the minimum percentage to: (i) more that Five
percent (5%) over the
term of the Franchise Agreement; and (ii) by more than one percent (1%) in
any twelve month
period. If there is an advertising cooperative in your trade area, you must
contribute your local
advertising fee to that cooperative. If Arthur Treacher's owns an Arthur
Treacher's Fish & Chips
restaurant in your area, Arthur Treacher's has the same payment obligations
and voting rights as
each franchisee in the cooperative. (See Item 11 on advertising). Arthur
Treacher's also offers to
you approved advertising and promotional plans and materials where Arthur
Treacher's deems them
advisable.
3. Transfer: Arthur Treacher's charges a non-refundable transfer fee in the
amount of $10,000 in
the event that you sell or otherwise transfer your franchise or your interest
in your franchise. (See
Item 17). For an Area Development franchise, the transfer fee is $10,000 per
unit in your area.
4. Offering Fees: Securities or partnership interests in the Franchise may
be sold, by private
offering or otherwise, only with the prior written consent of Arthur
Treacher's, which consent shall
not be unreasonably withheld: provided, however, you shall pay Arthur
Treacher's an offering fee
of $1,000. Offering fees are non-refundable, are uniformly imposed on
all Franchisees; and are not
imposed nor collected on behalf of any third party.
5. Accounting Costs: You must, at your expense, keep full, complete, and
accurate books,
records, and accounts in accordance with generally accepted accounting
principles and in the form
and manner prescribed by Arthur Treacher's. You must provide to Arthur
Treacher's a profit and
loss statement and balance sheet, accompanied by a review report prepared by
an independent
Certified Public Accountant satisfactory to Arthur Treacher's, within ninety
(90) days after the end
of each fiscal year of the Franchised Business during the term hereof,
showing the results of
operations of the Franchised Business during the said fiscal year. This is at
your expense. If Arthur
Treacher's audits your business and finds that you have under-reported gross
sales by 3% or more,
Arthur Treacher's will require you to pay the costs and expenses of the audit
(including, without
limitation, travel, lodging, wages, reasonable accounting fees and reasonable
attorney fees). Arthur
Treacher's estimates current audit costs at $800 per day, plus travel to and
from the location. Your
will also be required to pay interest on past-due amounts (See note 6).
6. Late Payment: Any payment not actually received by Arthur Treacher's on
or before the date
it is due will be deemed overdue. If any payment is overdue, you must pay
Arthur Treacher's
interest on the amount from the date it was due until paid. The interest rate
will be 1.5% per month
or the maximum permitted by law, whichever is lower. Arthur Treacher's also
charges a legal fee
of $150.00 once the account is referred to Arthur Treacher's legal department.
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Item 7
FRANCHISEE'S ESTIMATED INITIAL INVESTMENT
PER UNIT
ESTIMATE METHOD OF TO WHOM
D PAYMENT WHEN DUE PAYMENT
AMOUNT IS TO BE MADE
First installment
upon execution/
Initial Franchise19,500 for 2 installments final installment Arthur Treacher's
Fee (1) one unit; upon completion
$49,000 per of Orientation
area Program
development.
Deposit/Leased $ 1,500 - Lease As Arranged Lessor
Premises (2) $ 6,000
Leasehold $20,000 - Payments Progress As Arranged Contractor
Improvements (3) $60,000
Equipment/ $45,000 - As Arranged As Arranged Vendors
Fixtures/ $60,000
Signage (4)
Opening $ 2,500 Lump Sum Upon Opening Arthur Treacher's
Advertising (5) Advertising
Initial Training (6) $ 1,500 - As Arranged As Arranged Suppliers of Food,
$ 4,000 Lodging,
Transportation
Insurance Costs $2,500 - As Arranged As Arranged Insurer
(7) $5,000
Start Up $ 5,000 -As Arranged As Arranged Suppliers
Inventory/ $10,000
Supplies (8)
Misc. $ 2,500 -As Arranged As Needed Suppliers
Deposits (9) $10,000
Working $ 5,000 -As Arranged As Needed Suppliers/Employees
Capital (10) $25,000
10
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Total (11) $105,000 -
$201,500
All figures in Item 7 are estimates only. Actual costs will vary for each
franchisee and each location
depending on a number of factors. DO NOT ASSUME THAT YOUR INITIAL INVESTMENT
WILL BE $105,000.
NOTES:
1. The initial franchise fee, which is non-refundable, is discussed in
detail in Item 5.
2. You will need approximately 1,200-2,000 square feet for an in-line
carry-out with seating.
A downtown location may require up to 3,000 square feet of space.
The cost per square
foot of commercial space varies considerably depending upon the
location and the market
conditions affecting commercial property. Arthur Treacher's
estimates the rental cost per
square foot per year to be anywhere from $10.00 to $30.00. Square
footage lease rates in
downtown areas of major cities could range from $25.00 to $200.00+
per square foot.
Approximately 500-600 square feet are necessary for a mall food court
location. Rents in
malls range from $20.00 to $100.00 per square foot.
3. You will need to comply with all architectural, mechanical and
structural systems and
specifications of Arthur Treacher's. These estimates should be used
only as a guide. Your
actual costs may vary considerably depending on the size of the
restaurant, the cost of local
financing and other local conditions, including labor, material costs,
and architectural fees.
4. You must purchase or lease certain items of equipment, including
signs, cash registers,
fryers, air conditioning and exhaust units, sinks, coolers, freezer,
office equipment, shelving,
counters, work tables, display panels, menu boards and seating.
5. The advertising which you will need may include print, direct mail,
Signage, electronic
media and billboards.
6. Arthur Treacher's provides instructors and instructional materials for
the initial training, but
you will need to arrange for transportation, lodging, and food for
yourself (or, if the you
are a corporation or partnership, a principal of the entity) and any
employees and any wages
for employees. The cost will depend on the distance the attendees
must travel and the type
of accommodations the attendees choose.
7. Insurance costs may vary in different localities and you are strongly
encouraged to contact
an insurance agent BEFORE you sign the franchise agreement. The
estimate is for one year
of liability insurance coverage. Arthur Treacher's reserves the right
to require additional
types of insurance and coverage as provided under the Franchise
Agreement.
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8. Arthur Treacher's estimates that the range given will be sufficient to
cover initial supplies
of products for one week.
9. Arthur Treacher's estimates that you will have to pay deposits on such
items as utilities,
insurance and phones.
10. You will need to have on hand sufficient capital to cover salaries for
approximately 2-15
employees, some of which will be part time employees. You must be
prepared to reorder
supplies as necessary and to cover the cost of utility bills.
11. Arthur Treacher's does not assume that you can build your unit for the
lowest estimates in
all categories. You should not assume this also. The total number
reflects estimated costs
to open a food court or renovated unit. Arthur Treacher's does not
build free standing units
from ground up. Should you desire this, these totals will be higher.
Arthur Treacher's does not offer direct or indirect financing to you for any
items.
Item 8
RESTRICTIONS ON SOURCES OF
PRODUCTS AND SERVICES
Approved Suppliers. Arthur Treacher's desires to be associated by the
consuming public with food
and service of a particular quality and uniformity and a restaurant with decor
suited to this image.
Its supplier approval standards and other specifications are designed to
establish, maintain and
promote these goals.
Certain private label, proprietary food, paper supplies, equipment and Signage
("Proprietary items")
must be purchased by you from approved suppliers and distributors. Arthur
Treacher's negotiates
purchase arrangements with the suppliers and distributors for the benefit of
franchisees and company
owned restaurants. Prices from the suppliers include freight to independent
distributors located in
various parts of the country. By contract, distributors charge a flat
percentage of cost of each item
delivered to the franchised business and company owned restaurants in
exchange for warehousing
and delivery to individual restaurants. From time to time, Arthur Treacher's
receives marketing
funds and allowances from various suppliers of Arthur Treacher's private label
products. These
funds are used for the development of marketing materials, product photography,
television
commercials and promotional items. These materials are made available to all
franchisees.
If you desire to purchase any food items from a supplier not previously
approved by Arthur
Treacher's, you and the supplier must make a written request, accompanied by
$500, for approval
of the supplier and the product to be supplied. The supplier will be required
to sign a
confidentiality agreement with Arthur Treacher's and will then receive a copy
of specifications for
the proposed product to be supplied. If the supplier can meet the
specification, Arthur Treacher's
will request samples for testing. Arthur Treacher's will also consider the
financial condition,
business reputation, delivery performance, production facilities, supply
sources and supply
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<PAGE>
capabilities of the proposed supplier before granting approval. The review
process typically takes
at least 90 days to complete.
If you desire to utilize the services of a distributor not previously approved
by Arthur Treacher's,
you and the distributor must make a written request, accompanied by $500, for
such approval. The
distributor will be required to sign a confidentiality agreement before
receiving various proprietary
information from Arthur Treacher's. Before granting approval, Arthur
Treacher's will consider,
among others, the financial condition, business reputation, delivery
performance, and warehouse
facilities of the distributor. Arthur Treacher's will also consider current
and prior relationships with
existing Arthur Treacher's suppliers and franchisees. If approved, the
distributor will be required
to sign an agreement requiring minimum inventory levels, restricted
delivery times, restricted
markups on costs of supplies to be delivered, and various other provisions
to insure the integrity of
the Arthur Treacher's system.
Arthur Treacher's may from time to time review the performance criteria of
suppliers and
distributors and may revoke the previous approval of a supplier or distributor
that fails to meet any
of the Arthur Treacher's standards and specifications.
Required Sole Suppliers
You are not obligated to purchase or lease from any sources designated by
Arthur Treacher's except
as described below:
At present, the sole approved supplier of the secret recipe Arthur Treacher's
Batter Mix is Griffith
Laboratories. As of the date of this Offering Circular, estimated purchases
of Batter Mix will
constitute approximately 3-4% of your overall food purchases in operating the
restaurant. Arthur
Treacher's derives a manufacturing royalty of $4.00 per case of Batter Mix
sold to Arthur Treacher's
restaurants, both company owned and franchised owned. This revenue is less
than 1% of all
revenues and is placed in the Arthur Treacher's Operating Fund.
Neither the franchisor nor its affiliates provide any supplies or services to
the franchisee on a
required basis.
The current authorized distributor for Arthur Treacher's is Fast Food
Merchandisers, Inc. All
franchised owned and company-owned restaurants purchase their products
through these
distributors.
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13
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Item 9
OBLIGATIONS OF THE FRANCHISEE
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AND
OTHER AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION
ABOUT YOUR OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS
OFFERING CIRCULAR.
OBLIGATION SECTION IN ITEM IN
AGREEMENT OFFERING CIRCULAR
a. Site Selection& Franchise Agreement ("FA") Items 6 & 11
Acquisition/Lease 3, 8 & 10
b. Pre-opening FA 3, 8 & 10 Items 7 & 8
Purchases/Leases
c. Site Development and FA 3, 8 & 10 Items 6, 7 & 11
other pre-opening
requirements
d. Initial & On-going FA 7 Items 6, 7 & 11
Training
e. Opening FA 7 & 15 Item 4
f. Fees FA 4, 5, 11, & 15 Items 5 & 6
g. Compliance with FA 10, 13 Items 8 & 11
standards and policies,
operating manual
h. Trademarks and FA 12, 13 & 14 Items 13 & 14
proprietary information Confidentiality Agreement
I. Restrictions on FA 10 Item 16
products/services offered
j. Warranty and customer FA 10 Item 11
service requirements
k. Territorial development FA 1 & 3 Item 12
and sales quotas
l. Ongoing product/ service FA 10 Item 8
purchases
Effective date:
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m. Maintenance, FA 6 & 10 Item 11
appearance and remodeling
requirements
n. Insurance FA 16 Items 6 & 8
o. Advertising FA 15 Items 6, 7 & 11
p. Indemnification FA 11, 16 & 18 Item 6
q. Owner's participation/ FA 7, 10, 13 & 22 Items 11 & 15
management/staffing
r. Records and reports FA 11 Item 6
s. Inspections and audits FA 11 Items 6 & 11
t. Transfer of Interest FA 17 Item 17
u. Renewal FA 2 Item 17
v. Post-termination FA 19 & 20 Item 17
obligations
w. Non-competition FA 22 Item 17
covenants
x. Choice of Law and FA 28 Item 17
Jurisdiction & Venue
provision
y. Jury Waiver provision FA 31 Item 17
and Arbitration provision
z. Limitation of Damages FA 30 Item 17
provision
aa. Acknowledgments of FA 29 None
Franchisee
bb. Independent Contractor FA 21 None
provision
Effective date:
<PAGE>
Item 10
FINANCING ARRANGEMENTS
Arthur Treacher's does not offer direct or indirect financing. Arthur
Treacher's does not guarantee
your note, lease or any other obligation.
Item 11
FRANCHISOR'S OBLIGATIONS
Except as listed below, Arthur Treacher's need not provide any assistance to
you.
Pre-Opening Obligations:
Before you open your business, Arthur Treacher's will assist you in the
following:
A. Make an Orientation Program available to you to assist you in
evaluating the Franchised
Business. (Franchise Agreement, Section 7)
B. Provide guidance for location standards and forms for completing site
selection packages
that will assist you in selecting your location. Once you have chosen
a location, Arthur
Treacher's must approve the site. The criteria used by Arthur
Treacher's reviewing your site
includes some or all of the following: traffic flow and patterns,
traffic count, competition,
ingress and egress, population, demographics, including income,
visibility as well as the
initial cost of remodeling and on-going occupancy overhead expenses.
Other factors may
also be considered in approving your location. Arthur Treacher's does
not guarantee the
success of any approved or pre-approved location. The success of any
business depends on
many factors. (Franchise Agreement, Section 3)
C. Provide an initial training program for you and/or your manager.
The initial training
program shall be three (3) weeks in duration and will take place at
the Arthur Treacher's
headquarters in Jacksonville, Florida, and at a designated restaurant
location. The training
program will be conducted upon the approval of the Franchisee and
signing of the lease for
the restaurant premises. All training instructors have a minimum
of five (5) years
operational experience with Arthur Treacher's (Franchise Agreement,
Section 7)
D. Make available, at no charge to you, generic working drawings and
generic specifications
for a restaurant, including the working drawings for interior and
exterior design
specifications for equipment, trade fixtures, furniture and signs.
These drawings are to assist
the franchisee's architect in developing specific blue prints for
franchisee's individual unit.
Franchisee must submit the blue prints and obtain Arthur Treacher's
approval of them prior
to the commencement of any work. (Franchise Agreement, Sections 8
and 10)
E. Provide list of approved items of equipment, fixtures, inventory,
tools and supplies, (by
brand name and/or by standards and specifications) and lists of
approved suppliers for those
items. (Franchise Agreement, Section 8 and 10)
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<PAGE>
Obligations After Opening
After opening the Franchised Business, Arthur Treacher's will assist you in
the following:
A. Provide two (2) days of supervision and assistance prior to opening
and five (5) days of
supervision and assistance after opening. (Franchise Agreement,
Section 9)
B. Provide such continuing advisatory assistance to you in the
operations, advertising, and
promotion of your franchised business as Arthur Treacher's deems
advisable. (Franchise
Agreement, Section 9)
C. Provide you, on loan, one copy of the Arthur Treacher's Operations
Manual (herein The
Manual). (Franchise Agreement, Section 13)
D. Provide to you from time to time, advice and written materials
concerning techniques of
managing and operating the Franchised Business, including new
developments and
improvements in restaurant, equipment, food products, packaging, and
preparation. This
advice and materials shall be made available as Arthur Treacher's
deems advisable.
(Franchise Agreement, Section 6 and 9)
E. Seek to maintain the standards of quality, appearance, and the
System, and shall conduct
inspections of the Franchised Business hereunder and evaluations of
the products sold and
services rendered herein as Arthur Treacher's deems advisable.
(Franchise Agreement,
Section 10)
F. Access to continuing courses of training, at times and locations
designated by Arthur
Treacher's. (Franchise Agreement, Section 7)
G. Conduct inspections of the franchised business, as Arthur Treacher's
deems advisable.
(Franchise Agreement, Section 10)
H. Maintain updated lists of approved items of equipment, fixtures,
inventory, and supplies (by
brand name and/or by standards and specifications) and updated list of
approved suppliers
for those items. (Franchise Agreement, Section 9 and 10)
I. Provide changes, improvements in development in the System and the
products and services
offered under the System, as Arthur Treacher's makes available to all
Franchisees and as
Arthur Treacher's deems advisable. (Franchise Agreement, Section 9
and 10)
J. Provide other resources and assistance as Arthur Treacher's may in the
future develop and
offer to all Franchisees. (Franchise Agreement, Section 9)
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Arthur Treacher's individualized assistance to any Franchisee
(whether in person or by telephone,
fax or mail), is subject at all times to availability of Arthur Treacher's
personnel. (Franchise
Agreement, Section 9)
All obligations of Arthur Treacher's under the Franchise Agreement are to you.
Arthur Treacher's estimates that from the completion of the Orientation Program
to the opening of
the franchised business shall be one hundred twenty (120) to two hundred forty
(240) days under
normal circumstances.
Advertising Program
From time to time, at its discretion, Arthur Treacher's provides advertising
materials and services
to you through a wholly-owned subsidiary, Arthur Treacher's Advertising, Inc.,
Arthur Treacher's
Advertising, Inc., will direct all advertising and promotional programs and
activities, with discretion
over the concepts, materials, and media used in such programs and activities
and the placement and
allocation thereof. Materials provided to all Franchisees include posters,
banners and miscellaneous
point-of-sale items. You may develop advertising materials for your own use,
at your own expense.
You may not use any advertising materials unless they have been approved in
advance in writing
by Arthur Treacher's.
Arthur Treacher's does not provide for or pay for placement of advertising on
behalf of the
franchisees. All placement and payment is done on a local basis, typically by
individual franchisees
or advertising co-operatives.
You are required to contribute three percent (3%)of your gross sales on
advertising your store. The
amount of contribution may vary from time to time. (See Item 6) However,
Arthur Treacher's shall
have the right, at it's discretion, to designate any geographical area for
purposes of establishing a
regional advertising co-operative ("co-operative"). If a regional co-operative
is established in your
area, you automatically and immediately become a member of the co-operative.
Thereafter, your
required advertising contribution will be paid into the co-operative. In no
event shall you be
required to be a member of more than one co-operative. Again, the amount of
your contribution
in the co-operative may varies from time to time (see Item 6). Each company
owned store is
required to contribute to local advertising and co-operatives on the same basis
as you.
A national fund may be established at such time as Arthur Treacher's deems
advisable. When a
national advertising fund is established, you will be required to contribute to
that fund. (See
Franchise Agreement Section 15) Amounts paid into the national fund are
expended for purposes
relating to advertising, promotions and marketing of goods and services
provided by Arthur
Treacher's. Arthur Treacher's or their designee will direct all advertising
and promotional programs
and activities with discretion over the concept, materials, and media used in
such programs and
activities and the placement and allocation thereof. The national fund is
intended to maximize
general public recognition and acceptance and the use of the Proprietary Marks
for the System, and
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<PAGE>
Arthur Treacher's or it's designee undertakes no obligation, in administering
the national fund to
make expenditures for you which are equivalent or proportionate to your
contribution or to insure
that any particular franchisee benefits directly or pro-rata from expenditures
from the national fund.
Each company owned store of Arthur Treacher's will contribute to the national
fund on the same
basis as you. The national fund will be used exclusively to meet any and all
costs of maintaining,
administering, directing, and preparing advertising and promotional activities
(including among
other things, the cost of preparing and conducting television, radio, magazine,
and newspaper
advertising campaign; direct mail and outdoor billboard advertising; marketing
surveys and other
public relations activities; use of advertising agencies to assist therein; and
promotional brochures
and other marketing materials for restaurants operated under the System).
Location Selection
Arthur Treacher's does not select a site for you. Under the Franchise
Agreement, you must operate
the Franchised Business at and from a location acceptable to Arthur Treacher's.
Arthur Treacher's
does provide pre-approved sites to you in a territory selected by you, if
they are available.
You may also submit another site for Arthur Treacher's approval.
To do this, you must submit a
location approval application. Arthur Treacher's will either approve or
reject the proposed location
in no more than 30 days.
The criteria used by Arthur Treacher's to select approved sites includes
but is not limited to traffic
flows and patterns, traffic counts, competition, ingress and egress,
population, demographics,
including income, visibility, general location in neighborhood, parking,
size, physical characteristics
of existing building, as well as the initial cost of remodeling and
on-going occupancy overhead
expenses. However, the success of any business depends on many factors.
Arthur Treacher's cannot
and does not guarantee that any approved or pre-approved site will be
successful. If you and
Arthur Treacher's cannot agree on acceptable locations, Arthur Treacher's
may terminate the
franchise.
The typical length of time between signing the Franchise Agreement and opening
for business is 120
to 240 days. Factors that will affect the length of time it takes you to open
for business include:
your ability to obtain a lease, financing, zoning or other permits; compliance
with local ordinances
and restrictions; weather conditions; availability, delivery and installation
of fixtures, signs and
equipment; completion of required training.
Training Program
Arthur Treacher's initial franchise management training program ("Training
Program") is available
to all franchisees and their management staff. Before you open for busines
s, you and your manager
must attend and complete the Training Program to the satisfaction of Arthur
Treacher's.
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Arthur Treacher's Training Program is conducted at Arthur Treacher's
headquarters in Jacksonville,
Florida. The Training Program lasts for 15 working days, of which 6 days are
devoted to classroom
work and 9 days are devoted to on-the-job training at a nearby Arthur
Treacher's location. The
Training Program uses the Operation Manual and other written materials.
Arthur Treacher's requires that each Franchisee attend the Training Program.
If you intend to use
a non-owner manager, this manager is required to attend and complete the
Training Program to
Arthur Treacher's satisfaction. Arthur Treacher's may require any other
principal or employee of
yours who is (or later becomes) actively involved in the management of the
Franchised Business,
to attend and satisfactorily complete all Training Programs as Arthur
Treacher's may require. The
Training Program is free of charge. You are, however, responsible for all
personal expenses.
Every member of the Arthur Treacher's Executive Staff participates in the
training of new
franchisees (See Item 2). Arthur Treacher's also employs Corporate Trainers
specifically to instruct
new franchisees under the supervision of the Executive Staff. Each of the
Corporate Trainers have
at least five years of store management experience. Other employees of
Arthur Treacher's may also
participate in providing training to franchisees.
Arthur Treacher's may offer additional or refresher training courses from
time to time. These
courses are conducted at Arthur Treacher's headquarters or at any other
locations selected by
Arthur Treacher's. You and your manager must attend and satisfactorily
complete these courses
as Arthur Treacher's may require from time to time.
You or your employees will be responsible for all personal expenses in
connection with all training
programs, including costs and expenses of transportation, lodging, meals, and
wages and employee
benefits. Arthur Treacher's reserves the right to impose reasonable charges
for training materials
in connection with advanced training courses. Arthur Treacher's will notify
you of any additional
charges before you or your employees enroll in a course.
The remainder of this page is intentionally left blank.
20
<PAGE>
The Training Program integrates all elements of restaurant operations in
both Classroom and On
The Job Training. A specific breakdown of the various areas cannot be
determined. A sample
training agenda is attached as Exhibit "AG". However, a general breakdown
includes instructions
on these areas:
Area Total Materials Classroom On The Instructors
Time Job
Bookkeeping 18 hrs. Manual 9 9 W. Saculla
Required AT
Reporting
Forms
Marketing 15 hrs. Manual 10 6 J. Williams
Marketing
Scope
Management 49.5 hrs. Manual 18 31.5 M. Proulx
New Store T. Smalley
Opening Guide J. Vittulo
Quality 26 hrs. Manual 11 15 M. Proulx
Control T. Smalley
J. Vittulo
Assessment 10 hrs. Manual 4.5 5.5 M. Proulx
Examinations T. Smalley
J. Vittulo
Employment 20 hrs. Manual 14 6 M. Proulx
Relations T. Smalley
J. Vittulo
The remainder of this page is intentionally left blank.
21
<PAGE>
Item 12.
TERRITORY
You will be granted an exclusive territory if you sign a franchise agreement.
During the term of the
Agreement, Arthur Treacher's shall not establish, nor license another to
establish an Arthur
Treacher's under the System at any location within your exclusive territory
without your prior
written consent, provided, however, that Arthur Treacher's shall retain the
right to establish or
license another Arthur Treacher's Restaurant within the Exclusive Territory
on the premises of any
military base, public transportation facility, toll booth plaza, corporate
facility which would
otherwise provide any employee cafeteria, recreational theme park, or enclosed
public shopping
mall. A unit franchise entitles you to operate only at and from one location
within your territory
unless stated otherwise in writing. A territorial exclusive franchise
entitles you to an exclusive
territory provided that you meet and maintain a performance schedule for
multiple units.
Arthur Treacher's retains the exclusive, unrestricted right to establish and
license another to establish
other restaurants anywhere outside the Exclusive Territory.
Arthur Treacher's has not established other franchises or company owned
outlets selling or leasing
similar products or services under a different trade name or trademark;
and neither Arthur
Treacher's nor any affiliate has any presently formulated plans or
policy to do so.
Item 13.
TRADEMARKS
The franchised restaurants operate under the trademark and trade name
"Arthur Treacher's Fish and
Chips". Arthur Treacher's is the owner of Arthur Treacher's trade and
service marks, trade names,
logotypes and commercial symbols (hereinafter referred to as
"names and marks").
Under the Franchise Agreement, Arthur Treacher's grants to you the
right to operate a restaurant
under the name " Arthur Treacher's Fish and Chips" and any other names and
marks currently used
or that may hereafter be used in operation of the restaurant.
Arthur Treacher's is also the owner of
names and marks which primarily connote goods and services to be
offered by you. All are
registered with the United States Patent Office and appear on the
Principal Register.
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TITLE REG. NO. D/REG.
Arthur Treacher's Fish and
Chips and Design 1,056,715 01/18/77
Family Boat 1,140,780 10/21/80
Krunch Pup 1,074,067 09/27/77
Arthur Treacher's Fish and
Chips and Design 1,082,086 01/10/78
Arthur Treacher's Fish and
Chips and Design 1,114,186 02/27/79
Original 1,127,121 01/27/79
Family Sampler 1,134,240 04/29/80
Family Sampler 1,140,999 10/28/80
Arthur Treacher's & Design 1,152,573 04/28/81
Arthur Treacher's & Design 1,153,509 05/05/81
Arthur Treacher's Seafood
plus Design 1,165,080 08/11/81
Benjamin the Butler 478,008 03/05/85
All affidavits of use required to be filed to maintain the registration of the
preceding names
and marks have been timely filed.
You will be granted the right to use the names and marks owned by Arthur
Treacher's so long as
the Franchise Agreement is in effect. Such rights cease upon expiration or
termination of the
Franchise Agreement. You will be obligated to use the names and marks in the
manner and for the
purpose directed by Arthur Treacher's. You cannot use the names and marks for
any other purpose.
You have no other rights in Arthur Treacher's names and marks. You may not
use the mark
"Arthur Treacher's" or any other names and marks owned by Arthur Treacher's
in your own
corporate or firm name or with any prefix, suffix or other modifying words,
terms designs or
symbols, nor use any names and marks, other than as authorized by Arthur
Treacher's in writing in
connection with the sale of Arthur Treacher's products or services.
There are no presently effective determinations of the Patent Office or any
trademark administrator
or court, not any pending interference, opposition or cancellation proceeding
or any pending
material litigation involving such names and marks.
There are no agreements currently in effect that significantly limit the rights
of Arthur Treacher's
to use or license the use of such names and marks in a manner material to the
franchise.
You will be obligated by the Franchise Agreement to notify Arthur Treacher's of
any unauthorized
use or claim of right to use of the names and marks owned by Arthur Treacher's.
Upon such
notification, the decision whether to take any affirmative action is within the
sole discretion of
Arthur Treacher's. Arthur Treacher's has the sole right to control any
administrative proceedings
or litigation arising from any affirmative action that it may choose to
commence. Arthur Treacher's
has an obligation to participate in the defense of you, the Franchisee and/or
indemnify you for
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<PAGE>
damages or expenses if you are a party to any administrative or judicial
proceeding involving any
of Arthur Treacher's names and marks. You must also agree not to contest
Arthur Treacher's
interest in these or our other trade secrets.
If Arthur Treacher's, in its sole discretion, deems it advisable to modify or
discontinue use of any
of its names and marks and/or to use one or more additional or substitute
names or marks, you will
be required to make the appropriate changes and you have no right to any
compensation from
Arthur Treacher's therefor.
There are no infringing uses actually known to Arthur Treacher's which could
materially affect your
use of the Arthur Treacher's names and marks.
Under the Franchise Agreement, you acknowledge that Arthur Treacher's names and
marks are valid
and are the sole property of Arthur Treacher's. You cannot, either during or
after the term of the
Franchise Agreement, do anything, or aid or assist any person to do anything,
which would infringe
upon, harm, or contest the rights of Arthur Treacher's in any of its names and
marks.
You further must agree not to hinder or prevent Arthur Treacher's from using or
franchising its
names and marks in any jurisdiction. You further must acknowledge that all
goodwill which may
arise from use of Arthur Treacher's names and marks is and shall remain at all
times the sole and
exclusive property of Arthur Treacher's and shall inure solely to the benefit
of Arthur Treacher's.
ITEM 14
PATENTS AND COPYRIGHTS
A. Copyrights
Arthur Treacher's claims, or may hereafter claim copyrights on certain
software, forms,
advertisements, promotional materials, printed materials, displays and other
written m
aterials.
Additionally, Arthur Treacher's claims, copyrights and other proprietary rights
in Arthur Treacher's
Confidential Operating Manual (as same may be amended from time to time).
Arthur Treacher's
has licensed, or may hereafter license, these copyrighted materials to
Arthur Treacher's.
The manual includes the components, requirements, duties, standards,
procedures, policies and
specifications pertaining to Arthur Treacher's System and the operation of a
franchised business.
Arthur Treacher's also claims certain Proprietary Rights in other materials
that comprise a part of
the Arthur Treacher's System. Arthur Treacher's makes no representations or
guarantees as to the
exclusive nature of all aspects of the Arthur Treacher's System.
There are currently no effective determinations or proceedings pending relating
to the process,
patents, or copyrights nor does Arthur Treacher's know of any infringements
which would
materially affecting your use thereof. Arthur Treacher's right to use or
license these copyrighted
24
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items is not materially limited by any agreement or known infringing use.
Arthur Treacher's may
hereafter file for patents on other processes, procedures and/or equipment.
If Arthur Treacher's
decides to add, modify or discontinue the use of an item or process covered by
a patent or
copyright, you must also do so. Arthur Treacher's is not obligated to
re-imburse you for the
tangible cost of complying with this obligation.
Arthur Treacher's makes no representations or guarantees as to the
exclusive nature of all aspects
of the Arthur Treacher's System. The Franchise Agreement requires you to
maintain all confidential
information of Arthur Treacher's as confidential both during and after
the term of the Franchise
Agreement. "Confidential Information" includes all information, data,
techniques and know how
designated or treated by Arthur Treacher's as confidential and includes The
Manual. You may not at any time disclose, copy or use any confidential
information, except as specifically authorized by Arthur Treacher's. Under the
Franchise Agreement, you must agree that all information, data, techniques and
know how developed or assembled by you or your employees or agents during the
term of the Franchise Agreement and relating to the System, will be deemed a
part of the Confidential Information protected under the Franchise Agreement.
Item 15
OBLIGATION OF THE FRANCHISEE
TO PARTICIPATE IN THE ACTUAL OPERATION
OF THE FRANCHISED BUSINESS
According to the Franchise Agreement, you or an Arthur Treacher's Certified
Manager must devote full time to the operation of the Franchised Business. An
Arthur Treacher's Certified Manager or Assistant Manager must be in charge of
the operation of the Franchised Business during all open hours. You and/or your
Arthur Treacher's Certified Manager must complete the initial franchise
management training course and all other training courses required by Arthur
Treacher's. Except as Arthur Treacher's may otherwise expressly permit in
writing, you or your Arthur Treacher's Certified Manager must devote full time,
energy, and best efforts to the management and operation of the franchised
business.
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Item 16
RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
You must operate the franchised business in strict conformity of prescribed
methods, procedures, policies, standards, and specifications, of the System, as
set forth in the Manual, and in writing by Arthur Treacher's from time to time.
You must use the location only for the operation of the franchised business and
may not operate any other business at or from the location without the express
prior written consent of Arthur Treacher's. You must keep the premises open and
in normal operation for such hours and days as Arthur Treacher's may, from time
to time, specify in the Manual or as Arthur Treacher's may otherwise approve in
writing.
Arthur Treacher's requires you to offer and sell only those items and services
that Arthur Treacher's has approved. You must sell, distribute, and deliver all
products only in such weights, sizes, forms and packages as meet the Arthur
Treacher's standards of quality and quantity, and as have been from time to time
expressly approved for sale in writing by Arthur Treacher's. Arthur Treacher's
maintains a written list of an approved goods and services in it's confidential
Operations Manual, which Arthur Treacher's may change from time to time (see
Item 9). You must refrain from any deviation from the Arthur Treacher's
standards and specifications without Arthur Treacher's prior written consent and
must discontinue selling and offering for sale any menu items, products, or
services which Arthur Treacher's may disapprove in writing at any time. Arthur
Treacher's reserves the right to designate additional required or optional
services in the future and to withdraw any of it's previous approvals. In that
case, you must comply with the new requirements. (See Items 9, 11 & 12 for more
information about your obligations and restrictions.) Arthur Treacher's does not
impose any other restrictions in the Franchise Agreement, or otherwise as to the
goods or services which you may offer or as to the customers to whom you may
sell.
The remainder of this page is intentionally left blank.
26
<PAGE>
Item 17
RENEWAL, TERMINATION, TRANSFER
AND DISPUTE RESOLUTION
This table lists important provisions of the Franchise Agreement and related
items. You should read these provisions in the agreement.
Provision Section in Agreement Summary
a. Term of Franchise 2 20 years
b. Renewal or extension of 2 If you are in good standing
the term you can add one
consecutive 20 year term.
c. Requirements for you to 2 Sign new agreement,
renew or extend remodel and sign release.
d. Termination by you none
e. Termination by Arthur none
Treacher's without cause
f. Termination by Arthur 19 Arthur Treacher's can
Treacher's with cause terminate you only if you
default.
g. "Cause" defined-defaults 19 Non-payment of fees, failure
which can be cured to abide by the prescribed
operational system,
sanitation problems, failure
to submit required reports
and any other violation not
listed in 19(A) or 19(B).
27
<PAGE>
Provision Section in Agreement Summary
h. "Cause" defined-defaults 19(A) Bankruptcy, Insolvency,
which cannot be cured 19(B)(1) - (13) Abandonment, Criminal
Activity, Competing with
Arthur Treacher's,
Repeated defaults even if
cured, Disclosure of
confidential information,
Misuse of marks, Failure to
open, Falsification of
reports, Failure to satisfy a
judgment, Loss of
possession of the leasehold,
Material dishonesty or
fraudulent
misrepresentations.
I. Your obligations on 20 De-identification, payment
termination/non-renewal of amounts due and
abidance of the covenant
not to compete and non-
disclosure provisions.
j. Assignment of contract 17(F) No restrictions on Arthur
by Arthur Treacher's Treacher's right to assign
k. "Transfer" by you- 17(A) Includes transfer of
definition contract, assets or
ownership interest.
l. Arthur Treacher's 17(A) Arthur Treacher's has right
approval of transfer by to approve but will not
franchisee unreasonably withhold
approval.
m. Conditions for Arthur 17(A) No default under the
Treacher's approval of agreement, release,
transfer qualification of new
Franchisee, transfer, fee
paid, purchase approved,
training arranged.
28
<PAGE>
Provision Section in Agreement Summary
n. Arthur Treacher's right 17(D) Arthur Treacher's can match
of first refusal to acquire any offer for franchisee's
your business business.
o. Arthur Treacher's option 17(E) Arthur Treacher's can
to purchase your business purchase the assets of a
restaurant. The price is the
fair market value minus
certain delineated
deductions in a 60 month
payment arrangement at
10% interest.
p. Your death or disability 17(c) Franchise must be assigned
to approved buyer in 2
months.
q. Non-competition 22 No involvement in another
covenants during the term food service business
of the franchise anywhere in the United
States
r. Non-competition 22 No food service business for
covenants after the franchise 2 years within 5 miles of an
is terminated or expires Arthur Treacher's restaurant
(including after assignment).
s. Modification of the 25 None unless mutually
agreement agreed to in writing.
t. Integration/merger clause 25 The Franchise Agreement,
Offering Circular and
Attachments to these
documents constitute the
full and complete
Agreement.
u. Disputes resolution by 31 Court Arbitration is
arbitration or mediation available if the Mutual
Waiver of Jury provision is
deemed unconscionable by a
Court.
29
<PAGE>
Provision Section in Agreement Summary
v. Choice of forum 28 Litigation and arbitration
must be in Florida.
w. Choice of law 28 Florida law applies.
x. Waiver of jury clause 31 Both parties agree to waive
the right to a jury trial for all
disputes.
y. Limitation of damages 30 Your damages are limited to
clause the amount you paid Arthur
Treacher's. You may not
sue Arthur Treacher's for
punitive, exemplary, special,
incidental, indirect or
consequential damages, or
attorney fees.
These states have statutes which may supersede the franchise agreement in your
relationship with the franchisor including the areas of termination and renewal
of your franchise: Arkansas - Stat, Sec. 4-72-202 et seq.; California - Bus. &
Prof. Code Sections 20000-20043; Connecticut - Gen. Stat. Section, Title 42,
Chapter 739, Sections 42-133e et seq.; Delaware - Title 6, Chapter 25, Sections
2551-2556; Hawaii - Rev. Stat. Title 26, Chapter 482E, Section 482E-1 thru 6;
Illinois - Rev. State Chapter 121 1/2, par. 1701-1744; Indiana - Stat. Section
23-2-2.7(1) thru (7); Iowa - Title XX, Chapter 523H, Sections 532H.1-523H.17;
Michigan - Chapter 445, Section 445.1527 MSA 19.854(27); Minnesota - Stat.
Section 80C.14; Mississippi - Code Section 75-24-51 et seq.; Missouri - Stat.
Section 407.400 et seq.; Nebraska - Rev. Stat. Section 87-401 et seq.; New
Jersey - Stat. Section 56:10-1et seq.; South Dakota - Codified Laws Section
37-5A-51; Virginia - Code 13.1-557-574 - 13.1-564; Washington - Code Section
19.100.180 et seq.; Wisconsin - Stat. Section 135.03 et seq.
Item 18
ARRANGEMENTS WITH PUBLIC FIGURES
The name and image of Mr. Arthur Treacher, who is now deceased, are utilized by
Arthur Treacher's and all Franchisees in name and advertising. Arthur Treacher's
has the exclusive right to the use of Mr. Treacher's name and likeness in
perpetuity in connection with its business. Pursuant to the Franchise Agreement,
you are granted the right to use all names and marks which are the property of
Arthur Treacher's including the name and image of Mr. Arthur Treacher. There is
no additional charge to you in connection with such usage.
30
<PAGE>
Neither Mr. Treacher during his lifetime, nor Mrs. Treacher, is or was involved
in the actual management or control of Arthur Treacher's. Mr. Treacher had no
investment in Arthur Treacher's. Mr. Treacher had an agreement with Arthur
Treacher's Fish and Chips by which he received $80,000 per year in return for
the use of his name and the provision of promotional services. Under this
agreement upon his death his wife was to receive $40,000 per year for her life.
Mrs. Treacher is now deceased. Arthur Treacher's has no further contractual
obligations to Arthur Treacher, his estate, or any of his family members.
Item 19
ACTUAL, AVERAGE, PROJECTED, OR FORECASTED
FRANCHISE SALES, PROFITS, OR EARNINGS
Arthur Treacher's does not furnish or authorize its salespersons or regional
representatives to furnish any oral or written information concerning the actual
or potential sales, costs, income or profits of an Arthur Treacher's restaurant.
Actual results vary from unit to unit and Arthur Treacher's cannot estimate the
results of any particular franchise.
The remainder of this page is intentionally left blank.
31
<PAGE>
Item 20
LIST OF OUTLETS
The following chart shows the number of Arthur Treacher's franchises and
company-owned businesses during the three fiscal years (which has a year ending
on June 30th) prior to this Offering Circular, together with projections for
sales of franchises and openings of company-owned businesses during the next
fiscal year. THIS CHART HAS BEEN REVISED, JANUARY 1, 1997, TO REFLECT THE
PURCHASES OF MIE HOSPITALITY UNITS AND OTHER UNITS ACQUIRED BY FRANCHISOR SINCE
JUNE 30, 1996. THE COLUMN "JN" REFLECTS THIS MODIFICATION.
Franchises Franchises Company- Company- Project-
Open for Sold but Not Owned Open Owned Closed ed Store
Business Open for Business Open-
Stat ings
e 94/ 95/ 96/JN Co./
94 / 95 / 96/JN 94/ 95 /96/JN 94 / 95 / 96/JN Franc.
OH 35 33 25 21 3 2 1 2 11 13 13 17 3 2
PA 21 22 20 3 1 0 0 0
FA 21 14 6 4 3 1 0 0 6 6 7 9 00 1 0 3 2
NY 2 16 16 3 0 1 1 14 0 1
ONT 11 10 13 13 0 1
* 11 5 1 1 4 1 1 0
TX 6 6 6 6 0 1
VA 5 5 4 0
NJ 5 5 6 6 0 1 0 0 1 1 1 1 0 2
MI 4 0 0 0 0 1 0 0
GA 3 3 3 3 0 1
MD 2 2 1 1 0 1
DC 1 1 1 0 0 1
DE 1 1 1 1
IL 1 0 0 0
NC 0 0 0 1 1 2 2 1
SC
139/123/103/43 11 / 6 / 2 / 2 19 / 23 / 24 / 43 0 / 1 / 1 / 0 6 12
Tota
l
*Ontario, Canada
32
<PAGE>
The following chart shows the number of franchises transferred by franchisees or
terminated, not renewed or reacquired by Arthur Treacher's, or otherwise
reasonably known by Arthur Treacher's to have ceased doing business, during the
three fiscal years prior to the date of this Offering Circular. THIS CHART HAS
BEEN REVISED, JANUARY 1, 1997, TO REFLECT THE PURCHASE OF MIE HOSPITALITY UNITS
AND OTHER UNITS ACQUIRED BY FRANCHISOR SINCE JUNE 30, 1996. THE COLUMN"JN"
REFLECTS THIS MODIFICATION. Stat Transfers Terminated Not Re- Reacquired by
Otherwise Left
To Others /Canceled by newed by Franchisor
Franchisor Franchis-
or*
94 / 95 / 96/JN 94 / 95 / 96/JN 94/95/96 94/ 95 / 96/JN 94 / 95 / 96/JN
OH 1 2 0 0 1 1 2 4 2 3 3 4 2 1 5 0
PA0 0 0 14 0 0 0 14 3 1 2 0
FL 2 1 0 0 1 3 2 3 2 2 3 2 0 2 5 0
GA 3 0 0 0 9 4 0 0
SC 1 0 0 0
TX 0 1 1 0 3 8 2 1
DE 0 0 0 1 0 0 0 1
NC
IL
MD
MI
DC 0 0 1 0
NJ 0 0 0 3 0 0 0 3 0 0 1 0
NY 0 1 0 13 0 0 0 13 0 0 1 0
VA 0 2 0 0
Ont. 1 1 0 0
Tota 3 6 1 0 8 13 6 39 0 0 0 6 5 6 36 14 12 17 0
l**
*Franchisor has renewed all franchise agreements as if December 1, 1996.
**The numbers in the "total" column may exceed the number of stores affected
because several events may have affected the same store. For example, the same
store may have had multiple owners.
Attached as Exhibit LIST to this Offering Circular are the current list of
Franchisees and the list of all franchisees who have had a unit leave the system
in the last fiscal year.
33
<PAGE>
Item 21
FINANCIAL STATEMENTS
Attached as Exhibit FIN to this Offering Circular are the audited consolidated
annual financial statements of Arthur Treacher's for the fiscal years ended June
30, 1995 and 1996. A copy of the financial statements for _________ is also
attached. The remainder of this page is intentionally left blank.
34
<PAGE>
Item 22
CONTRACTS
Attached are copies of the following agreements relating to the offer of
the franchise:
Exhibit FA Franchise Agreement, including Non-Disclosure Agreement.
35
<PAGE>
Item 23
RECEIPT
Florida
THIS OFFERING CIRCULAR SUMMARIZED PROVISIONS OF THE FRANCHISE
AGREEMENT AND OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS
OFFERING CIRCULAR AND ALL AGREEMENTS CAREFULLY.
IF ARTHUR TREACHER'S OFFERS YOU A FRACHISE, ARTHUR TREACHER'S MUST
PROVIDE THIS OFFERING CIRCULAR TO YOU BY THE EARLIEST OF:
(1) THE FIRST PERSONAL MEETING TO DISCUSS OUR FRANCHISE; OR
(2) TEN BUSINESS DAYS BEFORE SIGNING OF A BINDING AGREEMENT; OR
(3) TEN BUSINESS DAYS BEFORE ANY PAYMENT TO ARTHUR TREACHER'S.
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING ALL MATERIAL
TERMS AT LEAST FIVE BUSINESS DAYS BEFORE YOU SIGN ANY FRANCHISE
AGREEMENT.
IF ARTHUR TREACHER'S DOES NOT DELIVER THIS OFFERING CIRCULAR ON TIME
OR IF IT CONTAINS A FALSE OR MISLEADING STATEMENT, OR A MATERIAL
OMISSION, A VIOLATION OF FEDERAL AND STATE LAW MAY HAVE OCCURRED
AND SHOULD BE REPORTED TO THE FEDERAL TRADE COMMISSION, WASHINGTON,
DC 20580 AND DIVISION OF CONSUMER SERVICES, SECOND FLOOR, MAYO
BUILDING, TALLAHASSEE, FLORIDA 32399.
Arthur Treacher's authorizes William Saculla, 7400 Baymeadows Way, Suite
300, Jacksonville, Florida 32256 to receive service of process for Arthur
Treacher's.
I have received a Uniform Franchise Offering Circular dated __________________.
This offering circular included the following exhibits: FA - Franchise
Agreement, AG - Sample Agenda of Training, LIST - List of Franchisees, FIN -
Financial Statements, ST - State Information Page.
Date: _______________
___________________________
Potential Franchisee
36
<PAGE>
Item 23
RECEIPT
Florida
THIS OFFERING CIRCULAR SUMMARIZED PROVISIONS OF THE FRANCHISE
AGREEMENT AND OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS
OFFERING CIRCULAR AND ALL AGREEMENTS CAREFULLY.
IF ARTHUR TREACHER'S OFFERS YOU A FRACHISE, ARTHUR TREACHER'S MUST
PROVIDE THIS OFFERING CIRCULAR TO YOU BY THE EARLIEST OF:
(1) THE FIRST PERSONAL MEETING TO DISCUSS OUR FRANCHISE; OR
(2) TEN BUSINESS DAYS BEFORE SIGNING OF A BINDING AGREEMENT; OR
(3) TEN BUSINESS DAYS BEFORE ANY PAYMENT TO ARTHUR TREACHE'S.
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING ALL MATERIAL
TERMS AT LEAST FIVE BUSINESS DAYS BEFORE YOU SIGN ANY FRANCHISE
AGREEMENT.
IF ARTHUR TREACHER'S DOES NOT DELIVER THIS OFFERING CIRCULAR ON TIME
OR IF IT CONTAINS A FALSE OR MISLEADING STATEMENT, OR A MATERIAL
OMISSION, A VIOLATION OF FEDERAL AND STATE LAW MAY HAVE OCCURRED
AND SHOULD BE REPORTED TO THE FEDERAL TRADE COMMISSION, WASHINGTON,
DC 20580 AND DIVISION OF CONSUMER SERVICES, SECOND FLOOR, MAYO
BUILDING, TALLAHASSEE, FLORIDA 32399.
Arthur Treacher's authorizes William Saculla, 7400 Baymeadows Way, Suite
300, Jacksonville, Florida 32256 to receive service of process for Arthur
Treacher's. I have received a Uniform Franchise Offering Circular dated
__________________. This offering circular included the following exhibits: FA -
Franchise Agreement, AG - Sample Agenda of Training, LIST - List of Franchisees,
FIN - Financial Statements, ST - State Information Page.
Date: _______________
___________________________
Potential Franchisee
37
<PAGE>
Exhibit AG
MONDAY
WEEK 1, DAY 1
OFFICE
10:00 - 10:30 Survey for Success, Introduction
10:30- 11:30 Goals of Training
11:30 - 12:00 Drive to Restaurant
12:00 - 1:00 Observe and Discuss Lunch Business Flow
1:30 - 2:30 Quality Control
2:30 - 3:00 History/Product Distribution
3:00 - 4:00 Creating a Sales Driven Environment
4:00 - 5:00 The System
Homework: Study Menu
Read Service Section
TUESDAY
WEEK 1, DAY 2
OFFICE & RESTAURANT
9:00 - 11:00 Job Functions Overview/Practice Job Functions
11:00 - 1:30 Shadow Employees Through Lunch
1:30 - 2:00 Lunch
2:00 - 4:00 Mid-Day Checklist - Learn
4:00 - 5:00 W.S.A.
Homework: Read Product Section
WEDNESDAY
WEEK 1, DAY 3
RESTAURANT
9:00 - 11:00 Morning Checklist Presentation 11:00 - 2:00 Work Stations
Through Lunch 2:00 - 2:30 Lunch 2:30 - 3:00 Read Operations Manual - Preparation
3:00 - 4:00 Frying Techniques Presentation 4:00 - 4:30 Quiz 4:30 - 5:00
Paperwork Practice
38
<PAGE>
5:00 - 6:00 Practice Frying
THURSDAY
WEEK 1, DAY 4
RESTAURANT
9:00 - 11:00 Set Up Restaurant Using Morning Checklist 11:00 - 11:30 Product
Control 11:30 - 2:00 Work Stations Through Lunch 2:00 - 2:30 Lunch 2:30 - 3:00
Mid-Shift Checklist 3:00 - 3:30 Quiz 3:30 - 5:00 Boil-Out
FRIDAY
WEEK 1, DAY 5
RESTAURANT
9:00 - 10:00 Set Up Restaurant
10:00 - 10:30 Morning Inventory
10:30 - 11:00 Quiz
11:00 - 2:00 Manage
2:00 - 2:30 Lunch
2:30 - 3:00 Paperwork Practice
3:00 - 4:00 Weekly Cleaning Checklist
4:00 - 5:00 Fry-Line Assignment
Homework: Read Personnel
MONDAY
WEEK 2, DAY 1
OFFICE
8:30 - 11:30 Recruiting, Interviewing and Hiring
11:30 - 12:30 Conduct an Orientation
12:30 - 1:30 Lunch
1:00 - 2:00 Associate Training Program
2:00 - 4:00 Discipline, Due Process and Confrontation
4:00 - 5:00 Training, Motivating and Retaining
Homework: Read Safety and Security
39
<PAGE>
SATURDAY
WEEK 1, DAY 6
RESTAURANT
2:00 - 2:30 Mid-Shift Checklist
2:30 - 3:00 Closing Checklist
3:00 - 3:30 Quiz
3:30 - 4:00 Paperwork Practice
4:00 - 7:00 Manage
7:00 - 7:30 Dinner
7:30 - 8:00 Filtering
8:00 -Closing Close Restaurant
TUESDAY
WEEK 2, DAY 2
RESTAURANT
11:30 - 1:30 Manage Through Lunch
1:30 - 2:00 Lunch
2:00 - 2:30 Mid-Shift Checklist
2:30 - 3:30 Inventory and Par
3:30 - 4:00 Midpoint Self Appraisal
4:00 - 5:00 Paperwork Practice
5:00 - 7:00 Fry Line
7:00 - 8:00 Quiz
8:00 - Closing Pre-Close, Close, Paperwork
WEDNESDAY
WEEK 2, DAY 3
RESTAURANT
11:30 - 3:00 Marketing
3:00 - 3:30 Paperwork Practice
3:30 - 4:30 Review
4:30 - 5:30 Discuss Midpoint Appraisal
5:30 - 7:30 Manage Unit through Dinner
7:30 - 8:00 Dinner
8:00 -Closing - Pre-Close, Close, Paperwork
40
<PAGE>
FRIDAY
WEEK 2, DAY 5
11:00 - 11:30 Discuss Strategy For Friday Business 11:30 - 1:30 Manage
Restaurant Through Lunch 1:30 - 2:00 Lunch 2:00 - 5:00 QSC 5:00 - 7:00 Manage
Restaurant Through Dinner 8:00 - Closing Close Restaurant
THURSDAY
WEEK 2, DAY 4
OFFICE
9:30 - 12:30 Accounting
12:30 - 1:30 Lunch
1:30 - 4:30 Accounting
4:30 - 5:00 Breakeven Analysis
SATURDAY
WEEK 2, DAY 6
OFFICE
9:30 - 11:30 Scheduling
11:30 - 12:00 Review
12:00 - 1:30 Test
WEDNESDAY
WEEK 3, DAY 3
OFFICE
9:00 - 10:30 NSO Kit
10:30 - 4:00 Marketing
41
<PAGE>
THURSDAY
WEEK 3, DAY 4
OFFICE
9:30 - 10:30 Critique and Review
10:30 - 12:00 Test
42
<PAGE>
Revised March 19, 1997 PBR
FRANCHISE OWNED/OPERATED RESTAURANTS
FLORIDA (2)
#7023 Festival Flea Market
*2900 W. Sample Road
Pompano, FL 33067
J.T. & Linda Lee Edwards
(954) 968-2882
*All correspondence sent to:
16792 Royal Poinciana Drive
Ft. Lauderdale, FL 33326
#7025 Miami International
Mall
1455 NW 107th Avenue
Miami, FL 33172
3 Kirks, Inc.
Kirk, Mike (Denise Mgr.)
(305) 716-0168
*Send all correspondence to:
2161 N.E. 68 Street, #302
Ft. Lauderdale, FL
33308-1126
ILLINOIS (1)
#3501 Greenwood Ave.
1800 N. Greenwood Avenue
Park Ridge, IL 60068
Van Doan, Mr. Thuong
(708) 692-5615
MARYLAND (3)
#6008 St. Barnabas
4508 St. Barnabas Road
Temple Hills, MD 20748
Kim, Mr. Hong
(301) 899-2626
#6010 Landover Mall
2101 Brightseat Road
Landover, MD 20785
Yu, Paul
(301) 773-5700
#6011 Montgomery Mall
7101 Democracy Boulevard
Bethesda, MD 20014
Kim, Hong
(301) 469-8780
MICHIGAN (5)
#5255 Universal Mall
*28576 Dequindre
Warren, MI 48092
Messina, Mr. Paul and Lou
(810) 558-5723
*all correspondence to:
3910 Forge
Troy, MI 48083
Att.: Sherry for P&L &
Royalty Reports
#5256 Tel-Twelve Mall
28750 Telegraph
Southfield, MI 48034
McGregor, Mr. Ernest
(810) 352-5155
#5258 Eastland Mall
*18000 Vernier, #422
Harper Woods, MI 48225
Nicole Colasanti
(313) 527-6324
*Send all correspondence to:
38324 E. Horseshoe Drive
Clinton Twp, MI 48036
#5259 Northland Mall
*21500 Northwestern Hwy.,
Space 112
Southfield, MI 48075
Colasanti, Nicole
(810) 552-9331
* send all correspondence to:
38324 E. Horseshoe Drive
Clinton Twp, MI 48036
#5260 Fairlane Town Center
Space N-204
18900 Michigan Avenue
Dearborn, MI 48126
Ernest McGregor
(313) 594-8101
NEW YORK (3)
#5501 Syracuse
doc\admin\main.lst
<PAGE>
Revised March 19, 1997 PBR
FRANCHISE OWNED/OPERATED RESTAURANTS
2865 Erie Boulevard East
Syracuse, NY 13224
Shar/Mar of Syracuse, Inc.
(315) 445-1699
#5502 Yorkville
4976 Commercial Drive
Route 5A
Yorkville, NY 13495
Hollidac, Inc.
Hollinger, Dan
(315) 736-8047
#5503 Oswego
7875 Oswego Road
Liverpool, NY 13090
Toll & Maston, Jean
(315) 652-3100
South Carolina (2)
#8001 (640)
Myrtle Square Mall
2501 North Kings Highway
Myrtle Beach, SC 29577
Speed Dial # 28
Myrtle Square Mall
(803) 626-2698
#8003 Richland Fashion Mall
*3400 Forest Drive, # 2108
Columbia, SC 29204
Unity International, Inc.
Dr. C.W. Joyner
(803) 790-4238
*Send all correspondence
including P.O.P. to:
2481 Russel Street
Orangeburg, SC 29115
OHIO (21)
#2002 Belmont
3707 Belmont Avenue
Youngstown, OH 44505
Hopkinson, Mr. Tim
HOPs, Inc.
(330) 759-2245
#2005 Elm Road
2690 Elm Road N.E.
Warren, OH 44483
Hopkinson, Mr. Tim
(330) 372-1002
#2503 Lancaster Store
732 N. Memorial Drive
Lancaster, OH 43130
Clark, Mr. Dave
(614) 653-4833
#2504 Delaware Ave.
1270 Delaware Avenue
Marion, OH 43302
Susi, Pat
(614) 387-8436
#2505 Indian Mound Mall
*South 30th Street
Heath, OH 43056
NAFCO (Dave Wheeler)
(614) 522-5738
*Mr. Ben Fries
1138 Marcia Drive
North Huntingdon, PA 15642
#2506 New Towne Mall
*400 Mill Avenue
New Philadelphia, OH 44663
NAFCO
(330) 339-3474
*Mr. Ben Fries
1138 Marcia Drive
North Huntingdon, PA 15642
#2508 Brice Road
1765 Brice Road
Reynoldsburg, OH 43068
Dawson, Mick
(614) 863-9100
doc\admin\main.lst
<PAGE>
Revised March 19, 1997 PBR
FRANCHISE OWNED/OPERATED RESTAURANTS
#2509 Pomeroy
*34099 State Road 7
Pomeroy, OH 45769
William Cornell
(614) 992-5829 & 992-4250
*Send all correspondence to:
William Cornell
C/O James E. Diddle
P.O. Box 587
Racine, OH 45771
(614) 949-2512
#2755 Eastgate Mall
*4601-C560 Eastgate Blvd.
Cincinnati, OH 45245
Schneider, Mr. Jon
(513) 753-7272
* Send correspondence to:
9442 East Kemper Road
Loveland, OH 45140
#2761 Sixth Street
216 East 6th Street
Cincinnati,Ohio 45202
Daniels, Quincy &
Ridgeway, June
(513) 241-8156
FAX (513) 241-8157
#3057 Euclid
*23910 Lakeshore Boulevard
Euclid, OH 44123
Vittoria, Ben
(216) 261-1023
* Send correspondence to: 45
Valentine Farms Dr.
Akron, OH 44313
Ohio, Con't
#3073 Arcade
401 Euclid Avenue
Cleveland, OH 44114
Sedlecky, James
(216) 241-5227
#3074 Severance Center
3598 Mayfield
Cleveland Hts., OH 44118
Allen, Robert
(216) 381-0737
#3077 Great Northern
446 Great Northern Mall
North Olmsted, OH 44070
Chapadia, Sanjay
Raj Restaurants, Inc.
(216) 734-9110
#3079 Euclid Square
100 Euclid Square
Mall, # 382
Euclid, OH 44132
Aring, William
(216) 731-7993
#4002 State Road
*1927 State Road
Cuyahoga Falls, OH 44223
Ben Vittoria
(330)923-8900
*Send correspondence to:
45 Valentine Farms Dr.
Akron, OH 44313
doc\admin\main.lst
<PAGE>
Revised March 19, 1997 PBR
FRANCHISE OWNED/OPERATED RESTAURANTS
#4007 Barberton
*7-31st Street
Barberton, OH 44203
Vittoria, Ben
(216) 825-5106
* Send correspondence to: 45
Valentine Farms Drive
Akron, OH 44313
#5001 Cleveland Avenue
*4701 Cleveland Ave. N.W.
Canton, OH 44709
Vittoria, Ben
(330) 499-0622
* Send correspondence to: 45
Valentine Farms Drive
Akron, OH 44313
#5003 Canton Centre
Unit 819
*4190 Tuscarawas
Canton, OH 44708
Vittoria, Ben
(330) 478-2506
* Send correspondence to: 45
Valentine Farms Drive
Akron, OH 44313
#5253 Franklin Park Mall
Space P-5
5001 Monroe Street
Toledo, OH 43623
Serra, Mr. Vince
(419) 475-5030
#5254 Spring Meadows
Shopping Center
*1446 Spring Meadows Drive
Holland, OH 43528
Bryant, Erica J. & Dennis
(419) 867-7107
*Send all correspondence to:
7004 Washington Drive
Holland, OH 43528
(419) 868-3001
Fax (419) 868-3036
Pennsylvania (3)
#2006 State Street
1740 East State Street
Hermitage, PA 16148
Hopkinson, Tim
(412) 981-3373
#4261 Breezewood
*Post House Road
Breezewood, PA 15533
Greenwood, Sue
(814) 735-4555
*Send all correspondence to:
203 Bonnie Lane
Hollidaysburg, PA 16648
(814) 695-7538
(814) 695-4819 - Fax
#6502 Fifth Avenue Place
110-20 Fifth Avenue
Pittsburgh, PA 15222
Bonello, Mr. Dan
(412) 471-7520
TEXAS (1)
#9005 Gainesville Factory
Shops Outlet Mall
4321 North I-35, F70
Gainesville, TX 76240
Bockhorn, Larry
(817) 665-4466
VIRGINIA (6)
#6002 Fairfax
9528 Lee Highway
Fairfax, VA 22030
Kim, Hong
(703) 591-7037
#6004 Duke Street
4213 Duke Street
Alexandria, VA 22304
Lim, Hee
(703) 751-8878
#6009 Richmond Hwy
6510 Richmond Hwy
Alexandria, VA 22306
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<PAGE>
Revised March 19, 1997 PBR
FRANCHISE OWNED/OPERATED RESTAURANTS
Park, Mr. Young Yun
(703) 768-7812
#6012 Patrick Henry Mall
12300 Jefferson Avenue
Newport News, VA 23602
Henry, Robert
(804) 249-4270
#6013 Springfield Mall
Springfield, VA 22150
Lan, Zhi-Min (Jimmy)
(703) 971-4832
#6014 Balston Commons
4238 Wilson Boulevard, #158
Arlington, VA 22203
Shao, Sam
(703) 525-9680
WASHINGTON D.C. (1)
#6007 14th St. & U
1934 14th Street N.W.
Washington, D.C. 20009
K.S. Chon
(202) 462-6480
Regional Representatives:
Dave & Susan Bandomer
(513) 583-1981- Phone & Fax
Dallas & Pat Paul
(419) 867-1020
doc\admin\main.lst
<PAGE>
Revised March 19, 1997 PBR
FRANCHISE OWNED/OPERATED RESTAURANTS
CANADA (13)
Lalani Main Office
299 Kirby Cres.
Newmarket, Ont. L3X 1H1
Lalani, Zuli
Penny - Asst.
(905) 836-6431
Fax (905) 836-6439
#7501 Ottawa
50 Rideau Street
Ottawa, Ontario
CANADA K1N9J7
Lalani
#7502 Newmarket
30 Yonge Street
Newmarket, Ontario
CANADA N6G2Y9
Lalani
#7504 Kingston
960 Portsmouth Avenue
Kingston, Ontario
CANADA K7M1W9
Lalani
#7506 Waterloo, Ontario
550 Kingstreet North
Waterloo, Ontario
CANADA N2L5W6
Lalani
#7507 Welland
800 Niagara Street
Welland, Ontario
CANADA L3C5Z4
Lalani
#7508 Guelp
Unit #AFC-7
435 Stone Road
Guelp, Ontario
CANADA N1G2X6
Lalani
#7509 Thunder Bay
1000 Fort William Road
Thunder Bay, Ontario
CANADA P7B6B9
Lalani
# 7510 New Sudbury Centre
1349 LaSalle Boulevard
Sudbury, Ontario
CANADA P3A1Z2
Lalani
# 7511 Windsor
3100 Howard Avenue
Windsor, Ontario
CANADA N8X3Y8
Lalani
# 7512 Oshawa
419 King Street West
Oshawa, Ontario
CANADA L1J2K5
Lalani
#7513 Barrie
331 Bayfield Street
Barrie, Ontario
Lalani
#7514 Sault St. Marie
Northgate II Plaza
143 Great Northern Road
Sault Sainte Marie, Ontario
Lalani
#7515 Milton
50 Market Drive
Highway 401 & 25
Milton, Ontario
CANADA
Lalani
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<PAGE>
DELAWARE (1)
#6015 Christiana Mall**
301C Christiana Mall
Newark, DE 19702
(302) 731-4092
MGR: Leonard Bolden
SUPV: Rose Cagigas
FLORIDA (11)
#7002 Sawgrass Mills Mall
12801 W. Sunrise Blvd., 237
Sports Court
Sunrise, FL 33323
(954) 846-9347
MGR:
SUPV:
#7003
Melbourne Square Mall
1700 W. New Haven Ave., Unit
369
Melbourne, FL 32901
Speed Dial # 04
(407) 723-2361
MGR : Tim Maiden
SUPV: Mike Proulx
#7004 (603)
Sarasota Square Mall
8201 S. Tamiami, Suite AF8
Sarasota, FL 34237
Speed Dial # 06
(941) 921-5114
MGR: Michelle Anderson
Ralph Gutknecht
SUPV: Mike Proulx
#7006 (611)
Lakeland Square Mall
3800 U.S. Highway 98 N.,
Unit 680
Lakeland, FL 33809
Speed Dial # 03
(941) 853-8999
MGR: Maria Woodward
SUPV: Mike Proulx
#7007 (615)
Gulfview Square Mall
9409 U.S. Hwy. 19, Unit 679
Port Richey, FL 34668
Speed Dial # 05
(941) 848-3152
MGR: Gerald Haney
SUPV: Mike Proulx
#7009 (709)
DeSoto Square Mall
947 DeSoto Square Mall
303 U.S. 301 Boulevard
Bradenton, FL 34205
Speed Dial #32
(941) 746-2263
MGR: Steven Gilmore
SUPV: Mike Proulx
#7010 Treasure Coast Sq.
3296 N.W. Federal Highway
Jensen Beach, FL 34957
Speed Dial #10
(407) 692-4780
MGR: Angela Nadeau
SUPV: Mike Proulx
#7013 (646)
Port Charlotte Town Center
Room No. 599
1441 Tamiami Trail
Port Charlotte, FL
33948-1001
Speed Dial # 30
(941) 743-3007
MGR: Carol Vickers
Denise Conrad
SUPV: Mike Proulx
#7015 Coral Square Mall
9389 West Atlantic Blvd.
Coral Springs, FL 33071
(954) 344-7024
Speed Dial #08
MGR: Chris McDonald
SUPV: Mike Proulx
#7016 The Avenues Mall
10300 Southside Blvd.
Jacksonville, FL 32256
Speed Dial # 07
(904) 363-3604
MGR: Bernie Bliss
SUPV: Mike Proulx
doc\admin\main.lst
** Eastern Division (MIE)
<PAGE>
#7020 (720)
Palm Beach Mall
1801 Palm Beach Lakes Blvd.,
Suite #850
West Palm Beach, FL 33401
Speed Dial #02
(407) 687-0268
MGR: Barry Gubner
SUPV: Mike Proulx
MICHIGAN (1)
5252 (311)
Frenchtown Square
2121 N. Monroe Street
Monroe, MI 48161
Speed Dial # 11
(313) 242-7596
MGR: Ken Stephens
SUPV: Paul Brown
NEW JERSEY (3)
#8501 Cherry Hill Mall**
2000 Route 38, Suite 284
Cherry Hill, NJ 08002
(609) 662-8884
MGR: Tina Hertz
SUPV: Rose Cagigas
#8503 Burlington Center**
Space #250
2501 Burlington/
Mount Holly Road
Burlington, NJ 08016
(609) 386-8822
MGR: Kimberly Bender
SUPV: Rose Cagigas
#8504 Paramus Mall**
626 Paramus Park
Paramus, NJ 07652
(201) 261-2884
MGR: Brenda Bozzone
Mayling Memendez
SUPV: Todd Snyder
NEW YORK (14)
#5505 Queens Center**
90-15 Queens Boulevard
Elmhurst, NY 11373
(718) 592-5612
MGR: Delroy Davis
SUPV: Todd Snyder
#5506 King's Plaza**
5106 King's Plaza
Brooklyn, NY 11234
(718) 951-4951
MGR: Gladwin Ashby
SUPV: Todd Snyder
#5507 White Plains**
100 Main Street, Suite 234
White Plains, NY 10601
(914) 997-8935
MGR: Cecil Jones
SUPV: Todd Snyder
#5508 Green Acres Mall**
2026 Green Acres Mall
Valley Stream, NY 11581
(516) 561-8300
MGR: Wesley Gill
SUPV: Todd Snyder
#5509 Manhattan Mall **
901 Avenue of the Americas
New York, NY 10001
(212) 563-2381
MGR: Andrew Edwards
SUPV: Todd Snyder
doc\admin\main.lst
** Eastern Division (MIE)
<PAGE>
#5510 Staten Island Mall**
Space P-10
2655 Richmond Avenue
Staten Island, NY 10314
(718) 370-1466
MGR: Robert Richmond
SUPV: Todd Snyder
#5511 Smith Haven Mall**
Middle Country Road
Lake Grove, NY 11755
(516) 979-2100
MGR: Robert Kattau
Emad Morkos
SUPV: Todd Snyder
#5512 Crossgates**
1 Crossgate Mall Road
Box 17
Albany, New York 12203
(518) 452-8054
MGR: Patricia Clyburn
Maurice Kohn
SUPV: Mike Rosati
#5513 Concourse** Shopping
Center
212 East 161st Street
Suite 14
Bronx, NY 10451
(718) 590-4320
MGR: Jose Acevedo
SUPV: Mike Rosati
#5514 Galleria at Crystal
Run**
1 Galleria Drive
Middletown, NY 10941
(914) 695-2402
MGR: Kathleen Faggione
Joel Shafer
SUPV: Mike Rosati
New York, Con't
#5515 Walden Galleria**
Space F214
1 Walden Galleria Drive
Buffalo, NY 14225
(716) 685-9618
MGR: Paul Bator
Diana Kezerashvili
SUPV: Mike Rosati
#5516 Carousel Center**
9803 Carousel Center
Syracuse, NY 13290
(315) 466-1202
MGR: Jennifer Lashua
Rose Vaughan
SUPV: Mike Rosati
#5517 Poughkeepsie**
Space F112
790 South Road
Poughkeepsie, NY 12601
(914) 298-8127
MGR: James Canino
Jason Pearson
SUPV: Mike Rosati
#5504* (630)
Mainplace Greenhouse**
doc\admin\main.lst
** Eastern Division (MIE)
<PAGE>
Buffalo, NY 14202
Speed Dial # 12
(716) 847-8090
MGR: Thomas Palau
SUPV: Mike Rosati
OHIO (17)
# 2001 (201) Austintown
4451 Mahoning Avenue
Youngstown, OH 44515
Speed Dial # 25
(330) 792-6764
MGR: Craig Guterwill
SUPV: Jim Snyder
#2003 (203) Niles
5555 Youngstown-Warren
Road
Niles, OH 44446
Speed Dial # 20
(330) 544-0056
MGR: Jasmina Hasija
SUPV: Jim Snyder
#2004 (204) Boardman
7322 Market Street
Youngstown, OH 44512
Speed Dial # 26
(330) 758-8415
MGR: Renee Gregory
SUPV: Jim Snyder
#2752 (252)
Kenwood Towne Center
7875 Montgomery Road
Cincinnati, OH 45236
Speed Dial # 28
(513) 793-6637
MGR: Steven Powell
SUPV: Jim Snyder
#2753 (253) Tri-County Mall
Store #218, Building FC
11700 Princeton Pike
Cincinnati, OH 45246
Speed Dial # 29
(513) 671-3777
MGR: Nancy Dornbusch
SUPV: Jim Snyder
#2757 (257)
Northgate Mall
9589 -B Colerain, Space F-8
Cincinnati, OH 45251
Speed Dial # 31
(513) 741-4544
MGR: Joel Lindahl
SUPV: Jim Snyder
#3052 (352) Clark Avenue
2903 Clark Avenue
Cleveland, OH 44109
Speed Dial #27
(216) 631-3208
MGR: Anna Sanabria
SUPV: Steve Newman
# 3066* (366) Southland
7121 West 130th Street
Parma Hts., OH 44130
Speed Dial # 22
(216) 842-6882
MGR: Gerald Brewer
SUPV: Paul Brown
# 3067* (367) Wilson Mills
5184 Wilson Mills
Richmond Hts., OH 44143
Speed Dial # 23
doc\admin\main.lst
** Eastern Division (MIE)
<PAGE>
(216) 442-4285
MGR: Antonio Scott &
Larissa Wilson
SUPV: Steve Newman
Ohio, Con't
#3068 (368) Broadway
6542 Broadway
Cleveland, OH 44105
Speed Dial #15
(216) 441-5211
MGR: Jefim Gattozzi
Mike McHarh
SUPV: Paul Brown
#3071 (371) Rockside
12585 Rockside Road
Garfield Heights, OH 44125
Speed Dial # 17
(216) 662-6067
MGR: Frank Isaac
SUPV: Steve Newman
#3076* (376)
Great Lakes Mall
7850 Mentor Avenue
Mentor, OH 44060
Speed Dial #19
(216) 974-8101
MGR: Ed Zukowski
SUPR: Steve Newman
#3078 Parmatown Mall
7755 W. Ridgewood Dr., 115
Parma, OH 44129
Speed Dial #09
(216) 842-8000
MGR: Carolyn Shafts
SUPV: Paul Brown
# 4004 (404) Waterloo
926 East Waterloo Road
Akron, OH 44306
Speed Dial #13
(330) 724-9990
MGR: Ruth Acomb
SUPV: Paul Brown
#4005*(405) Northfield
10468 East Northfield
Northfield, OH 44067
Speed Dial # 21
(216) 467-5252
MGR: Larry Mueller
SUPV: Steve Newman
#5002 (410)
Belden Village Mall
Unit 4FC
4272 Belden Village Mall
Canton, OH 44718
Speed Dial # 14
(330) 494-3773
MGR: Jody Samstag
SUPV: Paul Brown
# 5251 (301) Woodville
Woodville Mall, Room 944
3725 Williston Road
Toledo, OH 43619
Speed Dial # 24
(419) 693-4783
MGR: Kenneth Stephens
SUPV: Paul Brown
doc\admin\main.lst
** Eastern Division (MIE)
<PAGE>
Pennsylvania (15)
#4251 Bloomsburg**
965 New Berwick Highway
Bloomsburg, PA 17815
(717) 784-2255
MGR: Wana Whitesell
SUPV: Rick Keil
#4252 Danville**
6 North Cumberland Street
Danville, PA 17821
(717) 275-3777
MGR: Donna Brady
SUPV: Rick Keil
#4253 Honesdale**
Route 6 Plaza, R.R. #4
Honesdale, PA 18431
(717) 253-1831
MGR: Kevin Vought
SUPV: Rick Keil
#4254 Lewisburg**
U.S. Route 15
Lewisburg, PA 17837
(717) 523-7171
MGR: Susan Guinter
SUPV: Rick Keil
#4255 Keyser Oak**
1831 North Keyser Avenue
North Scranton, PA 18508
(717) 342-9932
MGR: Melissa Walsh &
Kathleen McAndrew
SUPV: Rick Keil
Pennsylvania, Con't
#4257 Wilkes Barre**
395 South Main Street
Wilkes Barre, PA 18702
(717) 829-0896
MGR: Leonard Savignano
SUPV: Rick Keil
#4258 Nanticoke**
2330 San Souci Highway
Wilkes Barre, PA 18702
(717) 735-7398
MGR: Diane Sullivan
SUPV: Rick Keil
#4259 Williamsport**
1930 Lycoming Creek Road
Williamsport, PA 17701
(717) 326-6945
MGR: Darryle Mahaffey
SUPV: Rick Keil
#4260 Wyoming**
2022 Wyoming Avenue
Wyoming, PA 18644
(717) 288-8727
MGR: Brenda Lehman
SUPV: Rick Keil
New Concept Store:
#4263 King of Prussia**
160 North Gulph Road
King of Prussia, PA 19406
(610) 265-5595
MGR: Cleveland Miller
SUPV: Rose Cagigas
doc\admin\main.lst
** Eastern Division (MIE)
<PAGE>
#4265 Franklin Mills Mall**
1236 Franklin Mills Circle
Philadelphia, PA 19154
(215) 281-1159
MGR: Albert Rania
SUPV: Rose Cagigas
#4266 The Gallery**
9th & Market Street
Philadelphia, PA 19107
(215) 592-7480
MGR: Carolyn Guise
indira Persand
SUPV: Rose Cagigas
#4267 Liberty Place**
1625 Chestnut Street
Space F5
Philadelphia, PA 19103
(215) 963-9454
MGR: Joan-Ann Trefz
SUPV: Rose Cagigas
#4269 Steamtown**
The Mall at Steamtown
Space FC10
Scranton, PA 18503
(717) 344-2663
MGR: David Cobb
SUPV: Rick Keil
#6501 Monroeville
Monroeville Mall
Monroeville, PA 15146
Speed Dial #12
(412) 856-7440
MGR: Richard Frye
SUPV: Jim Snyder
doc\admin\main.lst
** Eastern Division (MIE)
<PAGE>
EXHIBIT 10.10 Form of Franchise Agreement
[GRAPHIC OMITTED]
Revised: January 1, 1997
<PAGE>
Franchise
Agreement
Revised: January 1, 1997
TABLE OF CONTENTS
Item Page
RECITALS 1
I GRANT OF FRANCHISE TERRITORY 2
II TERM AND RENEWAL 2,3
III LOCATION 3
IV FRANCHISE FEES 4
V ROYALTIES 4,5
VI CHANGES AND MODIFICATIONS IN THE SYSTEM
VII TRAINING 5
VIII PRE-OPENING REQUIREMENTS 6
IX ADVISORY SERVICES 6,7
X STANDARDS AND UNIFORMITY OF OPERATIONS 7-9
XI ACCOUNTING AND RECORDS 9,10
XII PROPRIETARY MARKS 10,11
XIII OPERATIONS MANUAL 11
XIV CONFIDENTIAL INFORMATION 12
XV ADVERTISING 12-14
XVI INSURANCE 15,16
XVII TRANSFER OF INTEREST 16-20
Revised: January 1, 1997
iii
<PAGE>
XVIII TAXES, PERMITS AND INDEBTEDNESS 20
Table of Contents cont.
Item Page
XIX DEFAULT AND TERMINATION 20-22
XX OBLIGATIONS UPON TERMINATION OR EXPIRATION 23,24
XXI INDEPENDENT CONTRACTOR 24
XXII GOODWILL AND NON-COMPETITION 25
XXIII APPROVALS 26
XXIV NOTICES 26
XXV ENTIRE AGREEMENT 26
XXVI SEVERABILITY AND CONSTRUCTION 26,27
XXVII WAIVER 27
XXVIII APPLICABLE LAW, FORUM AND JURISDICTION 27
XXIX ACKNOWLEDGMENTS OF FRANCHISEE 28
XXX LIMITATIONS OF DAMAGES 29
XXXI MUTUAL WAIVER OF A TRIAL BY JURY 29-31
XXXII ADVISE OF COUNSEL 31
EXHIBIT A - TERRITORY 32
EXHIBIT B - NON-DISCLOSURE AGREEMENT 33-35
Revised: January 1, 1997
iv
<PAGE>
FRANCHISE AGREEMENT
THIS AGREEMENT is made and entered into 1997, between Arthur Treacher's, Inc.,
(hereinafter "Franchisor") a Utah Corporation, and ________________ (hereinafter
"Franchisee") WITNESSETH:
WHEREAS, Franchisor, as the result of the expenditure of time, skill,
effort, and money, has developed and owns a unique and distinctive system
(hereinafter "System") relating to the establishment and operation of
high-quality restaurants featuring Seafood and related items;
WHEREAS, the distinguishing characteristics of the System include, but are
not limited to, special recipes and menu items; distinctive exterior and
interior design, decor, and furnishings; uniform and services offered;
procedures for quality control; training and assistance; and advertising and
promotional programs; all of which may be changed, improved and further
developed by Franchisor from time to time;
WHEREAS, Franchisor identifies the System by means of certain trade names,
service marks, trademarks, logos, emblems and indicia of origin, including but
not limited to the mark Arthur Treacher's; and such other trade names, service
marks, and trademarks as are designated (and my hereafter be designated by
Franchisor in writing) for use in connection with the System (hereinafter
referred to as "Proprietary Marks");
WHEREAS, Franchisor continues to develop, use, and control the use of such
Proprietary Marks in order to identify for the public the source of services and
products marketed thereunder and under the System, and to represent the System's
high standards of quality, appearance, and service;
WHEREAS, Franchisee desires to enter into the business of operating an
Arthur Treacher Restaurant under Franchisor's System and wishes to obtain a
Franchise from Franchisor for that purpose, as well as to receive the training
and other assistance provided by Franchisor in connection therewith;
WHEREAS, Franchisee understands and acknowledges the importance of
Franchisor's high standards of quality, cleanliness, appearance, and service and
the necessity of operating the Franchised Business in conformity with
Franchisor's standards and specifications;
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other party set forth herein, hereby agree as
follows:
I. GRANT
Franchisor hereby grants to Franchisee, upon the terms and conditions
herein contained, the right, license, and privilege to use the Arthur Treacher's
system and Franchisee undertakes the obligations to open and to operate an
Arthur Treacher's restaurant within said System and to use solely in connection
herewith the Proprietary Marks and the
Revised: January 1, 1997
1
<PAGE>
System, as they may be changed, improved and further developed from time to
time at Franchisor's discretion at the location set forth in Exhibit A.
Franchisee is obligated to open an Arthur Treacher's restaurant within twelve
(12) months of the date of execution of this document.
II. TERM
Except as otherwise provided herein, or unless terminated earlier in
accordance with this Agreement, the term of this Agreement shall expire twenty
(20) years from the date of this Agreement.
Franchisee may, at its option, renew this Agreement for one additional
consecutive term of 20 years, subject to the following conditions which must be
met prior to renewal:
1. Franchisee shall give Franchisor written notice of Franchisee's election
to renew not less than eighteen (18) months nor more than twenty-four (24)
months prior to the end of the initial term;
2. Franchisee shall make or provide for, in a manner satisfactory to
Franchisor, such renovation and modernization of the Restaurant premises as
Franchisor may reasonably require, including without limitation, renovation of
signs, furnishings, fixtures and decor to reflect the then-current standards and
image of the System;
3. Franchisee shall present satisfactory evidence that Franchisee has the
right to remain in possession of the Approved Location or in the alternative,
shall obtain Franchisor's approval of a new location.
4. Franchisee shall execute Franchisor's then-current forms of renewal
Franchise Agreement. No Franchise Fee shall be charged for the renewal. The
Exclusive Territory provided for herein shall remain the same;
5. Franchisee shall execute a mutual general release, in a form prescribed
by Franchisor.
6. Franchisee must be current in the payment of all obligations to
Franchisor and to any of its affiliates or suppliers;
7. Franchisee may not be in default of any provision of this Agreement, or
any amendment or successor hereto, or any other Agreement between Franchisee and
Franchisor and Franchisee shall have fully and faithfully performed all of its
obligations throughout the term hereof.
8 .Franchisor reserves the right to impose any other condition it deems
advisable.
III. LOCATION
Revised: January 1, 1997
2
<PAGE>
During the term of this Agreement, Franchisor shall not establish, nor license
another to establish an Arthur Treacher's restaurant under the System at any
location as outlined in Exhibit A, without Franchisee's prior written consent
("Exclusive Territory"). However, Franchisee understands and expressly
acknowledges and agrees that Franchisor has retained the exclusive, unrestricted
right to establish and license another to establish other restaurants as
follows:
1. Anywhere outside the Exclusive Territory or,
2. Anywhere within a Semi Self-Contained Facility. A Semi Self-Contained
Facility includes, without limitations, a public transportation facility, toll
booth plaza, corporate facility which would otherwise provide an employee
cafeteria, recreational theme park or enclosed public shopping mall. Franchisee
hereby acknowledges and agrees that it is Franchisee's obligation to secure an
acceptable location within the Exclusive Territory. Franchisor may submit
pre-approved sites to Franchisee in the selected territory. However, Franchisee
agrees that the primary obligation of securing a suitable site remains with
Franchisee and Arthur Treacher's makes no guarantees regarding any pre-approved
site including but not limited to, profitability, traffic flow or favorable
lease provisions.
Franchisee acknowledges and agrees that Franchisor does not guarantee the
site or the success of any particular Arthur Treacher's restaurant established
at any site by any of Franchisor's actions, including but not limited to,
execution of the Franchise Agreement, submission of pre-approved sites or
advisory assistance.
IV. FRANCHISE FEE
Franchisee shall pay to Franchisor an initial franchise fee of Nineteen
Thousand Five Hundred Dollars ($19,500.00). The franchise fee is payable as
follows:
1. Upon execution of this Agreement, Franchisee shall pay Five Thousand
Dollars ($5,000.00). The Franchisor shall refund such payment to Franchisee upon
Franchisee's request, at any time prior to completion of the Orientation Program
by Franchise; and,
2. Upon completion of the Orientation Program, Franchisee shall pay
Fourteen Thousand Five Hundred Dollars ($14,500.00) where upon the entire
initial franchise fee referred to in this Section IV shall be deemed fully
earned and non-refundable. Franchisee specifically acknowledges that the
franchise fee is paid as consideration for Franchisor granting this franchise
and that it is fully earned and will not be refundable for any reason.
V. ROYALTIES
Revised: January 1, 1997
3
<PAGE>
During the term of this Agreement, Franchisee shall pay to Franchisor a
continuing monthly Royalty Fee in an amount equal to six percent (6%) of the
gross sales of the restaurant. Franchisee agrees that the Royalty Fee is paid as
consideration for the rights granted hereunder and that the fee is fully earned
and non-refundable and is for the use of the Arthur Treacher's trademarks, trade
names and System.
All monthly payments are required to be paid by the tenth (10th) day of
each month on the gross sales for the preceding month, and should be submitted
to Franchisor together with all monthly reports or statements required by this
Agreement or Franchisor. Any payment or report not actually received by
Franchisor on or before such date should be deemed overdue. If any payment is
overdue for more than sixty (60) days, Franchisee agrees to pay Franchisor
interest at the rate of one and one-half percent (1.5%) a month or, in the
alternative, the maximum permitted by law. Franchisee further agrees to pay a
late fee of One Hundred Fifty Dollars ($150.00) should Franchisor forward the
account to the Franchisor's legal department.
As used in this Agreement, "gross sales" shall include all revenue from the
sale of all products and performances of services from the Franchised Business,
whether for cash or credit and regardless of collection in the case of credit,
and income of every kind and nature related to the Franchised Business;
provided, however, that "gross sales" from customers shall not include monies
that are collected and submitted by Franchisee for transmittal to the
appropriate taxing authority. In computing the gross sales, the Franchisee shall
be permitted to deduct the amount of cash refunds to, and coupons used by
customers, provided such amounts have been included in sales. Franchisee agrees
that Franchisor may impose a late fee of One Hundred Fifty Dollars ($150.00)
should Franchisor refer Franchisee's account and/or file to Franchisor's legal
department because of a default by Franchisee.
VI. CHANGES AND MODIFICATIONS IN THE SYSTEM
Franchisee recognizes and agrees that Franchisor may change or modify the
Arthur Treacher's System from time to time, including but not limited to, the
adoption and use of new or modified trade names, trademarks, service marks or
copyrighted materials. Franchisee agrees to accept, use and display any such
changes or modifications in the Arthur Treacher's system as if they were part of
the Arthur Treacher's System at the time of execution hereof, and the Franchisee
will make reasonable expenditures as such changes or modifications may require.
For the purpose of this agreement, all references to Arthur Treacher's System
shall include such future changes and modifications.
VII. TRAINING
Franchisor shall make an Orientation Program available to Franchisee to
assist Franchisee in evaluating the Franchised Business. Franchisee shall attend
and complete to Franchisor's satisfaction the Orientation Program offered by
Revised:
January 1, 1997
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Franchisor. Franchisee shall commence such Orientation Program prior to
execution of this Agreement at such location or restaurant as Franchisor shall
designate.
Franchisor shall also provide an initial Training Program for Franchisee
prior to Franchisee's commencement of the Franchised Business. Franchisee and
Franchisee's manager must attend and complete to Franchisor's satisfaction the
initial Training Program. At Franchisor's option, any persons subsequently
employed by Franchisee in the position of manager shall also attend and
complete to Franchisor's satisfaction the Training Program. Franchisee's
managers and other employees shall also attend such refresher courses, seminars,
and other training programs as Franchisor may reasonably require from time to
time. Franchisor shall provide instructors and training materials for all
required training programs; and Franchisee or its employees shall be responsible
for all other expenses incurred by Franchisee or its employees in connection
with any training programs, including, without limitation, the cost of
transportation, lodging, meals, and wages.
VIII. PRE-OPENING REQUIREMENTS
Before commencing any construction of the Restaurant, Franchisee at its
expense, shall comply to Franchisor's
satisfaction with all of the following requirements:
1. Franchisee shall submit to Franchisor, for Franchisor's approval,
detailed plans and specifications, adapting Franchisor's then-current standard
plans and specifications to Franchisee's location and to local and state laws,
regulations, and ordinances. When approved by Franchisor, such plans and
specifications shall thereafter not be materially changed or modified without
the prior written consent of Franchisor.
2. Franchisee shall use a qualified general contractor or construction
supervisor to oversee construction or modification of the Restaurant and
completion of all improvements.
3. Franchisee shall obtain all permits and certifications required for
lawful construction and operation for the Restaurant including, without
limitation, zoning, access, sign, and fire requirements, and shall certify in
writing to Franchisor that all permits and certifications have been obtained.
4. Franchisee shall provide written notice to Franchisor of the date of
construction of the Restaurant within seven (7) days after commencement.
Franchisee shall maintain continuous construction of Restaurant premises and
shall complete construction, in accordance with the approved detailed plans and
Revised: January 1, 1997
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specifications, at Franchisee's expense, within one hundred and five (105)
days after the date on which construction commences.
IX. ADVISORY SERVICES
During the term of this Agreement, Franchisor shall at reasonable times
when the Franchisor deems it so advisable, upon the request of and at no charge
to Franchisee, furnish counseling and advisory services to Franchisee with
respect to the opening and operation of the Arthur Treacher's restaurant,
including consultation and advice regarding the following: a) equipment
selection and layout; b) employee selection and training; c) leases; d)
advertising and promotion; e) bookkeeping and accounting; f ) purchasing
and inventory control; g) operational procedures; h) periodic inspections; and
i) new developments and improvements in the Arthur Treacher's system. Franchisor
will provide two (2) days of supervision and assistance prior to opening the
restaurant. Franchisor will further provide five (5) days of supervision and
assistance after opening. Franchisee agrees that the furnishing and the
acceptance of any advise by Franchisee from Franchisor does not change, modify,
alter, extend or impose a duty on the Franchisor that is not otherwise expressly
found within this franchise agreement. Franchisee further recognizes that the
furnishing of any advise by Franchisor does not impose any duty on Franchisor
other than the duty to act in good faith.
X. STANDARDS AND UNIFORMITY OF OPERATION
Franchisee recognizes the mutual benefit to Franchisee, Franchisor and
other Arthur Treacher's Franchisees of the uniformity of appearance, service,
products and advertising of the Arthur Treacher's system and understands that
such uniformities are necessary for the successful operation of the Arthur
Treacher's restaurants. Franchisee recognizes that Franchisor seeks to maintain
high standards of quality, appearance, and service of the System. Franchisee
agrees that it is the utmost importance to the Franchisee, Franchisor and other
Franchisees that every detail of the Franchised Business maintain high uniform
operating standards, to increase the demand for the products and services sold
by all Franchisees, and to protect the reputation and goodwill of the Arthur
Treacher's System. To this end, Franchisee warrants and covenants with respect
to the operation of the Arthur Treacher's restaurant at the franchised site that
Franchisee and its employees will comply with all of the requirements of the
Arthur Treacher's System and will throughout the term of the agreement:
a) Open and operate the Restaurant in conformity with such methods,
standards, specifications, business practices and policies of Franchisor now in
effect or hereafter promulgated by Franchisor for its Franchisees and comply
with all requirements of the Arthur Treacher's System as they are now or
hereafter estimated.
Revised: January 1, 1997
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b) Permit Franchisor or its agents, at any reasonable time, to remove from
the Restaurant samples of items without payment therefor, in amounts reasonably
necessary for testing by Franchisor or an independent, certified laboratory to
determine whether said samples meet Franchisor's then-current standards and
specifications. In addition to any other remedies it may have under this
Agreement, Franchisor may require Franchisee to bear the cost of such testing if
the supplier or the item has not previously been approved by Franchisor, or if
the sample fails to conform to Franchisor's specifications.
c) Grant Franchisor and its agents the right to enter upon the Restaurant
premises at any reasonable time to inspect, photograph, or videotape the
Franchised Business, equipment, and operations therein; cooperate with
Franchisor's representatives in such inspections by rendering such assistance as
they may reasonably request, and upon reasonable notice from Franchisor or its
agents, take such steps as may be necessary to correct immediately the
deficiencies detected during any such inspection.
d) Agrees to maintain in sufficient supply, and use at all times, only such
products, materials, ingredients, supplies, and paper and plastic goods as
conform to Franchisor's standards and specifications.
e) Agrees to sell, distribute or deliver all products only in such weights,
sizes, forms, and packages as meet Franchisor's standards of quality and
quantity, and as have been from time to time expressly approved for sale in
writing by Franchisor.
f) Agrees Franchisor shall have the right to require that certain
equipment, fixtures, furnishings, signs, paper and plastic goods, special blend
batter, supplies and other products and materials required for the operation of
the Restaurant be purchased solely from suppliers (including manufacturers,
distributors, and other sources), who demonstrate, to the continuing reasonable
satisfaction of Franchisor, the ability to meet Franchisor's then-current
standards and specifications for such items. However, Franchisee may request to
purchase items from an unapproved supplier or distributor. Approval must be in
writing by Franchisor. Franchisee, Supplier and/or Distributor must provide
Franchisor with a written request for approval, all necessary information,
samples and an administrative fee of Five Hundred Dollars ($500.00). Franchisor
agrees that it will not unreasonably withhold consent; however, Franchisor
reserves the right to consider such factors as financial records, business
reputation, delivery performance, credit rating and other such information in
evaluating a proposed supplier or distributor. Franchisor reserves the right to
re-inspect the facilities and products of any previously approved supplier and
may revoke its approval if the supplier fails to meet any of Franchisor's
standards and specifications at any time. g) Uses the Restaurant premises solely
for the operation for the Franchised Business; and maintain sufficient inventory
and employ sufficient employees to keep the business open and in normal
operation
Revised: January 1, 1997
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for such minimum hours or days as Franchisor may from time to time specify
in the Manual or as Franchisor may otherwise approve in writing. h) Operate the
Restaurant in conformity with such methods, standards, and specifications as
Franchisor may from time to time prescribe in the Manual or otherwise in
writing, to insure the highest degree of quality and service is uniformly
maintained. i) Refurbish the Restaurant at its expense, at Franchisor's request,
which shall not be more often than once every five (5) years, to conform to the
building design, trade dress, color schemes, and presentation of trademarks and
service marks consistent with Franchisor's then-current standards and conditions
for the System, including, without limitation, redecoration, remodeling and
modifications to existing improvements. Franchisee shall have eighteen (18)
months from said request to complete the change. j) Comply with all applicable
governmental laws, ordinances and regulations. k) Require all employees in the
restaurant to wear uniforms conforming to such specifications as to color,
design, etc., as Franchisor may from time to time reasonable designate.
XI. ACCOUNTING AND RECORDS
Franchisee agrees to submit to Franchisor no later than the tenth (10th)
day of each month during the term of the Agreement after the opening of the
Franchised Business, a royalty report in the form prescribed by Franchisor,
accurately reflecting all gross sales during the preceding calendar month, and
such other data or information as Franchisor may require from time to time in
the Manual or otherwise in writing. Franchisee shall also submit to Franchisor
no later than the thirtieth (30th) day of each month during the term of this
Agreement, a monthly profit and loss statement, in the form prescribed by
Franchisor, for the preceding calendar month. Franchisee agrees, at its expense,
to provide to Franchisor a profit and loss statement and balance sheet,
accompanied by a review report prepared by an independent Certified Public
Accountant satisfactory to Franchisor, within ninety (90) days after the end of
each fiscal year of the Franchised Business during the term hereof, showing the
results of operations of the Franchised Business during said fiscal year.
Franchisee agrees to submit to Franchisor a weekly report showing Franchisee
sales, food costs and total labor hours upon request by Franchisor. Franchisor
or its designated agents shall have the right at all reasonable times to examine
and copy, at Franchisor's expense, the books, records and tax returns of the
Franchised Business. Franchisor shall also have the right, at any time, to have
an independent audit made of the books of the Franchised Business. If an
inspection should reveal that Revised: January 1, 1997
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any payments have been understated in any report to Franchisor, then
Franchisee shall immediately pay to Franchisor
the amount understated upon demand. If an inspection discloses an
understatement in any payment of three percent (3%) or more, Franchisee shall,
in addition, reimburse Franchisor for any and all costs and expenses connected
with inspection (including, without limitation, travel, lodging and wage
expenses and reasonable accounting and legal costs). The foregoing remedies
shall be in addition to any other remedies Franchisor may have. Franchisee
agrees to maintain during the term of this Agreement, and shall preserve for at
least four (4) years from the dates of preparation, full, complete, and accurate
books, records, and accounts in accordance with generally accepted accounting
principles and in the form and manner prescribed by Franchisor from time to time
in the Manual or otherwise in writing. Franchisee agrees that Franchisor may
impose a late fee of One Hundred Fifty Dollars ($150.00) should Franchisor refer
Franchisee's account and/or file to Franchisor's legal department because of a
default by Franchisee.
XII. PROPRIETARY MARKS
Franchisor represents with respect to the Proprietary Marks, and Franchisee
acknowledges, that the Proprietary Marks are valid and that Franchisor is the
owner of all right, title, and interest in and to the Proprietary Marks and the
goodwill symbolized thereby.
A. With respect to Franchisee's licensed use of the Proprietary Marks
pursuant to this Agreement, Franchisee agrees that:
1. Franchisee shall use only the Proprietary Marks designated by
Franchisor, and shall use them only in the manner authorized and permitted by
Franchisor. Any unauthorized use thereof shall constitute an infringement on
Franchisor's rights.
2. Franchisee shall execute any documents deemed necessary by Franchisor to
obtain protection for the Proprietary Marks or to maintain their continued
validity and enforceability.
3. Franchisee shall not directly or indirectly contest the validity of
Franchisor's ownership of the Proprietary Marks.
4. In the event that litigation involving the Proprietary Marks is
instituted or threatened against Franchisee, Franchisee shall promptly notify
Franchisor and shall cooperate fully in defending or settling such litigation.
Revised: January 1, 1997
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B. Franchisee expressly understands and acknowledges that:
1. Franchisee's use of the Proprietary Marks pursuant to this Agreement
does not give Franchisee any ownership interest or other interest in or to the
Proprietary Marks, except the license granted by this Agreement. Upon expiration
or termination of this Agreement and the license herein granted, no monetary
amount shall be assigned as attributable to any goodwill associated with
Franchisee's use of the System or Proprietary Marks.
2. The right and license of the Proprietary Marks granted hereunder to
Franchisee is nonexclusive, and Franchisor thus has and retains these rights,
among others:
a. To use the Proprietary Marks in connection with
selling products and services;
b. To grant other licenses for the Proprietary marks, in addition to those
licenses already granted to existing Franchisees.
3. Franchisor reserves the right to substitute different Proprietary Marks
for use in identifying the system and the business operating thereunder if
Franchisor's currently owned Proprietary Marks no longer can be used, or if
Franchisor in its sole discretion, determines that substitution of different
Proprietary Marks, will be beneficial to the System.
XIII. OPERATIONS MANUAL
In order to protect the reputation and goodwill of Franchisor and to
maintain high standards of operation under Franchisor's Proprietary Marks,
Franchisee shall conduct its business in strict accordance with the Manual.
Franchisee shall at all times treat the Manual, any other manuals created for or
approved for use in the operation of the Franchised Business, and the
information contained therein, as confidential, and shall use all reasonable
efforts to maintain such information as secret and confidential. Franchisee
shall not at any time copy, duplicate, record, otherwise reproduce the foregoing
materials, in whole or in part, nor otherwise make the same available to any
unauthorized person. Franchisor may from time to time revise the contents of the
Manual, and Franchisee expressly agrees to comply with each new or changed
standard.
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Franchisee shall at all times insure that its copy of the Manual is kept
current and up to date; and, in the event of any dispute as to the contents of
the Manual, the terms of the master copy of the Manual maintained by Franchisor
at Franchisor's headquarters shall be controlling.
XIV. CONFIDENTIAL INFORMATION
Franchisee shall not, during the term of this agreement or thereafter,
communicate, divulge, or use for the benefit of any other person, persons,
partnership, association, or corporation any confidential information,
knowledge, or know- how concerning the methods of operation of the Franchised
Business hereunder which may be communicated to Franchisee or of which
Franchisee may be apprised by virtue of Franchisee's operation under the terms
of this Agreement. Franchisee shall execute a Non-disclosure Agreement with
Franchisor as an inducement for Franchisor entering into this Agreement with
Franchisee.
XV. ADVERTISING
Recognizing the value of advertising and the importance of the
standardization of advertising programs to the furtherance of the goodwill and
public image of the system, the parties agree as follows:
A. Grand Opening Requirements
Franchisee shall pay to Franchisor Two Thousand Dollars ($2,000.00) within
thirty (30) days after the opening of the Franchised Business, for advertising
to promote the opening of the Restaurant.
All Grand Opening advertising shall be under the sole direction of the
Franchisor and will be used to benefit the opening Franchisee as well as other
Franchisees within the area market.
B. Local Advertising Requirements
Franchisee shall spend on local advertising not less than the minimum
percentage of monthly gross sales as is prescribed by Franchisor, provided,
however, that such minimum percentage shall be reduced by any contribution to a
regional advertising cooperative or national advertising fund made by Franchisee
pursuant to Section X., E. and F. hereof. The minimum three percent (3%) during
the first full twelve months of operation of the Restaurant, and may at any time
thereafter be increased or decreased by Franchisor, in Franchisor's sole
discretion; provided however, that Franchisor shall not at any time during the
term of this Agreement increase the minimum percentage of monthly gross sales to
be spent by Franchisee on local advertising; (i) to more than five percent (5%);
and (ii) by more than one percent (1%) in any twelve month period.
Franchisor shall from time to time offer to provide to Franchisee, at
Franchisee's expense, such approved advertising and promotional plans and
materials as Franchisor deems advisable. All advertising and promotion of
Franchisee in any manner or medium shall be conducted in a dignified manner and
shall conform to such
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standards and requirements as are specified by Franchisor. Franchisee shall
submit to Franchisor, for its prior approval (except with respect to prices to
be charged), samples of all advertising and promotional plans and materials that
Franchisee desires to use and which have not been prepared or previously
approved by Franchisor. If written disapproval thereof is not received by
Franchisee from Franchisor within ten (10) days of the date of receipt by
Franchisor of such samples of materials, Franchisor shall be deemed to have
given the required approval.
C. Regional Advertising Co-operatives
Franchisee agrees that Franchisor shall have the right, in its discretion,
to designate any geographical area (such as Areas of Dominant Influence [ADI's],
as defined by Arbitration on an annual basis) for purposes of establishing a
regional advertising cooperative (hereinafter "Cooperative").
1. If a Cooperative has been established applicable to the Franchised
Business at the time Franchisee commences operations, Franchisee shall
immediately become a member of such Cooperative and shall execute an advertising
cooperative agreement prepared by Franchisor. If a cooperative applicable to the
Franchised Business is established at any later time during the term of this
Agreement, Franchisee shall become a member of such Cooperative no later than
thirty (30) days after the date on which the Cooperative commences operation. In
no event shall Franchisee be required to be a member of more than one
Cooperative. As long as Franchisee is a member of a Regional Cooperative,
Franchisee is not obligated to advertise locally as prescribed in Section XV(B).
2. Each Cooperative shall have the right to require its members to make
contributions to the Cooperative in such amounts as are determined by the
Cooperative; provided, however, that the percentage of monthly gross sales to be
contributed by Franchisee to the Cooperative shall be three percent (3%) during
the first full twelve months of operations of the Restaurant and may at any time
thereafter be increased or decreased by the Cooperative, in the Cooperative's
sole discretion; and, further provided, that the Cooperative shall not at
anytime during the term of the Agreement increase the minimum percentage of
monthly gross sales to be contributed by Franchisee to the cooperative: (i) to
more than five percent (5%); and (ii) by more than one percent (1%) in any
twelve month period.
D. National Advertising Co-operative
3. During the term of this agreement, Franchisor may establish a national
advertising fund at such time as Franchisor deems advisable. When a national
advertising fund is established, Franchisee shall be required to contribute to
such fund. The percentage of monthly gross sales to be contributed to such fund
shall be no more than one percent (1%) during the first full twelve months of
operations, and may at any time be increased by
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the Franchisor at Franchisor's sole discretion to a maximum of three
percent (3%) by no more than one percent (1%) in any twelve (12) month period.
However, at no time shall the Franchisee be required to spend a sum greater than
five percent (5%) gross sales on any combination of the advertising programs.
1. The Franchisor or its designee will direct all advertising and
promotional programs and activities, with discretion over the concepts,
materials, and media used in such programs and activities and the placement and
allocation thereof. The Franchisee acknowledges that the National Fund is
intended to maximize general public recognition and acceptance, and the use of
the Proprietary Marks of the System, and that the Franchisor or its designee
undertake no obligation in administering the National Fund to make expenditures
for the Franchisee which are equivalent or proportionate to the Franchisee's
contribution or to ensure that any particular Franchisee benefits directly or
pro rata from expenditures by the National Fund.
2. The Franchisor will, for each of its company-owned restaurants under the
System, make contributions to the National Fund on the same basis as assessments
required of comparable Franchisees within the System.
3. The National Fund, all contributions thereto, and any earnings thereon
will be used exclusively to meet any and all costs of maintaining,
administering, directing, and preparing advertising or promotional activities
(including, among other things, the costs of preparing and conducting
advertising campaigns; direct mail and outdoor billboard advertising; marketing
surveys and other public relations activities; use of advertising agencies to
assist therein; and promotional brochures and other marketing materials for
restaurants operated under the System).
Franchisee agrees that Franchisor may impose a late fee of One Hundred
Fifty Dollars ($150.00) should Franchisor refer Franchisee's account and/or file
to Franchisor's legal department because of a default by Franchisee.
XVI. INSURANCE
Franchisee shall procure, prior to the commencement of any operations under
this Agreement, and shall maintain in full force and effect at all times during
the term of this Agreement, at Franchisee's expense, an insurance policy or
policies protecting Franchisee and Franchisor, and their respective officers,
directors, shareholders, partners, and employees against any demand or claim
with respect to personal injury, death, property damage, or any loss, liability,
or expense whatsoever arising or occurring upon or in connection with the
Franchised Business. Arthur Treacher's, Inc., must be listed as a Loss Payee.
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Such policy shall be written by an insurance company satisfactory to
Franchisor in accordance with standards and specifications set forth in the
Manual or otherwise in writing, and shall include, at a minimum (except as
additional coverage and high policy limits may reasonably be specified by
Franchisor from time to time), the following:
1. Comprehensive general liability insurance, including personal injury,
completed operations, contractual liability, and products liability, in an
amount of not less than One Million Dollars ($1,000,000.00) per occurrence for
bodily injury and not less than Five Hundred Thousand Dollars ($500,000.00) per
occurrence for property damage, and naming Franchisor as an additional insured
in each such policy or policies.
2. Fire, vandalism, and extended coverage insurance with primary and excess
limits of not less than the full replacement value of the Restaurant premises
and its furniture, fixtures, and equipment.
3. Employer's liability, workers compensation, and such other insurance as
may be required by statute or rule of the state or locality in which the
Franchised Business is located and operated.
In connection with any construction, renovation, refurbishment, or remodeling of
the Restaurant, Franchisee shall cause the general contractor to maintain with a
reputable insurer comprehensive general liability insurance (with comprehensive
automobile liability coverage for vehicles, builder's risk, private liability,
and dependent contractors coverage) in at least the amount of Five Hundred
Thousand Dollars ($500,000.00), with Franchisor named as an additional insured,
and workers' compensation and employer's liability insurance as may be required
by law. Franchisee's obligation to obtain and maintain the foregoing policy or
policies in the amounts specified shall not be limited in any way by reason of
any insurance which may be maintained by Franchisor, nor shall Franchisee's
performance of that obligation relieve it of liability under indemnity
provisions of this Agreement.
At least thirty (30) days prior to the time any insurance is first required to
be carried by Franchisee, and thereafter at least thirty (30) days prior to the
expiration of any such policy, Franchisee shall deliver to Franchisor
Certificates of Insurance evidencing the proper coverage with limits not less
than those required hereunder. All Certificates shall expressly provide that no
less than thirty (30) days prior written notice shall be given Franchisor in the
event of material alteration to, or cancellation of, the coverage evidenced by
such Certificates. Should Franchisee, for any reason, fail to procure to
maintain the insurance required by this Agreement, as such requirements may be
revised from time to time by Franchisor in the Manual or otherwise in writing,
Franchisor shall have the right and authority (without, however, any obligations
to do so) immediately to procure such insurance and to charge same to
Franchisee, which charges, together with a reasonable fee for Franchisor's
expenses in so acting shall be payable by Franchisee immediately to Franchisor.
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XVII. TRANSFER OF INTEREST
A. Transfer by Franchisee
Franchisee understands and acknowledges that the rights and duties set forth in
this Agreement are personal to Franchisee, and Franchisor has granted this
Franchise in reliance on Franchisee's business skill, financial capacity, and
personal character. Accordingly, neither Franchisee nor any immediate or remote
successor to any part of Franchisee's interest in this Franchise shall sell,
assign, transfer, convey, give away, pledge, mortgage, or otherwise encumber any
direct, or indirect interest in this Franchise without the prior written consent
of Franchisor. In the event Franchisee is a corporation, limited partnership,
business trust, partnership or similar association, the shareholders, limited
partners, beneficiaries, partners or investors, as the case may be, may not
sell, assign or otherwise transfer their shares or interests in such
corporation, limited partnership, business trust, partnership or similar
association, without the prior written consent of Franchisor. In the event
Franchisor (or a shareholder) is a corporation, all stock certificates of
Franchisee or Shareholder, as the case may be, shall have conspicuously endorsed
upon them a legend in substantially the following form:
A transfer of this stock is subject to the terms and conditions of an
Arthur Treacher's Franchise Agreement dated the ____ day of __________, 19____.
Any purported assignment or transfer, by operation of law or otherwise, not
having the written consent of Franchisor shall be null and void and shall
constitute a material breach of this Agreement. Franchisor shall not
unreasonably withhold its consent to transfer of interest in this Franchise;
provided, however, that if a transfer, alone or together with other previous,
simultaneous, or proposed transfers, would have the effect of transferring a
controlling interest in the Franchised Business, Franchisor may, in its sole
discretion, require any or all of the following conditions of its approval;
1. Franchisee is not in default of any provision of this Agreement, any
amendment hereof or successor hereto, or any other agreement between Franchisee
and Franchisor, or its subsidiaries and affiliates;
2. The Franchisee and its owner(s) shall execute a general release, in a
form satisfactory to Franchisor, of any and all claims against company, and its
respective officers, directors, employees, affiliates, shareholders,
representative and agents;
3. The transferee shall execute, for a term ending on the expiration date
of the Agreement and with such renewal term as may be provided by this
Agreement, the standard form Franchise
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Agreement then being offered to new Franchisees; provided, however, that
the transferee shall not be required to pay any initial Franchise Fee and the
Exclusive Territory provided for in this Agreement shall remain the same;
4. The transferee, at its expense shall upgrade the Restaurant to conform
to then-current standards and specifications of Restaurants, and shall complete
the upgrading and other requirements within the time specified by Franchisor;
5. At the transferee's expense, the transferee and its manager(s) shall
complete any training programs then in effect for Franchisees upon such terms
and conditions as Franchisor may reasonably require;
6. Except in the case of a transfer to a corporation formed for the
convenience of ownership, Franchisee shall pay a transfer fee of Ten Thousand
Dollars ($10,000.00).
Franchisor reserves the right to require any additional conditions prior to
Franchisor's consent to transfer of interest.
B. Offerings by Franchisee
Securities of partnership interests or stock in Franchisee may be sold, by
private offering or otherwise, only with the prior written consent of
Franchisor, which consent shall not be unreasonably withheld; provided, however,
Franchisee shall pay to Franchisor, an offering fee of One Thousand Dollars
($1,000.00). All offerings must comply to Section XVII(A) stated above.
C. Transfer upon Death or Mental Incompetency
Upon the death or mental incompetency of any person with an interest in the
Franchise, the executor, administrator, or personal representative of such
person shall transfer within two (2) months after such death or mental
incompetency his interest to a third party approved by Franchisor. Such
transfers, including, without limitation, transfers by devise or inheritance,
shall be subject to the same conditions as any other inheritance transfer.
However, in the case of transfer by devise or inheritance, if the heirs or
beneficiaries of any such person are unable to meet the conditions, the personal
representative of the deceased Franchisee shall have reasonable time to dispose
of the deceased's interest in the Franchise, which disposition shall be subject
to all the terms and conditions of transfers contained in this Agreement.
<PAGE>
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D. Right of First Refusal
Revised: January 1, 1997
Any party holding any interest in this Franchise who desires to accept any
bona fide offer from a third party to purchase such interest shall notify
Franchisor in writing of each such offer, and shall provide such information and
documentation relating to the offer as Franchisor may require. Franchisor shall
have the right and option, exercisable within thirty (30) days after receipt of
such written notification, to send written notice to the seller that Franchisor
intends to purchase the seller's interest on the same terms and conditions
offered by the third party. In the event that Franchisor elects to purchase the
seller's interest, closing on such purchases must occur within thirty (30) days
from the date of notice to seller of the election to purchase by Franchisor
unless otherwise extended by Franchisor. Any material change in the terms of any
offer prior to closing shall constitute a new offer subject to the same rights
of first refusal by Franchisor as in the case of an initial offer. If Franchisee
fails to complete such sale within ninety (90) days following the refusal or
failure to act by Franchisor, then Franchisee may not complete such transaction
without first offering the same to Franchisor again as provided above.
E. Franchisor's Option to Purchase
1. If this agreement is terminated or canceled by reason of default in
performance or for any other reason, except the sale or transfer thereof to
another as set forth in Section XVII above, Franchisee must offer to sell the
assets of the Franchised Business or Franchisee's interest therein, to
Franchisor. The term "Assets" means equipment, inventory and leasehold
interests. If the parties are unable to agree as to a purchase price and terms,
the fair market value of the Franchised Business (to be deemed without goodwill
or going concern value) shall be determined by three appraisers. Franchisee
shall select one and Franchisor shall select one, and the two appraisers so
chosen shall select a third appraiser. The decision of a majority of the
appraisers so chosen shall be conclusive. If Franchisor elects to purchase the
assets of the Franchised Business, the purchase price will be reduced by A) the
current and long term liabilities or the Franchised Business assumed by
Franchisor; B) the amount necessary to upgrade and renovate the restaurant to
meet company's then current standards for restaurants; and C) any outstanding
obligations owed by Franchisee to Franchisor, including but not limited to,
royalties and advertising fees. The balance of the purchase price, after
deductions described above, is payable as follows: Ten percent (10%) of the
balance at the time of closing and the remainder in sixty (60) equal monthly
installments of principal plus interest at a rate of interest at ten (10)
percent per annum. Franchisor shall have the right, at any time within 30 days
after being advised in writing of the decision of the appraisers as aforesaid,
to exercise its option to purchase such Franchised Business as set forth above.
Nothing contained in this paragraph shall be deemed to be a waiver by Franchisor
of any default by Franchisee under this agreement nor shall the exercise of the
option to purchase contained in this paragraph affect any other rights or
remedies granted to Franchisor hereunder or otherwise available
Revised: January 1, 1997
17
<PAGE>
to it. Nothing in this provision should be construed as to impose a duty on
Franchisor to purchase the Franchised Business from Franchisee.
2. Notwithstanding the provisions set forth in Section XVII(1), if, within
forty-five (45) days following any termination or cancellation of this Agreement
by reason of expiration of term, Franchisee shall receive a bona fide offer for
and desires to sell the Franchised Business, Franchisee shall offer the same in
writing to Franchisor at the same price and on the same terms or the monetary
equivalent; which offer Franchisor may accept at any time within thirty (30)
days after receipt thereof. If Franchisor declines, or does not within such
thirty (30) day period accept such offer, then Franchisee may sell, transfer,
assign, lease or sublet such interest to such buyer, but not at a lower price
nor on more favorable terms than have been offered to Franchisor. If Franchisee
fails to complete such sale within forty-five (45) days following the refusal or
failure to act by Franchisor, Franchisee must then sell the Franchised Business
to Franchisor pursuant to the terms and conditions set forth in Section XVII(1).
F. Transfer by Franchisor
Franchisor shall have the right to transfer or assign all or part of its
right or obligations herein to any person or legal entity.
XVIII. TAXES, PERMITS, AND INDEBTEDNESS
Franchisee shall promptly pay when due all taxes levied or assessed,
including, without limitation, unemployment and sales taxes, and all accounts
and other indebtedness of every kind incurred by Franchisee in the conduct of
the Franchised Business under this Agreement. Franchisee shall pay to Franchisor
an amount equal to any sales tax, gross receipts tax, or similar tax (other than
income tax) imposed on Franchisor with respect to any payments Franchisor
required under this Agreement, unless the tax is credited against income tax
otherwise payable by Franchisor. Franchisee shall comply with all federal,
state, and local laws, rules, and regulations, and shall timely obtain any and
all permits, certificates, or licenses necessary for the full and proper conduct
of the Franchised Business under this Agreement, including, without limitation,
licenses to do business, fictitious name regulations, sales tax, permits, health
and sanitation permits and ratings, and fire clearance. Franchisee shall notify
Franchisor in writing within five (5) days of commencement of any action, suit,
or proceeding, and of the issuance of any order, writ, injunction, award, or
decree of any court, agency or other governmental instrumentality, which may
adversely affect the operation or financial condition of the Franchised
Business.
XIX. DEFAULT AND TERMINATION
18
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A. Automatic Termination
Franchisee shall be deemed to be in default under this Agreement, and all
rights granted herein shall automatically terminate without notice to
Franchisee, upon the occurrence of any of the following, if Franchisee:
(1) Files a petition under any bankruptcy or reorganization law, becomes
insolvent, or has a trustee or receiver appointed by a court of competent
jurisdiction for all or any part of Franchisee's property;
(2) Has an involuntary proceeding filed under any bankruptcy or
reorganization laws or any other laws and not have such proceeding be dismissed
within sixty (60) days;
(3) Seeks to effect a plan of liquidation, reorganization,
composition or arrangement of Franchisee's affairs;
(4) Makes a general assignment for the benefit of creditors;
(5) Abandons the Franchised Business by failing to operate the business for
five consecutive days during which Franchisee is required to operate the
business, or any shorter period after which it is not unreasonable under the
facts and circumstances for Franchisor to conclude that Franchisee does not
intend to continue to operate the franchise, unless such failure to operate is
due to fire, flood, earthquake or other similar causes beyond Franchisee's
control;
(6) Loses the right of possession, for any cause whatsoever, as owner or
lessee of the real property on which the restaurant is located; however, if all
or a substantial part of the real property on which the restaurant facility is
located is taken by eminent domain proceedings so as to make the restaurant
facility not in compliance with Franchisor's construction specifications or so
as to make the restaurant facility inoperable for the purpose of carrying out
the requirements of this Agreement, then Franchisor and Franchisee will agree on
a new location for the restaurant facility in accordance with the then-current
construction specifications of Franchisor within one hundred eighty (180) days
after the designation of such location. All of the terms of this Agreement not
specifically modified herein shall apply to the construction, maintenance and
operation of such new restaurant facility; or
(7) Fails to open a restaurant within twelve (12) months after the
execution of this Franchise Agreement; unless otherwise waived in writing by
Franchisor.
B. Termination By Franchisor
Revised: January 1, 1997
19
<PAGE>
Franchisor, at its option, may terminate this Agreement immediately
upon notice to Franchisee, if Franchisee:
1. Is convicted of a felony, a crime involving moral turpitude, or any
other crime or offense that Franchisor believes is reasonably likely to have an
adverse effect on the System, the Proprietary Marks, the goodwill associated
therewith, or Franchisor's interest therein;
2. Fails to comply with his agreement not to compete during the
term of this Agreement;
3. Discloses or divulges the contents of the Manual or other confidential
information provided to Franchisee by Franchisor contrary to the terms hereof;
4. Misuses or makes any unauthorized use of the Proprietary Marks or
otherwise materially impairs the goodwill associated therewith or Franchisor's
rights therein;
5. Engages in any business or markets any service or product under a name
or mark which, in Franchisor's opinion is confusingly similar to the Proprietary
Marks;
6. After curing any default, engages in the same noncompliance whether or
not such noncompliance is corrected after notice; or repeatedly fails to comply
with one or more requirements of the franchise, whether or not corrected after
notice;
7. Commits acts which may or do constitute endangerment of
Public Health or Safety;
8. Falsifies any report required to be furnished to Franchisor or has a
discrepancy in gross sales as reported to Franchisor of five percent (5%) or
more;
9. Fails to satisfy any judgment against Franchisee within thirty (30) days
after the judgement is entered and becomes final;
10. Fails to restore the restaurant facility to full operation within a
reasonable period of time (not to exceed one hundred eighty (180) days without
written permission of Franchisor) after the restaurant is rendered inoperable by
any casualty;
11. Engages in material dishonesty or fraudulent misrepresentation in the
procurement or operation of the Franchised Business; or
12. Fails to perform any of the terms and conditions contained in this
Agreement, but not listed above, when such default continues for forty five (45)
days after Franchisor gives written notice of said default to Franchisee or if
the default cannot be reasonably corrected within such forty-five(45) day
period, to
Revised: January 1, 1997
20
<PAGE>
initiate within such time substantial and continuing action to cure the
default and to produce evidence thereof to Franchisor;
In addition to Franchisor's right to terminate this Agreement, and not in
lieu thereof, Franchisor may enter into the restaurant and exercise complete
authority with respect to the operating thereof until such time as Franchisor
shall determine that the default of Franchisee has been cured and that
Franchisee is complying with the requirements of this agreement. Franchisee
specifically agrees that a designated representative of Franchisor may take over
control and operate a restaurant facility and that Franchisee shall reimburse
Franchisor for the full compensation paid to such representative including any
and all expenses reasonably incurred by such representative should be necessary
until the default has been cured and Franchisee is complying with the terms of
the Franchise Agreement.
XX. OBLIGATIONS UPON TERMINATION OR EXPIRATION
A. Upon termination or expiration of this Agreement, all rights granted
hereunder to Franchisee shall forthwith terminate, and Franchisee shall
immediately cease to operate the Franchised Business under this Agreement.
B. Franchisee shall immediately and permanently cease to use, in any manner
whatsoever, any confidential methods, procedures and techniques associated with
the System; the Proprietary Mark "Arthur Treacher's" and all other Proprietary
Marks and distinctive forms, slogans, signs, symbols, and devices associated
with the System; provided, however, that this Section XX(B) shall not apply to
the operation of any other Franchise under the System which may be granted by
Franchisor to Franchisee. C. Franchisee shall take such action as may be
necessary to cancel any assumed name or equivalent registration which contains
the mark "Arthur Treacher's" or any other service mark or trademark of
Franchisor. D. Franchisee shall, at Franchisor's option, assign to Franchisor
any interest which Franchisee has in any lease or sublease for premises of the
Franchised Business. In the event Franchisor does not elect to exercise its
option to acquire the lease or sublease for the premises of the Franchised
Business, Franchisee shall make such modifications or alterations to the
premises operated hereunder (including, without limitation, the changing of all
the interior wallpaper, the perimeter design lighting, the menu board, any and
all awnings, and the telephone number) immediately upon termination or
expiration of the Agreement as may be necessary to distinguish the appearance of
said premises from that of other Restaurants under the System, and shall make
such specific additional changes thereto as Franchisor may reasonably request
for that purpose. In the event Franchisee fails or refuses to comply with the
requirements of Section XIV., Franchisor shall have the right to enter upon the
premises where Franchisee's Franchised Business was conducted without being
guilty of trespass or any other tort, for the purpose of making or causing to be
made such changes as may be required, at the expense of Franchisee, which
expense Franchisee agrees to pay upon demand.
Revised: January 1, 1997
21
<PAGE>
E. Franchisee shall promptly pay all sums owing to Franchisor and its
subsidiaries and affiliates. Franchisee shall pay damages for the right to
receive the royalty fees for each year or portion thereof remaining in the
original term of this agreement, together with any other damages suffered by
Franchisor as a result of such default, and Franchisee shall have no further
claim hereunder. The damages for royalties due during the remainder of the
original term of this agreement shall be calculated by multiplying the four (4)
highest monthly amounts of all fees paid by Franchisee, times three (3), and
then times the number of years remaining in the term, as calculated from the
effective date of this agreement. Franchisee shall pay to Franchisor in addition
to any amounts found to be due and owing, all expenses incurred by Franchisor as
a result of any such default, including reasonable attorneys' fees. Such
termination, however, shall not affect the obligation of Franchisee hereunder to
take action or abstain from taking action after the termination hereof. F.
Franchisee shall immediately deliver to Franchisor all documents and manuals,
including but not limited to, the Manual, records, files, instructions,
correspondence, all materials related to operating the Franchised Business. G.
Franchisor shall have the option, to be exercised within thirty (30) days after
termination or expiration, to purchase from Franchisee any or all of
Franchisee's paper goods, containers, menus, and any and all other items bearing
Franchisor's name, trademarks, or service marks at Franchisee's cost or fair
market value at the time of termination, whichever is less, and Franchisee's
restaurant equipment and all furniture and fixtures which are wholly owned by
Franchisee on the basis of Franchisee's cost or fair market value, whichever is
less.
XXI. INDEPENDENT CONTRACTOR
It is understood and agreed by the parties hereto that this Agreement does
not create a fiduciary relationship between them; that Franchisee shall be an
independent contractor. During the term of this Agreement and any extensions
hereof, Franchisee shall hold itself out to the public as an independent
contractor operating the business pursuant to a Franchise from Franchisor.
Franchisee agrees to take such action as may be necessary to do so, including,
without limitation, exhibiting a notice of that fact in a conspicuous place in
the Franchised premises, the content and form of which Franchisor reserves the
right to specify. It is understood and agreed that nothing in this Agreement
authorizes Franchisee to make any contract, agreement, warranty, or
representation on Franchisor's behalf, or to incur any debt or other obligation
in Franchisor's name.
XXII. UNDERSTANDINGS REGARDING GOODWILL AND NON-COMPETITION
Revised: January 1, 1997
22
<PAGE>
Franchisee agrees that during the term of this Agreement, except as
otherwise approved in writing by Franchisor, Franchisee (or representative)
shall devote full time, energy, and best efforts to the management and operation
of the Franchised Business hereunder. Franchisee agrees that during the term of
this Agreement, except as otherwise approved in writing by Franchisor,
Franchisee shall not either directly or indirectly, for itself, or through, on
behalf of, or in conjunction with any person, persons, or legal entity:
A. Divert or attempt to divert any business customer of the Franchised
Business hereunder to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act or injurious
or prejudicial to the goodwill associated with Franchisor's Proprietary Marks
and the System.
B. Employ or seek to employ any person who is at that time employed by
Franchisor or by any other Franchisee or developer of Franchisor, or otherwise
directly or indirectly induce such person to leave his or her employment.
Franchisee agrees that, except as otherwise approved in writing by
Franchisor, Franchisee shall not, during the term of this Agreement and for a
continuous uninterrupted period commencing upon expiration or termination of
this Agreement, regardless of the cause for termination, and continuing for two
(2) years thereafter, either directly or indirectly, for itself, or through, on
behalf of, or in conjunction with any person, persons, or legal entity, own,
maintain, operate, engage in being employed by, or have any interest in any food
service business which is similar to the Franchised Business and which features
products similar to the type sold at the Franchised Business and which is or is
intended to be, located within the Exclusive Territory, or within five (5) miles
of any Arthur Treacher's Restaurant. The parties acknowledge that the
above-mentioned prohibition is based on the reason and understanding that
Franchisee, it's managers and key employees would be possessed of knowledge of
business and operating methods and trade secrets, disclosure of which would
prejudice the interest of Franchisor and its other Franchisees. Franchisee
further understands and acknowledges the difficulty of ascertaining monetary
damages and the irreparable harm that would result from breach of these
covenants. If any part of this restriction is found to be unreasonable in time
or distance, each month of time or mile of distance may be reduced by
appropriate order of the court to that deemed reasonable. Franchisor may seek
injunctive relief to enforce such non-competition at law or in equity. For the
protection of the entire System at Franchisor's request, Franchisee shall
require and obtain execution of non- competition covenants as Franchisor shall
reasonably designate from Franchisee's key employees and managers.
XXIII. APPROVALS
Revised: January 1, 1997
23
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Whenever this Agreement requires the prior approval or consent of
Franchisor, Franchisee shall make a timely written request to Franchisor
therefor, and such approval or consent shall be obtained in writing.
XXIV. NOTICES
Any and all notices required or permitted under this Agreement shall be in
writing and shall be personally delivered or mailed by certified or registered
mail, return receipt requested, to the respective parties at the following
designated addresses by written notice to the other party:
Notices to Franchisor: President
Arthur Treacher's, Inc.
7400 Baymeadows Way, Suite 300
Jacksonville, FL 32256
(904) 739-1200
Notices to Franchisee:
____________________________
Phone number: ____________________________
XXV. ENTIRE AGREEMENT
This Agreement, the Offering Circular, the documents referred to herein,
and the Attachments hereto, if any, constitute the entire, full, and complete
Agreement between Franchisor and Franchisee concerning the subject matter hereof
and no representations, inducements, promises or agreements, oral or otherwise,
between the parties not embodied herein shall be of any force or effect. Except
for those permitted to be made unilaterally by Franchisor hereunder, no
amendment, change or variation from this Agreement shall be binding on either
party unless mutually agreed to by the parties and executed by their authorized
officers or agents in writing.
XXVI. SEVERABILITY AND CONSTRUCTION
Except as expressly provided to the contrary herein, each portion, section,
part, term, and/or provisions of this Agreement shall be considered severable;
and if, for any reason, any portion, section part, term, and/or provision herein
is determined to be invalid and contrary to, or in conflict with, any existing
or future law or regulation by a court or agency having valid jurisdiction, such
shall not impair the operation of, or have any other effect upon, such other
Revised: January 1, 1997
24
portions, sections, parts, terms and/or provisions of this Agreement as may
remain otherwise intelligible; and the latter shall continue to be given full
force and effect and bind the parties hereto; and said invalid portions,
sections, parts, terms, and/or provisions shall be deemed not to be a part of
this Agreement.
All acknowledgments, promises, covenants, agreements and obligations herein
made or undertaken by Franchisee shall be deemed jointly and severally
undertaken by all those executing this Agreement on behalf of Franchisee.
Captions and section headings are used herein for convenience only. They are not
part of this agreement and should not be used in construing it.
XXVII. WAIVER
No waiver, delay, omission or forbearance on the part of Franchisor to
exercise any right, option, duty or power arising from any default or breach by
Franchisee shall affect or impair the rights of Franchisor with respect to any
subsequent default of the same or a different kind; nor shall any delay or
omission of Franchisor to exercise any right arising from any such default or
any future default.
XXVIII. APPLICABLE LAW AND FORUM
A. Choice of Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the state of Florida, which laws shall prevail in
the event of any conflict of law; provided, however, that if any of the
provisions will not be enforceable under the laws of Florida then such
provisions shall be interpreted and construed under the laws of the state in
which the premises of Franchised Business is located. The parties agree that the
laws of the state of Florida shall apply to any claim arising out of any cause
whatsoever, whether such cause be based in contract, negligence, strict
liability, tort or otherwise. B. Venue and Jurisdiction. The parties agree that
any action brought by either party against the other in any court, whether
federal or state, must be instituted and prosecuted in either the state or
federal courts located in Duval County, Florida and do hereby waive all
objections to personal jurisdiction or venue for the purpose of carrying out
this provision.
XXIX. ACKNOWLEDGMENTS OF FRANCHISEE
A. Franchisee Acceptance of Business Risk: Franchisee acknowledges that it
has conducted an independent investigation of the Franchised Business, and
recognizes that the business venture contemplated by this Agreement involves
business risks and that its success will be largely dependent upon the ability
of the Franchisee as an independent businessperson. Franchisor expressly
disclaims the making of, and Franchisee
Revised: January 1, 1997
25
<PAGE>
acknowledges that it has not received, any warranty or guarantee, express
or implied, as to the potential volume, profits, or success of the business
venture contemplated by this Agreement.
Initial ______
B. Franchisee Acknowledgment That Franchisor Does Not Guarantee the Success
or Profitability of the Franchise: Franchisee acknowledges that Franchisor does
not guarantee the success or profitability of the franchise or restaurant in any
manner whatsoever and shall not be liable thereof. Franchisee further
acknowledges that franchisor and its representatives have made no
representations to Franchisee other than or inconsistent with the matters set
forth in the Uniform Franchise Offering Circular provided to Franchisee, and
that Franchisee has undertaken this venture solely in reliance upon the matters
set forth in the U.F.O.C. and Franchisee's own independent investigation of the
merits of this venture.
Initial ______
C. Franchisee Acknowledgment of Franchisee's Opportunity to Consult
Counsel: Franchisee acknowledges that it has read and understood this Agreement,
the Attachments hereto, and agreements relating thereto, if any, and that
Franchisor has accorded Franchisee ample time and opportunity to consult with
attorneys of Franchisee's own choosing about the potential benefits and risks of
entering into this Agreement.
Initial ______
D. Franchisee Acknowledgment of Franchisee's Receipt of Documents:
Franchisee acknowledges that it received the disclosure document required by the
Trade Regulation Rule of the Federal Trade Commission entitled "Disclosure
Requirements and Prohibitions Concerning Licensing and Business Opportunity
Ventures" at least ten (10) business days prior to the date on which this
agreement was executed.
Initial ______
XXX. LIMITATION OF DAMAGES; ATTORNEY FEES
A. Limitation of Damages. It is understood and agreed that Franchisor's
liability, whether in contract or in tort, under any warranty, in negligence, or
otherwise, shall not exceed actual out-of-pocket damages of Franchisee.
Franchisee hereby waives, to the fullest extent permitted by law, any right to
or claim to any punitive, exemplary, incidental, indirect, special or
consequential damages (including, without limitation, loss of profits) against
Franchisor arising out of any cause whatsoever (whether such cause be based in
contract, negligence, strict liability, other tort or otherwise) and agrees that
in the event of a dispute, Franchisee shall be limited to
Revised: January 1, 1997
26
<PAGE>
the recovery of any actual damages sustained by Franchisee in the form of
actual money paid by Franchisee to Franchisor. If any other term of this
agreement is found or determined to be unconscionable or unenforceable for any
reason, the foregoing provisions shall continue in full force and effect,
including, without limitation, the waiver of any right to or claim to any
consequential and punitive damages.
B. Attorney Fees. Should Franchisee institute an action of any kind
whatsoever against Franchisor, whether a court proceeding, arbitration claim or
mediation, that in any way arises out of this agreement, any breach thereof, or,
any tort or negligence claim stemming from the Franchisor/Franchisee
relationship, then Franchisor shall recover from Franchisee all its costs,
expenses and reasonable attorney's fees incurred in defending said action should
Franchisor prevail. Franchisee agrees that "prevail" includes Franchisor's offer
of settlement as set forth below. Should Franchisor institute an action, whether
a court proceeding, arbitration claim or mediation, that in any way arises out
of this agreement or any alleged breach thereof, Franchisor shall recover from
Franchisee its costs, expenses and reasonable attorney's fees incurred in
prosecuting said action.
Franchisor's Offers of Settlement. Should Franchisor, during any time
during a court proceeding, arbitration claim or mediation, make a written offer
of settlement to Franchisee which is subsequently rejected by Franchisee, and
Franchisee fails to recover over and above the amount stated in the offer of
settlement, then Franchisee shall pay all of Franchisor's costs, expenses and
reasonable attorney's fees incurred after the date of the written offer of
settlement.
XXXI. MUTUAL WAIVER OF A TRIAL BY JURY; ARBITRATION
A. Mutual Waiver of a Trial by Jury. Each party hereby covenants and agrees
that in any litigation, suit, action, counterclaim or proceeding, whether at law
or in equity, which arises out of, concerns, or relates to this agreement, any
and all transactions contemplated hereunder, the performance thereof, or
otherwise, trial should be to a court of competent jurisdiction and not to a
jury. Each party hereby irrevocably waives any right it may have to a trial by
jury. Any party may file an original counterpart or a copy of this agreement
with any court as written evidence of consent of the parties hereto of the
waiver of their right to trial by jury. Neither party has made or relied upon
any oral representations to or by the other party regarding the enforceability
of the provision. Each party has read and understands the effect of this jury
waiver provision. If any other term of this agreement is found or determined to
be unconscionable or unenforceable for any reason, the foregoing provisions
shall continue in full force and effect.
B. Arbitration. Should Provision XXXI(A) be deemed unconscionable or
unenforceable for any reason, the parties agree to submit to mediation or to
arbitration upon application of either party to the Court. Any controversy or
dispute arising out of, or relating to the franchise or this agreement, whether
in contract or in tort, including, but not limited to, any claim by Franchisee,
or any person in privity with or claiming through, on behalf of or in the right
of Franchisee, concerning the entry into, performance under or termination of,
this
Revised: January 1, 1997
27
<PAGE>
agreement or any other agreement entered into by Franchisor, or its
subsidiaries or affiliates, and Franchisee, any claim against a past or present
employee, officer, director or agent of Franchisor; any claim of breach of this
agreement; and any claims arising under state or federal laws, shall be
submitted to arbitration, upon petition, for final and binding arbitration and
as the sole and exclusive remedy for any such controversy or dispute. The
parties further agree that upon petition for and submission to arbitration, the
following must apply:
1. The arbitration shall be held in Duval County, Florida; and
2. Each party will select one arbitrator and the two so chosen
will select a third; and,
3. The Federal Rules of Civil Procedures and the Federal Rules
of Evidence shall be strictly applied by the
arbitrators; and
4. Unless such a limitation is prohibited by applicable law,
the arbitrators shall have no authority to award
punitive, exemplary, special, incidental, indirect or
consequential damages; and
5. The award or decision by a majority of the arbitrators shall be final
and binding on the parties, except that either party may within thirty (30) days
of such award or decision appeal the same to any court having subject matter
jurisdiction in the state where the arbitration took place, utilizing the
standard of review that would be utilized by an appellate court in reviewing a
similar award or decision issued in a trial court; and
6. Each party shall have the right to seek from an appropriate court
provisional remedies including, but not limited to, temporary restraining orders
or preliminary injunctions before, during or after arbitration. Neither party
need await the outcome of the arbitration before seeking provisional remedies.
Seeking of such remedies shall not be deemed to be a waiver of either party's
right to compel arbitration; and
7. No arbitration under this agreement shall include, by consolidation,
joinder or in any other manner, any person other than the Franchisee and
Franchisor and any person in privity with or claiming through, in the right of
or on behalf of Franchisee or Franchisor, unless both parties consent in
writing.
XXXII. ADVISE OF COUNSEL
Each party acknowledges that it has been advised by its own counsel, or has
had the opportunity to consult with an attorney, with respect to the transaction
governed by this agreement, and specifically with respect to the terms of
Paragraph 30, which concerns the limitation of damages and with respect to the
terms of Paragraph 31, which concerns the waiver of each party's right to trial
by jury.
IN WITNESS, WHEREOF, the parties hereto have duly executed, sealed, and
delivered this Agreement on the day and year first written above.
Arthur Treacher's Fish & Chips
Revised: January 1, 1997
28
<PAGE>
Arthur Treacher's, Inc.
---------------------------
Title: ----------------------
FRANCHISEE
------------------------
-------------------------
Revised: January 1, 1997
29
<PAGE>
EXHIBIT A
The location of Franchised Business shall be:
______________________________
______________________________
______________________________
______________________________
The description of the Exclusive Territory is described as:
Revised: January 1, 1997
30
<PAGE>
EXHIBIT B
NON-DISCLOSURE AGREEMENT
THIS AGREEMENT was executed this _____ day of ____________, 19____
BETWEEN:
ARTHUR TREACHER'S, INC.
Hereafter called "FRANCHISOR".
- and -
________________________________
Hereinafter called the "FRANCHISEE"
WHEREAS, the Franchisor and the Franchisee, concurrently with the execution
of this Agreement, have entered into an agreement relating to the Franchisee's
operation of an Arthur Treacher's Fish & Chips Restaurant;
WHEREAS the Franchisee, during the term of the Franchise Agreement, will be
provided with certain confidential information and trade secrets as described
below the disclosure of which would result in substantial injury to the
Franchisor and to Arthur Treacher's, Inc.;
NOW THEREFORE in consideration for the grant of this franchise and other
good and valuable consideration (receipt whereof is hereby acknowledged by the
parties hereto), the parties hereto hereby agrees as follows:
1. During the term of the Franchise Agreement, or at any time thereafter,
the Franchisee shall not directly or indirectly disclose or furnish to any
person, firm, partnership, or corporation or other entity, except as necessary
to carry out the franchise operation, any information as to Arthur Treacher's
methods of operations, preparation of food, formulae, recipes, processes, or any
information contained in any training manuals, policy manuals, operations
manuals, forms, specifications, or any other confidential or proprietary
information provided to the Franchisee by the Franchisor or by Arthur
Treacher's, Inc. The Franchisee acknowledges that he or she had no independent
knowledge of the information described in this paragraph 1 prior to the
execution of the Franchise Agreement.
2. Upon termination of the Franchise Agreement for any reason or at any
time thereafter, the Franchisee shall not directly or indirectly use for itself
or disclose or furnish to any person, firm, partnership, corporation, or other
confidential or proprietary information provided to the Franchisee by the
Franchisor or by Arthur Treacher's, Inc.
Revised: January 1, 1997
31
<PAGE>
3. The Franchisee shall not make copies of any formula, recipe, training
manual, operation manual, specification, form, or other confidential or
proprietary written material provided to the Franchisee by the Franchisor or by
Arthur Treacher's, Inc., and upon termination of the Franchise Agreement for any
reason, shall return all such materials to the Franchisor.
4. In the event of a breach of this Agreement by the Franchisee, the
Franchisee agrees that such breach shall constitute serious injury to the
Franchisor which injury could not adequately be compensated for by damages,
therefore, in addition to any damage and other relief to which the Franchisor
may be entitled, the Franchisor may seek relief by way of interlocutory or
permanent injunction without the necessity of proving actual injury or damages
to the Franchisor.
5. The Franchisee has read this Agreement and understands the
requirements and obligations of this Agreement.
6. In the event that the Franchisee should breach this Agreement, Arthur
Treacher's, Inc., shall be entitled to recover from the Franchisee, in addition
to any remedies afforded by law or equity, all costs (including attorney fees)
incurred in seeking any such remedy.
7. The Franchisee further agrees that all restrictions contained herein are
reasonable and valid and all defenses thereto and the strict enforcement thereof
by the Franchisor are waived by the Franchisee.
8. The Agreement shall be governed by the laws of Florida.
_______________________________
Franchisee
Arthur Treacher's, Inc.
by:_______________________
NOTARY
Revised: January 1, 1997
32
<PAGE>
STATE OF ________
COUNTY OF _______
The foregoing instruments were acknowledged before me this _____ day of
__________, 19___, by ___________________________________.
Personally known _________ OR Produced Identification ________________
______________________
Notary
STATE OF ________
COUNTY OF _______
The foregoing instruments were acknowledged before me this _____ day of
__________, 19___, by ___________________________________, in his corporate
capacity as _______________ of ARTHUR TREACHER'S, INC.
Personally known _________ OR Produced Identification ________________
______________________
Notary
Revised: January 1, 1997
33
<PAGE>
EXHIBIT 10.11 Form of Warrant exercisable at $1.51 per share
<PAGE>
Warrant to Purchase up to 430,000
shares of Common Stock
ARTHUR TREACHER'S, INC.
Common Stock Purchase Warrant
NEITHER THIS WARRANT NOR THE sale, assignment or hypothecation shall be
effected by the Holder surrendering this Warrant for cancellation at the office
of the Company referred to in Section 2 hereof, accompanied by an opinion of
counsel satisfactory to the Company and its counsel, stating that such
transferee is a permitted transferee under this Section 3 and that such transfer
is to an "accredited investor" within the meaning of the Act and does not
violate the Act or such state securities laws.
The Company covenants and agrees that all shares of Common Stock which may
be issued upon exercise of this Warrant will, upon issuance, be duly and validly
issued, fully paid and nonassessable and no personal liability will attach to
the holder thereof. The Company further covenants and agrees that during the
periods within which this Warrant may be exercised, the Company will at all
times have authorized and reserved a sufficient number of shares of its Common
Stock to provide for the exercise of this Warrant.
The Warrant shall not entitle the Holder to any
rights, including, without limitation, voting rights,
as a stockholder of the Company.
(a) If, at any time commencing after the date hereof, the Company proposes
to register any of its securities under the Securities Act of 1933 (the
"Securities Act") (other than in connection with a merger or pursuant to Form
S-8 or other comparable Form) it will give written notice by registered mail, at
least thirty (30) days prior to the filing of any such registration statement,
pre-effective or post-effective amendment thereto (the "Registration
Statement"), to Holder of its intention to do so. If Holder notifies the Company
within twenty (20) days after receipt of any such notice of his desire to
include the shares of Common Stock underlying the Warrant (the "Warrant Shares")
owned by it in such proposed Registration Statement, the Company shall afford
Holder the opportunity to have any of its Warrant Shares registered under such
Registration Statement provided that in the opinion of counsel for the Company
such inclusion does not pose any significant legal problem. However, there can
be no assurance that the Company will effectuate any public offering of its
securities.
If the managing underwriter in such offering shall advise the Company that
it declines to include a portion or all of the Warrant Shares requested by the
Holders to be included in the registration statement, then (A)
<PAGE>
registration of all of the Warrant Shares shall be excluded from such
registration statement on the condition that all securities to be registered by
other selling security holders, if any, are also excluded and (B) registration
of a portion of such Warrant Shares shall be excluded if, such portion is
allocated among Holder and any other selling security holders in proportion to
the respective numbers of securities to be registered by Holder and other
selling security holder. In such event the Company shall give Holder prompt
notice of the number of Warrant Shares excluded. (b) Notwithstanding the
provisions of this Section 6, the Company shall have the right at any time
after it shall have given written notice pursuant to this Section 6
(irrespective of whether a written request for inclusion of the Warrant Shares
shall have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the effective
date thereof.
(c) In the case of each registration effected by the Company pursuant to
this Section 6, the Company will keep Holder or its Permitted Assignee advised
in writing as to the initiation of each registration and as to the completion
thereof. As used in this Agreement, "Permitted Assignee" shall mean an
"affiliate" of Holder as defined in Rule 144 of the Securities Act or any other
transferee pursuant to a transfer made in compliance with applicable state and
federal securities laws. At its expense, the Company will:
(i) Keep such registration effective for a period of 9 months or until
Holder or its Permitted Assignee has completed the distribution described in the
Registration Statement relating thereto, whichever occurs later.
(ii) Furnish such number of prospectuses and other documents incident
thereto as Holder or its Permitted Assignee from time to time may reasonably
request.
(d) Indemnification will be furnished as follows:
(i) The Company will indemnify Holder and any Permitted Assignees whose
Warrant Shares are included in any registration when registration has been
effected pursuant to this Section 6 and each underwriter, if any, and each
person who controls any underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement or prospectus incident to
any such registration or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that the Company will not be liable
in any such case to the extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement or omission based upon
information furnished to the Company by Holder or a Permitted Assignee whose
Warrant Shares are included in such registration or by any underwriter
specifically for use herein.
<PAGE>
(ii) Holder and each Permitted Assignee will, if Warrant Shares held by
them are included in the securities as to which such registration is being
effected, indemnify the Company, each of its directors, and officers and counsel
and each underwriter, if any, of the Company's securities covered by the
Registration Statement, each person who controls the Company or such underwriter
within the meaning of the Exchange Act and the Securities Act and the rules and
regulations thereunder, each other stockholder participating in such
distribution and each of their officers, directors and partners, and each person
controlling such other stockholder, against all claims, losses, damages and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, or any omission (or alleged
omission) to state therein a material fact required to be stated therein in
order to make the statements therein not misleading in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such document in reliance upon and
in conformity with information furnished to the Company by Holder and each
Permitted Assignee.
(iii) Each party entitled to indemnification under this agreement (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under Section 6 hereof. Each Indemnified
Party shall furnish such information regarding itself or the claim in question
as an Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim and any litigation
resulting therefrom.
(e) Holder shall furnish to the Company such information regarding Holder
and any information relating to the registration of any of the Company's
securities proposed by Holder as the Company may reasonably request in writing
and as shall be reasonably required in connection with any registration.
(f) Holder will not sell or transfer any of the Warrant Shares for a period
of 18 months from the effective date of any registration statement filed with
the Commission by which the securities are registered without the prior consent
of the managing underwriter, if any, of such offering.
(g) Notwithstanding anything herein contained to the contrary, the Company
and Holder agree that in the event that the terms and conditions of the warrants
to be registered upon effectiveness of any Registration Statement to be filed
with the Commission are not identical to the terms and conditions of the form of
Warrant offered herein and attached hereto, the Warrant will be modified to
conform exactly to the terms and conditions of the warrants offered pursuant to
such Registration Statement (provided that the warrants received shall be for
the same aggregate
<PAGE>
number of Shares as are subject to this Warrant), which provisions may
include, among other things, provisions for redemption of the Warrant offered
herein or change in the exercise price of the Warrant offered pursuant to such
Registration Statement.
In case the Company shall at any time after the date of this Warrant (i)
declare a dividend on the outstanding Common Stock in shares of its capital
stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise
Price, and the number and kind of shares receivable upon exercise, in effect at
the time of the record date for such dividend or of the effective date of such
subdivision, combination, or reclassification shall be proportionately adjusted
so that the holder of any Warrant exercised after such time shall be entitled to
receive the aggregate number and kind of shares which if such warrant had been
exercised immediately prior to such time, he would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision,
combination, or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
b. In case the Company shall distribute to all holders of Common Stock
(including any such distribution made to the stockholders of the Company in
connection with a consolidation or merger in which the Company is the continuing
corporation) evidences of its indebtedness or assets (other than cash dividend
distributions and dividends payable in shares of Common Stock), subscription
rights, options, or warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock, then
in each case, the Exercise Price shall be adjusted by multiplying the Exercise
Price in effect immediately prior to the record date for the determination of
stockholders entitled to receive such distribution by a fraction of which the
numerator shall be the "current market price" per share of Common Stock (as
defined in Section 7(c) on such record date, less the fair market value (as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error) of the portion of the
evidences of indebtedness or assets so to be distributed, or of such
subscription rights, options, or warrants, convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock, applicable to the share, and of which the denominator shall be such
"current market price" per share of Common Stock. Such adjustment shall be made
whenever any such distribution is made, and shall become effective on the date
of such distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
c. For the purpose of any computation under Section 7(b) the "current
market price" per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices for the 30 consecutive trading days
commencing 45 trading days before such date. The closing rice for each day shall
be the last reported sales price regular way or, in case no such reported sale
takes place on such day, the closing bid price regular way, in either case on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the highest reported bid price
<PAGE>
as furnished by the NASDAQ Stock market ("NASDAQ") or the electronic
bulletin board. If on any such date the Common Stock is not quoted in any such
organization, the fair value of the Common Stock on such date, as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error, shall be used.
d. No adjustment in the Exercise Price shall be required if such adjustment
is less than $.05; provided, however, that any adjustments which by reason of
this Section 7(d) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section 7
shall be made to the nearest cent or to the nearest one-thousandth of a share,
as the case may be.
e. In any case in which this Section 7 shall require that an adjustment in
the Exercise Price be made effective as of a record date for a specified event,
the Company may elect to defer until the occurrence of such event issuing to the
holder of any Warrant exercised after such record date the shares, if any,
issuable upon such exercise over and above the shares, if any, issuable upon
such exercise on the basis of the Exercise Price in effect prior to such
adjustment, provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring such
adjustment.
f. Upon such adjustment of the Exercise Price as a result of the
calculations made in Sections 7(a) or (b), each Warrant outstanding prior to the
making of the adjustment in the Exercise Price shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of shares
(calculated to the nearest thousandth) obtained by dividing (A) the product
obtained by multiplying the number of shares purchasable upon exercise of a
Warrant prior to adjustment of the number of shares by the Exercise Price in
effect prior to adjustment of the Exercise Price by (B) the Exercise Price in
effect after such adjustment of the Exercise Price.
g. In case of any capital reorganization of the Company, or of any
reclassification of the Common Stock (other than a reclassification of the
Common Stock referred to in Section 7(a), or in the case of the consolidation of
the Company with or the merger of the Company into any other corporation or of
the sale, transfer, or lease of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation or other entity, each
Warrant shall after such capital reorganization, reclassification of Common
Stock, consolidation, merger, sale, transfer, or lease, be exercisable, on the
terms and conditions specified in this Warrant, for the number of shares of
stock or other securities, assets or cash to which a holder of the number of
shares purchasable (at the time of such capital reorganization, reclassification
of Common Stock, consolidation, merger, sale, transfer, or lease) upon exercise
of such Warrant would have been entitled upon such capital reorganization,
reclassification of Common Stock, consolidation, merger, sale, transfer, or
lease; and in any such case, if necessary, the provisions set forth in this
Section 7 with respect to the rights and interests thereafter of the holders of
the Warrant shall be appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares of stock, other securities, assets, or cash
thereafter deliverable on the exercise of the Warrant. The subdivision or
combination of shares of Common Stock at any time outstanding into a
<PAGE>
greater or lesser number of shares shall not be deemed to be a
reclassification of the Common stock for the purposes of this subsection. The
Company shall not effect any such consolidation, merger, transfer, or lease,
unless prior to or simultaneously with the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the Corporation purchasing, receiving, or leasing such assets or other
appropriate corporation or entity shall expressly assume, by written instrument
in form satisfactory to the Underwriter and duly executed and delivered to each
holder of a Warrant, the obligation to deliver to the holder of each Warrant
such shares of stock, securities, or assets as, in accordance with the foregoing
provisions, such holders may be entitled to purchase and to perform the other
obligations of the Company under this Warrant.
h. The Company may make such reductions in Exercise Price, in addition to
those required by this Section 7, as it shall, in its sole discretion, determine
to be advisable.
This Agreement shall be governed by and in
accordance with the laws of the State of Florida.
IN WITNESS WHEREOF, ARTHUR TREACHER'S, INC. has caused this
Warrant to be signed by
its duly authorized officers and is to be dated January 31, 1997.
ARTHUR TREACHER'S, INC.
.
By:____________________________
R. Frank Brown, President
By:
William Saculla, Secretary
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right, represented
by this Warrant Certificate, to purchase:
shares of Common Stock
<PAGE>
Dated:
Signature (Signature must conform in all respects to the name of holder as
specified on the face of the Warrant Certificate.) (Insert Social Security or
Other Identifying Number of Holder)
<PAGE>
EXHIBIT 10.12 Form of Warrant to Burnham Securities, Inc.
-1-
<PAGE>
The securities represented hereby have been acquired for investment
purposes only, have not been registered for offer or sale under the Securities
Act of 1933, as amended, and may not be sold, exchanged, hypothecated or
transferred in any manner whatsoever, except in compliance with Section 4
hereof.
Warrant Certificate No. A-1
Warrant to Purchase 296,891 Shares of Common Stock
(subject to adjustment)
Original Issue Date: November 21, 1996
Purchase Price: $3.30
WARRANT TO PURCHASE COMMON STOCK
OF
ARTHUR TREACHER'S INC.
This certifies that Burnham Securities Inc. and/or registered assigns is
entitled, subject to the terms set forth herein, at any time from the Original
Issue Date set forth above until 5:00 P.M., New York, New York time, on November
21, 2001 (the "Expiration Date"), to purchase from Arthur Treacher's Inc., a
corporation organized and existing under the laws of Utah (hereinafter called
the "Company"), up to 296,891 fully paid and non-assessable shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), upon
surrender of this Warrant, at the principal ffice of the Company,
with the form
of election to purchase annexed hereto duly executed by or on behalf of the
holder of this Warrant, and simultaneous payment therefor in lawful money of the
United States of the purchase price per share set forth above (such amount being
herein called the "Purchase Price"). The number and character of
-2-
<PAGE>
such shares of Common Stock issuable upon exercise of this Warrant and the
Purchase Price are subject to adjustment as provided below. The Warrants. The
term "Warrants" as used herein means this Warrant and any Warrants delivered in
substitution or exchange therefor as provided herein. The term "Warrant Stock"
as used herein means as of any date all shares of Common Stock of the Company
theretofore issued or at the time issuable upon exercise of the Warrants which
Common Stock is not at such time registered under the Securities Act of 1933, as
amended (the "1933 Act"); provided, however, that the term "Warrant Stock" shall
not include shares of Common Stock that shall have been sold in a transaction
exempt from the registration and prospectus delivery requirements of the 1933
Act so that all transfer restrictions and restrictive legends with respect
thereto are removed upon consummation of such sale. The holder of the Warrants
as of any date shall be deemed the holder of the Warrant Stock issuable at such
time upon exercise of the Warrants. Exercise. This Warrant may be exercised at
any time or from time to time, on any day which is a business day, for the full
number of shares of Common Stock called for hereby, by surrendering it at the
principal office of the Company, 7400 Baymeadows Way, Jacksonville, FL 32256
Attention: President, with the subscription form duly executed by or on behalf
of the holder of this Warrant, together with payment in cash or immediately
available funds of the sum obtained by multiplying (i) the number of shares of
Common Stock called for on the face of this Warrant (without giving effect to
any adjustment therein) by (ii) the Purchase Price. In the event that the
Warrant is exercised at a time when the Common Stock issuable upon such exercise
has not been registered under the 1933 Act, the Common Stock issued upon
<PAGE>
such exercise shall contain a legend substantially similar to that
appearing on the face of this Warrant. This Warrant may be exercised at any time
or from time to time, on any day which is a business day, for less than the full
number of shares of Common Stock called for hereby (but not as to fractional
shares of Common Stock) in the manner set forth in subsection 2(a). Upon any
partial exercise, the number of shares of Common Stock receivable upon the
exercise of this Warrant as a whole, and the sum payable upon the exercise of
this Warrant as a whole, shall be proportionately reduced. Upon such partial
exercise, this Warrant shall be surrendered, and a new Warrant of the same tenor
for the same aggregate number of shares of Common Stock, with the same
Expiration Date, bearing the same legend appearing on the face of this Warrant,
and for the purchase of the number of such shares of Common Stock not purchased
upon such exercise shall be issued by the Company to the registered holder
hereof. A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the shares of Common Stock issuable
upon such exercise shall be treated for all purposes as the holder of such
shares of record as of the close of business on such date, or if later, the date
on which all applicable Regulatory Requirements (as defined below) related to
such issuance shall have been complied with. As soon as practicable on or after
such date, the Company shall issue and deliver to the person or persons entitled
to receive the same a stock certificate or certificates for the number of full
shares of Common Stock issuable upon such exercise, together with cash, in lieu
of any fraction of a share of Common Stock equal to such fraction of the then
current market value of one full share of Common Stock.
-4-
<PAGE>
Payment of Taxes. All shares of Common Stock issued upon the exercise of a
Warrant shall be validly issued, fully paid and non-assessable, and the Company
shall pay all issuance taxes and other similar governmental charges that may be
imposed in respect of the issue or delivery thereof, but in no event shall the
Company pay a tax on or measured by the net income or gain attributed to such
exercise; neither shall the Company be required to pay any tax or other charge
imposed in connection with any transfer of a Warrant or any transfer involved in
the issuance of any certificate for shares of Common Stock in any name other
than that of the registered holder of the Warrant surrendered in connection with
the purchase of such shares, and in such case the Company shall not be required
to issue or deliver any stock certificate until such tax or other charge has
been paid or it has been established to the satisfaction of the Company that no
tax or other charge is due.
Transfer and Exchange.
The holder of this Warrant represents and warrants that it is acquiring
this Warrant for its own account and for the purpose of investment only and not
with a view to any distribution or resale thereof within the meaning of the 1933
Act. Neither this Warrant nor any Warrant Stock shall be transferable, in whole
or in part, except as hereinafter provided. The holder acknowledges that, in
taking this unregistered Warrant, it must continue to bear the economic risk of
its investment for an indefinite period of time because of the fact that such
Warrant has not been registered under the 1933 Act. The holder realizes that
such Warrant cannot be sold, transferred or otherwise disposed of unless it is
subsequently registered under the 1933 Act or an exemption from such
registration is available, and the holder further recognizes that the Company is
not assuming any obligation to register such Warrant, nor does
-5-
<PAGE>
the Company have any present intention to so register the Warrant. The
holder of this Warrant acknowledges that the only registration rights provided
in connection with the Warrant are those rights relating to the Warrant Stock
contained in Section 8 of this Warrant. The holder also acknowledges that
appropriate legends reflecting the status of the Warrant under the 1933 Act may
be placed on the face of the Warrant certificates at the time of their transfer
and delivery to the holder hereof. The holder agrees that it will not sell,
assign or transfer any Warrant or any Warrant Stock in violation of the 1933 Act
or any applicable rule or regulation promulgated thereunder or the applicable
securities laws of any state within the United States (collectively referred to
herein as the "Regulatory Requirements") and that it will not sell, assign or
transfer any Warrant or any Warrant Stock (other than pursuant to an effective
registration statement under the 1933 Act and in full compliance with all
Regulatory Requirements) unless and until it shall have notified the Company of
the proposed transfer and if requested by the Company, shall have furnished to
the Company an opinion or opinions of counsel, reasonably satisfactory to the
Company, to the effect that such transfer may be made without registration under
the 1933 Act and will not result in a violation of any applicable Regulatory
Requirements; provided, however, that this Warrant may be transferred in whole
or in part within 90 days of the Original Issue Date to (x) any person who is
(or was as of the Original Issue Date) an officer or employee of Burnham
Securities Inc. or (y) any registered broker/dealer or affiliate thereof that
participated as a dealer in connection with the offer, issuance and sale by the
Company of up to 4,000,000 shares of Common Stock pursuant to that certain
Confidential Private Placement Memorandum dated October 18, 1996, as amended.
-6-
<PAGE>
This Warrant is exchangeable at the principal office of the Company for
Warrants of the same tenor for the same aggregate number of shares of Common
Stock and with the same Expiration Date, each new Warrant to represent the right
to purchase such number of shares as the holder shall designate at the time of
such exchange and to bear the same legend appearing on the face of this Warrant.
Adjustment of Purchase Price and Number of Shares. Adjustment for Stock Splits,
Stock Dividends, Recapitalization, etc. The exercise price of this Warrant shall
be subject to adjustment, upward or downward, pro rata, to reflect any stock
dividend, stock split, combination of shares, recapitalization or other similar
event, and the number of shares issuable upon exercise shall be adjusted such
that the aggregate dollar amount determined by multiplying the Purchase Price by
the number of shares purchasable on exercise of the Warrant shall be the same
after the adjustment event as before. Thus, for example, if there should be a
2-for-1 stock split, the exercise price would be divided by two and the number
of shares issuable upon exercise would be doubled. Adjustment for
Reorganization, Merger, Consolidation or Disposition of Assets. In case after
the Original Issue Date the Company shall reorganize its capital (other than in
a recapitalization as to which an adjustment is made pursuant to subsection 5(a)
above), consolidate, amalgamate or merge with or into another corporation (as a
result of which the Company is not the surviving corporation or there is a
distribution with respect to the Common Stock of the Company of the type
described in subsection 5(c) below), or sell, transfer or otherwise dispose of
all or substantially all of its property, assets or business to another
-7-
<PAGE>
corporation and, pursuant to the terms of such reorganization, merger,
amalgamation, consolidation or disposition of assets, shares or common stock of
the successor or acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants or other
subscription or purchase rights) in addition to or in lieu of common stock of
the successor or acquiring corporation ("Other Property"), are to be received by
or distributed to the holders of Common Stock of the Company, then each holder
shall have the right thereafter to receive, upon exercise of this Warrant and
payment of the Purchase Price as provided for herein, the number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, merger, amalgamation, consolidation or disposition of
assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, merger, consolidation or disposition of assets, the successor or
acquiring corporation (if other than the Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and condition
of this Warrant to be performed and observed by the Company and all of the
obligations and liabilities hereunder, subject to such modification as may be
deemed appropriate (as determined by resolution of the Board of Directors of the
Company) in order to provide for adjustments of shares of the Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 5. For purposes of
this subsection 5(b), "common stock of the successor or acquiring corporation"
shall include stock of such corporation of any class which is not preferred as
to dividends or assets over any other class of stock of such corporation and
which is not subject to redemption, and shall also include any evidences of
indebtedness, shares of stock or other
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<PAGE>
securities which are convertible into or exchangeable for any such stock,
either immediately or upon the arrival of a specified date or the happening of a
specified event, and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this subsection 5(b) shall similarly
apply to successive reorganizations, amalgamations, mergers, consolidations or
dispositions of assets.
Certain Other Distributions.
(i) If at any time the Company shall make any extraordinary dividend or
distribution of cash (other than a cash distribution or dividend payable out of
earnings or earned surplus legally available for the payment of dividends under
the laws of the jurisdiction of incorporation of the Company) to the holders of
Common Stock, then from and effective after the record date established for such
distribution, the per share Purchase Price in effect immediately prior to such
record date shall be reduced by an amount equal to the amount of cash per share
of Common Stock which is so distributable; provided, however, if, for any
reason, such extraordinary cash dividend or distribution is not effected, then
no adjustment of the Purchase Price of the Warrant shall be deemed to have been
made under this subsection (c)(i) and the Purchase Price in effect immediately
before the aforesaid record date shall remain and continue in effect at all
times until subsequently adjusted pursuant to the provisions of this Section 5.
Notwithstanding any provision to the contrary contained herein, the per share
Purchase Price of this Warrant shall not be reduced to below one cent ($.01) per
share of Common Stock.
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<PAGE>
(ii) If at any time the Company shall make any dividend or distribution of
any evidences of its indebtedness or any shares of capital stock (other than
shares of Common Stock) to the holders of Common Stock, then from and effective
after the record date established for such distribution, the per share Purchase
Price in effect immediately prior to such record date shall be reduced by an
amount deemed to be the fair market value allocable to each share of Common
Stock as a result of such dividend or distribution, such fair market value to be
determined in good faith by the Board of Directors of the Company; provided,
however, if, for any reason, any such dividend or distribution is not effected,
then no adjustment of the Purchase Price of the Warrant shall be deemed to have
been made under this subsection (c)(ii) and the Purchase Price in effect
immediately before the aforesaid record date shall remain and continue in effect
at all times until subsequently adjusted pursuant to the provisions of this
Section 5. Notwithstanding any provision to the contrary contained herein, the
per share Purchase Price of this Warrant shall not be reduced to below one cent
($.01) per share of Common Stock.
(iii) Notwithstanding any provision to the cntrary contained herein, in the
event that at any time the Company shall make any dividend or distribution of
any warrants, options or rights to subscribe for any evidences of its
indebtedness, any shares of its capital stock (including, without limitation,
shares of Common Stock) or any other securities or property of any nature
whatsoever to the holders of Common Stock, the Purchase Price in effect
immediately before the making by the Company of any such dividend or
distribution shall remain unchanged and shall continue in full force and effect
at all times until subsequently adjusted pursuant to the provisions of this
Section 5.
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<PAGE>
Record Date Deemed Issue Date. In case the Company shall take a record of
the holders of shares of its stock of any class for the purpose of entitling
them (A) to receive a dividend or a distribution payable in Common Stock or any
rights or options to subscribe for, purchase, or otherwise acquire any Common
Stock, or (B) to subscribe for, purchase or otherwise acquire any Common Stock,
or any rights or options to subscribe for, purchase or otherwise acquire any
Common Stock, then such record date shall be deemed to be the date of the issue
or sale of the Common Stock, or such rights or options issued or sold, or deemed
to have been issued or sold, upon the declaration of such dividend or the making
of such other distribution, or the date of the granting of such rights or
subscription, purchase or other acquisition, as the case may be. Duration of
Adjusted Purchase Price. Following each computation or readjustment of the
Purchase Price as provided in subsection 5(a) or 5(c) hereof, the new Purchase
Price shall remain in effect until a further computation or readjustment thereof
is required by subsection 5(a) or 5(c) hereof. Officer's Certificate as to
Adjustments. In each case of an adjustment in the Purchase Price or the number
of shares of Common Stock receivable upon the exercise of this Warrant, the
Company shall, if requested by any holder of this Warrant, at the Company's
expense, cause an officer of the Company to compute such adjustment in
accordance with the terms of the Warrant and prepare a certificate setting forth
such adjustment and showing in detail the facts upon which such adjustment is
based, including a statement of: (i) the consideration, if any, received or to
be received by the Company for any additional shares of Common Stock issued or
sold or deemed to have been sold; (ii) the number of shares of
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Common Stock outstanding or deemed to be outstanding; (iii) the number of
shares of Common Stock receivable upon the exercise of such Warrant; and (iv)
the new Purchase Price. The Company will forthwith mail a copy of each
certificate to each holder of a Warrant at the time outstanding. Notices of
Record Date. In case the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive any extraordinary
dividend or other distribution (as described in subsection 5(c)(i), or any right
or option to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any securities, or to receive any other right; or ( of any capital
reorganization of the Company, any reclassification of the capital stock of the
Company, any consolidation or merger of the Company with or into another
corporation, except for mergers into the Company of wholly owned subsidiaries,
or any conveyance of all or substantially all of the assets of the Company to
another corporation; or (of any voluntary dissolution, liquidation or winding-up
of the Company then, and in each such case, the Company will mail or cause to be
mailed, at the Company's expense to each holder of a Warrant at the time
outstanding a notice specifying, as the case may be (A) the date on which a
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding up is to take place, and
the time, if any, to be fixed as of which the holders of record of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
notice shall be mailed to each holder of a Warrant at least 20 days prior to the
date therein specified.
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<PAGE>
Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to
it (in the exercise of reasonable discretion) of the ownership of and the loss,
theft, destruction or mutilation of any Warrant and (in the case of loss, theft
or destruction) of indemnity satisfactory to it (in the exercise of reasonable
discretion), and (in the case of mutilation) upon surrender and cancellation
thereof, the Company will execute and deliver in lieu thereof a new Warrant of
like tenor. Reservation and Listing of Common Stock. The Company shall at all
times reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. If any
shares of Common Stock required to be reserved for issuance upon exercise of
this Warrant require registration or qualification with any governmental
authority or other governmental approval or filing under any law before such
shares may be so issued, the Company will in good faith and as expeditiously as
possible and at its expense endeavor to cause such shares to be duly registered
or qualified or to take such other action as may be reasonably necessary to
effectuate the issuance of such shares. The Company will, at its expense, list
on each securities exchange on which shares of Common Stock are presently listed
or are hereafter listed (if requested in writing to do so by the holder of this
Warrant as to such future listings), maintain and, when necessary, increase such
listing of, all shares of Common Stock issued or, to the extent permissible
under the applicable securities exchange rules, issuable upon the exercise of
this Warrant so long as any shares of Common Stock shall be so listed at any
time prior to the Expiration Date.
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<PAGE>
Registration Rights.
Optional Registration. If the Company at any time prior to the date three
(3) years after the Expiration Date proposes to file a registration statement
under the 1933 Act respecting a sale of Common Stock, it will each such time
give written notice (the "Registration Notice") to all holders of Warrants and
Warrant Stock of its intention to do so not later than 30 days prior to the date
such registration statement is proposed to be filed and, upon the written
request of the holders of more than 30% of the Warrants or Warrant Stock given
within 15 days after receipt of any such notice (which request shall specify the
Warrant Stock intended to be sold or disposed of by each such holder and shall
describe the nature of any proposed sale or other disposition thereof), the
Company shall include therein or shall cause the managing underwriter or
underwriters, if any, of a proposed underwritten offering to include therein all
such Warrant Stock specified in such request to be so registered on the same
terms and conditions as the other shares of Common Stock of the Company included
in such registration statement; provided, however, that the aggregate number of
shares requested to be included therein is greater than 30% of all shares of
Warrant Stock. Notwithstanding any provision to the contrary contained herein,
the Company shall not be required to include any Warrant Stock in any
registration statement filed by the Company which relates solely to shares of
capital stock issued or to be issued pursuant to or in connection with any
employee or incentive stock ownership plan or any employee benefit plan or in
any registration statement on Form S-4 filed by the Company which relates solely
to a business combination. The Company may at any time elect not to file any
proposed registration statement or to withdraw any proposed registration
statement after giving the Registration Notice to the holders of Warrants and
the Warrant Stock and shall not be liable to any such holder for any losses
caused by such election or withdrawal.
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<PAGE>
Required Registration. In the event that after the expiration of three (3)
years from the Original Issue Date, either (i) the Company shall not have
effected a registered offering of shares of Common Stock with respect to which a
Registration Notice shall have been given to all holders of Warrants or Warrant
Stock or (ii) the holders of Warrant Stock shall not have been permitted to
include in such an offering all Warrant Stock held by such holders as to which a
request for registration shall have been given to the Company pursuant
subsection 8(a), then, at any time and from time to time thereafter, if the
Company shall receive a written request (specifying that it is being made
pursuant to this subsection 8(b) from the holders of more than 30% of the
Warrant Stock that the Company file a registration statement on an appropriate
form under the 1933 Act covering the registration of the Warrant Stock held by
such holders, then the Company shall promptly notify all other holders of
Warrants and Warrant Stock of such request for the purpose of allowing such
other holders to participate in such requested registration under this
subsection 8(b) and shall use its best efforts to register under the 1933 Act
all Warrant Stock that the holders thereof have requested be registered and take
such other action as may be required to have such registration statement
declared effective and to qualify or register such Warrant Stock for offering
and sale under the securities or blue sky laws of such states as are reasonably
requested by the holders of such Warrant Stock; provided, however, that the
Company shall not be required to proceed with the filing of any proposed
registration statement if less than 30% of the outstanding Warrant Stock is
covered by such registration statement.
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<PAGE>
Notwithstanding anything to the contrary contained herein, the Company may
be obligated to file more than one registration statement pursuant to this
subsection 8(b), but only the first such registration statement shall be at the
Company's expense. Limitation of Shares in Underwritten Offering. If the
managing underwriter or underwriters of an underwritten pubic offering made
pursuant to any registration statement pursuant to subsection 8(a) above deliver
a written opinion to a holder of Warrant Stock seeking to include its Warrant
Stock in a registration pursuant to subsection 8(a) above that the total number
or kind of securities which such holder and the Company and any other persons or
entities intend to include in such offering would adversely affect such offering
(including, without limitation, the marketing of or the price obtainable for the
shares of Common Stock of the Company to be sold by the Company thereunder),
then the number of such holder's Warrant Stock and the number of other shares of
Common Stock of the Company to be included in such offering (other than shares
of Common Stock to be issued by the Company) may be reduced or excluded in their
entirety to the extent necessary to reduce the total number of shares of Common
Stock of the Company to be included in such offering to the number recommended
by such managing underwriter or underwriters. Any such reduction shall be a
proportionate reduction to all such persons (other than the Company) based upon
the number of shares proposed to be registered by each such person (other than
the Company). Other Registrations. Upon any registration of Common Stock
pursuant to subsection 8(a) or 8(b), if any Warrant Stock requires registration
or qualification with or approval of any United States or state governmental
official or authority other than registration under the 1933 Act (or any similar
federal statute or other Regulatory
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<PAGE>
Requirement at the time in force) before such Warrant Stock may be issued
or may be sold, the Company will take all requisite action in connection with
such registration and will use its best efforts to cause any such shares to be
duly registered or approved as may be required. Upon any registration of Common
Stock pursuant to subsection 8(a) or 8(b), the Company shall also utilize its
best efforts to comply with such state securities laws, if any, as are
applicable to any such registration; provided, however, that it shall not be
required to give a general consent to the service of process or to qualify as a
foreign corporation or subject itself to taxation as doing business in any such
state. Registration Obligations. The Company will deliver to the holders of
Warrant Stock so registered, after the effectiveness of any registration
statement filed pursuant to this Section 8, such reasonable number of copies of
any preliminary and final prospectus included in such registration statement and
of any revised or supplemental prospectus filed and such other reports and
documents as such holders may from time to time reasonably request. The Company
agrees that it shall keep effective any registration statement filed pursuant to
subsection 8(a) or subsection 8(b) above during the period commencing on the
initial effective date of such registration statement and ending on the earliest
to occur of (i) the date on which updated financial statements of the Company
would be required to be filed with the Securities and Exchange Commission in a
post-effective amendment to such registration statement, (ii) the completion of
the sale of the Warrant Stock registered under such registration statement, or
(iii) the date which is nine months from the initial effective date of such
registration statement. After such period, the Company may withdraw such Warrant
Stock from registration and shall not be liable to any holder of Warrant Stock
for any losses caused by such withdrawal.
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<PAGE>
In the case of each registration, qualification or compliance effected by
the Company pursuant to this Section 8, the Company will keep each holder of
Warrant Stock which is the subject of such registration, qualification or
compliance, advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. Expenses of
Demand and Optional Registration. In the case of any registration pursuant to
subsection 8(a) and the first registration pursuant to subsection 8(b) hereof,
the Company shall pay all of the expenses in connection therewith, including,
without limitation, costs of complying with federal and state securities laws
and regulations, accounting and legal fees and expenses of the Company and legal
fees and expenses in connection with blue sky matters, printing expenses and
filing fees, but shall not be responsible for the payment of any transfer taxes,
underwriting commissions and discounts in respect of the Warrant Stock, legal
fees and expenses for counsel to the registered holders and other expenses of
the registered holders. All expenses incurred in connection with the second and
any subsequent registration pursuant to subsection 8(b) hereof including,
without limitation, all registration and qualification fees, underwriter's
discounts and commissions, costs of complying with Regulatory Requirements,
printing expenses and filing fees, accounting and legal fees and expenses of the
Company, and the fees and expenses of counsel for the selling holders of Warrant
Stock shall be borne by such holders in proportion to the amount of Warrant
Stock sold by each such holder. Indemnity. In connection with any registration
statement which pursuant to this Section 8 includes any Warrant Stock, the
Company will indemnify and hold harmless each holder of Warrant Stock and each
underwriter of Warrant Stock being sold
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by any such holder (and will indemnify and hold harmless any person who
controls such holder or underwriter within the meaning of Section 15 of the 1933
Act) against and in respect of any and all claims, losses, damages, liabilities
and expenses, joint or several, (including, without limitation, legal or other
expenses reasonably incurred by each such holder in connection with
investigating or defending any such loss, claim, damage, liability or action)
resulting from any untrue statement or alleged untrue statement of any material
fact contained in such registration statement or prospectus or from any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same may have been based upon information furnished in writing to
the Company by such holder or underwriter or any controlling person thereof
expressly for inclusion in such registration statement or prospectus and is used
in conformity with such writing. In connection with any registration statement
which pursuant to this Section 8 includes any Warrant Stock, each holder of any
Warrant Stock (the "Indemnifying Holder") agrees to indemnify and hold harmless
the Company, its directors and its officer and such persons, if any, who control
the Company within the meaning of the 1933 Act against and in respect of any and
all claims, losses, damages, liabilities and expenses, joint or several
(including, without limitation, legal or other expenses incurred by any of them
in connection with investigating or defending any such claim, loss, damage,
liability or action), to which the Company or any such person may become subject
under the 1933 Act or otherwise insofar as such claims, losses, damages,
liabilities or expenses (or actions with respect thereto) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in such registration statement or prospectus or from any omission or
alleged omission
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<PAGE>
to state therein a material fact relating to the Indemnifying Holder
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that any such untrue statement or omission is
based upon information furnished in writing to the Company by such Indemnifying
Holder or any of its authorized representatives for inclusion in such
registration statement or prospectus. If the indemnification provided for in
this subsection (h) from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expenses which are indemnified hereunder, then the indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified parties in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding.
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The parties hereto agree that it would not be just and equitable if
contribution pursuant to the immediately preceding paragraph were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. No party guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
party which was not guilty of such fraudulent misrepresentation. Defense of
Claims. Any party(ies) seeking indemnification (the "Indemnitee") shall give
prompt written notice to the party(ies) from whom it is seeking indemnification
(the "Indemnitor") of any claim by the Indemnitee against the Indemnitor based
on the indemnities contained in Section 8(g) hereof, or any claim against the
Indemnitee, which might give rise to a claim based on the aforesaid indemnities.
The notice shall set forth in reasonable detail the nature and basis of the
claim and the actual or estimated amount thereof. Failure by the Indemnitee to
give the Indemnitor prompt written notice of any such claim shall not release
the Indemnitor from liability with respect thereto unless such failure to give
notice has a materially adverse effect on the Indemnitor's ability to defend
such claim. Prompt written notice shall mean within (3) days after the
Indemnitee receives notice of the claim from the person asserting such claim.
The Indemnitee shall permit the Indemnitor a reasonable opportunity to assume
the defense, settlement or compromise (herein called "defense" or "defend"), of
any such claim. Failure by the Indemnitor to notify the Indemnitee of its
election to defend within thirty (30) days after such notice thereof shall have
been given shall be deemed a waiver by the Indemnitor of its right to defend any
such claim. If the Indemnitor elects to defend such claim, it shall do so at its
own expense and with counsel reasonably acceptable to
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the Indemnitee and the Indemnitee shall have the right to participate, at
its own expense and with counsel of its choosing, in the defense of any such
claim and it shall be kept fully informed with respect thereto. The Indemnitee
shall not make any settlement of any claim which might give rise to liability of
the Indemnitor without the prior written consent of the Indemnitor, which
consent shall not be unreasonably withheld. The Indemnitor will not agree to any
settlement of any indemnified claim pursuant to this subsection 8(h) unless such
settlement expressly releases the Indemnitee from any further liability or
responsibility with respect to any action, suit or proceeding and the underlying
claim. Any registered holder of Warrant Stock involved in such action, suit or
proceeding shall make available to the Company, its attorneys and accountants,
all of its books and records relating to any such action, suit or proceeding,
and the Company shall make available to any such registered holder, its
attorneys and accountants, all books and records of the Company relating to any
such action, suit or proceeding, as the case may be. In connection with any such
action, suit or proceeding such registered holder and the Company shall render
to each other such assistance as may reasonably be required in order to ensure
the proper and adequate defense of any such action, suit or proceeding.
Information to be Furnished to the Company. Each holder of any Warrant Stock, by
acceptance thereof, agrees to furnish to the Company such information and
material concerning such holder as may be reasonably requested by the Company or
its counsel in connection with any registration or qualification of shares of
Warrant Stock proposed to be made by the Company pursuant to this Section 8, and
further agrees to take all reasonable steps to comply with the 1933 Act and the
applicable rules and regulations thereunder and with the securities laws of the
states in which any such public offering is made.
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Termination of Registration
Obligations. If the Company shall receive a "no-action" letter from the
staff of the Securities and Exchange Commission or shall receive an opinion or
opinions of its counsel to the effect that the Warrant Stock owned by a
particular holder or a proposed disposition by such party is not required to be
registered under the 1933 Act or any other applicable Regulatory Requirements,
the provisions of this Section 8 shall be terminated with respect to such
particular Warrant Stock, provided that (i) the restrictions imposed by Section
4 hereof shall terminate as to this Warrant and the Warrant Stock and the holder
hereof shall be entitled to receive from the Company, at the expense of the
Company, certificates representing the shares of the Warrant Stock or
certificates evidencing Warrant Stock without the restrictive legend referred to
in Section 4 hereof, and (ii) such opinion of counsel shall be reasonably
satisfactory to the holders of a majority of the Warrants or the Warrant Stock;
provided further, that if such "no-action" letter or such opinion relates to a
particular disposition of Warrant Stock, the provisions of this Section 8 shall
be applicable to such Warrant Stock and any holder thereof until final
consummation of such disposition and if such "no-action" letter or opinion is
terminated expressly or impliedly or subject to any condition, the Company will
comply promptly with any such condition as is applicable to it and within its
control, and the provisions of this Section 8 will be applicable to such Warrant
Stock and to any holder thereof if the terms of such "no-action" letter or
opinion terminate or the conditions thereof are not met. Notices. All notices
and other communications from the Company to the holder of this Warrant shall be
deemed validly given, made or served if in writing and delivered (as of such
delivery) or sent by certified mail (as of three days after deposit in a United
States post
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office), postage prepaid, return receipt requested, or by facsimile or
overnight courier service, charges prepaid (as of the date of confirmation of
receipt), to the address or telecopy number furnished to the Company in writing
by the last holder of this Warrant who shall have furnished an address or
telecopy number to the Company in writing. Change; Waiver. Neither this Warrant
nor any term hereof may be changed, waived, discharged or terminated orally but
only by an instrument in writing signed by the party against which enforcement
of the change, waiver, discharge or termination is sought. No Rights or
Liability as a Shareholder. This Warrant does not entitle the holder hereof to
any voting rights or other rights as a shareholder of the Company. No provision
hereof, in the absence of affirmative action by the holder hereof to purchase
Common Stock, and no enumeration herein of the rights or privileges of the
holder hereof shall give rise to any liability of such holder as a shareholder
of the Company. Certain Information as to the Company. Promptly after the same
become publicly available, the Company shall deliver to the holder of this
Warrant copies of such annual, periodic and other reports, and such proxy
statements and other information, as shall be filed by the Company with the
Securities and Exchange Commission pursuant to the requirements of the
Securities Exchange Act of 1934, as amended. Headings. The headings in this
Warrant are for purposes of convenience in reference only and shall not be
deemed to constitute a part hereof or to affect the interpretation of any
provision of this Warrant.
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Law Governing. This Warrant shall be construed and
enforced in accordance
with and shall be governed by the laws of the State of New York.
ARTHUR TREACHER'S, INC.
By:_____________________________
Name:
Title:
Attest:
_____________________________
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[FORM OF ELECTION TO PURCHASE] The undersigned hereby irrevocably elects to
exercise the right, represented by this Warrant Certificate, to purchase
__________ shares of Common Stock and herewith tenders in payment for such
securities a certified or official bank check payable in New York Clearing House
Funds to the order of ARTHUR TREACHER'S, INC. in the amount of $__________, all
in accordance with the terms of the Warrant Certificate No. ___ dated as of
________ __, 1996 issued by ARTHUR TREACHER'S, INC. The undersigned requests
that a certificate for such securities be registered in the name of __________
whose address is __________ and that such Certificate be delivered to __________
whose address is __________. Dated: Signature (Signature must conform in all
respects to name of holder as specified on the face of the Warrant Certificate.)
(Insert Social Security or Other Identifying Number of Holder)
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EXHIBIT 10.13 Form of Stock Option to Employees
OPTION CERTIFICATE
1
<PAGE>
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE
144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO
THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE. THIS OPTION CERTIFICATE SUPERSEDES ANY PRIOR OPTION
CERTIFICATES, WHICH PRIOR CERTIFICATES ARE HEREBY CANCELED.
THE TRANSFER OR EXCHANGE OF THE OPTIONS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE TERMS CONTAINED
HEREIN.
No. O-1 September 1, 1996
This OPTION CERTIFICATE, certifies that Arthur Treachers, Inc., a Florida
corporation, having an office at 7400 Baymeadows Way, Suite 300, Jacksonville,
Florida 32255 (the "Corporation"), has granted to Aaron Cain, an individual
having an office at c/o Arthur Treachers, Inc., 7400 Baymeadows Way, Suite 300,
Jacksonville, Florida 32255 (the "Optionee") the right and option to purchase up
to 25,000 shares (hereinafter referred to as the "Option Shares") of Common
Stock (the "Common Stock"), of the Corporation on the terms and subject to the
conditions hereinafter set forth. This Option Certificate is in consideration of
the receipt of $1.00, and other good and valuable consideration. This Option
Certificate supersedes any prior option certificates, which prior option
certificates are hereby canceled.
SECTION 1. Option To Purchase Common Stock.
Subject to Section 5 hereof, commencing on the date hereof, the Corporation
grants to the Optionee the right and option (collectively, the "Option") to
purchase from the Corporation 25,000 Option Shares, at a purchase price of
$2.125 per Option Share (the "Option Price").
Subject to Section 5 hereof, the "Option Period" shall commence on the date
of this Certificate and terminate on the date which is five (5) years from the
date of vesting of each annual allotment of the Option.
Such Option to purchase from the Corporation the Option Shares vests and
become exercisable at the rate of 5,000 Option Shares every year starting one
year from the date of this Certificate for five years of Optionee's employment
by the Corporation or any affiliate or subsidiary.
2
<PAGE>
The Option may be exercise by the holder of this Option by delivery to the
Corporation, at any time during the Option Period, of a written notice (the
"Option Notice"), which Option Notice shall state such holder's intention to
exercise the Option, the date on which the holder proposes to purchase the
Option Shares (the "Closing Date") and the number of Option Shares to be
purchased on the Closing Date, which Closing Date shall be no later than 30 days
nor earlier than 10 days following the date of the Option Notice. Upon receipt
by the Corporation of an Option Notice from the holder of this Option, the
Optionee shall be obligated to purchase that number of Option Shares to be
purchased on the Closing Date set forth in the Option Notice.
The purchase and sale of Option Shares acquired pursuant to the terms of
this Certificate shall be made on the Closing Date at the offices of the
Corporation. Delivery of the Stock certificate or other instrument registered in
the name of the holder of this Option, evidencing the Option Shares being
purchased on the Closing Date, shall be made by the Corporation to the holder of
this Option on the Closing Date against the delivery to the Corporation of a
check in the full amount of the aggregate purchase price therefor.
SECTION 2. Reorganizations; Mergers; Sales; Etc. If, at any time during the
Option Period, there shall be any capital reorganization, reclassification of
Common Stock (other than a change in par value or from par value to no par value
or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), the consolidation or merger of
the Corporation with or into another corporation or of the sale of all or
substantially all the properties and assets of the Corporation as an entirety to
any other corporation or person, the unexercised portion of this Option shall,
after such reorganization, reclassification, consolidation, merger or sale, be
exercisable for the kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold to which such holder would have been entitled if such
holder had held shares of Common Stock issuable upon the exercise hereof
immediately prior to such reorganization, reclassification, consolidation,
merger or sale. The provisions of this Section 2 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers and
sales.
2
SECTION 3. Adjustment of Option Shares and Option Price.
a. The number of Option Shares subject to this Option during the Option
Period shall be cumulative as to all prior dates of calculation and shall be
adjusted for any stock dividend, subdivision, split-up or combination of Common
Stock.
b. The Option Price shall be subject to adjustment from time to time as
follows:
If, at any time during the Option Period, the number of shares of Common
Stock outstanding is increased by a stock dividend payable in shares of Common
Stock
3
<PAGE>
or by a subdivision or split-up of shares of Common Stock, then,
immediately following the record date fixed for the determination of holders of
shares of Common Stock entitled to receive such stock dividend, subdivision or
split-up, the Option Price shall be appropriately decreased so that the number
of shares of Common Stock issuable upon the exercise hereof shall be increased
in proportion to such increase in outstanding shares.
If, at any time during the Option Period, the number of shares of Common
Stock outstanding is decreased by a combination of outstanding shares of Common
Stock, then, immediately following the record date for such combination, the
Option Price shall be appropriately increased so that the number of shares of
Common Stock issuable upon the exercise hereof shall be decreased in proportion
to such decrease in outstanding shares.
SECTION 4. Acceleration of Options in Certain Events
a. Acceleration of Qualified Options in Certain Events. Notwithstanding any
provisions to the contrary in this Certificate, all Qualified Options then
currently outstanding shall become immediately exercisable in full and remain
exercisable until their expiration in accordance with their respective terms
upon the occurrence of either of the following events:
(1) the first purchase of the Corporation's common stock pursuant to a
tender or exchange offer (other than a tender or exchange offer made by the
Corporation); or
(2) approval by the Corporation's stockholders of a (A) merger or
consolidation of the Corporation with or into another corporation (other than a
merger or consolidation in which the Corporation is the surviving corporation
and which does not result in any reclassification or reorganization of the
Corporation's then outstanding Common Stock), (B) sale or disposition of all or
substantially all of the Corporation's assets, or (c) plan of liquidation and/or
dissolution of the Corporation.
SECTION 5. Termination of the Options.
a. Termination of Options in General. In addition to the termination
provisions set forth in Section 1(b) hereof and subject to subsections (b)-(d)
of this Section, the Option shall terminate and the Option shall no longer be
exercisable as to each individual annual allotment of Option Shares on the date
five (5) years from the date of vesting of the Options. Any Option granted under
Section 1 of this Certificate will cease to vest and cease to be exercisable
upon the date of termination of employment or retainer.
b. Option Rights Upon Retirement. If an Optionee retires from the
employment of the Corporation or any affiliate or subsidiary in accordance with
the Corporation's retirement policy of the Corporation or any affiliate or
subsidiary, the Stock Option Committee, in its discretion, may
4
<PAGE>
allow the Option to be fully exercised, at any time within one year after
the date of such termination, to the extent that the Optionee was entitled to
exercise the Option at the date of his retirement.
c. Option Rights Upon Disability. If an Optionee becomes disabled while
employed by the Corporation or any affiliate or subsidiary, the Board of
Directors, in its discretion, may allow the Option to be fully exercised, at any
time within one year after the date of such disability, to the extent that the
Optionee was entitled to exercise the Option at the date of his disability.
d. Death of the Optionee. In the event that an Optionee shall die while he
is an employee of the Corporation (or within three (3) months after the
termination of such employment) and prior to his complete exercise of the
Options, the Options may be exercised in whole or in part only: (i) by the
Optionee's estate or on behalf of such person or persons to whom the Optionee's
rights pass under his Will or by the laws of descent and distribution, (ii) to
the extent that the Optionee was entitled to exercise the Option at the date of
his death, and (iii) prior to the expiration of the term of the Option, or
within one year after the date of death, whichever is earlier.
SECTION 6. Transfer of Option; Successors and Assigns. This Certificate
(including the Option) and all rights hereunder shall not be transferable to
anyone at any time without the prior written consent of the Corporation. This
Certificate and all the rights hereunder shall be binding upon the Corporation
and the Optionee and is inure to the benefit of the parties hereto and their
respective successors, assigns and transferees.
SECTION 7. Notices. All notices, requests, demands and other communications
hereunder must be given in writing and shall be deemed to have been duly given
or delivered if by hand or by mail, first class, registered mail, return receipt
requested, if to the Corporation and Optionee, to the addresses as set forth on
the first page hereof or at such other addresses as the parties shall have
notified the other parties, with a copy to: McLaughlin & Stern, LLP, 260 Madison
Avenue, 18th Floor, New York, New York, Attention: Steven W. Schuster or to such
other address as the party to whom notice is given may have furnished to the
other party in writing in accordance herewith. If mailed as aforesaid, any such
communication shall be deemed to have been given on the third business day
following the day on which the piece of mail containing such communication is
posted.
SECTION 8. Governing Law. This Certificate shall be governed by, and
construed in accordance with, the laws of the State of Florida.
SECTION 9. Entire Certificate; Amendments and Modifications. This Option
Certificate contains the entire understanding between the parties hereto with
respect to the transactions contemplated herein and supersedes and encompasses
all previously written or oral negotiations, commitments, representations and
option agreements. This Certificate, or any provision hereof, may not be
amended, changed or modified without the prior written consent of each of the
parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed and delivered as of the date first above written. Arthur Treachers,
Inc. By:___________________________ R. Frank Brown President
By:___________________________ William Seculla Secretary
H:\users\Steven\qual.opt
6
<PAGE>
EXHIBIT 21 List of Subsidiaries
<PAGE>
List Subsidiaries
1. M.I.E. Hospitality, Inc., incorporated in Pennsylvania
2. Arthur Treacher' Advertising Inc., incorporated in Ohio
3. Arthur Treacher' Management Company, Inc., incorporated in Ohio
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Fiscal Year 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jun-30-1996
<PERIOD-START> Jul-01-1995
<PERIOD-END> Jun-30-1996
<CASH> 990,683
<SECURITIES> 0
<RECEIVABLES> 147,122
<ALLOWANCES> 0
<INVENTORY> 68,668
<CURRENT-ASSETS> 1,241,340
<PP&E> 10,250,187
<DEPRECIATION> 1,424,317
<TOTAL-ASSETS> 2,999,404
<CURRENT-LIABILITIES> 2,494,136
<BONDS> 458,923
0
577,800
<COMMON> 3,842,533
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,999,404
<SALES> 6,648,564
<TOTAL-REVENUES> 7,877,910
<CGS> 3,856,776
<TOTAL-COSTS> 8,165,433
<OTHER-EXPENSES> 866,817
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 168,513
<INCOME-PRETAX> (1,154,340)
<INCOME-TAX> (329,100)
<INCOME-CONTINUING> (825,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (825,240)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Second Quarter Fiscal Year 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Sep-30-1996
<PERIOD-END> Dec-29-1996
<CASH> 3,508,967
<SECURITIES> 0
<RECEIVABLES> 182,913
<ALLOWANCES> 0
<INVENTORY> 263,825
<CURRENT-ASSETS> 4,074,672
<PP&E> 10,250,187
<DEPRECIATION> 5,077,270
<TOTAL-ASSETS> 9,469,435
<CURRENT-LIABILITIES> 2,614,134
<BONDS> 1,432,285
0
577,800
<COMMON> 9,016,779
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,469,435
<SALES> 3,676,876
<TOTAL-REVENUES> 3,929,736
<CGS> 1,988,899
<TOTAL-COSTS> 3,699,187
<OTHER-EXPENSES> 349,155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,186
<INCOME-PRETAX> (118,606)
<INCOME-TAX> (38,633)
<INCOME-CONTINUING> (79,973)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (79,973)
<EPS-PRIMARY> ($0.01)
<EPS-DILUTED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<LEGEND>
First Half Fiscal Year 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-01-1996
<PERIOD-END> Dec-29-1996
</TABLE>
