As filed with the Securities and Exchange Commission on January 28, 1997
Registration No. 333 - _______
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Butterwings Entertainment Group, Inc.
(Name of Small Business Issuer in its charter)
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Illinois 5812 36-3903024
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
Douglas E. Van Scoy
2345 Pembroke Ave. 2345 Pembroke Ave. 2345 Pembroke Ave.
Hoffman Estates, Il 60195 Hoffman Estates, Il 60195 Hoffman Estates, Il 60195
(847) 925-1050 (847) 925-1050
(Address and telephone (Address of principal place of (Name, address,
number of principal business or intended principal and telephone number
executive offices) place of business) of agent for service)
Copies to:
Thomas W. Hughes, Esq.
Maurice J. Bates, Esq. Lisa N. Tyson, Esq.
Maurice J. Bates, L.L.C. Winstead Sechrest & Minick, P.C
8214 Westchester 1201 Elm Street
Suite 500 5400 Renaissance Tower
Dallas, Tx 75225 Dallas, Tx 75270
Phone (214) 692-3566 Phone (214) 745-5400
Fax (214) 987-2091 Fax (214) 745-5390
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Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ____________
If this Form is a post-effective amendment filed pursuant to Rule 462
(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, please check the following box. x
*Calculation of the Registration Fee appears on the next page.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price per Unit Aggregate Offering Price Registration Fee
(1) (1)
Units (2) 1,278,800 $6.50 $8,312,200 $ 2,518.85
Common Stock, $.01 par
value (3) 1,278,800 (3) (3) (3)
Redeemable Series A Common
Stock Purchase Warrants (3) 1,278,800 (3) (3) (3)
Common Stock, $.01 par
value (4) ( 5) 1,278,800 $7.80 $9,974,640 $3,022.62
Underwriters' Warrants (5) (6) 111,200 $.001 $111.20 $0.03
Units Underlying the
Underwriters' Warrants 111,200 $7.80 $867,360 $262.84
Common Stock, $.01 par
value (7) 111,200 (6) (6) (6)
Redeemable Series A Common
Stock Purchase Warrants(7) 111,200 (6) (6) (6)
Common Stock, $.01 par
value (5) (8) 111,200 $7.80 $867,360 $262.84
---------- ------- ------------- -----------
Total $6,067.18
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 112,000 Units being offered by Selling Security Holders.
(3) Included in the Units. No additional registration fee is required.
(4) Issuable upon exercise of Redeemable Series A Common Stock Purchase
Warrants.
(5) Pursuant to Rule 416 there are also registered an indeterminate number of
shares of Common Stock, which may be issued pursuant to the anti-dilution
provisions applicable to the Redeemable Series A Common Stock Purchase
Warrants, the Underwriters' Warrants and the Redeemable Series A Common
Stock Purchase Warrants issuable under the Underwriters' Warrants.
(6) Underwriters' Warrants to purchase up to 111,200 Units, consisting of an
aggregate of 111,200 shares of Common Stock and 111,200 Redeemable Series A
Common Stock Purchase Warrants.
(7) Included in the Units Underlying the Underwriters' Warrants. No additional
registration fee is required.
(8) Issuable upon exercise of Redeemable Series A Common Stock Purchase
Warrants underlying the Underwriters' Units.
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Butterwings Entertainment Group, Inc.
Cross - Reference Sheet
showing location in the Prospectus of
Information Required by Items of Form SB-2
Form SB-2 Item Number and Caption Location In Prospectus
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1.Front of Registration Statement and
Outside Front Cover of Prospectus............................Outside Front Cover Page
2.Inside Front and Outside Back Cover
Pages of Prospectus..........................................Inside Front Cover Page;
Outside Back Cover Page;
Additional Information
3. Summary Information and Risk Factors........................Prospectus Summary; Risk Factors
4. Use of Proceeds.............................................Use of Proceeds
5.Determination of Offering Price..............................Outside Front Cover Page; Risk
Factors; Underwriting
6.Dilution.....................................................Dilution
7.Selling Security Holders.....................................Selling Security Holders
8.Plan of Distribution.........................................Outside Front Cover Page; Risk
Factors; Underwriting
9.Legal Proceedings............................................Business and Properties-Legal Proceedings
10.Directors, Executive Officers, Promoters
and Control Persons.........................................Management--Directors and
Executive Officers
11.Security Ownership of Certain Beneficial
Owners and Management.......................................Principal Stockholders
12.Description of Securities...................................Description of Securities
13.Interest of Named Experts and Counsel.......................Experts
14.Disclosure of Commission Position on
Indemnification for
Securities Act Liabilities..................................Underwriting
15.Organization Within Last Five Years.........................Certain Relationship and Related
Transactions
16.Description of Business.....................................Business and Properties
17.Management's Discussion and Analysis
or Plan of Operation........................................Management's Discussion and
Analysis of Financial Condition and
Results of Operations
18.Description of Property.....................................Business and Properties
19.Certain Relationships and Related
Transactions................................................Certain Relationships and
Related Transactions
20.Market for Common Equity and Related
Stockholder Matters.........................................Description of Securities; Risk
Factors - Shares Eligible for Future Sale
21. Executive Compensation.....................................Management--Executive
Compensation
22. Financial Statements.......................................Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.......................................Not Applicable
24.Indemnification of Directors and Officers...................Management
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Subject to Completion, Dated January 28, 1997
Butterwings Entertainment Group, Inc.
1,112,000 Units
Each Unit consisting of One Share of Common Stock and
One Redeemable Series A Common Stock Purchase Warrant
Of the 1,112,000 units offered hereby, 1,000,000 are being sold by
Butterwings Entertainment Group, Inc. (the "Company") and 112,000 are being sold
by certain security holders of the Company (the "Selling Security Holders").
Each unit (a "Unit") consists of one share of Common Stock (the "Common Stock")
, $.01 par value per share, and one Redeemable Series A Common Stock Purchase
Warrant (the "Series A Warrants") o f the Company. The Units, together with the
Common Stock and the Series A Warrants included in the Units, are sometimes
referred to collectively as the "Securities." The Common Stock and the Series A
Warrants included in the Units may not be separately traded until ____ 1997[six
months after the date of this prospectus] unless earlier separated upon three
days' prior written notice from National Securities Corporation (the
"Representative") to the Company at the discretion of the Representative. Each
Series A Warrant entitles the holder thereof to purchase one share of Common
Stock at an exercise price of 120% of the offering price per Unit, subject to
adjustment, at any time commencing on ____, 1998 [13 months after the closing of
this Prospectus] until ______, 2002, unless earlier redeemed. The Series A
Warrants are subject to redemption by the Company at a price of $0.05 per Series
A Warrant at any time commencing 13 months after the date of this Prospectus, on
thirty days prior written notice, provided that the closing sale price per share
for the Common Stock has equalled or exceeded 200% of the offering price per
Unit for twenty consecutive trading days within the thirty-day period
immediately preceeding such notice. See "Description of Securities" and
"Underwriting."
Prior to this Offering, there has been no public market for the
Securities, and there can be no assurance that an active market will develop. It
is currently anticipated that the initial public offering price of the Units
will be $6.50 per Unit. See "Underwriting" for information relating to the
factors to be considered in determining the initial public offering price. The
Company intends to apply for listing of the Units, the Common Stock and the
Series A Warrants on the Boston Stock Exchange subject to official notice of
issuance, under the symbols "ETS.U, "ETS" and "ETS.W" respectively and on the
NASDAQ Small Cap Market under the symbols "EATS.U", "EATS" and "EATS.W."
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION FROM THE PUBLIC OFFERING PRICE. PROSPECTIVE INVESTORS
SHOULD CAREFULLY CONSIDER THE SECTIONS ENTITLED "RISK FACTORS" BEGINNING ON PAGE
7 AND "DILUTION" CONCERNING THE COMPANY AND THIS OFFERING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting Proceeds Proceeds to
Price to Discounts and To Selling
Public Commissions(1) Company Stockholders
(2)
Per Unit (3).................................. $ $ $ $
Total......................................... $ $ $ $
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(1) Does not include compensation in the form of a non-accountable expense
allowance equal to 2.5% of the gross proceeds of this Offering. The Company
has also agreed to sell to the Underwriters warrants (the "Underwriters'
Warrants") exercisable for four years commencing one year from the date
hereof to purchase 111,200 Units at 120% of the offering price per Unit.
For information concerning indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting estimated offering expenses of $550,000 payable by the
Company.
(3) The Company has granted to the Underwriters a 45-day option beginning on
the date of this Prospectus to purchase up to an aggregate of 168,800
additional Units at the Price to Public less the Underwriting Discount
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, the Underwriting Discounts and
Commissions, Proceeds to the Company will be $______, $______ and $______
respectively. See "Underwriting."
The Securities are being offered, subject to prior sale, when, as and
if delivered to and accepted by the Representative, and subject to approval of
certain legal matters by counsel and other conditions. The Representative
reserves the right to withdraw, cancel or modify the Offering without notice and
to reject any order, in whole or in part. It is expected that delivery of the
certificates representing the Securities will be made against payment therefor
at the offices of National Securities Corporation in Seattle, Washington on or
about _________.
National Securities Corporation
The date of this Prospectus is _________.
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Prospectus Summary
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. The information herein, including share and per share data,
unless otherwise stated, gives effect to (i) a 20,126-for- one split of the
Common Stock effected in October 1996, (ii) the issuance of 744,554 shares of
Common Stock pursuant to the Exchange Offer described elsewhere in this
Prospectus, (iii) the issuance of 254,008 shares of Common Stock upon the
automatic conversion of outstanding Convertible Preferred Stock described
elsewhere in this Prospectus, and (iv) the issuance of 112,000 shares of Common
Stock included in 112,000 Units to be issued to the Selling Security Holders,
concurrent with the effective date of this Prospectus. Unless otherwise
indicated, the information herein is presented on the basis that the
Underwriters' over-allotment option and the Underwriters' Warrants are not
exercised.
The Company
Butterwings Entertainment Group, Inc. ("Butterwings" or the "Company") is
engaged in the ownership, operation and management of franchised Hooters
restaurants (the "Hooters Restaurants" or the "Restaurants") and Mrs. Fields
cookie stores (the "Mrs. Fields Cookie Stores" or the "Cookie Stores") . The
Company currently owns, operates and manages three Hooters Restaurants in
Madison, Wisconsin and San Diego, California and 13 Mrs. Fields Cookie Stores in
Missouri, Michigan and Minnesota.
The Company's Hooters Restaurants are franchised businesses which offer
casual dining using a limited, moderately priced menu that features chicken
wings, seafood, salads and sandwich type items. The Company's Mrs. Fields Cookie
Stores are franchised businesses which offer and sell a variety of specially
prepared food items including, but not limited to, cookies, brownies, muffins
and beverages. The Company develops and operates its Hooters Restaurants and
Mrs. Fields Cookie Stores pursuant to specified standards established by the
franchisors. The Company believes that the uniform development and operating
standards of the franchisors facilitate the efficiency of the Company's Hooters
Restaurants and Mrs. Fields Cookie Stores and afford the Company significant
benefits, including the brand-name recognition and goodwill associated with the
franchisors.
The Company opened its first Hooters Restaurant in Madison, Wisconsin in
April 1994. The Company opened three additional Hooters Restaurants, all in San
Diego, California, between October 1994 and May 1995, one of which was
subsequently closed. In December 1995, the Company purchased an existing Mrs.
Fields Cookie Store in Flint, Michigan from Mrs. Fields Development Corporation,
the franchisor of Mrs. Fields Cookie Stores (the "Mrs. Fields Franchisor") and
in January 1996, acquired from an affiliate of the Company six additional
franchised Mrs. Fields Cookie Stores. In October 1996, the Company acquired 100%
of the common stock of Cookie Crumbs, Inc.
("Cookie Crumbs"), which owns six additional Mrs. Fields Cookie Stores.
Under its existing agreements with Hooters of America Inc. (the "Hooters
Franchisor") and the Mrs. Fields Franchisor, the Company intends to negotiate to
build additional units in both concepts, and to acquire an unlimited number of
new or existing Mrs. Fields Cookie Stores.
The Company's objective is to develop or acquire a significant number
of franchised units in either or both concepts to create economies of scale in
management, personnel and administration. To achieve this objective, the
Company's strategy will be to (i) capitalize on the brand-name recognition and
goodwill associated with the Hooters and Mrs. Fields names; (ii) expand the
Company's franchised operations through the development of additional franchised
units; and (iii) hire and train qualified management personnel at the
restaurant/store level to assure compliance with its franchise obligations,
continuity of management and efficiency of operations. Management of the Company
will also research other concepts which may become part of the future strategy
of the Company's ongoing plans for expansion.
The Company was incorporated in Illinois as Butterwings, Inc., in July 1993
and adopted its present name by amendment to its Articles of Incorporation in
October 1996. The Company operates in California through its wholly-owned
subsidiary, Butterwings of California, Inc. ("Butterwings/California") and in
Wisconsin through its wholly-owned subsidiary, Butterwings of Wisconsin,
Inc.("Butterwings/Wisconsin"). The Company's Mrs. Fields Cookie Stores are owned
and operated by the Company and through Cookie Crumbs.
The Company's executive offices are at 2345 Pembroke Avenue, Hoffman
Estates, Illinois, 60195. The telephone number at that location is (847)
925-1050.
2
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Cancellation of Debt; Conversion of Preferred Stock
Exchange of 12% Notes for Stock. Pursuant to an exchange offer dated
January 1997 (the "Exchange Offer"), the Company offered to exchange shares of
its Common Stock for $3,700,000 of the Company's 12% Notes due April 2001 (the
"Notes"). The Exchange Offer which expires February 3 ,1997, is based upon the
principal amount of the Notes outstanding, accrued interest of $333,000 through
December 31, 1996, and a 20% premium over the proposed initial public offering
price of $6.50 per Unit for the Units in this Offering. If all of the Note
holders accept the Exchange Offer the Company will be obligated to issue 744,554
shares of its Common Stock to the Note holders concurrently with this Offering.
This Prospectus assumes that the Exchange Offer is accepted by all of the Note
holders, the cancellation of the Notes and the issuance of 744,554 shares to the
Note holders.
Conversion of Preferred Stock: Prior to this Offering, the Company had
outstanding 15,685 shares of its Convertible Preferred Stock. The Convertible
Preferred Stock is automatically convertible into Common Stock of the Company
upon consummation of the first sale of Common Stock of the Company in an
underwritten public offering pursuant to the Securities Act of 1933. As a result
of this Offering, the Company will issue to the holders of the Convertible
Preferred Stock 254,008 shares of Common Stock concurrently with the
consummation of the Offering. This Prospectus assumes the conversion of the
Convertible Preferred Stock and the issuance of 254,008 shares to the
Convertible Preferred Stock holders. See "Description of Securities -
Convertible Preferred Stock."
Bridge Loan Notes and Warrants : From October through December 1996, the
Company issued $483,000 of bridge loan notes (the "Bridge Loan Notes") to
provide cash for normal operating expenses and to pay professional fees and
expenses in connection with this Offering. The Bridge Loan Notes are secured
promissory notes bearing interest at the LIBOR rate and are payable at the
earlier of nine months from the date of issuance or the closing of this
Offering. As additional consideration, the Bridge Loan Note holders (the "Bridge
Loan holders") received 91,000 warrants to acquire, without additional cost,
Units identical to the Units offered hereby at the time the registration
statement of which this prospectus is a part becomes effective. Such Units are
being registered pursuant to this registration statement and are included in the
Units offered hereby. See Management's Discussion of Financial Condition and
Results of Operations - Bridge Financing", "Selling Security Holders" and
"Underwriting."
3
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The Offering
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Securities Offered:
By the Company......................... 1,000,000 Units, each Unit consisting of one share of Common
Stock and one Series A Warrant. See "Description of
Securities."
By the Selling Security Holders........ 112,000 Units, each Unit consisting of one share of Common Stock
and one Series A Warrant. See "Selling Security Holders" and
"Description of Securities."
Series A Warrants........................... Each Series A Warrant will entitle the holder thereof to
purchase one share of Common Stock at an exercise price of 120%
of the offering price per Unit in this Offering, commencing on
_____________________, 1998 [thirteen months after closing of
this Offering] until _______________, 2002. The Series A
Warrants may not be separately traded until ________________,
1997 [six months after the date of this Prospectus], unless
earlier separated upon three days prior written notice by the
Representative to the Company, at the discretion of the
Representative. The Series A Warrants are redeemable by the
Company at $0.05 per Series A Warrant at any time commencing
thirteen months after the date of this Prospectus, on thirty
days prior written notice, provided that the closing sale price
per share for the Common Stock has equaled or exceeded 200% of
the Offering price per Unit for twenty consecutive trading days
within the thirty-day period immediately preceding such notice.
See "Description of Securities."
Common Stock to be Outstanding
after the Offering.............................4,112,000 shares (1)
Series A Warrants to be Outstanding
after the Offering............................ 1,112,000 Series A Warrants (1)
Use of Proceeds............................. Development and acquisition of Hooters Restaurants and Mrs.
Fields Cookie Stores, repayment of the Bridge Loan Notes,
working capital and general corporate purposes. See "Use of
Proceeds."
Risk Factors................................ THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF ISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. See "Risk
Factors."
4
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Proposed Boston Stock Exchange Symbols
Units....................................... ETS.U
Common Stock................................ ETS
Series A Warrants........................... ETS.W
Proposed Nasdaq Small Cap Market Symbols
Units....................................... EATS.U
Common Stock................................ EATS
Series A Warrants........................... EATS.W
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(1) Excludes shares issuable upon the exercise of options and warrants
outstanding upon the date of this Prospectus or to be issued as follows:
(i) 1,112,000 shares issuable upon the exercise of the Series A Warrants to
be sold in this Offering; (ii) up to 166,800 shares and 166,800 Series A
Warrants to purchase 166,800 shares subject to the Underwriters'
over-allotment option; (iii) 111,200 shares and 111,200 Series A Warrants
to purchase 111,200 shares subject to the Underwriters' Warrants; and (iv)
200,000 shares reserved for grant under the Company's 1996 Stock
Compensation Plan,100,000 of which have been granted and are exercisable.
See "Management' and "Underwriting."
5
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Summary Financial Information
The following table sets forth summary balance sheet data at December
31, 1995 and December 25, 1994 and summary income statement data for the fiscal
year ended December 31, 1995 and December 24, 1994 which have been derived from
the Company's financial statements audited by McGladrey & Pullen, LLP,
independent auditors, which have been included elsewhere herein. The summary
financial data as of October 6, 1996 (unaudited) was derived from the Company's
historical unaudited financial data for such periods. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
have been made which are considered necessary for the fair presentation of such
information for the interim periods presented. Results of operations for the
interim periods are not necessarily indicative of results to be expected for the
full year. The following data should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related Notes thereto appearing
elsewhere in this Prospectus. The Company had no significant operations prior to
April 1994, which was the date of the opening of the Company's first Hooters
Restaurant.
Butterwings Entertainment Group, Inc.
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Income Statement Data: Year Ended Year Ended 40 Weeks Ended
December 25, December 31, October 1, October 6,
1994 1995 1995 1996
-------------- ------------- ------------ -------------
Sales ....................... $ 2,501,273 $ 6,486,327 $ 5,025,351 $ 5,242,470
Operating expenses .......... 2,713,989 6,360,545 4,939,972 5,151,793
General and administrative
expenses ................ 264,361 404,417 309,800 461,121
Provision for loss on assets -- 145,000 -- 1,072,148 -- -- --
Operating (loss) ............ (477,077) (423,635) (224,421) (1,442,592) -- -- --
Financing costs-net ......... (343,673) (518,487) (399,014) (414,671)
Net (loss) .................. (880,663) (942,112) (623,435) (1,857,263)
Net (loss) Per Share ........ (0.42) (0.44) (0.29) (0.88)
Shares outstanding (1) ...... 2,121,173 2,121,173 2,121,173 2,121,173
</TABLE>
Butterwings Entertainment Group, Inc. (Pro Forma for Cookie Crumbs Acquisition
and this Offering)
Year Ended 40 Weeks Ended
December 31, 1995 October 6, 1996
----------------- ---------------
Income Statement Data:
Sales $7,730,956 $6,535,002
Operating expenses 7,398,898 6,441,186
General and administrative expenses 566,918 600,753
Provision for loss on assets 304,474 1,072,148
Operating (loss) (539,334) (1,579,085)
Financing costs-net (1,194,186) 14,304
Net (loss) (1,733,520) (1,564,781)
Net (loss) Per Share (0.44) (0.41)
Shares outstanding (2) 4,135,119 4,135,119
Butterwings Entertainment Group, Inc.
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At At
October 6, 1996 October 6, 1996
as adjusted as adjusted
December 31, 1995 October 6, 1996 (3) (4)
------------------ ------------- ---- ---
Current Assets $794,424 $744,717 $900,726 $5,990,726
Total Assets 4,318,155 4,051,556 5,435,131 9,925,662
Total current liabilities 676,558 4,803,265 5,105,681 967,532
Total long-term debt 3,811,343 510,950 549,248 549,248
Redeemable Preferred Stock - - 1,690,000 1,690,000
Stockholders' equity (deficit) (169,746) (1,262,659) (1,909,798) 6,718,882
</TABLE>
6
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- ---------------
(1) Based on weighted average number of shares outstanding. See Note 12 to
Consolidated Financial Statements.
(2) Based on weighted average number of shares outstanding plus additional
Common Stock issued in connection with (i) this Offering, (ii) conversion
of the Notes, and (iii) conversion of the Convertible Preferred Stock.
(3) As adjusted to give effect to the acquisition of Cookie Crumbs by the
Company in October 1996. See Note 12 to Consolidated Financial Statements.
(4) Adjusted to reflect (i) the sale of 1,000,000 Units offered by the Company
at a price of $6.50 per Unit,(ii) the exchange of 100% of the 12% Notes to
Common Stock, (iii) the conversion of 100% of the outstanding Convertaible
Preferred Stock, (iv) 112,000 shares of Common Stock issued to the Selling
Security Holders, and (v) the acquisition of Cookie Crumbs.
7
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RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN ADDITION TO
THE OTHER INFORMATION SET FORTH IN THE PROSPECTUS BEFORE PURCHASING THE
SECURITIES OFFERED HEREBY.
Limited Operating History; Prior Losses
The Company has a limited operating history upon which investors may
evaluate the Company's performance. For the fiscal year ended December 31, 1995
and the 40 weeks ended October 6, 1996 the Company on a consolidated pro forma
basis, taking into account the acquisition of Cookie Crumbs, incurred net losses
of $1,067,286 and $1,962,084 respectively from the operations of its Hooters
Restaurants and Mrs. Fields Cookie Stores. The Company will continue to incur
significant expenses associated with the development and operation of its
Hooters Restaurants and Mrs. Fields Cookie Stores, a substantial portion of
which will be incurred before the realization of related revenues. These
expenditures, together with associated early operating expenses, may result in
operating losses until an adequate revenue base is established. There can be no
assurance that the Company will be able to operate profitability in the future.
See Consolidated Financial Statements.
Risks of Restaurant Industry
The restaurant industry is generally affected by changes in consumer
preferences, national, regional and local economic conditions and demographic
trends. The performance of individual restaurants may also be affected by
factors such as traffic patterns and the type, number and location of competing
restaurants. Factors such as inflation, increased food, labor and employee
benefit costs and the availability of experienced management and hourly
employees may also adversely affect the restaurant industry in general and the
Company's restaurants in particular. Moreover, by the nature of its business,
the Company will be subject to potential liability from serving contaminated or
improperly prepared food and such liability could adversely impact the Company's
operations. See "Business - Competition and Regulation"
Risks of Company's Businesses
The business of owning and operating Hooters Restaurants and Mrs.
Fields Cookie Stores involves a high degree of risk. The ultimate profitability
of the Company's business will depend upon numerous factors including, without
limitation, the profitability of the Hooters Restaurants and Mrs. Fields Cookie
Stores to be developed, owned and operated by the Company, which in turn will
depend on many factors over which the Company will have no control, including
changes in local, regional, or national economic conditions, changeable tastes
of consumers, food, labor and energy costs, the availability and cost of
suitable sites, fluctuating interest and insurance rates, state and local
regulations and licensing requirements, the continuing goodwill and reputation
associated with the Hooters Franchisor and Mrs. Fields Fraanchisor and the
ability of the Company to hire and retain qualified employees, including
competent managers for each restaurant and cookie store. There can be no
assurance that the sites selected for the Hooters Restaurants and Mrs. Fields
Cookie Stores will produce the minimum customer traffic for the Restaurants and
Cookie Stores to be economically successful.
Risks of Planned Expansion
Successful expansion of the Company's operations will be largely
dependent upon a variety of factors, some of which are currently unknown or
beyond the Company's control, including (i) continuing customer acceptance of
the "Hooters" restaurant and "Mrs. Fields" cookie store concepts, (ii) the
ability of the Company's management to negotiate territories in which to expand,
to identify suitable sites and to negotiate leases at such sites, (iii) timely
and economic development and construction of Hooters Restaurants and Mrs. Fields
Cookie Stores, (iv) the hiring of skilled management and other personnel, (v)
the ability of the Company's management to apply its policies and procedures to
a much larger number of restaurants and cookie stores; (vi) the availability of
adequate financing; (vii) the general ability to successfully manage growth
(including monitoring Restaurants and Cookie Stores, controlling costs, and
maintaining effective quality controls); and (viii) the general state of the
8
<PAGE>
economy. No market studies regarding the commercial feasibility of expanding the
Company's restaurants or cookie stores have been conducted, nor are any such
studies planned. There can be no assurance that the Company will be able to
successfully open new restaurants or cookie stores at the planned rate of
expansion, or at all. While the Company retains the right to pursue other
restaurant concepts which are not planned at the date hereof, there can be no
assurance that any such new ventures will be successful. See "Business and
Properties - The Hooters Restaurants" and - "Mrs. Fields Cookie Stores -
Development Option."
Dependence on the Hooters Franchisor and Mrs. Fields Franchisor
The Company's success depends in part on the continued success of the
"Hooters" restaurant and "Mrs. Field's" cookie store concepts and on the ability
of the franchisors to identify and react to new trends in their respective
industries (including the development of innovative and popular menu items and
pastry products) and to develop and pursue appropriate marketing strategies in
order to maintain and enhance the name recognition, reputation and market
perception of "Hooters" restaurants and "Mrs. Fields" cookie stores. The Company
believes that the experience, reputation, financial strength and franchisee
support of both the Hooters Franchisor and the Mrs. Fields Franchisor are
positive factors in the Company's prospects. Adverse publicity or economic
trends or business deterioration with respect to the Hooters Franchisor or the
Mrs. Fields Franchisor or their failure to support their franchisees, including
the Company, could have a material adverse effect on the Company. However, the
future results of operations of the Hooters Franchisor and the Mrs. Fields
Franchisor and their other franchisees will not alone assure the success of the
Company, which will depend on the effectiveness of the Company's management,
current and future locations of the Company's restaurants and cookie stores and
the results of operations of those businesses. The Company reserves the right to
expand into new concepts not yet determined or to eliminate concepts currently
operated by the Company at management's discretion.
Requirements of Franchise Agreements
The franchise agreements between the Company and the Hooters Franchisor
and the Mrs. Fields Franchisor require the Company to pay an initial franchise
fee with respect to each restaurant and cookie store opened, to pay royalties
based on gross sales of each restaurant and cookie store location and to spend a
percentage of the gross sales of each Restaurant and Cookie Store on
advertising, which may include contributions to national marketing pools
administered by the franchisor. Such amounts must be paid or expended regardless
of the profitability of the Company's restaurants and cookie stores. As of the
date of this Prospectus, the Company pays an initial franchise fee of $75,000 to
the Hooters Franchisor for each Hooters Restaurant opened and $15,000-$25,000 to
the Mrs. Fields Franchisor for each Mrs. Fields Cookie Store opened and
royalties on gross sales of 6% to the Hooters Franchisor and up to 6% to the
Mrs. Fields Franchisor. The Company currently contributes a percentage of gross
sales for all of its Hooters Restaurants and certain of its Mrs. Fields Cookie
Stores to the national marketing funds of the franchisors. In addition, the
Company's franchise agreements require the Company to operate its Hooters
Restaurants and Mrs. Fields Cookie Stores in accordance with the requirements
and specifications established by the franchisor relating to interior and
exterior design, decor, furnishings, menu selection, the preparation of food
products, quality of service and general operating procedures, advertising,
maintenance of records and protection of trademarks. Failure of the Company to
satisfy such requirements could result in the loss of the Company's franchise
rights for some or all of its restaurants or cookie stores as well as the
development of additional restaurants or cookie stores.
Rights to Open Additional Hooters Restaurants and Mrs. Fields Cookie Stores
Butterwings/Wisconsin entered into a franchise agreement dated October
31, 1993 and an option addendum thereto pursuant to which Butterwings/Wisconsin
was granted exclusive options to establish and operate four additional Hooters
Restaurants in the cities of Madison and Milwaukee, Wisconsin. The options to
develop and open additional Hooters Restaurants in this territory required that
the Company have all additional Hooters Restaurants open by July, 1996.
Butterwings/California also entered into a franchise agreement dated
October 31, 1993 and an option addendum thereto pursuant to which
Butterwings/California was granted the exclusive right to operate a Hooters
Restaurant in San Diego County and exclusive options to establish and operate
nine additional Hooters Restaurants in San Diego County, two of which have been
exercised.
9
<PAGE>
In October 1995, the option addendum was modified at the request of
the Company to reduce the option to establish and operate Hooters Restaurants in
San Diego County by three. Pursuant to such option, the remaining four Hooters
Restaurants in the territory were required to be open by July 31, 1996.
The Company has been unable to complete the development of additional
Hooters Restaurants within the time frames set forth in the option addendums to
the Hooters franchise agreements. According to the terms of such option
addendums, the Company's options to develop additional Hooters Restaurants have
therefor lapsed and the option fees paid by the Company may be retained by the
Hooters Franchisor. However, the Company has notified the Hooters Franchisor
that the Company is proceeding in good faith to identify suitable locations
which are acceptable to the Hooters Franchisor and to develop and open the
restaurants in a timely manner and has paid an additional franchise fee to
develop a Hooters Restaurant in Milwaukee, Wisconsin. Nevertheless, the Hooters
Franchisor has the right under the Hooters franchise agreements to refuse to
permit the Company to develop additional Hooters Restaurants and there is no
assurance that the Hooters Franchisor will not take such action. If the Company
is unable to develop additional Hooters Restaurants, the Company' will be
dependent on the operations of its existing Hooters Restaurants and present and
future Mrs. Fields Cookie Stores owned and to be developed by the Company.
Competition
The restaurant and cookie industries are highly competitive with
respect to price, service, food quality and location and are among the highest
failure rates of any industry. There are numerous well-established competitors,
some of which possess substantially greater financial, marketing, personnel and
other resources than the Company. These competitors include national, regional
and local restaurants and chains of restaurants and cookie and pastry retailers.
The Company will face competition in every market that it enters. In addition,
other restaurant and cookie chains with greater financial resources than the
Company, the Hooters Franchisor and the Mrs. Fields Franchisor have similar or
competing operating concepts to that of the Company. The Company will also be
dependent upon the ability of the Hooters Franchisor and the Mrs. Fields
Franchisor to provide adequate support and service as contemplated by their
respective franchise agreements. As a result of the competition the Company
currently faces, and will continue to face as it expands, there can be no
assurance that the Company will be able to operate profitably in the future. See
"Business - Competition."
Changes in Food Costs
The Company's profitability is affected in part by its ability to
anticipate and react to changes in food costs. Various factors beyond the
Company's control, including adverse weather conditions, may affect food costs.
While management has been able to anticipate and react to changing food costs to
date through its purchasing practices and menu price adjustment, there can be no
assurance that it will be able to do so in the future.
Trademarks and Service Marks
Both the "Hooters" and the "Mrs. Fields" service marks have significant
value and are important to the marketing of the Company's Hooters Restaurants
and Mrs. Fields Cookie Stores. Both the Hooters Franchisor and the Mrs. Fields
Franchisor have enforcement policies to investigate possible violations of their
service marks and if such violations are identified they take appropriate action
to preserve and protect their goodwill in their service marks. The Company is
obligated under its franchise agreements with the Hooters Franchisor and the
Mrs. Fields Franchisor to report any such violations to the franchisor and, if
necessary, participate in any action against the perpetrators. There can be no
assurance that the Company, the Hooters Franchisor or the Mrs. Fields Franchisor
will be successful in enforcing their rights under their service marks and
preventing others from using such marks or a derivation of same. See "Business -
Trademarks."
Long Term Leases
The Company leases the sites for its existing Hooters Restaurants and
Mrs. Fields Cookie Stores pursuant to long term, non-cancelable leases or
sub-leases. Sites for additional Hooters Restaurants and Mrs. Fields Cookie
Stores will likely be subject to similar long term leases. If an existing or
future restaurant or cookie store does not perform at a profitable level, and
the decision is made to close the restaurant or cookie store, the Company may
nevertheless be obligated to pay rent under the lease. See "Business and
Properties - The Hooters Restaurants - Properties" and Note 11 to Consolidated
Financial Statements.
Geographic Concentration of Restaurants and Cookie Stores; Uncertainty of
Market Acceptance The Company currently operates three Hooters Restaurants, in
Madison, Wisconsin and San Diego,
California and 13 Mrs. Fields Cookie Stores, in the St. Louis, Missouri,
Minneapolis, Minnesota and Lansing/Flint, Michigan areas. The results of
operations of these restaurants and cookie stores may not be indicative of the
market acceptance of a larger number of restaurants and cookie stores,
particularly as the Company expands into areas with varied demographic
characteristics. There can be no assurance of the Company's ability to achieve
consumer awareness and market acceptance. This could require substantial efforts
and expenditures by the Company, particularly as the Company seeks to enter into
new markets with its existing or new concepts. Furthermore, since the Company
currently operates only three restaurants and 13 cookie stores, even one
unsuccessful new restaurant or new cookie store could have a significant adverse
impact on the Company' operations. See "Business- Expansion Strategy."
Government Regulation
The restaurant and cookie businesses are subject to various federal,
state and local government regulations, including those relating to the sale of
food and, in the case of restaurants, to alcoholic beverages. While the Company
has not experienced any trouble in obtaining necessary government approval to
date, difficulty or failure to retain or obtain required licenses or other
regulatory approvals could have an adverse effect on the Company's current or
future operations or delay or prevent the opening of new restaurants or cookie
stores.
10
<PAGE>
The Company will be subject in certain states to "dram shop" statutes,
which generally provide a person injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic beverages
to the intoxicated person. The Company currently operates restaurants in
Wisconsin and California which have statutes similar to "dram shop" statutes.
The Company carries liquor liability coverage as part of its existing
comprehensive general liability insurance in all states in which it operates.
The Company has never been named as a defendant in a lawsuit involving "dram
shop" statutes. However, there can be no assurance that the Company will not be
named as a defendant in such a lawsuit in the future.
Effect of EEOC Decision on Hooters Restaurants
The Equal Employment Opportunity Commission (the "EEOC") issued a
finding in September 1994, that the Hooters Franchisor and all related entities,
including but not limited to Hooters, Inc., Hooters Management Corporation, all
franchisees and licensees of the Hooters Franchisor and any other entity
permitted to operate under the "Hooters" trademark, engaged in employment
discrimination for failing to recruit, hire or assign men into server, bartender
or host positions. In March 1996, the EEOC's general counsel advised that he
would not recommend that the EEOC file a lawsuit against Hooters and that this
procedure terminated the EEOC's consideration of litigation against Hooters. The
Company has been the subject of several charges of employment discrimination
and/or sexual harassment suits in the Milwaukee and San Diego regional offices
of the EEOC and the City of Madison, Wisconsin. None of such charges have been
finally determined to result in damages, liabilities or penalties to the Company
although they may not be finally resolved. In the event that litigation should
be re-instituted by the EEOC or if the Company should not be successful in
defending administrative or court proceedings involving charges of
discrimination in hiring, the Company may be required to implement a gender
neutral hiring policy and to pay money damages to men who were previously
discriminated against by Hooters' hiring practices, the effect of which could
have a substantial adverse impact on the Company's business. See "Business and
Properties - Litigation."
Possible Need for Additional Financing
The net proceeds of this Offering will be used to develop and acquire
new restaurants and cookie stores, retire the Bridge Loan Notes and for working
capital and general corporate purposes. Management believes that the net
proceeds will be sufficient to satisfy the financial needs of the Company for
approximately 12 to 18 months. However, there can be no assurance that the net
proceeds from this Offering, together with cash generated from other sources,
will be sufficient to maintain operations or finance further development and it
may be necessary to obtain additional financing. The Company has no current
arrangements for, or sources of, additional financing, and there can be no
assurance that any such financing can be obtained on terms acceptable to the
Company or at all. To the extent any additional financing involves the sale of
equity securities of the Company, shareholders of the Company, including
purchasers in this Offering, will realize a reduction in their percentage
ownership interest in the Company. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
Uninsured Losses; Costs and Availability of Insurance
The policy of the Company is to arrange for or acquire comprehensive
casualty and liability insurance in amounts which the Company determines is
sufficient to cover reasonably foreseeable losses and which are required by its
franchise agreements. However, there are certain types of losses (generally of a
catastrophic nature, such as earthquakes, floods and wars) which are
uninsurable, and recent increases in the cost of insurance generally have
resulted in premium rates which make certain losses not economically insurable.
There can be no assurance that the costs of certain insurance coverage which the
Company would otherwise obtain will not increase further and result in the
Company being unable to obtain coverage for certain risks at rates which are
economic for the Company. If the Company suffered a loss for which it was not
insured, such loss could have a material adverse effect on the Company's
operations.
Reliance on Management
The Company will depend to a significant extent on the ability of
current management of the Company to oversee operations of its restaurants and
cookie stores. The success of the Company's business will be dependent upon
Messrs. Stephan S. Buckley, Kenneth B. Drost and Douglas E. Van Scoy, executive
officers of the Company and its principal shareholder through New Era Management
Corporation. The Company does not have employment agreements with any executive
officer or employee of the Company. In the event the services of these
individuals should become unavailable to the Company for any reason, the Company
would be required to recruit other qualified personnel to manage and operate the
Company. There can be no assurance that the Company would be able to employ
qualified personnel on terms acceptable to it. See "Management."
11
<PAGE>
Company's Experience
The ownership and operation of franchised restaurants and cookie stores
is extremely complex and requires specialized management and marketing skills.
The executive management of the Company has limited experience in owning,
operating and managing franchised restaurants and cookie stores or businesses in
the food service industry, although the executive officers intend to hire
experienced managers who will supervise the operations of the restaurants and
cookie stores. There can be no assurance, however, that the Company will be
successful in hiring and retaining such qualified personnel. See
"Business-Hooters Restaurants-Restaurant Operations and Management" and
"Business-The Cookie Stores-Store Operations."
No Dividends on Common Stock
The Company's board of directors presently intends to retain all of the
Company's earnings for the expansion of its business. The Company therefore does
not anticipate the distribution of cash dividends in the foreseeable future. Any
future decision of the Company's board of directors to pay cash dividends will
depend, among other factors, upon the Company's earnings, financial position,
and cash requirements. See "Dividend Policy."
Shares Eligible for Future Sale
Future sales of substantial amounts of Common Stock by the present
shareholders of the Company could have a material adverse impact on the market
price of the Common Stock. Upon completion of the Offering, there will be
4,112,000 shares of Common Stock outstanding (4,728,000 shares if the
Underwriters' over-allotment option is exercised). The 1,112,000 shares of
Common Stock and 1,112,000 Series A Warrants offered hereby will be freely
tradable. The remaining 3,000,000 shares of Common Stock are "restricted
securities" as that term is defined in Rule 144 ("Rule 144") under the
Securities Act of 1933 (the "Securities Act") and under certain circumstances
may be sold without registration pursuant to the provisions of Rule 144. In
general, under Rule 144, a person or persons whose shares are aggregated, and
who has satisfied a two-year holding period may, under certain circumstances
sell within any three-month period a number of restricted securities which does
not exceed the greater of one percent (1%) of the shares outstanding or the
average weekly trading volume during the four calendar weeks preceding the
notice of sale required by Rule 144. In addition, Rule 144 permits, under
certain circumstances, the sale of restricted securities by a person who is not
an affiliate of the Company and has satisfied a three-year holding period
without any quantity limitations. All of the shares held by New Era Management
Corporation ("NEMC"), the principal shareholder of the Company, have been held
for longer than three years. However, such shareholder has agreed with the
Underwriters that it will not sell any of such shares to the public for a period
of twenty-four months from the date hereof without the prior written consent of
the Representative. The shares of Common Stock issued upon conversion of the
Convertible Preferred Stock and the exchange of the 12% Notes will not be
eligible for sale pursuant to Rule 144 for two years from the date hereof. The
Company has agreed with the holders of the shares of Common Stock to be issued
to the Note holders to register such shares upon the request of 50% of such
holders after one year from the date of this Prospectus.
See "Underwriting."
Immediate Substantial Dilution
The current shareholders of the Company have acquired their shares of
Common Stock at a cost per share substantially less than that at which the
Company intends to sell its Common Stock included in the Units offered hereby
Therefore, investors purchasing Securities in this Offering will incur an
immediate and substantial dilution of approximately $5.20 per share or
approximately 80% in their ownership of the Company's Common Stock. See
"Dilution."
Arbitrary Determination of Offering Price
The public offering price for the Units offered hereby will be
determined by negotiation between the Company and the Representative and should
not be assumed to bear any relationship to the Company's asset value, net worth
or other generally accepted criteria of value. Recent history relating to the
market prices of newly public companies indicates that the market price of the
Securities following this Offering may be highly volatile. See "Underwriting."
12
<PAGE>
Effect of Outstanding Series A Warrants and Underwriters' Warrants
Until the date five years following the date of this Prospectus, the
holders of the Series A Warrants and Underwriters' Warrants will have an
opportunity to profit from a rise in the market price of the Common Stock, with
a resulting dilution in the interests of the other shareholders. The Securities
underlying the Underwriters' Warrants have certain registration rights. The
terms on which the Company might obtain additional financing during that period
may be adversely affected by the existence of the Series A Warrants and the
Underwriters' Warrants. The holders of the Series A Warrants and the
Underwriters' Warrants may exercise the Series A Warrants and Underwriters'
Warrants at a time when the Company might be able to obtain additional capital
through a new offering of securities on terms more favorable than those provided
herein. The Company has agreed that, under certain circumstances, it will
register under federal and state securities laws the Underwriters' Warrants
and/or the securities issuable thereunder. Exercise of these registration rights
could involve substantial expense to the Company at a time when it could not
afford such expenditures and may adversely affect the terms upon which the
Company may obtain financing. See " Description of Securities" and
`'Underwriting."
Risk of Redemption of Series A Warrants
Commencing (thirteen months from the date of this Prospectus), the
Company may redeem the Series A Warrants for $0.05 per Warrant, at any time
after the closing bid price of the Common Stock on the Boston Stock Exchange has
equaled or exceeded 200% of the initial offering price of the Units for twenty
consecutive trading days. Notice of redemption of the Series A Warrants could
force the holders thereof: (i) to exercise the Series A Warrants and pay the
exercise price at a time when it may be disadvantageous or difficult for the
holders to do so, (ii) to sell the Series A Warrants at the then current market
price when they might otherwise wish to hold the Series A Warrants, or (iii) to
accept the redemption price, which is likely to be less than the market value of
the Series A Warrants at the time of the redemption. See "Description of
Securities - Series A Warrants."
Investors May be Unable to Exercise Series A Warrants
For the life of the Series A Warrants, the Company will use its best
efforts to maintain an effective registration statement with the Securities and
Exchange Commission (the "Commission") relating to the shares of Common stock
issuable upon exercise of the Series A Warrants. If the Company is unable to
maintain a current registration statement, the Series A Warrant holders would be
unable to exercise the Series A Warrants and the Series A Warrants may become
valueless. Although in this Offering, the Underwriters have agreed not knowingly
to sell Series A Warrants in any jurisdiction in which they are not registered
or otherwise qualified, a purchaser of the Series A Warrants may relocate to a
jurisdiction in which the shares of Common Stock underlying the Series A
Warrants are not so registered or qualified. In addition, a purchaser of the
Series A Warrants in the open market may reside in a jurisdiction in which the
shares of Common Stock underlying the Series A Warrants are not registered or
qualified. If the Company is unable or chooses not to register or qualify or
maintain the registration or qualification of the shares of Common Stock
underlying the Series A Warrants for sale in all of the states in which the
Series A Warrant holders reside, the Company would not permit such Series A
Warrants to be exercised and Series A Warrant holders in those states may have
no choice but either to sell their Series A Warrants or let them expire.
Prospective investors and other interested persons who wish to know whether or
not shares of Common Stock may be issued upon the exercise of Series A Warrants
by Series A Warrant holders in a particular state should consult with the
securities department of the state in question or send a written inquiry to the
Company. See "Description of Securities - Series A Warrants."
No Public Market for Securities or Series A Warrants; Disclosure Relating
to Low-Priced Stocks
There is currently no public market for the Units, the Common Stock or
the Series A Warrants, and there can be no assurance that any trading market
will develop at the conclusion of this Offering. Investors in this Offering may,
therefore, have difficulty selling their Securities, should they decide to do
so. In addition, if trading markets for the Securities do develop, there can be
no assurance that such markets will continue or that Securities purchased in
this Offering may be sold without incurring a loss. The Company has applied for
listing of the Securities on the Boston Stock Exchange and the NASDAQ Small-Cap
Market upon completion of this Offering. If, at any time, the Securities are not
listed on the Boston Stock Exchange and the NASDAQ Small-Cap Market the
Company's Securities could become subject to the "penny stock rules" adopted
13
<PAGE>
pursuant to Section 15 (g) of the Securities Exchange Act of 1934. The penny
stock rules apply , among other things, to companies (i) whose securities trade
at less than $5.00 per share, or (ii) which have tangible net worth of less than
$5,000,000 if operating less than three years ($2,000,000 if the company has
been operating for three or more years); or, (iii) average revenues of less than
$6,000,000 for the 3 most recently ended years. Such rules require, among other
things, that brokers who trade "penny stock" to persons other than "established
customers" complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading in
the security, including a risk disclosure document and quote information. Many
brokers have decided not to trade "penny stock" because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited. See "Underwriting."
Influence on Voting by Officers and Directors
A company controlled by the Company's officers and directors currently
beneficially owns 90.5% of the Company's outstanding Common Stock. Upon
completion of this Offering, such shareholder will continue to own beneficially
approximately 44.1 % of the Common Stock. As a result, the Company's officers
and directors will continue to be able to substantially impact the vote on most
matters submitted to shareholders, including the election of directors. See
"Principal Stockholders."
14
<PAGE>
USE OF PROCEEDS
The net proceeds of this Offering are anticipated to be approximately
$5,300,000, after deducting the Underwriters' discount, non-accountable expense
allowance and estimated offering expenses ($6,153,125 if the Underwriters
over-allotment option is exercised in full), assuming, in each case, an initial
public offering price of $6.50 per Unit. No value has been assigned to the
Series A Warrants included in the Units. The Company will not receive any
proceeds from the Units sold by the Selling Security Holders but would receive
an additional $728,000 attributable to the Over-allotment Option on the Selling
Security Holders' Units if the Over-allotment Option is exercised in full. The
Company intends to use the net proceeds of this Offering as follows:
<TABLE>
<S> <C> <C>
Approximate Approximate
Amount Percent of
Proceeds
Gross Proceeds $6,500,000
Underwriting discounts & commissions 650,000 10.0%
Offering expenses 550,000 8.5
------------ ---
Net Proceeds $5,300,000 18.5%
Development and acquisition of restaurants and stores (1) $4,200,000 64.6%
Repayment of Bridge Loan Notes (2) 600,000 9.2
Working capital and general corporate purpose 500,000 7.7
------------ ---
Totals $5,300,000 100.0%
========== ======
</TABLE>
- -----------------------
(1) The Company intends to develop or acquire and operate additional
Hooters Restaurants and Mrs. Fields Cookie Stores at a cost per
location of $600,000 to $900,000 for the restaurants and $200,000 to
$300,000 for the cookie stores.
(2) Each Bridge Loan Note bears interest at the LIBOR rate and is payable
upon the earlier of nine (9) months from the date of issuance or
closing of the Offering. The proceeds of the debt were used for normal
operating expenses and to pay professional fees and expenses in
connection with this Offering.
The foregoing represents the best estimate by the Company of its use of
net proceeds based upon present planning and business conditions. The proposed
application of proceeds is subject to change as market and financial conditions
change. The Company, therefore, has reserved the right to vary its use of
proceeds in response to events which may arise and have not been anticipated.
Management has not definitively identified the uses of the net proceeds which
are allocated to working capital reserves. The net proceeds will ultimately be
applied as business opportunities present themselves.
Pending use, it is anticipated that the proceeds to the Company
resulting from this Offering will be primarily invested in short-term investment
grade obligations or bank certificates of deposit or other money market
instruments. It is anticipated that the net proceeds of this Offering will
satisfy the financial needs of the Company for 12 to 18 months following the
date of this Prospectus. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
15
<PAGE>
DIVIDEND POLICY
Since inception, the Company has not paid, and it has no current plans
to pay, cash dividends on the Common Stock. The Company intends to retain all
earnings to support the Company's operations and future growth. The payment of
any future dividends will be determined by the Board of Directors based upon the
Company's earnings, financial condition and cash requirements, possible
restrictions in future financing agreements, if any, business conditions and
such other factors deemed relevant. See "Risk Factors - No Dividends on Common
Stock."
DILUTION
As of October 6, 1996, the net tangible book value of the Company
(adjusted for the acquisition of Cookie Crumbs on October 18, 1996 and assuming
the exchange of 100% of the Notes for Common Stock) was $29,730 or $.01 per
share of Common Stock. The net tangible book value of the Company is the
aggregate amount of its tangible assets less its total liabilities. The net
tangible book value per share represents the net tangible book value of the
Company, less total liabilities of the Company, divided by the number of shares
of Common Stock outstanding. The number of shares outstanding used to calculate
the net tangible book value per share takes into account the 2,001,438 shares
currently held by the existing shareholders, the 744,554 shares to be issued to
the Note holders, the 254,008 shares to be issued to the Convertible Preferred
Stock holders and the 112,000 shares to be issued to the Bridge Loan Note
holders. After giving effect to the sale of 1,000,000 Units by the Company
(comprised of 1,000,000 shares of Common Stock and 1,000,000 Series A Warrants)
at an assumed offering price per Unit of $6.50, and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value per
share would increase from $.01 to $1.30. This represents an immediate increase
in net tangible book value of $1.29 per share to current holders of Common Stock
and an immediate dilution of $5.20 per share, or 80%, to new investors, as
illustrated in the following table.
Assumed public offering price per share $6.50
Net tangible book value per share before this Offering $.01
Increase per share attributable to new investors $1.29
Adjusted net tangible book value per share after this Offering $1.30
-----
Dilution per share to new investors $5.20
=====
Percentage dilution 80%
=====
The following table summarizes (i) the number of shares of Common Stock
purchased from the Company to date, the total consideration paid, and the
average price per share paid by the current Common Stock holders, assuming
conversion of the Convertible Preferred Stock into Common Stock and the exchange
of the 12% Notes for Common Stock, and (ii) the number of shares of Common Stock
to be purchased from the Company and the total consideration to be paid by the
new investors purchasing shares of Common Stock in this Offering at an assumed
initial public offering price of $6.50 per share before deduction of the
estimated underwriting discounts and commissions and offering expenses payable
by the Company:
Shares Purchased Total Consideration Average
Number Percent Amount Percent Per
Share
---------- ------ ----------- ----- ------
Current shareholders 3,112,000 75.7% $6,231,500 48.9% $2.00
New investors 1,000,000 24.3 6,500,000 51.1 $6.50
--------- ---- --------- ----
Total 4,112,000 100.0% $12,731,500 100.0%
========= ====== =========== =====
- --------------
The foregoing table excludes the effect of the exercise of (i) the
Underwriters' over-allotment option,(ii) the Underwriters' Warrants and (iii)
shares reserved for issuance pursuant to the Company's 1996 Stock Compensation
Plan. To the extent that the foregoing options or warrants may be exercised,
there will be further share dilution to investors in this Offering. See "The
Offering," "Risk Factors," "Management-1996 Stock Compensation Plan" and
"Underwriting."
16
<PAGE>
CAPITALIZATION
The following table sets forth the audited capitalization of the
Company as of December 31, 1995, the unaudited capitalization of the Company as
of October 6, 1996, and the unaudited capitalization of the Company as adjusted
as of October 6, 1996 to give effect to (i) the sale of the 1,000,000 Units
offered at a price of $6.50 per Unit and the application of the estimated net
proceeds therefrom, (ii) the conversion of 100% of the Company's Convertible
Preferred Stock, (iii) the exchange of 100% of the 12% Notes to Common Stock,
(iv) 112,000 shares of Common Stock issued to the Bridge Loan Note holders and,
(v) the acquisition of Cookie Crumbs in October 1996.
<TABLE>
<S> <C> <C> <C>
December October 6, October 6,
31, 1995 1996 1996
Actual Actual As Adjusted
(Unaudited) (Unaudited)
Short-term debt:
Current maturities of
long-term debt ...................... $ 28,335 $ 3,978,112 $ 101,785
------------ ------------ ------------
Total short-term debt .................... 28,335 3,978,112 101,785
------------ ------------ ------------
Long-term debt:
Long-term debt less
current maturities plus
Obligations for leases
on closed stores ......................... 3,811,343 510,950 549,248
------------ ------------ ------------
Redeemable Preferred Stock (2) ............... -- -- 1,690,000
------------ ------------ ------------
Shareholders' equity (deficit):
Preferred Stock, no par value
100,000 shares authorized, 12,660,
15,685 and no shares issued and
outstanding, as adjusted, respectively (3) 1,266,000 1,568,500 --
Common Stock, $.01 par value,
10,000,000 shares authorized,
1,811,301 and 2,001,438 shares issued
and outstanding 4,112,000
shares to be issued and outstanding,
as adjusted(3) ........................... 18,113 20,014 41,120
Capital in excess of par ................. 368,926 828,875 12,970,869
Accumulated deficit ...................... (1,822,785) (3,680,048) (6,293,107)
------------ ------------ ------------
Total shareholders'equity (deficit) .......... (169,746) (1,262,659) 6,718,882
------------ ------------ ------------
Total capitalization ......................... $ 3,669,932 $ 3,226,403 $ 9,059,915
============ ============ ============
</TABLE>
- -----------------
(1) Includes long-term lease obligations related to store closing. See Note 12
to Consolidated Financial Statements.
(2) Issued by Cookie Crumbs which was acquired by the Company in October, 1996.
(3) Excludes shares issuable upon the exercise of options and warrants
outstanding upon the date of this Prospectus or to be issued as follows:
(i) 1,112,000 shares issuable upon the exercise of the Series A Warrants to
be sold in this Offering; (ii) up to 166,800 shares and 166,800 Series A
Warrants to purchase 166,800 shares subject to the Underwriters'
over-allotment option; (iii) 111,200 shares and 111,200 Series A Warrants
to purchase 111,200 shares subject to the Underwriters' Warrants; and (iv)
200,000 shares reserved for issuance under the Company's 1996 Stock
Compensation Plan. See "Management" and "Underwriting."
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
Results of Operations for the Forty Week Period Ended October 6, 1996
Compared to the Forty Week Period Ended October 1, 1995
At October 6, 1996, the Company owned seven Mrs. Fields Cookie Stores. The
first cookie store was purchased in December 1995. Six additional cookie stores
were purchased in January 1996.
During the forty week period ended October 6, 1996 three Hooters
Restaurants were open for the entire period. One restaurant was closed on
September 11, 1996. During the corresponding period in 1995, three restaurants
were open for the entire period while one restaurant was open for eighteen
weeks.
The Company reported a net loss of $1,857,263 for the forty weeks ended
October 6, 1996 and a net loss of $623,435 for the same period in 1995.
Significant factors influencing the results of operations include:
Sales were $5,242,470 for the forty weeks ended October 6, 1996 compared
to $5,025,351 for the corresponding period in 1995. This increase of
$217,119 reflects $1,328,242 of sales from the addition of seven cookie
stores and a decline in sales of $1,111,123 from the restaurants. The
decline in sales from the restaurants of approximately $9,000 per
restaurant per week, management believes, reflects a lack of funds to
adequately promote and advertise the stores.
Cost of goods sold was $1,529,174 for the forty weeks ended October 6,
1996 compared to $1,532,403 for the corresponding period in 1995. Cost of
goods sold is directly related to sales (approximately 29% of sales in 1996
and 31% of sales in 1995). Cost of goods sold for the seven new cookie
stores for 1996 was $306,493 while cost of goods sold for the restaurants
declined $309,722 from 1995 reflecting decreased sales. As a percent of
sales, costs of goods sold for the cookie stores are approximately 23%
compared to 31% for the restaurants.
Salaries and benefits were $1,576,580 for the forty weeks ended October 6,
1996 compared to $1,486,940 for the corresponding period in 1995. This
includes salaries and wages for all restaurant and cookie store employees.
This increase is related to four restaurants and seven cookie stores being
in operation during 1996 compared to four restaurants in operation during
the same period in 1995.
Other operating costs were $1,783,737 for the forty weeks ended October 6,
1996 compared to $1,681,082 for the corresponding period in 1995 reflecting
an increase of $102,655. Other operating costs include promotions,
advertising, office supplies, utilities, restaurant supplies, outside
services, rent, insurance, and royalties. Other operating costs from the
seven new cookie stores in 1996 was $519,164 while other operating costs
for the restaurants declined $416,509. The decline in other operating costs
for the restaurants was not in proportion to the sales decline due to the
fixed nature of many of the items included in other operating costs.
Accordingly, as a percentage of sales, these costs were approximately 1%
higher in the 1996 period than the 1995 period.
Depreciation and amortization increased $145,946 in the forty weeks ended
October 6, 1996, compared to the comparable period in 1995. This increase
is primarily due to the addition of seven cookie stores.
Pre-opening costs declined from $123,191 in the forty weeks ended October
1, 1995 to zero in the comparable period of 1996 because new locations
added in 1996 did not incur pre-opening costs.
General and administrative expenses were $461,121 for the forty weeks
ended October 6, 1996 compared to $309,800 for the corresponding period in
1995. General and administrative expenses, which consist of accounting
related costs, professional fees, travel, etc. increased as a result of the
Company's infrastructure needed to support restaurant and cookie store
operations.
18
<PAGE>
Franchise fee options of $145,000 written off in the forty weeks ended
October 6, 1996, reflect uncertainty regarding the Company's rights to
develop additional Hooters restaurants.
Provision for losses on leased property of $927,148 represents $50,000 of
management's estimate of the additional loss to be incurred on leased
property which the Company no longer plans to develop and store closing
expenses of $877,148 relate to a restaurant location which was closed in
September 1996. See Notes 10 and 11 to the consolidated financial
statements.
Financial Condition at October 6, 1996 as Compared to December 31,
1995
Cash decreased $77,034 to $497,091 from $574,125 at December 31, 1995. As
reflected in the Statements of Cash Flows, this decrease is primarily
attributable to $611,846 used in operating activities and $157,409 used in
investing activities partially offset by $692,221 provided by financing
activities.
Accounts receivable decreased $49,577 to $1,814 at October 6, 1996 as
compared to $51,391 at December 31, 1995. This decrease is primarily due to
a $39,577 receivable from the Mrs. Fields Franchisor at December 31, 1995
which was repaid in January 1996.
Inventory decreased $7,566 to $96,819 from $104,385 at December 31, 1995.
This decrease is primarily due to the closing of the El Cajon restaurant
with inventory of $21,821 and a $12,399 reduction in inventory at the other
restaurants due to management's decision to keep inventory levels low,
partially offset by the addition of six cookie stores.
Prepaid expenses increased $92,395 to $148,218 at October 6, 1996 as
compared to $55,823 at December 31, 1995. This increase is primarily due to
prepaid insurance and rents associated with the restaurants and cookie
stores.
Leasehold improvements increased $374,142 to $1,437,770 from $1,063,628 at
December 31, 1995. This increase is primarily attributable to the addition
of six new cookie stores of $444,095, partially offset by the loss on
impaired assets of $69,953.
Equipment increased $8,379 to $816,565 from $808,186 at December 31, 1995.
This increase is primarily due to the purchase of six cookie stores of
$192,949, partially offset by the write- off of impaired assets of $189,010
related to the restaurant closed in September 1996.
Deposits decreased $562,236 to $108,683 from $670,919 at December 31,
1995. The Company entered into an agreement with an affiliate to purchase
six cookie stores effective January 1, 1996 for $703,875. In November and
December 1995, the Company paid $554,048 to the affiliate towards the
purchase of the stores which was included in deposits at December 31, 1995.
As of October 6, 1996, the amount on deposit has been reclassified to
reflect the assets acquired.
Franchise costs, net of accumulated amortization decreased $85,614 to
$367,254 from $452,868 at December 31, 1995. This decrease is primarily due
to write -offs of fee options on undeveloped locations of $145,000 and
impaired assets of $75,000 and to 1996 amortization of $15,614 partially
offset by franchise fees of $150,000 related to the six new cookie stores.
Goodwill, net of accumulated amortization increased $32,152 to $356,825
from $324,673 at December 31, 1995. This increase is primarily due to the
purchase of the six cookie stores partially offset by amortization of
$19,288.
19
<PAGE>
Deferred bridge loan financing costs were zero at December 31, 1995 and
$273,,000 at October 6, 1996. See Note 12 to Consolidated Financial
Statements.
Current maturities of long-term debt increased $3,949,777 from December
31, 1995 primarily due to classifying all the secured promissory notes of
$3,700,000 as current and bridge loan financing of $210,000. See Note 4 to
Consolidated Financial Statements.
Accounts payable decreased $68,657 to $272,200 at October 6, 1996 as
compared to $340,857 at December 31, 1995. This decrease is primarily due
to a payable of $66,876 for sales tax at the restaurants at December 31,
1995 which was paid in the first quarter of 1996.
Accrued liabilities increased $230,441 to $494,801 at October 6, 1996 as
compared to $264,360 at December 31, 1995. This increase is primarily due
to the closing of a restaurant in September 1996. The Company recorded a
provision to provide for the settlement with the landlord and all costs
associated with the closing of the site. The current portion of $157,000 is
included in accrued liabilities and the remaining store closing expenses of
$393,000 represent the long-term portion of the settlement with the
landlord .
See Note 11 to Consolidated Financial Statements.
As of October 6, 1996, the Company's had raised $1,568,500 through a
private placement .of convertible preferred stock
The Company's accumulated deficit was $3,680,048 at October 6, 1996
compared to $1,822,785 at December 31, 1995. The increase is attributable
to the $1,857,263 net loss incurred during the forty week period ended
October 6, 1996.
Results of Operations-Year Ended December 31, 1995 as Compared to the
Year Ended December 25, 1994
The total number of Hooters Restaurants increased from three at
December 25, 1994 to four at December 31, 1995. In addition, a cookie store was
acquired in mid December 1995.
The Company reported a net loss of $942,122 for the year ended December
25, 1995 as compared to a net loss of $880,663 for the year ended December 25,
1994. Significant factors influencing the 1995 results of operations included:
Sales increased $3,985,054 to $6,486,327 in 1995 compared to $2,501,273
for 1994. During 1995 three Hooters Restaurants were open for 53 weeks, a
fourth Hooters Restaurant was open for 32 weeks and operating results of
one Mrs. Fields Cookie Store was included for 2 weeks. During 1994 one
Hooters Restaurant was open for 37 weeks, another Hooters Restaurant was
open for 15 weeks, and a third Hootrers Restaurant was open for 2 weeks.
The Company had no revenues prior to April 11, 1994.
Cost of products sold increased $1,224,379 to $1,995,753 in 1995 compared
to $771,374 for 1994. Cost of products sold is directly related to sales
(approximately 31% of sales in 1995 and 1994).
Salaries and benefits increased $1,274,171 to $1,889,192 in 1995 compared
to $615,021 in 1994. Salaries and benefits commenced with the opening of
the first restaurant and have increased, primarily as a result of new
locations being added. Salaries and benefits as a percent of sales has
increased from 25% in 1994 to 30% in 1995 primarily as a result of manager
and assistant manager payroll increases in excess of sales increase. Prior
to the opening of the Madison restaurant, all salaries were included in
pre-opening costs which were charged to income.
Depreciation and amortization increased $104,757 to $154,090 in 1995
compared to $49,333 in 1994. This increase is due to the increase in fixed
assets related to the opening of additional locations in 1995 and a full
year of depreciation and amortization in 1995 for locations opened during
1994.
20
<PAGE>
Pre-opening costs decreased $398,468 to $153,334 in 1995 compared to
$551,802 for 1994. Pre-opening costs are costs incurred in connection with
the opening of new restaurants and are expensed as incurred. These costs
include payroll, hiring and training expenses, advertising and all other
non capitalized costs incurred prior to the opening. The 1995 pre-opening
costs related to the opening of one restaurant. The 1994 pre-opening costs
included costs related to the opening of three restaurants.
Other operating costs increased $1,441,717 to $2,168,176 in 1995 compared
to $726,459 for 1994. Other restaurant operating expenses include occupancy
costs, utility expense, advertising, repairs and maintenance, etc. These
costs are directly related to the number of stores open during the period
and tend to be fixed in nature. These costs were 34% and 29% of sales for
1995 and 1994, respectively, as a result of increases greater than the
increases in sales.
General and administrative expenses increased $140,056 to $404,417 in 1995
compared to $264,361 for 1994. General and administrative expenses, which
consist of accounting related costs, professional fees, travel, etc. are
primarily the result of the Company's infrastructure needed to support
restaurant operations and its expansion strategy.
Provision for loss on sale of building of $145,000 in 1995 reflects
management's estimate of a loss on the disposition of an undeveloped leased
property.
Interest income decreased $35,250 to $19,037 in 1995 compared to $54,287
for 1994. Interest income is generated from cash on deposit at various
financial institutions.
Interest expense increased $116,297 to $465,031 in 1995 compared to
$348,734 for 1994. The 1995 expense primarily represents interest on the
$3,700,000 of senior notes for the entire year while the 1994 expense
primarily represents interest on the $3,700,000 of senior notes from the
date of issuance (April 1994).
Amortization of finance costs increased $23,267 to $72,493 in 1995
compared to $49,226 for 1994. These costs represent the costs related to
the issuance of the senior notes. These costs are amortized to expense on a
straight-line method over a seven year period coinciding with the life of
the notes. The 1995 expense represents amortization for the entire year
while the 1994 expense represents amortization from the date of issuance of
the $3,700,000 of 12% senior notes (April 1994).
Financial Condition at December 31, 1995 as Compared to December 25, 1994
The Company's cash and cash equivalents were $574,125 at December 31, 1995
compared to $1,191,928 at December 25, 1994. As reflected in the
Consolidated Statements of Cash Flows, the decrease during 1995 is
primarily attributable to $436,651 used in operating activities and
$1,229,572 of cash used in investing activities partially offset by
$1,048,420 provided from financing activities.
Accounts receivable increased $41,827 to $51,391 at December 31, 1995 as
compared to $9,564 at December 25, 1994. This increase is primarily due to
a $39,577 receivable from the Mrs. Fields Franchisor associated with sales
from the Flint cookie store. Flint sales were deposited in the Mrs. Fields
Development Corporation bank account after the Company purchased the store
and before the bank account was opened.
The Company received $100,000 during 1995 from a landlord for tenant
improvements. This accounted for the change in the receivable from lessor
balance between December 31, 1995 and December 25, 1994.
The Company's inventory decreased $76,746 to $104,385 in 1995 compared to
$181,131 at December 25, 1994. The decrease reflects management's effort to
reduce inventory.
Prepaid expenses increased $53,683 to $55,823 at December 31, 1995 as
compared to $2,140 at December 25, 1994. This increase is primarily due to
prepaid insurance and prepaid rents associated with the restaurants.
The difference in the number of restaurants and cookie stores open at the
end of each year account for the increases in leasehold improvements and
equipment as well as an allowance for loss of $145,000 for an undeveloped
leased property which the Company no longer plans to develop. Leasehold
improvements increased $56,213 during 1995 to $1,063,628 at December 31,
1995 as compared to $1,007,415 at December 25, 1994. Equipment increased
$204,622 to $808,186 at December 31, 1995 compared to $603,564 at December
24, 1994.
Deposits increased $539,113 to $670,919 at December 31, 1995 as compared
to $131,806 at December 25, 1994. This increase is primarily due to amounts
advanced to an affiliate during 1995 of $554,048 for the purchase of cookie
stores which occurred on January 1, 1996.
21
<PAGE>
Franchise costs net of accumulated amortization were $452,868 at 1995
compared to $406,137 at December 25, 1994. The increase is primarily due to
franchise fees paid in 1995 partially offset by amortization.
Finance costs net of accumulated amortization decreased $72,493 to
$382,234 at December 31, 1995 from $454,727 at December 25, 1994 due to
amortization of offering costs related to the secured promissory notes sold
in 1994.
Goodwill increased to $324,673 at December 31, 1995 from zero at December
31, 1994. The Company has classified as goodwill the cost in excess of fair
value of the net assets of the cookie store acquired in 1995.
Accrued liabilities increased $96,778 to $264,360 at December 31, 1995
from $167,582 at December 25, 1994. This increase is primarily due to
liabilities related to additional restaurant and cookie store locations and
the preferred stock offering.
As of December 31, 1995, $1,266,000 of the Company's 10% convertible
preferred stock had been raised through a private placement.
Accumulated deficit was $1,822,785 at December 31, 1995 compared to
$880,673 at December 25, 1994. This increase is attributable to the
$942,112 net loss incurred for the fiscal year ended December 31, 1995.
Results of Operations-Year Ended December 25, 1994 (the Company had no
operations of significance prior to April 1994
The Company reported a net loss of $880,673 for the year ended December
25, 1994. Significant factors influencing the 1994 results of operations
included:
Restaurant sales were $2,501,273 for 1994. During 1994, one restaurant was
open for 37 weeks, another restaurant was open for 15 weeks, and a third
restaurant was open for 2 weeks. The Company had no revenues prior to April
11, 1994.
Cost of goods sold was $771,374 for 1994. Cost of goods sold is directly
related to restaurant sales (approximately 31% of sales in 1994).
Salaries and benefits were $615,021 for 1994. Salaries and benefits
commenced upon the opening of the first restaurant. Prior to the opening of
the Madison restaurant, all salaries were included in pre-opening costs
which were subsequently charged to income.
Pre-opening expenses are costs incurred in connection with the opening of
new locations and are expensed as incurred (See Note 8 to the December 31,
1995 consolidated financial statements). These costs include payroll,
hiring and training expenses, advertising and all other non-capitalized
costs incurred prior to the opening. Pre-opening costs were $551,802 in
1994 and included costs related to the opening of three restaurants.
Other restaurant operating costs were $726,459 in 1994. Other restaurant
operating expenses include occupancy costs, utility expense, advertising,
repairs and maintenance, etc.
General and administrative expenses were $264,361 in 1994. General and
administrative expenses, which consist of accounting related costs,
professional fees, travel, etc. are primarily a result of the Company's
infrastructure needed to support Restaurant operations and its expansion
strategy.
Interest income was $54,287 in 1994. Interest income is generated from
cash on deposit at various financial institutions.
Interest expense was $348,734 in 1994. The 1994 expense primarily
represents interest on the $3.7 million of 12% senior notes from the date
of issuance (April 1994).
Amortization of finance costs was $49,226 in 1994. The 1994 expense
represents amortization of costs related to the issuance of the $3.7
million of 12 % senior notes from the date of issuance (April 1994). These
costs are amortized to expense using a straight-line method over a
seven-year period coinciding with the life of the notes.
22
<PAGE>
Liquidity and Capital Resources
The following is a summary of the Company's cash flows for the forty
weeks ended October 6, 1996 and the fiscal years ended December 31, 1995 and
December 25, 1994:
52 Weeks
40 Weeks Ended
Ended
October 6, December 31, December 25,
1996 1995 1994
----------- ---------- --------------
Net cash (used in) operating
activities .................... $ (611,846) $ (436,651) $ (375,465)
Net cash (used in ) investing
activities .................... (157,409) (1,229,572) (1,889,823)
Net cash provided by financing
activities .................... 692,220 1,048,240 3,395,339
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents ......... $ (77,034) $(617,80) $ 1,130,051
=========== =========== ===========
The Company's cash position decreased $(77,034) during the forty weeks
ended October 6, 1996 due to cash used in operating activities of $611,846 and
cash used in investing activities of $157,409 partially offset by cash provided
by financing activities of $692,220. Investing activity consisted primarily of
capital expenditures of approximately $713,409 for the purchase and construction
of additional cookie stores partially offset by $556,000 of previous deposits
related to the purchase. Cash flows from financing activities were generated by
the issuance of preferred stock and capitalized leases.
The Company's cash position decreased $617,803 during the fiscal year
ended December 31, 1995 due to cash used in operating activities of $436,651 and
cash used in investing activities of $1,229,572 partially offset by cash
provided by financing activities of $1,048,420. Investing activity consisted
primarily of capital expenditures of approximately $791,000 for the purchase of
a Mrs. Fields Cookie Store and the opening of a Hooters Restaurant plus deposits
of $539,000 primarily for the future purchase of additional Mrs. Fields Cookie
Stores partially offset by the receipt of $100,000 from a landlord as
reimbursement for leasehold improvements in the prior year. Cash flows from
financing activities were generated primarily by the issuance of preferred
stock.
The Company's cash position increased $1,130,051 during the fiscal year
ended December 25, 1994 due to cash provided by financing activities of
$3,395,339 partially offset by cash used in operating activities of $375,465 and
cash used in investing activities of $1,889,823. Cash flows from financing
activities were generated by the issuance of secured promissory notes. Investing
activity consisted of capital expenditures of approximately $1,890,000 for the
opening of three Hooters Restaurants.
Future operations will be impacted by management's ability to improve
sales of existing locations and to add restaurant and cookie stores at locations
which maximize sales opportunities. To successfully achieve these results, it
will be necessary to generate capital from the sale of the Company's Common
Stock in order to have sufficient funds available to aggressively promote sales
at existing locations and acquire profitable new sites. With respect to existing
locations, it may be necessary to close those locations that do not generate
sufficient cash flows as was done at one location in October 1996. Assuming
management is successful in converting existing senior debt to equity and
selling additional Common Stock, there can be no assurance that the
profitability of existing locations can be improved and/or that profitable new
restaurant and cookie stores locations can be obtained.
The Company can operate with minimal or negative working capital. The
Company does not have significant accounts receivable or inventory and receives
several weeks of trade credit based on negotiated terms in purchasing food,
beverage and supplies. The majority of the Company's assets, principally
leaseholds, equipment, franchise fees, and other costs associated with the
opening of new sites, are long term in nature.
23
<PAGE>
The Company considers its operating losses to be related to its initial startup
and expansion into new markets and believes that as the Company gains experience
in each of its markets and locations operating losses will be diminished.
Accordingly, the Company considers its measurement of liquidity historically to
be in terms of cash flow available for operating activities and expansion.
The Company has financed its capital expenditures and operating cash
deficiencies primarily with the issue of secured promissory notes, the issue of
preferred stock, allowances received from landlords for restaurant remodeling
costs, and capitalized lease obligations. The Company has leased all of its
restaurant and cookie store locations. The Company's capital requirements relate
principally to the development and acquisition of new locations and, to a lesser
extent, the operations of existing locations.
Restaurant Closing
During the third quarter of 1996, the Company closed a Hooters
Restaurant and entered into an agreement to vacate the lease. Under the terms of
the agreement, the Company surrendered to the landlord all leasehold
improvements and equipment housed at the site and will pay the landlord $4,750
per month from August 1, 1996 through June 30, 2005. The Company accrued
$427,148 in the first quarter of 1996 and $450,000 in the second quarter of 1996
to provide $327,148 for the write-off of the net book value of the equipment,
building improvements, and franchise fee, $42,000 for miscellaneous expenses
associated with closing the store and vacating the lease and $508,000 for future
payments to the landlord.
Stock Split
In October 1996, the Company effected a 20,126 to 1 Common Stock split.
Sale of Common Stock
During August 1996, the Company issued 190,136 shares of Common Stock
to an independent investor for $130,000.
Acquisition of Cookie Crumbs, Inc.
In October 1996, the Company acquired for a nominal amount 100% of the
outstanding common stock of Cookie Crumbs, an Illinois corporation wholly owned
by an officer of the Company and an officer and owner of NEMC. Cookie Crumbs
operates six franchised Mrs. Fields Cookie Stores in Missouri and Michigan.
Since its inception in May 1995, Cookie Crumbs has financed its capital
requirements, which have consisted primarily of the acquisition of six
franchised Mrs. Fields Cookie Stores for approximately $1,300,000 from cash
flows provided from operations and by the issuance of participating redeemable
preferred stock (the "Cookie Crumbs Preferred Stock") for $1,488,252 net of
expenses.
The Cookie Crumbs Preferred Stock has no voting rights and a face value
of $1,690,000. Holders of the shares are entitled to receive, to the extent
declared by the board of directors of Cookie Crumbs, cumulative, non-compounded
10% (regular) dividends and non-cumulative participating dividends not to exceed
8%, equal in the aggregate to 10% of an amount equal to net income less regular
dividends. The Cookie Crumbs Preferred Stock dividends, both regular and
participating, rank senior to common stock dividends. As of the date of
acquisition there are no regular dividends in arrears.
Beginning in February 1998, the shares of Cookie Crumbs Preferred Stock
are redeemable in whole or in part at the option of Cookie Crumbs for an amount
equal to 103% of the face value of the shares plus all accrued and unpaid
dividends ("Liquidation Value"). Similarly, the shares are redeemable beginning
in February 1998, at the option of the shareholders during any fiscal year in
which Cookie Crumbs has net income in excess of required dividend distributions,
including cumulative unpaid regular dividends, for an amount equal to the
Liquidation Value thereof; provided, however, that Cookie Crumbs' obligation for
redemption shall be limited to 25% of its net income (adjusted as aforesaid) for
its prior year.
As of October 6, 1996, Cookie Crumbs had a stockholder's deficit of
$647,138. Accordingly, the Company will be unable to avail itself of the assets
and earnings (if any) of Cookie Crumbs via common stock dividend until the
stockholder's deficit is alleviated by the accumulation of Cookie Crumbs
earnings and all preferred stock regular dividend arrearages are paid. Further,
if Cookie Crumbs' future earnings are inadequate, the Company may be required to
advance funds for working capital and capital improvement needs.
24
<PAGE>
Secured Promissory Notes
On May 1, 1996 payment of interest on the Notes was suspended. Under
the terms of the Notes, failure to make scheduled interest payments is a
condition of default. Pursuant to the Exchange Offer , the Company offered to
exchange with its Note holders shares of the Company's Common Stock equal to the
sum of the face value of the Notes plus accrued interest plus a 20% premium
divided by the assumed public offering price of the Common Stock in this
Offering. Assuming all of the Note holders accept the Exchange Offer, 744,554
shares of Common Stock will be issued concurrently with the Units issued in this
Offering. Should the Exchange Offer not be consummated, the Notes will remain
outstanding.
Exchange and repayment of the Notes will relieve the Company of future
debt service requirements including interest, principal, and additional interest
equal to 5% of pretax profits. However, generally accepted accounting principles
require the Company to expense the previously unamortized finance costs related
to the Notes (estimated to be approximately $300,000) and the 20% premium to the
Note holders accepting the Exchange Offer (estimated to be $806,600).
Accordingly, these amounts will be expensed in the Company's first quarter
fiscal 1997 financial statements.
Bridge Financing
From October 1996 through December 1996, the Company issued an
aggregate of $483,000 in Bridge Loan Notes to finance costs associated with this
Offering. The Bridge Loan Notes bear interest at the LIBOR rate and are due upon
the earlier of nine months from issuance or the close of this Offering. The
Company will utilize the proceeds of this Offering to repay the Bridge Loan
Notes. See "Use of Proceeds."
The Company issued, as additional consideration to the Bridge Loan
lenders , warrants to acquire 91,000 shares of the Company's Common Stock to be
exercised and sold in conjunction with this Offering. In accordance with
generally accepted accounting principles, the fair market value of the stock
(estimated to be $591,500) will be expensed in the Company's financial
statements upon issuance assumed to be in the first quarter of 1997. The Company
has reserved three additional Units at $39,000 per Unit, for a total of $117,000
which represents 21,000 shares of Common Stock and 21,000 Series A Warrants.
Management believes that these Units will be sold prior to the close of this
Offering and the number of shares outstanding after this Offering and all
calculations with respect to per share data have been made with this assumption.
See "Selling Security Holders."
Net Operating Loss Carry Forwards
The Company's results are included in NEMC's consolidated tax return.
Intercorporate tax allocation practices adopted by the Company and NEMC provide
that the tax benefit of the Company's losses are reflected in the Company's
financial statements and will be paid to the Company by NEMC under the following
conditions: (a) NEMC has received the benefit of such losses on a consolidated
basis, (b) the Company would otherwise be entitled to such benefits if the
Company were filing a separate tax return and (c) the Company remains in the
consolidated tax group of NEMC.
As of October 6, 1996 the Company has generated net operating tax
losses of approximately $2,000,000 which have been or may be utilized by NEMC.
The public offering may cause NEMC to lose the tax benefit of approximately
$1,500,000 of losses generated by the Company, in which case, those losses will
be ineligible for use by the Company. In any event, concurrent with this
Offering, the Company will no longer be eligible for inclusion in NEMC's
consolidated tax return. Accordingly NEMC will be relieved of any previous
contingent obligation to pay the Company the tax benefit for any tax losses.
Therefore subsequent to this Offering, the Company will have no tax loss carry
forwards and will not be eligible for any amounts from NEMC related to previous
losses.
Going Concern
The ability of the Company to continue as a going concern is dependent
on several factors. The successful completion of this Offering is expected to
position the Company to continue as a going concern and to pursue its business
strategies.
As discussed above, the Company is currently in default of the
provisions of the Notes and unable to service the Notes in accordance with the
original terms. Further, the Bridge Loan Notes are subordinate to the Notes. If
this Offering is unsuccessful the Company will remain in default on the Notes
and in accordance with the default provisions be prohibited from repaying the
Bridge Loan Notes. In the event this Offering is unsuccessful the Company will
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<PAGE>
seek alternate sources of equity or attempt to refinance or renegotiate its debt
obligations or it may be required to seek protection from creditors under the
Federal Bankruptcy Code.
Future Liquidity and Capital Requirements
Management anticipates that subsequent to this Offering, cash flows
from operating activities will improve significantly due to: (a) a substantial
decrease in interest expense caused by the exchange and repayment of the Notes
discussed above, (b) improved results from a planned increase in advertising and
promotional activity in certain markets, (c) the addition of new locations, and
(d) the sale of locations whose operating results do not generate adequate
returns.
As indicated under "Use of Proceeds," the Company will utilize a
portion of the net proceeds of this Offering to continue expansion of the
Company's operations. The Company plans to expend approximately $4.2 million
annually to add additional franchise locations, existing or new, in each of the
next three years. The Company currently has no commitments for future capital
expenditures. Additional development and expansion will be financed through cash
flow from operations and other forms of financing such as the sale of additional
equity (including, potentially, Common Stock issued in connection with the
Underwriter's Warrants and the Series A Warrants offered hereby), debt
securities, capital leases, and other credit facilities. There can be no
assurances that such financing will be available on terms acceptable or
favorable to the Company.
Seasonality and Quarterly Results
The Company's Mrs. Fields Cookie Stores are located in regional
shopping malls and accordingly generally experience higher revenues and profits
during peak shopping months in the fourth quarter. The Company's Hooters
Restaurants are highly impacted by regional differences in weather, promotional
activity and tourist and convention traffic. The Company's quarterly results
have been, and are expected to continue to be, substantially affected by the
timing of new openings, in part due to the Company's policy of expensing
pre-opening costs. In addition, the first quarter includes 16 weeks of
operations, compared with 12 weeks for each of the last three quarters.
Consequently, quarter-to-quarter comparisons of the Company's results of
operations may not be meaningful, and results for any quarter are not
necessarily indicative of the actual results for a full fiscal year.
Impact of Inflation
The primary inflationary factors affecting the Company's operations
include food and beverage and labor costs. A large number of the Company's
personnel are paid at the federally established minimum wage level and,
accordingly, changes in such wage level affect the Company's labor costs. The
minimum wage was increased effective October 1, 1996. The Company estimates that
at the current level of operations the increase will increase wages $10,000 in
1996 and $30,000 in 1997. Although food and beverage price increases may offset
the effect of the minimum wage, there can be no assurance that this will be the
case. In addition most of the Company's leases require the Company to pay taxes,
repairs, and utilities, and these costs are subject to inflationary pressures.
The Company believes recent low inflation in its principal market areas have
contributed to stable food, beverage, and labor costs in recent years. There is
no assurance that low inflation will continue or that the Company will have the
ability to control costs in the future.
26
<PAGE>
COOKIE CRUMBS, INC.
Results of Operations:
The Forty Weeks Ended October 6, 1996 Compared to the period from May 17,
1995 (inception) to September 30, 1995
Results of operations for the forty weeks ending October 6, 1996,
reflect the results of seven cookie stores. The period from May 17, 1995
(inception) to September 30, 1995 reflect the results of operations for four
stores. Accordingly, the two periods are not comparable.
However, as a percent of sales, cost of products sold increased from
22.3% for the period from May 17, 1995 (inception) to September 30, 1995 to
25.6% for the forty weeks ended October 6, 1995. For the same periods, salaries
and benefits increased from 16.1% to 26.7% as a percent of sales and other
operating expenses increased from 24.4% to 37.9% as a percent of sales. These
increases primarily reflect:
Price increases for products sold without sales price increases
Replacement of store managers at increased salaries and the addition of a
regional manager
Rent and advertising expense increases
At the same time as additional cost and expenses were being incurred, increased
sales did not materialize.
Financial Condition at October 6, 1996 as Compared to December 31, 1995
Cash decreased $161,951 to $38,081 at October 6, 1996 from $200,032 at
December 31, 1995. As reflected in the Statement of Cash Flows this decrease is
primarily attributable to $176,823 used in investing activities and $86,767 used
in operating activities partially offset by $101,639 provided by financing
activities.
Accounts receivable decreased $15,039 to $4,306 at October 6, 1996 from
$19,345 at December 31, 1995. This decrease is primarily due to the repayment of
deposits by the Mrs. Fields Franchisor.
Assets available for sale decreased $673,362 to $62,500 at October 6, 1996
from $735,862 at December 31, 1995. This decrease is due to the sale of six
cookie stores to an affiliate effective January 1, 1996. See Note 10 to the
financial statements.
Leaseholds increased $137,451 to $454,335 at October 6, 1996 from $316,884.
This increase is primarily due to construction costs for a store opened in June
1996.
Equipment decreased $65,147 to $212,287 at October 6, 1996 from
$277,434 at December 31, 1995. This decrease is primarily attributable to the
sale of equipment for $94,532 related to the Minnesota stores sold in January,
1996. This is partially offset by the purchase of equipment for a new store of
$31,335.
Advances from affiliates decreased $554,048 to zero at October 6, 1996
from December 31, 1995. This decrease is due to the sale of six cookie stores on
January 1, 1996.
Accounts payable decreased $18,229 to $107,323 from $125,552 at
December 31, 1995. This decrease is primarily related to the sale of the six
cookie stores on January 1, 1996.
Accrued liabilities decreased $58,017 to $61,420 at October 6, 1996
from $119,437 at December 31, 1995. This decrease is primarily related to the
sale of the six cookie stores on January 1, 1996.
Note due sole stockholder increased to $100,000 at October 6, 1996 from
zero at December 31, 1995. This loan was used to fund construction costs related
to the opening of a new store opened in June 1996.
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<PAGE>
Capital lease obligation to be assumed decreased $89,705 to zero at
October 6, 1996 from December 31, 1995. This decrease is due to the sale of six
cookie stores on January 1, 1996.
As of October 6, 1996, $1,690,000 of the Cookie Crumbs Preferred Stock had
been raised through a private placement.
Results of Operations for the period from May 17, 1995 (inception) to
December 31, 1995
Thirteen Mrs. Fields Cookie Stores were acquired by the Company during
1995. Six Mrs. Fields Cookie Stores were in Missouri, six in Minnesota and one
in Michigan.
The Company reported a net loss of $125,164 for 1995. Significant factors
influencing the 1995 results of operations included:
Sales were $1,244,629 for 1995. During 1995 five Mrs. Fields Cookie Stores
were open for six months, one Mrs. Fields Cookie Store was open for four
months, six Mrs. Fields Cookie Stores were open for two and one-half months
and one Mrs. Fields Cookie Store was open for one-half month.
Cost of products sold was $320,588 for 1995. Cost of goods sold is directly
related to sales (approximately 26% of sales in 1995).
Salaries and benefits were $258,403 for 1995. Salaries and benefits
commenced upon the purchase of each Mrs. Fields Cookie Store and represent
the payroll expenses of the Mrs. Fields Cookie Store manager and hourly
employees.
Other operating expenses were $357,310 in 1995. Other operating expenses
include occupancy costs, utility expenses, advertising, repairs and
maintenance, etc. These costs are directly related to the number of Mrs.
Fields Cookie Stores open during the period and tend to be fixed in nature.
General and administrative expenses were $162,501 in 1995. General and
administrative expenses, which consist of accounting related costs,
professional fees, travel, etc. all primarily a result of the Company's
infrastructure needed to support operations.
Interest expense was $15,927 in 1995. The 1995 expense primarily represents
interest on the Company's capital lease.
Loss on expected sale of assets of $159,474 in 1995 represents the loss on
a Mrs. Fields Cookie Store in Missouri sold in 1996. At December 31, 1995,
leasehold improvements, equipment, franchise costs and goodwill all net of
depreciation and amortization aggregated $221,974 which exceeded the sales
price of $62,500.
Liquidity and Capital Resources
Since its inception in May 1995, Cookie Crumbs has financed its capital
requirements (primarily the acquisition of six franchised Mrs. Fields Cookie
Stores for approximately $1,300,000) from cash flows provided from operations
and by the issuance of the Cookie Crumbs Preferred Stock for $1,488,252 net of
expenses.
28
<PAGE>
The Cookie Crumbs Preferred Stock has no voting rights and a face value
of $1,690,000. Holders of the shares are entitled to receive to the extent
declared by the board of directors cumulative, non-compounded 10% (regular)
dividends and non-cumulative participating dividends not to exceed 8%, equal in
the aggregate to 10% of an amount equal to net income less regular dividends.
Dividends on the Cookie Crumbs Preferred Stock both regular and participating,
rank senior to common stock dividends. As of the date of acquisition there are
no regular dividends in arrears.
Beginning in February 1998, the shares are redeemable in whole or in
part at the option of Cookie Crumbs for an amount equal to 103% of the face
value of the shares plus all accrued and unpaid dividends ("Liquidation Value").
Similarly the shares are redeemable beginning in February 1998, at the option of
the shareholders during any fiscal year in which Cookie Crumbs has net income in
excess of required dividend distributions, including cumulative unpaid regular
dividends, for an amount equal to the Liquidation Value thereof; provided,
however, that Cookie Crumbs' obligation for redemption shall be limited to 25%
of its net income (adjusted as aforesaid) for its prior year.
In October 1996, the Company acquired, for a nominal amount, 100% of
the outstanding common stock of Cookie Crumbs. If Cookie Crumbs' future earnings
are inadequate, the Company may be required to advance funds for working capital
improvement needs.
29
<PAGE>
BUSINESS AND PROPERTIES
General
The Company is engaged in the ownership, operation and management of
franchised Hooters Restaurants and Mrs. Fields Cookie Stores. The Company
currently owns, operates and manages three Hooters Restaurants in Madison,
Wisconsin and San Diego, California and 13 Mrs. Fields Cookie Stores in
Missouri, Michigan and Minnesota.
The Company's Hooters Restaurants are franchised businesses which offer
casual dining using a limited, moderately priced menu that features chicken
wings, seafood, salads and sandwich type items. The Company's Mrs. Fields Cookie
Stores are franchised businesses which offer and sell a variety of specially
prepared food items including, but not limited to, cookies, brownies, muffins
and beverages. The Company develops and operates its Restaurants and Cookie
Stores pursuant to specified standards established by the franchisors. The
Company believes that the uniform development and operating standards of the
franchisors facilitate the efficiency of the Company's Hooters Restaurants and
Mrs. Fields Cookie Stores and afford the Company significant benefits, including
the brand-name recognition and goodwill associated with the franchisors.
The Company opened its first Hooters Restaurant in Madison, Wisconsin
in April 1994. The Company opened three additional Hooters Restaurants, all in
San Diego, California, between October 1994 and May 1995, one of which was
subsequently closed. In December 1995, the Company purchased an existing Mrs.
Fields Cookie Store in Flint, Michigan from the Mrs. Fields Franchisor and in
January 1996, acquired from an affiliate of the Company six additional
franchised Mrs. Fields Cookie Stores. In October 1996, the Company acquired 100%
of the common stock of Cookie Crumbs which owns six additional Mrs. Fields
Cookie Stores. Under its existing agreements with the Hooters Franchisor and the
Mrs. Fields Franchisor, the Company intends to negotiate to build additional
units in both concepts, and to acquire an unlimited number of new or existing
Mrs. Fields Cookie Stores.
The Company's objective is to develop or acquire a significant number
of franchised units in either or both concepts and to create economies of scale
in management, personnel and administration. To achieve this objective, the
Company's strategy will be to (i) capitalize on the brand-name recognition and
goodwill associated with the"Hooters" and "Mrs. Fields" names; (ii) expand the
Company's franchised operations through the development of additional franchised
units; and (iii) hire and train qualified management personnel at the
restaurant/store level to assure compliance with its franchise obligations,
continuity of management and efficiency of operations. Management of the Company
will also research other concepts which will become part of the future strategy
of the Company's ongoing plans for expansion.
THE HOOTERS RESTAURANTS
The Hooters Franchisor
The first Hooters restaurant was opened in Clearwater, Florida in
October 1983 by Hooters, Inc. ("Hooters Florida"). Hooters Florida operates ten
Hooters restaurants in Florida and Illinois. Hooters Florida owns certain
trademarks, service marks and other property, including the name. Pursuant to an
exclusive license agreement dated July 21, 1984 and subsequently amended with
Hooters Florida, the Hooters Franchisor has obtained the right to use on a
perpetual basis certain trademarks, service marks and other property in
connection with the operations of the Hooters restaurants and the "Hooters
System". The "Hooters System" features a distinctive exterior and interior
restaurant design, trade dress, decor and color scheme; uniform standards,
specifications and procedures for operations, procedures for quality control;
training and ongoing operational assistance, and advertising and promotional
programs. The Hooters Franchisor does not have any rights to develop Hooters
restaurants in the following areas which rights have been reserved by Hooters
Florida: Hillsborough, Pasco, Citrus, Hernando and Pinellas Counties, Florida,
and DuPage, Kane, Will, Lake, McHenry and Cook Counties, Illinois.
The Hooters Franchisor began franchising the sale of Hooters
restaurants in 1988. As of October 1996, there were 183 operating Hooters
restaurants, of which 126 are operated by franchisees and 57 are operated by the
Hooters Franchisor. During the three year period ended December 31, 1996, 6
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franchises were reacquired by the Hooters Franchisor and were canceled or
terminated by the Hooters Franchisor.
The Hooters Restaurants
General. The Company's Hooters Restaurants offer casual dining using a
limited, moderately-priced menu that features chicken wings, seafood, salads,
and sandwich type items. Although the Company's Hooters Restaurants attract a
variety of patrons, the concept of the restaurant is targeted toward young
working and professional people interested in a beach or neighborhood restaurant
atmosphere.
Design and Layout. The exterior of the Hooters Restaurants developed by
the Company are of a rustic design trimmed with Christmas lights. The Company's
restaurants are located in highly visible and high-traffic commercial areas and
in outdoor "strip mall" locations. The size of the Company's Hooters Restaurants
range from 4,500 to 6,500 square feet. The interior features a 1950s-style
jukebox, business advertising signs, highway-style signs, sports memorabilia
from local or area teams and an open-view grill/food preparation area. The
female waitstaff serves customers wearing cutoff T-shirts, tank tops and orange
jogging shorts. The dining and bar areas seat generally between 140 and 200
people depending upon the size of the restaurant and the layout is flexible,
permitting tables to be rearranged to accommodate customer demand. To complement
the overall design and dining experience, certain of the Company's Hooters
Restaurants provide separate areas with pool tables and outdoor seating.
Television sets throughout the bar area allow customers to watch sporting and
other special events.
Menu and Pricing. The typical menu items in the Company's Hooters
Restaurants include chicken wings, hamburgers, chicken sandwiches, grilled ham
and cheese sandwiches, Philly cheesesteak sandwiches, steak sandwiches, hot
dogs, garden salads, chicken crab legs, oyster roasts, steamed clams, fish
sandwiches, clam chowder, chili and raw oysters. Alcoholic beverages are limited
to beer, wine and champagne.
The average menu prices are $5.50 for sandwiches, $5.25 for 10 chicken
wings, $5.00 for salads and $10.00 for seafood items.
Customers. The Company believes that its Hooters Restaurants generally
appeal to a wide range of customers from throughout the metropolitan areas where
the Restaurants are located. However, the concept of the Restaurant targets
young working and professional people interested in a beach or neighborhood
restaurant atmosphere. The Restaurants compete for customers with casual dining
restaurants operated independently and by national, regional and local chains,
particularly those featuring female sex appeal. The Company's Restaurants are
typically open every day during the hours from 11:00 a.m. to 12:00 midnight
Monday through Thursday, 11:00 a.m. to 1:00 a.m. Friday and Saturday and from
12:00 p.m. to 10:00 p.m. on Sundays, except Thanksgiving and Christmas.
Sales and Marketing. Pursuant to the Company's franchise agreements
with the Hooters Franchisor, the Company is obligated to spend during the term
of the franchise agreements, three percent (3%) of "gross sales" from each
Restaurant on local advertising and promotion endeavors. "Gross sales" includes
all revenue (other than revenues from any sales taxes or other add on taxes
collected from customers) from the sale of all products and performance of
services at each Restaurant, including insurance proceeds and/or condemnation
awards for loss of sales, profit or business. In addition to spending three
percent on marketing, the Company is required to contribute one percent (1%) of
"gross sales" of each of its Hooters Restaurants to a national advertising fund
established by the Hooters Franchisor for advertising and promotion of Hooters
restaurants. This fund is used to maximize general public recognition of the
Hooters name.
Generally, each of the Company's Hooters Restaurant is staffed with one
full-time promotions manager who directs the local marketing effort for that
Restaurant. Local marketing consists of a combination of radio and newspaper
advertisements, billboard displays, charity and sports events and local
promotions.
The Company's Hooters Restaurants have a section located near the
entrance which sells merchandise, including "T-shirts," sweat shirts, baseball
caps and other casual clothing bearing the Hooters logo.
Site Selection and Location. The Company has located and seeks new
locations for its Hooters Restaurants in visible, high-traffic sites in
metropolitan areas. The Company currently operates one Hooters Restaurant in
Madison, Wisconsin (the "Madison Restaurant") and two in San Diego County,
California (the "Gaslamp Restaurant" and "the Mission Valley Restaurant"). There
can be no assurance, however, that the Company will be able to identify suitable
restaurant sites, obtain leases on acceptable terms or open new restaurants with
the permission of the Hooters Franchisor in the future. Generally, each lease
entered into by the Company will be conditioned upon the ability of the Company
to obtain the permits and licenses necessary to operate the restaurant
identified for such site.
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Site selection for Hooters Restaurants is made by the Company's senior
management, subject to the approval of the Hooters Franchisor and Hooters
Florida. Once a particular area within the Company's territory has been
identified and agreed upon by senior management of the Company, real estate
brokers and agents are engaged to assist senior management in locating specific
sites. Factors such as local market demographics, including population density,
age range, median household income and median home prices are considered. In
addition to analyzing demographic information for each prospective site,
management considers factors such as visibility, traffic patterns,
accessibility, proximity of shopping areas, office parks and tourist
attractions, availability of parking and the area's restaurant competition.
Because Hooters restaurants can be adapted to a variety of sizes, management can
be selective in choosing building types and locations.
Restaurant Locations and Expansion Plans
The Company currently operates three Hooters Restaurants. After the
date of this Prospectus and during 1997, the Company expects to enter into
negotiations with the Hooters Franchisor regarding the development of additional
Hooters Restaurants. Under existing agreements with the Hooters Franchisor,
options to develop additional Hooters Restaurants have lapsed. However, the
Company is negotiating with the Hooters Franchisor to identify and develop
suitable locations for new Hooters Restaurants and has paid an additional
franchise fee to develop a Hooters Restaurant in Milwaukee, Wisconsin. See "Risk
Factors - Rights to Open Additional Hooters Restaurants and Mrs. Fields Cookie
Stores" and " - Hooters Franchise Agreements."
The following table sets forth data regarding the Company's
existing restaurant locations.
<TABLE>
<S> <C> <C> <C> <C>
============================= ----------------- --------------------- ------------------- ==================
Restaurant Opening Date Annual Basic Rent Approximate Lease
Square Feet Expiration(3)
============================= ----------------- --------------------- ------------------- ==================
Madison Restaurant(1) April 1994 $42,497 increasing 6,500 sq. ft. October 2003
6654 Mineral Point Road to $59,496.
Madison, Wisconsin 53705
============================= ----------------- --------------------- ------------------- ==================
Gaslamp Restaurant(2) September 1994 $90,000 increasing 6,600 sq. ft. September 1999
410 Market Street to $105,288.
San Diego, California 92101
============================= ----------------- --------------------- ------------------- ==================
Mission Valley Restaurant(2) December 1994 $86,580 subject to 5,550 sq. ft. November 1999
1400 Cimo De La Reina increase based on
San Diego, California 92108 CPI adjustment.
============================= ================= ===================== =================== ==================
</TABLE>
(1) The lessee of this Restaurant is Butterwings of Wisconsin, Inc., a
wholly-owned subsidiary of the Company.
(2) The lessee of these Restaurants is Butterwings of California, Inc., a
wholly-owned subsidiary of the Company. The lease agreement for the Gaslamp
Restaurant is guaranteed by New Era Management Corporation, the principal
shareholder of the Company.
(3) Does not include renewal options. See "Business - Properties."
Restaurant Economics. The major sources of revenue from the operations
of the Company's Hooters Restaurants are from food and beverage sales. The
Company also realizes revenue from the sale of merchandise, including T-shirts.
For the 28 weeks ended July 14, 1996, food contributed approximately 64% to
gross sales; beverages contributed approximately 28% to gross sales; and
merchandise contributed approximately 8% to gross sales. The gross profit
percentages on food sales, beverage sales and merchandise sales were
approximately 72%, 75% and 40% respectively, during the same period.
The costs of developing and opening the Company's four Hooters
Restaurants have ranged from $823,308 for the El Cajon Restaurant (which was
closed in September 1996) to $956,413 for the Gaslamp Restaurant, exclusive of
allowances for tenant improvements which were paid by the landlords under
particular lease agreements.
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Restaurant Operations and Management
Each of the Company's Hooters Restaurants employs approximately 35-50
part-time female waitstaff who serve food and beverage and approximately 10-20
part-time kitchen staff who are responsible for all food preparation.
Generally, each of the Company's Hooters Restaurants is managed by the
following persons: a general manager, assistant managers, kitchen managers and
promotions managers. The general manager oversees all operational and
administrative aspects of the Company's Hooters Restaurant including food and
beverage service, food preparation and promotions. The general manager also
supervises the kitchen manager, assistant manager and promotions manager.
Currently, the Company's general managers are employees promoted from assistant
general manager positions who generally have had other restaurant experience.
The Company provides management training through classroom seminars sponsored by
the Hooters Franchisor or through an in-store "on the job" training program.
The assistant manager is responsible for customer service, inventory
control, preparation of necessary reports and forms, maintenance and cleaning of
equipment, scheduling labor and compliance with federal wage and labor laws.
Generally, the assistant managers hired by the Company have prior restaurant or
retail experience.
The kitchen manager is responsible for supervising all food preparation
by the kitchen staff. The kitchen manager's duty is to ensure that the methods
of food preparation, weight and dimensions of products served and standards of
cleanliness, health and sanitation conform to the franchisor's standards and
specifications as well as in accordance with all applicable health standards.
The promotions manager's duty is to create and conduct marketing,
advertising and promotional campaigns to promote and exemplify the Hooters
concept. The promotions manager is responsible for preparing promotional
budgets, conducting promotional training sessions, organizing and overseeing the
merchandising of promotional items sold at a Hooters Restaurant. The promotions
manager is also responsible for making direct sales calls, attending community
meetings and meeting with the media.
Purchasing Operations
The Company's management negotiates directly with suppliers for key
food and beverage products to assure uniform quality and freshness of food
products in its restaurants, and to obtain competitive prices. Food products and
related supplies used by the Company's restaurants are purchased from specified
food producers, independent wholesale food distributors and manufacturers. See
"-Products, Inventory and Equipment."
Competition
The restaurant industry is highly competitive. The Company's Hooters
Restaurants compete with other casual dining restaurants and with restaurants
and bars featuring female sex appeal on the basis of service, quality and
atmosphere, among other factors. Various casual dining restaurants which have
established name brand recognition and revolve around themes, include, among
others: Lone Star Steakhouse & Saloon, Hard Rock Cafe, TGIFridays, Bennigans,
Planet Hollywood, Houlihans and Outback Steakhouse. Many competitors for the
Company's Hooters Restaurants are well established and have substantially
greater financial and other resources than does the Company. The Company's
Hooters Restaurants operate in the casual dining segment of the restaurant
industry. Casual dining generally refers to a type of restaurant that falls in
between fast-food and fine dining establishments and typically feature a full
range of moderately priced foods and full waiter and bar service.
The restaurant industry generally is affected by changes in consumer
tastes, national, regional or local economic conditions, demographic trends,
traffic patterns and the type, number and location of competing restaurants. The
Company believes its ability to compete effectively will continue to depend upon
its ability to offer high quality menu items with superior service in
distinctive dining environments. See "Risk Factors Risks of Business."
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<PAGE>
Government Regulations
Approximately 30% of revenues of the Company's Hooters Restaurants are
derived from the sale of beer and wine. The Company is required to operate in
compliance with federal licensing requirements imposed by the Bureau of Alcohol,
Tobacco and Firearms of the United States Department of Treasury, as well as the
licensing requirements of states and municipalities where its restaurants are
located. Failure to comply with federal, state or local regulations could cause
the Company's licenses to be revoked and force it to cease the sale of alcoholic
beverages at its restaurants. Typically licenses must be renewed annually and
may be revoked or suspended for cause at any time. While the Company has not
experienced and does not anticipate any significant problems in obtaining
required licenses, permits or approvals, any difficulties, delays or failures in
obtaining such required licenses, permits or approvals could delay or prevent
the opening by the Company of a Hooters Restaurant in a particular area. In
addition, changes in legislation, regulations or administrative interpretation
of liquor laws after the opening of a Hooters Restaurant in a jurisdiction may
prevent or hinder the Company's expansion or operations in that jurisdiction.
Management believes the Company is operating in substantial compliance with
applicable laws and regulations governing its operations. Additionally, the
Company may be subject in certain states to "dram-shop" statutes, which
generally provide a person who is injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic beverages
to the intoxicated person. The Company carries liquor liability insurance as
part of its comprehensive general liability insurance in all states in which it
operates.
The restaurant and fast food industry is subject to numerous federal,
state and local government regulations, including those relating to the
preparation and sale of food and to building and zoning requirements. The
Company is subject to regulation by air and water pollution control divisions of
the environmental protection agencies of the United States and by the various
states and municipalities in which its Restaurants are or will be located. The
Company is also subject to laws governing its relationship with employees,
including minimum wage requirements, overtime, working and safety conditions and
citizenship requirements. Restaurant operating costs are affected by increases
in the minimum hourly wage, unemployment tax rates, sales taxes and similar
matters, such as any government mandated health insurance, over which the
Company has no control. Management believes the Company is operating in
substantial compliance with applicable laws and regulations governing its
operations. See "Business - Government Regulations."
Employees
In connection with its Hooters Restaurants, the Company employs
approximately 141 persons, of which 12 are full-time and 129 are part-time. The
Company believes that relations with its employees are good.
Insurance and Indemnification
The Company's franchise agreements with the Hooters Franchisor and the
lease agreements for the Restaurants require the Company to procure and maintain
an insurance policy insuring against any demand or claim with respect to
personal injury, death or property damage or any loss, liability, or expense
whatsoever arising or occurring upon or in connection with the restaurants in
amounts as specified in the franchise agreements and the lease agreements. In
addition, the Company is obligated to indemnify and hold harmless the Hooters
Franchisor, Hooters Florida, its corporate affiliates, successors and assigns
and the respective directors, officers, employees, agents and representatives of
each from all losses and expenses incurred in connection with any suit, action
or claim arising out of the Company's renovation, management and operation of
the Restaurants. The Company currently retains a $2,000,000 liability policy
with a $5,000,000 umbrella for claims for personal injury and blanket insurance
of $1,392,500 for property damage. The Company also maintains workers
compensation insurance of $500,000 per accident, business interruption insurance
of $600,000 and theft insurance of $100,000. The Company maintains insurance
that it believes is adequate to cover its liabilities and risks.
Products, Inventory and Equipment
The Company is obligated to prepare and offer to patrons certain menu
items prepared and sold by Eastern Foods, Inc., a company which is affiliated
with the Hooters Franchisor. These items include certain salad dressings, the
breading mix for the chicken wings, and the dipping sauce served with the
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chicken wings at the Company' Restaurants. The Company has the option of either
purchasing these items from Eastern Foods, Inc. or preparing and making the
items according to the confidential recipes provided by the Hooters Franchisor.
Certain novelty items, such as Hooters waitress dolls and Hooters
calendars, may only be purchased from Hooters Florida or a licensee. A
subsidiary of the Hooters Franchisor, Hooters Magazine, Inc., publishes Hooters
Magazine. The Company may sell the magazine at its Hooters Restaurants. There
are no alternative sources of supply for these merchandise items and the
magazine. Due to exclusive distribution rights of certain beer distributors, all
beer must be purchased from particular suppliers depending on the location of a
particular Hooters Restaurant.
Pursuant to the Company's franchise agreements with the Hooters
Franchisor, the Company is required to maintain in sufficient supply, and use at
all times, only such products, materials and supplies as conform to the Hooters
Franchisor's standards and specifications. In addition, the Hooters Franchisor
will have the right to require that certain equipment, fixtures, non-food
inventory, furnishings, signs, supplies and other products and materials be
purchased from suppliers approved by the Hooters Franchisor. Any purchases of
products from an unapproved supplier is subject to the written consent of the
Hooters Franchisor.
Inventory consists of food, beverages, merchandise and paper products.
In accordance with its franchise agreements with the Hooters Franchisor, the
Company is required to maintain an inventory level sufficient to operate the
Hooters Restaurants at full capacity. Food and supplies are shipped directly to
the Hooters Restaurants. The Company does not maintain a central product
warehouse. The Company believes that alternative sources of inventory items are
available (subject to approval by the Hooters Franchisor) if the Company's
current suppliers are unable to provide adequate quantities of such items. The
Company has not experienced any significant delays in receiving any inventory
items.
Administrative and Accounting Systems
All of the Company's Hooters Restaurants use Panasonic 7500 point of
sale machines. The Panasonic register is widely used in the restaurant industry
and is used and recommended by the Hooters Franchisor. The operational features
of this machine include programmable keyboard with preset pricing, precheck and
bar workstations, unique employee numbers for ringing sales, keylock security,
check tracking and comprehensive reporting (time and attendance reporting, sales
reporting, etc.) The data collected by the register is transmitted daily to the
Company's corporate offices via a modem and prepackaged polling software called
PanPoll. The information polled (sales and hours data) is distributed to
management for review and analysis.
The Company's Hooters Restaurants are supported by a centralized
accounts payable, payroll and accounting department. The Company operates on a
personal computer network and utilizes a variety of prepackaged software
packages. The Company uses the General Ledger and Accounts Payable modules of a
package called MAS90. The Company's fixed assets are maintained by a software
package called BNA and investor related data is tracked by Equinet. Payroll is
prepared by the corporate offices and is processed by an independent payroll
service. The Company also uses Lotus, WordPerfect, Excel and Word. NEMC provides
accounting services to the Company for a monthly fee. See "Certain Relationships
and Related Transactions" and "Note 7 to Consolidated Financial Statements."
Hooters Franchise Agreements
Butterwings/Wisconsin entered into a franchise agreement dated October
31, 1993 pursuant to which Butterwings/Wisconsin was granted the exclusive right
to operate a Hooters Restaurant in Madison, Wisconsin. The Butterwings/Wisconsin
franchise agreement is guaranteed by the Company. Butterwings/Wisconsin entered
into an option addendum to the franchise agreement dated October 31, 1993
pursuant to which Butterwings/Wisconsin was granted exclusive options to
establish and operate four additional Hooters Restaurants in the cities of
Madison and Milwaukee, Wisconsin. The options to develop and open additional
Hooters Restaurants in this territory required that the Company have all
additional Hooters Restaurants open by July, 1996.
Butterwings/California entered into a franchise agreement dated October
31, 1993 pursuant to which Butterwings/California was granted the exclusive
right to operate a Hooters Restaurant in San Diego County. The
Butterwings/California franchise agreement is guaranteed by the Company.
Butterwings/California entered into an option addendum to the franchise
agreement dated October 31, 1993 pursuant to which Butterwings/California was
granted exclusive options to establish and operate nine additional Hooters
Restaurants in San Diego County, two of which have been exercised. In October
1995, the option addendum was modified at the request of the Company to reduce
the option to establish and operate Hooters Restaurants in San Diego County by
three. The option to develop and open the remaining four Hooters Restaurants
requires that the Company have all additional Restaurants in the territory open
by July 31, 1996.
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The Company has been unable to complete the development of additional
Hooters Restaurants within the time frames set forth in the option addenda to
the Hooters franchise agreements. According to the terms of such option addenda,
the Company's options to develop additional Hooters Restaurants have therefor
lapsed. However, the Company has notified the Hooters Franchisor that the
Company is proceeding in good faith to identify suitable locations which are
acceptable to the Hooters Franchisor and to develop and open the Restaurants in
a timely manner and has paid an additional franchise fee to develop a Hooters
Restaurant in Milwaukee, Wisconsin. Nevertheless, the Hooters Franchisor has the
right under the franchise agreements to terminate the Company's options to
develop additional Hooters Restaurants and there is no assurance that the
Hooters Franchisor will not take such action. If the Company is unable to
develop additional Hooters Restaurants, the Company' will be dependent on the
operations of its existing Hooters Restaurants and present and future Mrs.
Fields Cookie Stores owned and to be developed by the Company. See "Risk Factors
- - Rights to Open Additional Restaurants and Cookie Stores."
Franchise and Royalty Fees
Pursuant to its franchise agreements with the Hooters Franchisor, the
Company has paid franchise fees in the amount of $75,000 for each of five
Hooters Restaurants (including one Restaurant in Milwaukee, Wisconsin for which
a suitable site has not yet been located) for a total of $375,000. The Company
has also paid $70,000 to secure option rights to develop seven additional
Hooters Restaurants in its Madison and Milwaukee, Wisconsin and San Diego,
California territories. Option fees may be retained by the Hooters Franchisor in
the event the Company's rights under the option addenda are terminated. See
"Note 12 to Consolidated Financial Statements."
During the term of each franchise agreement, the Company is required to
pay monthly to the Hooters Franchisor a continuing royalty fee of six percent
(6%) of the "gross sales" of each of its Hooters Restaurant. "Gross sales"
includes all revenue (other than revenues from any sales taxes or other add on
taxes collected from customers) from the sale of all products and performance of
services at each restaurant including insurance proceeds and/or condemnation
awards for loss of sales, profits or business. See "Summary of Hooters Franchise
Agreements."
Properties
Butterwings/Wisconsin has entered into a lease agreement for its
Hooters Restaurant in Madison, Wisconsin under a noncancelable 10-year lease
expiring October 31, 2003. Butterwings/Wisconsin has the option at the end of
the initial lease term to extend the lease for two additional 5-year periods.
The lease contains escalation clauses which provide for increases in base rental
to cover increases in future operating costs. In connection with the rental of
this property an irrevocable letter of credit in the amount of $83,000 has been
issued by a financial institution on behalf of Butterwings/Wisconsin securing
payment of future rents. The letter of credit is collateralized by an
interest-bearing deposit in the amount of $83,000.
Butterwings/California has entered into a lease agreement for the
Hooters Gaslamp Restaurant in San Diego, California under a noncancelable 5-year
lease expiring September 30, 1999, with the option to extend the lease for three
additional 5-year periods. The initial lease term commenced in September 1994
upon the opening of the Restaurant. The lease agreement has been guaranteed by
NEMC, a principal shareholder of the Company.
Butterwings/California has also entered into a lease agreement for the
Hooters Mission Valley Restaurant in San Diego, California under a noncancelable
5-year lease expiring November 30, 1999, with the option to extend the lease for
three additional 5-year periods. The initial lease term commenced December 1994
upon the opening of the Hooters Restaurant.
Butterwings/California has also entered into a lease agreement for its
Hooters El Cajon Restaurant in San Diego, California under a noncancelable
10-year lease with the option to extend the lease for two additional 5-year
periods. The initial lease term commenced April 1995 and is guaranteed by NEMC.
In September 1996, the Company closed the El Cajon Restaurant and entered into
an agreement whereby the leasehold improvements and equipment were surrendered
to the landlord and the Company is obligated to pay the landlord $4,750 per
month from August 1, 1996 to June 20, 2005. See Note 12 to Consolidated
Financial Statements.
Effective April 1, 1995, Butterwings/California assumed a land lease
for an additional Hooters Restaurant to be located in Oceanside, California. The
remaining lease term is for 72 years with the option to extend for two
additional five year periods. The right to utilize an existing building located
at the site was also acquired by the Company at a cost of approximately $75,000.
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In November 1995, the Company decided not to develop this property and in
September 1996 entered into a sublease agreement whereby the subleasee will pay
substantially all amounts due under the original lease. However, under certain
conditions, the subleasee can terminate the lease in September 1998, causing the
Company to be liable for the remaining rentals through September 2003, equal to
$311,040. See Note 10 to Consolidated Financial Statements.
The Company utilizes the offices of New Era Funding Corp. ("NEFC"), an
affiliated entity, in Hoffman Estates, Illinois. The Company has been paying
rent to NEFC of $5,300 per month. The property is owned by a limited
partnership, the general partner of which is an entity controlled by Messrs.
Buckley, Van Scoy and Drost, executive officers of the Company.
Litigation
The Company in the past has been the subject of several charges of
employment discrimination or sexual harassment suits in administrative
proceedings in the Milwaukee, Wisconsin and San Diego, California offices of the
Equal Employment Opportunity Commission (the "EEOC"). In April 1996, the
Milwaukee office of the EEOC advised the Company that it had determined that it
would not bring a civil action against the Company arising out of a charge of
employment discrimination brought by a male person alleging he had been denied
employment as a "Hooters Girl" in violation of Title VII of the Civil Rights Act
of 1964 ("Title VII") on the basis of his sex but that the complainant had the
right to bring such an action in the United States District Court within 90
days. At the date hereof, the Company has not received notice that any suit has
been filed and management believes that the threat of litigation in this matter
is past.
In March 1996, the San Diego office of the EEOC advised the Company
that the complainant in a similar charge failed to establish a claim but that
the hiring practices of one of the Company's San Diego Restaurants, insofar as
they required that only females be hired for "Hooters Girl" positions, were
violative of Title VII. The Company does not believe that this constitutes a
significant threat of litigation in light of the position taken by the EEOC in
the federal matter discussed below. The Company was also charged in a May 1995
proceeding brought with the Equal Opportunities Commission ("EOC") of Madison,
Wisconsin by a former employee alleging sexual harassment, hostile work
environment and termination on the basis of sex and retaliation for complaints
against sexual harassment. The Company advised the EOC that it declined to
participate in the administrative process unless the complainant waived her
right to sue in federal court because the law firm representing the complainant
had filed an earlier charge on behalf of a waitress at the same Restaurant and
as soon as the 180 day waiting period had expired filed suit in federal court.
At the date hereof no decision in this matter has been rendered and the Company
is unable to predict its outcome but intends to defend its position vigorously.
The Company is currently a defendant in a civil action in the United
States District Court for the Western District of Wisconsin filed in May 1996 in
a case alleging discrimination against a female employee on the basis of her
sex, for unlawful retaliation and for punitive damages and restoration to her
former position as a waitress. The Hooters Franchisor was subsequently named as
an additional defendant claiming that the Hooters Franchisor employed the
plaintiff. The case is still in the discovery stage and the Company is unable to
predict the outcome of this matter.
In October 1991, the EEOC filed a charge of employment discrimination
against the Hooters Franchisor and all related business entitles generally
referred to as the Hooters restaurant system (collectively "Hooters") including
franchisees, licensees, and any other entity permitted to operate under the
Hooters trademark with unlawful employment practices under Title VII. In
September 1994, the EEOC issued a decision that there was reasonable cause to
believe that Hooters engaged in employment discrimination for failing to
recruit, hire or assign men into server, bartender or host positions. However,
in March 1996, the EEOC advised that the EEOC's general counsel would not
recommend that the EEOC file a lawsuit against Hooters and that this procedure
terminated the EEOC's consideration of litigation against Hooters to challenge
its policies. Accordingly, the Company believes that the likelihood of EEOC
action regarding these policies is remote. However, in the event litigation is
commenced by the EEOC and the EEOC implements its earlier decision, the Company
may be required to implement a gender neutral hiring policy and to pay money
damages to men who were previously discriminated against by Hooter's hiring
practices, the effect of which could have a substantial adverse impact on the
Company's business.
In December 1993, a lawsuit was filed against Hooters, Inc. and Hooters
of Orland Park, Inc. in the United States District Court for the Northern
District of Illinois alleging Hooters "nation wide policy" of refusing to
recruit, hire, or assign men into server, bartender or host positions violates
Title VII. The plaintiff seeks certification of a plaintiffs' class consisting
of all males who, since April 1992, have applied, were deterred from applying,
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or may in the future apply for server, bartender or host positions at any
Hooters Restaurant and for certification of defendant class consisting of all
owners of Hooters Restaurants, licensed, sublicensed or whose hiring practices
are determined directly or indirectly by Hooters or its affiliates. As of the
date hereof, neither the Company nor any of its affiliates has been served with
any notice that a defendant class which includes any of them has been certified.
Accordingly ,the Company is unable to predict the outcome of this matter.
However, in the event that a defendant class including the Company or any of its
affiliates is certified, the Company may be required to implement a gender
neutral hiring policy and to pay money damages to persons who were previously
found to have been discriminated against because of Hooters hiring practices,
the effect of both of which could have a substantial adverse impact on the
business of the Company.
THE MRS. FIELDS COOKIE STORES
The Company's Mrs. Fields Cookie Stores are franchised businesses which
offer and sell a variety of specially prepared food items including, but not
limited to, cookies, brownies, muffins and beverages. The Company's Mrs. Fields
Cookies Stores feature a distinctive exterior and interior store design, trade
dress; decor and color scheme; uniform standards, specifications and procedures
for operations; procedures for quality control; training and ongoing operational
assistance; advertising and promotional programs. Each store location contains
approximately 800 square feet with red and white decor. Food items range in
price from between $1.50 and $4.00. Each store is typically open every day with
hours depending on the particular location. Each store generally has limited
seating capacity and employs between two and three full-time employees and
between four and five part-time employees.
The Mrs. Fields Franchisor
The Mrs. Fields Franchisor does not directly own or operate any Mrs. Fields
cookies stores and began franchising businesses of the type operated by the
Company in January, 1991. Mrs. Fields Cookies ("MFC") or an affiliate of the
Mrs. Fields Franchisor, has operated Mrs. Fields cookie stores since 1977. As of
October 1, 1996, MFC owned a total of 978 Mrs. Fields cookies stores. Mrs.
Fields, Inc. ("MFI"), the sole shareholder of the Mrs. Fields Franchisor, has
entered into various agreements licensing third parties to market the Products
(as defined below) and other products and services using the Marks (as defined
below).
The Mrs. Fields Franchisor owns certain Marks (defined below) used in
connection with the licensing and franchising of specialty retail dessert and
snack food outlets developed by MFI and its affiliates, which offer and sell a
variety of specially prepared food items, such as, but not limited to, cookies,
brownies, muffins and beverages (the "Products"). These dessert and snack food
outlets are known as "Mrs. Fields Cookies Stores" and include stores operated in
a cookie cart or kiosk format. The Mrs. Fields Franchisor grants franchises to
certain qualified persons ("Mrs. Fields Franchisees") for the establishment and
operation of Mrs. Fields Cookies Stores. In connection with these activities,
the Mrs. Fields Franchisor authorizes Mrs. Fields Franchisees to use the
distinctive business formats, systems, methods, procedures, designs, layouts and
specifications (all of which may be improved, further developed or otherwise
modified from time to time) under which Mrs. Fields Cookies Stores operate (the
"System"), as well as certain trade names, trade and service marks, slogans and
commercial symbols, including the trade and service marks "Mrs. Fields" and
"Mrs. Fields Cookies" with which Mrs. Fields Cookies Stores are associated (the
"Marks"). The Mrs. Fields Franchisor offers and sells to qualified persons a
franchise to own and operate a Mrs. Fields cookie store.
Persons interested in acquiring a franchise for a cookie store and the
assets of an existing Mrs. Fields cookie store typically will sign a reservation
letter, reserving the right to purchase the assets of a specific store for a
particular price and agreeing to pay the Mrs. Fields Franchisor a processing fee
of $1,000 per store. Persons interested in acquiring a franchise for a new store
typically will sign a reservation letter agreeing to pay the Mrs. Fields
Franchisor a processing fee of $1,000 per store.
Development of the Cookie Stores
Under the terms of the franchise agreement, the Mrs. Fields Franchisor
provides advice to the Company in locating potential sites for its future Mrs.
Fields Cookie Stores. The final site selection will be subject to the approval
of the Mrs. Fields Franchisor. According to estimates provided by the Mrs.
Fields Franchisor, the initial investment for a cookie store franchise,
including the initial franchise fee, working capital, leasehold improvements,
signs, fixtures, equipment, insurance, inventory and training, but exclusive of
real estate costs, ranges from $161,000 to $270,000; however, the Mrs. Fields
Franchisor cautions that it is not possible to provide an accurate estimate due
to the many variables involved. The costs may be significantly higher in the
event the assets of an existing cookie store are acquired
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from the Mrs. Fields Franchisor. The following is a breakdown of the estimated
costs on a per store basis:
Initial Franchise Fee $15,000 - $25,000
Real Estate Not Determinable Due
to Variables
Fixed Assets, Construction Remodeling,
Leasehold Improvements, Fixtures
and Equipment $125,000 -$200,000
Investment Required to Commence
Operations including opening inventory $10,000 - $15,000
Security Deposits and Prepaid Expenses $1,000 - $10,000
Working Capital $10,000 - $20,000
Total Estimated Initial Investment $161,000 - $270,000
Development Option
In August 1995, Cookie Crumbs, a wholly-owned subsidiary of the
Company, acquired from the Mrs. Fields Franchisor certain exclusive rights for
the development of five Mrs. Fields Cookie Stores in the state of New Mexico for
$100,000, of which $25,000 was designated to be for the purchase of the
territorial rights as determined by the Mrs. Fields Franchisor and $75,000 was
designated to be for the development fees for the five Cookie Stores. In the
event the Company exercises the development rights granted to Cookie Crumbs, the
Company will enter into an area development agreement with the Mrs. Fields
Franchisor, or alternatively, obtain an assignment of the area development
agreement entered into by Cookie Crumbs. See "Certain Relationships and Related
Transactions."
Store Operations
Each of the Company's Mrs. Fields Cookie Stores are operated under the
supervision of managers who are employees of the Company. Each of the Company's
Cookie Store managers is required to have experience in the business of managing
Mrs. Fields Cookie Stores or similar businesses. In addition, certain management
personnel of the Company are required to attend a management training program
sponsored by the Mrs. Fields Franchisor at a designated Company owned Cookie
Store. The training program is designed to enable management personnel to train
new individuals who the Company expects to manage its Mrs. Fields Cookie Stores.
Each Cookie Store has customized computer software and programs. This
software is provided by the Company to maintain a variety of sales data.
The Cookie Stores are supported by the same accounting systems as the
Company uses in connection with the operation of its Hooters Restaurants. See "
- - The Hooters Restaurants - Administrative and Accounting Systems."
Employees
In connection with its Mrs. Fields Cookie Stores, the Company employs
approximately 137 persons, of which 18 are full time and 119 are part-time.
Competition
Generally, the specialty retail cookie market is a developed market.
The Company's Mrs. Fields Cookie Stores offer a variety of specially prepared
food items, including, but not limited to cookies, brownies, muffins and
beverages. The Company competes with bakeries, other specialty retail cookie
stores, convenience stores, and other facilities owned from time to time by the
Mrs. Fields Franchisor, its affiliates, or others and which offer specialty
retail desserts and snack foods. In addition, the Company competes with other
stores and outlets selling the Products under the Marks or other trademarks or
service marks, as well as other items (such as refrigerated ready-to-cook cookie
dough sold through various retail outlets), owned and operated, from time to
time, by MFI, the Mrs. Fields Franchisor or their affiliates or by franchisees
or licensees of MFI, the franchisor or their affiliates, including, without
limitation, Mrs. Fields Cookies Stores (including cookie carts and kiosks), Mrs.
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Fields Bakery Stores, Jessica's cookie stores, Famous Chocolate Chip Cookie
Company stores, and in-store retail bakery outlets located in grocery, fast
food, convenience or other stores (such stores and outlets being referred to
generally as "Mrs. Fields Outlets"). In addition, the Company competes with
other individuals and entities in the search for suitable store locations and
operators and employees.
Franchise and Royalty Fees
The Company is obligated under its franchise agreement to pay the Mrs.
Fields Franchisor an initial franchise fee for each Cookie Store. During the
term of the franchise agreement, the Company is required to pay to the Mrs.
Fields Franchisor a continuing royalty fee of up to 6% and a national
advertising fee of up to 2%.
Products, Inventory and Equipment
The recipes, formulations, and specifications for all Products are
trade secrets belonging exclusively to the Mrs. Fields Franchisor. The Mrs.
Fields Franchisor has licensed Van Den Bergh Foods Company ("Van Den Bergh") to
manufacture ready-to-bake dough products and other ready-to-complete Product
mixes following the Mrs. Fields Franchisor's secret recipes, formulations, and
specifications. These products are then sold to Blue Line Distribution ("Blue
Line") under license from the Mrs. Fields Franchisor, for sale and distribution
by Blue Line to Mrs. Fields Cookies Stores and other Mrs. Fields outlets. The
Company purchases all of its Products, with the exception of special Mrs. Fields
coffee blends discussed below, from Blue Line.
Blue Line sells the products described above to all Mrs. Fields
Outlets, and the price charged by Blue Line is the same regardless of whether
the purchaser is a Mrs. Fields Franchisee, one of the Mrs. Fields Franchisor's
affiliates or the Mrs. Fields Franchisor. However, the purchase prices charged
include an estimate for direct costs of manufacture by Van Den Berg.
The Mrs. Fields Franchisor has licensed Continental Coffee Products
Company ("Continental") to prepare whole bean and ground roasted coffee and cold
coffee concentrates according to the secret recipes and formulations of the Mrs.
Fields Franchisor. Franchisees must purchase all of their coffee products from
Continental or from Blue Line.
The Mrs. Fields Franchisor will not approve anyone other than Van Den
Bergh, Continental, or Blue Line to manufacture or supply Products unless the
Mrs. Fields Franchisor terminates its relationship with one of those entities.
In that case, the Mrs. Fields Franchisor has advised the Company that it would
negotiate the terms and conditions for another supplier to manufacture the Mrs.
Fields Products.
The Company purchases all soft goods, such as napkins, paper cups,
cookie tins, and similar items which are a part of the Mrs. Fields System and
which utilize trademarks from Blue Line since Blue Line is the only supplier
licensed to distribute such supplies using the Mrs. Fields Franchisor's
trademarks.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding the
Company's directors and executive officers.
Name Title Age
---- ----- ---
Stephan S. Buckley President and Director 37
Kenneth B. Drost Vice President, Secretary and Director 42
Douglas E. Van Scoy Chief Financial Officer and Director 55
Jeffrey A. Pritikin Director 42
Thomas P. Kabat Director 48
Stephan S. Buckley has served as President and Director of the Company
since August 1993. Mr. Buckley has also served as President and Director of
NEMC, the principal shareholder of the Company, since March 1993. Mr. Buckley is
also Chairman of the Board, President and Director of New Era Funding Corp.
("NEFC"), an affiliate of the Company. NEFC is the manager of certain public
limited partnerships originally sponsored by Datronic Rental Corporation,
Schaumburg, Illinois ("Datronic"). Mr. Buckley also is President and Director of
Cookie Crumbs, Inc., a wholly owned subsidiary of the Company and a franchisee
of the Mrs. Fields Franchisor. Prior to his association with NEMC and NEFC, Mr.
Buckley served as a director and Executive Vice President-Broker Services of
Datronic from January, 1987 to March, 1993. Prior to his association with
Datronic, Mr. Buckley was employed by ISFA Corporation, a securities
broker-dealer located in Tampa, Florida, as a Branch Manager from February, 1985
through January, 1987. From September, 1983 to February, 1985, he was an Account
Executive with Dean Witter Reynolds. Mr. Buckley also served as an Assistant
Branch Manager with Transamerica Financial Services, Inc. from June, 1982 to
September, 1983. Mr. Buckley is the sole shareholder, a registered principal and
an officer and director of ASA Investment Company, an Illinois and
NASD-registered broker-dealer and an Illinois-registered insurance broker. Mr.
Buckley received a Bachelors Degree in Economics from Southern Illinois
University in 1982.
Kenneth B. Drost has served as Vice President, Secretary and Director of
the Company since August 1993. Mr. Drost has also served as Vice President,
Secretary and Director of NEMC since March, 1993. Mr. Drost is also Executive
Vice President, General Counsel and Director of NEFC. Prior to his association
with NEMC and NEFC, Mr. Drost served as general counsel to Datronic from
January, 1992 to March, 1993. Mr. Drost was previously a partner with Siegan
Barbakoff Gomberg & Kane, Ltd. and prior thereto, was a partner with the law
firm of Katten, Muchin & Zavis. Mr. Drost obtained a Bachelor of Arts Degree
from Knox College in 1975 and a J.D. from Hastings College of Law, University of
California in 1978.
Douglas E. Van Scoy has served as Chief Financial Officer and Director of
the Company since August 1993. Mr. Van Scoy has also served as Chief Financial
Officer and Director of NEMC since March, 1993. Mr. Van Scoy is also Chief
Financial Officer and Director of NEFC. Prior to his association with NEMC and
NEFC, Mr. Van Scoy served as Chief Financial Officer of Datronic from January,
1991 to March, 1993. Prior to that time, Mr. Van Scoy was Chief Executive
Officer of both Oceanica Trading Limited, Ltd., Wheeling, Illinois and CMV
Enterprises, Inc., Wheeling, Illinois from April, 1987 to December, 1990. From
January, 1981 to March, 1987, Mr. Van Scoy was Senior Vice President and General
Auditor of The First National Bank of Chicago, Chicago, Illinois. From June,
1964 to April, 1976, he was associated with the public accounting firm of Price
Waterhouse, Chicago, Illinois, and from May, 1976 to December, 1980, he served
as a Partner of that firm. Mr. Van Scoy obtained a Bachelors of Business
Administration from the University of Michigan in 1963 and a Masters of Business
Administration from the University of Michigan in 1964. Mr. Van Scoy is a
Certified Public Accountant.
Jeffrey A. Pritikin has served as a Director of the Company since September
1995. Mr. Pritikin has served as an accountant and tax consultant in private
practice since 1985. Mr. Pritikin's practice is concentrated in IRS matters,
business and individual tax preparation services, tax and investment planning.
Since 1993, Mr. Pritikin has also served as President and Director of ARJ
Investments and Management Consultants, Inc., a private company providing
business consulting and investment planning. Mr. Pritikin holds a Bachelor of
Science degree in Accounting from the University of Illinois at Chicago and is
enrolled to practice before the IRS.
Thomas P. Kabat has served as a Director of the Company since September
1995. Since 1985, Mr. Kabat has served as Executive Vice President, Secretary
41
<PAGE>
and Treasurer of Durst Brokerage, Inc., a foodservice brokerage and sales
company. Mr. Kabat has over 24 years experience in the industrial brokerage and
foodservice sales industry having held sales and management positions with
various companies including a company owned by Mr. Kabat which merged with Durst
in 1985. He is a member of the National Food Brokerage Association,
International Food Manufacturers Association, Institute of Food Technologists,
and the Food Ingredients Network Development.
Director Compensation. As compensation to outside directors, the
Company plans to pay directors' fees not to exceed $2,500 per quarter, plus
expenses. While not presently finalized, the Company is considering a program
wherein up to one - half of directors' fees may, upon agreement between the
Company and the director, be payable in shares of the Company's Common Stock,
based on the value of the stock on the last day of each quarter. Inside
directors will not receive compensation, but may be reimbursed for expenses.
Executive Compensation. The Company's executive officers have not
received compensation from the Company (excluding Cookie Crumbs) since its
inception. In order for the accompanying Financial Statements to reflect
reasonable compensation levels, a capital contribution has been recorded to
reflect the value of their services rendered. An offsetting amount has been
included in general and administrative expenses in the accompanying Statements
of Operations. The capital contributions were $50,000 for each of the years
ended December 31, 1995 and December 25, 1994, respectively and $77,000 for the
40 week period ended October 6, 1996. Upon consummation of this Offering it is
anticipated that the Company's three executive officers will receive salaries at
the rate of $50,000 annually. There are no bonus or other compensation plans
other than the 1996 Stock Compensation Plan.
The following table sets forth summary information concerning
compensation earned by or paid to the President of the Company in his capacity
as Chief Executive Officer of Cookie Crumbs for the fiscal years ended December
31, 1995 and 1996. No other executive officer was paid a salary and bonus in
excess of $100,000 for services rendered in all capacities to Cookie Crumbs for
the fiscal years 1995 and 1996.
Summary Compensation Table
Long-Term Compensation
Awards
Name and Annual Compensation Securities
Principal Position Year Salary Bonus Underlying Options
- ------------------ ---- ------ ----- --------------------
Stephan S. Buckley
President 1996 $9,231 -0- -0-
1995 16,154 -0- -0-
1996 Stock Compensation Plan. The Company's 1996 Stock Compensation
Plan (the "Plan") was approved by the Board of Directors and stockholders of the
Company on November 14, 1996 to provide for the grant of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and options which do not constitute incentive options to officers,
directors, employees and advisors of the Company or a subsidiary of the Company.
A total of 200,000 shares of Common Stock has been authorized and reserved for
issuance under the Plan, subject to adjustment to reflect changes in the
Company's capitalization in the case of a stock split, stock dividend or similar
event. The Plan is administered by the Board of Directors. The Board has the
sole authority to interpret the Plan, to determine the persons to whom options
will be granted, to determine the basis upon which the options will be granted,
and to determine the exercise price, duration and other terms of options to be
granted under the Plan; provided that, (i) the exercise price of each option
granted under the Plan may not be less than the fair market value of the Common
Stock on the day of the grant of the option, (ii) the exercise price must be
paid in cash upon exercise of the option, (iii) no option may be exercisable for
more than 10 years after the date of grant, and (iv) no option is transferable
other than by will or the laws of descent and distribution. No option is
exercisable after an optionee ceases to be employed by the Company or a
subsidiary of the Company, subject to the right of the Board to extend the
exercise period for not more than 90 days following the date of termination of
an optionee's employment. An optionee who was a director or advisor may exercise
his option at any time within 90 days after such optionee's status as a director
42
<PAGE>
or advisor terminates to the extent he was entitled to exercise such option at
the date of termination of his status. If an optionee's employment is terminated
by reason of disability, the Board has the authority to extend the exercise
period for not more than one year following the date of termination of the
optionee's employment or service as an advisor or director. If an optionee dies
and holds options not fully exercised, such options may be exercised in whole or
in part within one year of the optionee's death by the executors or
administrators of the optionee's estate or by the optionee's heirs. The vesting
period, if any, specified for each option will be accelerated upon the
occurrence of a change of control or threatened change of control of the
Company.
The Board of Directors granted 100,000 options under the Plan on
November 14, 1996. Such options are exercisable at $5.00 per share until
November 14, 2006. The following table sets forth information regarding options
granted to the President of the Company during the fiscal year ending December
31, 1996.
Option Grants in Current fiscal Year
Individual Grants
<TABLE>
<S> <C> <C> <C> <C>
Number of % of Total Options
Securities Granted to
Underlying Employees in Exercise or Base Expiration
Name Options Granted Fiscal Year Price per Share Date
- ------------------ --------------- ----------- --------------- ----------
Stephan S. Buckley 20,000 25 $5.00 11/14/2006
</TABLE>
The following table sets forth information regarding exercised options
and the value of unexercised options held by the President of the Company as of
December 31, 1996.
Aggregated Option Exercises in Current Fiscal Year
and Fiscal Year-End Options
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options at In the Money
Fiscal Options
Shares Acquired Year-End At Fiscal Year-End
Name on Exercise Exercisable Exercisable
- ------------------ --------------- ------------ -------------------
Stephan S. Buckley -0- 20,000 -0-
43
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1996 the Board of Directors granted stock options under the
1996 Stock Compensation Plan to its officers and directors as folows: Stephan S.
Buckley, President; Kenneth B. Drost, Vice President; and Douglas E. Van Scoy ,
Chief Financial Officer, 20,000 each; Jeffrey Pritikin and Thomas A Kabat,
Directors, 10,000 each.
The Company appointed ASA as a consultant to solicit and procure broker
dealers in connection with the private placement of notes and preferred stock
during the period 1994 through 1996. ASA did not receive any direct compensation
for its services but was reimbursed for actual out of pocket expenses. Stephan
S. Buckley, President and a director of the Company is the sole shareholder, an
officer and director of ASA. In addition, Clarke Consulting, an affiliate of Mr.
Buckley, provided services to the Company in connection with the notes and
preferred stock private offerings, including structuring of the offerings and
financial and investor relations services, for which Clarke Consulting was paid
$55,000.
In October 1996, the Company acquired all of the outstanding common
stock of Cookie Crumbs from Mr. Buckley for $1.00.
In August 1995, Cookie Crumbs acquired certain rights for the
development of five Mrs. Fields Cookie Stores in New Mexico for $100,000. Cookie
Crumbs granted the Company an option to acquire the development rights to the
New Mexico territory which was exercisable upon the payment of $100,000 to
Cookie Crumbs and expires January 2001. Upon exercise of the option, the Company
will acquire an assignment of the area development agreement but will not be
obligated to pay any development fees to the Mrs. Fields Franchisor. At the time
of the transaction, Cookie Crumbs was owned by Mr. Buckley, President and a
director of the Company. Since the Company now owns all of the stock of Cookie
Crumbs, the Company will not be obligated to pay the $100,000 if it elects to
exercise the option.
The Company entered into a separation agreement (the "Separation
Agreement") effective August 1, 1995, with Edmund C. Lipinski ("Lipinski")
pursuant to which: (i) an employment agreement dated September 13, 1993, was
terminated; (ii) the 201,260 shares of Common Stock of the Company owned by
Lipinski was repurchased by the Company for $1.00; and (iii) the restricted
stock agreement dated September 13, 1993 was terminated. Simultaneously with the
execution of the Separation Agreement, the Company and Lipinski entered into an
independent contractor agreement (the "Agreement") pursuant to which the Company
retained the services of Lipinski as an independent contractor for a five year
term to: (i) assist the Company in identifying and selecting site locations
suitable for Hooters Restaurants; (ii) assist the Company in constructing and
developing Hooters Restaurants within the territories; (iii) consult with and
advise the Company regarding operations of Hooters Restaurants within the
territories; and (iv) perform such other and further services relating to
restaurant construction and operation as the Company shall direct. In
consideration for the services to be rendered by Lipinski, the Company agreed to
pay him $8,683.33 per month, plus $5,000 upon the opening of each of the
Company's fifth and sixth Hooters Restaurants. Lipinski agreed to keep
confidential all "proprietary information" ( as defined in the Agreement )
during term of the Agreement and for a period of two years after termination
thereof. At the time of the Separation Agreement, Mr. Lipinski was Director of
Operations for the Company.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding certain
principal stockholders' beneficial ownership of the Common Stock of the Company
as of the date of this Prospectus and as adjusted to reflect the sale of Units
offered hereby by: (i) each person known by the Company to be the beneficial
owner of more than five percent of the total outstanding shares of Common Stock
of the Company, (ii) each Director or executive officer of the Company, and
(iii) all Directors and executive officers of the Company as a group. Except as
otherwise indicated all persons listed below have record and beneficial
ownership and sole voting power and investment power with respect to their
shares of Common Stock (except to the extent that authority is shared by spouses
under applicable law).
Name of Beneficial Amount Percent of Percent of
Owner Beneficially Ownership Ownership
Owned Prior Prior to the After the
to Offering Offering Offering
- ---------------------- ------------ ----------- -----------
New Era Management 1,811,302 90.5% 44.1%
Corporation (1)
Jeffrey Steiner (2) 190,136 9.5 4.6
All Officers and Directors
as a group (five persons) 1,811,302 90.5% 44.1%
(1) New Era Management Corp. is owned by Messrs. Stephan S. Buckley, Kenneth B.
Drost and Douglas E. Van Scoy, the executive officers of the Company. The
address of NEMC is 2345 Pembroke Avenue, Hoffman Estates, Illinois 60195
(2) The address of Mr. Steiner is 6 Cheyne Walk, London, England.
SELLING SECURITY HOLDERS
The table below sets forth the number of Units which are being sold by
the Selling Security Holders who acquired their Units upon automatic exercise of
warrants issued to them as additional consideration in connection with the
issuance of the Bridge Loan Notes. None of the Selling Security Holders are
affiliated with the Company.
<TABLE>
<S> <C> <C> <C>
Units Beneficially Units to be Number of Units
Owned Prior to this Sold in this Beneficially Owned
Name Offering Offering After this Offering
Sunset Bridge Fund
# 3, LP. 19,600 19,600 -0-
Sagax Fund II Ltd. 22,400 22,400 -0-
Ken Cattell 7,000 7,000 -0-
Dominic M. Genovese 3,500 3,500 -0-
Riad Abou-Mourad 3,500 3,500 -0-
John McGinnis 35,000 35,000 -0-
------ ------
Total 112,000 (1) 112,000 (1) -0-
=========== ===========
- --------------
</TABLE>
(1) Includes 21,000 Units which management believes will be sold prior to the
close of this Offering.
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<PAGE>
DESCRIPTION OF SECURITIES
Capital Stock of the Company
The authorized capital stock of the Company presently consists of
10,000,000 shares of Common Stock, $0.01 par value, and 100,000 shares of
Preferred Stock, no par value.
Preferred Stock
The board of directors, without further action by the stockholders, is
authorized to issue up to 100,000 shares of no par value preferred stock in one
or more series and to fix and determine as to any series, any and all of the
relative rights and preferences of shares in each series, including without
limitation, preferences, limitations or relative rights with respect to
redemption rights, conversion rights, voting rights, dividend rights and
preferences on liquidation.
Convertible Preferred Stock. At the date of this Prospectus the Company
had authorized the issuance of 27,500 shares of convertible preferred stock, the
only series of preferred stock authorized (the "Convertible Preferred Stock"),
of which series 15,685 shares were issued and outstanding. The Convertible
Preferred Stock bears a cumulative, non compounded dividend at a rate of 10% per
annum, payable quarterly on the first day of January, April, July and October.
To the extent not paid, dividends are added to the liquidation value of the
Convertible Preferred Stock until paid. In the event dividends are paid in an
amount less than the full dividend due, they shall be paid pro rata to the
holders of the Convertible Preferred Stock. So long as any shares of Convertible
Preferred Stock are outstanding, the Company will not declare or pay any cash
dividends or distributions on any other class of stock unless all dividends are
current on the Convertible Preferred Stock.
The holders of the Convertible Preferred Stock are entitled to the
Liquidation Value on their shares upon liquidation, dissolution or winding up of
the Company before any distribution or payment is made to holders of any other
class of stock of the Company. The term Liquidation Value is defined as the sum
of $100 plus any unpaid dividends calculated cumulatively on a monthly basis to
the close of business on the most recent dividend payment date. The Convertible
Preferred Stock is protected in the event of any stock splits, reverse stock
splits or distributions of additional shares of capital stock in a fashion
similar to share dividends.
Each share of Convertible Preferred Stock is convertible into Common
Stock of the Company upon the consummation of the first sale of Common Stock by
the Company to underwriters in a public offering of Common Stock registered
under the Securities Act of 1933. The number of shares of Common Stock to be
received by holders of the Convertible Preferred Stock is determined by dividing
the offering price per share of the Convertible Preferred Stock ($100) by 95% of
the offering price per share of the Common Stock in the public offering of the
Common Stock. The Company is required to give notice to the Convertible
Preferred Stockholders of the effective date of the public offering and to
exchange the Convertible Preferred Stock for shares of Common Stock within ten
business days after the effective date of the public offering. The Convertible
Preferred Stock has no voting rights except as provided by the Illinois Business
Cooperation Act which provides for voting as a class upon proposed amendments to
the Articles of Incorporation which would adversely affect an outstanding series
of preferred stock.
As a consequence of this Offering, the Company will be required to
issue 254,008 shares of its Common Stock upon the automatic conversion of the
Convertible Preferred Stock and the Convertible Preferred Stock received in
exchange therefor will be canceled.
Units
Each Unit consists of one share of Common Stock and one Series A
Warrant. The shares of Common Stock and the Series A Warrants included in the
Units may not be separately traded until _______, 1997 [six months after the
date of this Prospectus] unless earlier separated upon three days prior written
notice from the Representative to the Company.
Common Stock
At the date of this Prospectus, there were 3,112,000 shares of Common
Stock outstanding.
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<PAGE>
The holders of the Common Stock are entitled to share ratably in any
dividends paid on the Common Stock when, as and if declared by the Board of
Directors out of funds legally available therefor. Each holder of Common Stock
is entitled to one vote for each share held of record. The Common Stock is not
entitled to cumulative voting or preemptive rights and is not subject to
redemption. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in the net assets legally
available for distribution. All outstanding shares of Common Stock are fully
paid and non assessable.
Series A Warrants
The Company has authorized the issuance of Series A Warrants to
purchase 1,112,000 shares of Common Stock (not including 166,800 Series A
Warrants which may be issued pursuant to the Underwriters' Over-allotment
Option, and 111,200 Underwriters' Warrants) and has reserved an equivalent
number of shares of Common Stock for issuance upon exercise of such Series A
Warrants and Underwriters' Warrants. The following statements are brief
summaries of certain provisions of the Warrant Agreement (defined below). Copies
of the Warrant Agreement may be obtained from the Company or the Warrant Agent
(defined below) and have been filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus is a part.
The Series A Warrants will be issued in registered form under, governed
by, and subject to the terms of a warrant agreement (the "Warrant Agreement")
between the Company and American Stock Transfer & Trust Company as warrant agent
(the "Warrant Agent"). Each Warrant entitles the holder thereof to purchase one
share of Common Stock at an exercise price of 120% of the offering price per
Unit exercisable at any time commencing on ________________________, 199_
[thirteen months after the closing of this Offering], until ______________,
2002, unless earlier redeemed. The Series A Warrants will not become separately
traded until ________________________, 1997 [six months after the date of this
Prospectus] unless earlier separated upon three days prior written notice by the
Representatives to the Company at the discretion of the Representatives. The
Series A Warrants contain provisions that protect the Warrant holders against
dilution by adjustment of the exercise price in certain events, including, but
not limited to stock dividends, stock splits, reclassifications or mergers. A
Warrant holder will not possess any rights as a shareholder of the Company.
Shares of Common Stock, when issued upon the exercise of the Series A Warrants
in accordance with the terms thereof, will be fully paid and non-assessable. No
fractional shares will be issued upon the exercise of the Series A Warrants. The
Company will pay cash in lieu of fractional shares.
The Series A Warrants are subject to redemption by the Company at a
price of $0.05 per Series A Warrant at any time commencing thirteen months after
the date of this Prospectus, on thirty days prior written notice, provided that
the closing sale price per share for the Common Stock has equaled or exceeded
200% of the offering price per Unit for twenty consecutive trading day within
the thirty-day period immediately preceding such notice.
At any time when the Series A Warrants are exercisable, the Company has
agreed to have a current registration statement on file with the Commission and
to effect appropriate qualifications under the laws and regulations of the
states in which the holders of the Series A Warrants reside in order to comply
with applicable laws in connection with the exercise of the Series A Warrants
and the resale of the Common Stock issued upon such exercise. So long as the
Series A Warrants are outstanding, the Company has agreed to file all
post-effective amendments to the Registration Statement required to be filed
under the Securities Act, and to take appropriate action under federal law and
the securities laws of those states where the Series A Warrants were initially
offered to permit the issuance and resale of the Common Stock issuable upon
exercise of the Series A Warrants. However, there can be no assurance that the
Company will be in a position to effect such action under the federal and
applicable state securities laws, and the failure of the Company to effect such
action may cause the exercise of the Series A Warrants and the resale or other
disposition of the Common Stock issued upon such exercise to become unlawful.
The Company may amend the terms of the Series A Warrants, but only by extending
the termination date or lowering the exercise price thereof. The Company has no
present intention of amending such terms.
Bridge Loan Securities
From October through December 1996, the Company sold $483,000 of Bridge
Loan Notes to provide working capital and funds for this offering. The Bridge
Loan Notes are secured promissory notes bearing interest at the LIBOR rate and
are payable at the earlier of nine months from the date of issuance or closing
of this Offering. As additional consideration, the Company issued to the Bridge
Loan Note holders warrants to acquire, without additional cost, Units identical
to the Units offered hereby at the time the registration statement of which this
prospectus is a part becomes effective. The Bridge Loan units are included in
the Units offered hereby. See "Selling Security Holders."
47
<PAGE>
Transfer Agent and Registrar; Warrant Agent
The Transfer Agent and Registrar for the Units, Common Stock and the
Warrant Agent for the Series A Warrants and the Underwriters' Warrants will be
American Stock Transfer & Trust Company, New York.
Reports to Shareholders
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
The Company has agreed, subject to the sale of the Units offered
hereby, that on the date of this Prospectus, it will register its Common Stock
and Series A Warrants under the provisions of Section 12(b) of the Exchange Act,
and that it will use its best efforts to continue to maintain such registration.
Such registration will require the Company to comply with periodic reporting,
proxy solicitation, and certain other requirements of the Exchange Act.
Boston Stock Exchange and NASDAQ Small-Cap Market
The Company is seeking approval for listing of the Units, Common Stock
and the Series A Warrants on the Boston Stock Exchange under the symbols ETS.U,
ETS, and ETS.W and on the NASDAQ Small-Cap Market under the symbols EATS.U, EATS
and EAT.S, respectively.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 4,112,000
shares of Common Stock outstanding, 4,728,800 shares if the Underwriters'
over-allotment option is exercised in full. Of the 4,112,000 shares of Common
Stock to be outstanding, the 1,112,000 shares to be sold in this Offering
(1,278,800 if the Underwriters' over-allotment option is exercised in full) will
be freely tradable in the public market without restriction under the Securities
Act, except shares purchased by an "affiliate" (as defined in the Securities Act
- - in general, a person who is in a control relationship with the Company) of the
Company. All of the remaining, 3,000,000 shares of Common Stock will be
"restricted shares" within the meaning of the Securities Act and may be publicly
sold only if registered under the Securities Act or sold in accordance with an
exemption from registration, such as those provided by Rules 144 promulgated
under the Securities Act. NEMC, which holds 1,811,302 shares of Common Stock,
has agreed that it will not, without the prior written consent of the
Representative, offer, sell or otherwise dispose of any shares of Common Stock
beneficially owned by it or acquired upon the exercise of stock options by its
principals for a period of two years after closing of this Offering.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) is entitled to sell restricted shares if at
least two years have passed since the later of the date such shares were
acquired from the Company or any affiliate of the Company. Rule 144 provides
that within any three-month period such person may sell only up to the greater
of one percent (1%) of the then outstanding shares of the Company's Common Stock
(approximately 40,000 shares following completion of this Offering) or the
average weekly trading volume in the Company's Common Stock during the four
calendar weeks immediately preceding the date on which the notice of the sale is
filed with the Securities and Exchange Commission. Sales pursuant to Rule 144
are subject to certain other requirements relating to manner of sale, notice of
sale and availability of current public information. Any person who has not been
an affiliate of the Company for a period of three months preceding a sale of
restricted shares is entitled to sell such shares under Rule 144 without regard
to such limitations if at least three years have passed since the later of the
date such shares were acquired from the Company or any affiliate of the Company.
Shares held by persons who are deemed to be affiliates of the Company are
subject to such volume limitations regardless of how long they have been owned
or how they were acquired. The foregoing is a brief summary of certain
provisions of Rule 144 and is not intended to be a complete description thereof.
The 254,008 shares of Common Stock to be received by the holders of the
Convertible Preferred Stock and the 744,554 shares of Common Stock received by
the Note holders upon exchange of their Notes (assuming full acceptance of the
Exchange Offer) will be restricted shares and will not be eligible for sale
pursuant to Rule 144 for two years from the date of this Prospectus. The
Company, however, has agreed with the holders of the Notes, to register any
shares they receive in the Exchange Offer at any time after one year from the
date of this Prospectus upon the request of the holders of at least 50% of the
shares and the Representative has agreed to use its best efforts to effect a
firm commitment underwriting of such shares subject to favorable market
conditions.
Prior to this Offering, there has been no public market for the Common
Stock, and no predictions can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. The sale, or availability for sale, of
substantial amounts of the Common Stock in the public market, including an
underwritten offering, could adversely affect prevailing market prices.
49
<PAGE>
UNDERWRITING
Pursuant to the terms and subject to the conditions contained in the
Underwriting Agreement, the Company and the Selling Security Holders have agreed
to sell on a firm commitment basis to the Underwriters named below, and each of
the Underwriters, for whom National Securities Corporation is acting as the
Representative, have severally agreed to purchase the number of Units set forth
opposite their names in the following table.
Underwriters Number of Units
National Securities Corporation
-----------
Total 1,112,000
The Representative has advised the Company that the Underwriters
propose to offer the Units to the public at the initial public offering price
per share set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession of not more than $ per Unit, of which $ may be
reallowed to other dealers. After the Offering, the public offering price,
concession and reallowance to dealers may be reduced by the Representative. No
such reduction will change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable
during the 45-day period after the date of this Prospectus, to purchase up to
150,000 additional Units to cover over-allotments, if any, at the offering price
to the public of the Units subject to this Prospectus less the Underwriting
Discount. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional Units that the number of Units to be purchased by
it shown in the above table represents as a percentage of the 1,112,000 Units
offered hereby. If purchased, such additional Units will be sold by the
Underwriters on the same terms as those on which the 1,112,000 Units are being
sold.
The Underwriters have the right to offer the Units offered hereby only
through licensed securities dealers in the United States who are members of the
National Association of Securities Dealers, Inc. (the "NASD") and may allow such
dealers such portion of its ten (10%) percent commission as each Underwriter may
determine.
The Underwriters will not confirm sales to any discretionary accounts.
The Company has agreed to pay the Representative a non-accountable
expense allowance of 2.5% of the gross amount of the Units sold ($180,700 upon
the sale of the Units offered) at the closing of the Offering. The Underwriters'
expenses in excess thereof will be paid by the Representative. To the extent
that the expenses of the underwriting are less than that amount, such excess
will be deemed to be additional compensation to the Underwriters.
The Company has agreed to enter into a consulting agreement with the
Representative at a rate of $2,500 per month for a period of 24 months.
For a period of 24 months following the completion of this Offering,
NEMC has agreed to vote its shares for election to the Board of Directors, a
person designated by the Representative and acceptable to the Company. Such
designee will have voting rights, will receive the same compensation as other
outside Directors, will be reimbursed for all out-of-pocket expenses incurred in
attending meetings, and will be indemnified by the Company against all claims,
liabilities, damages, costs and expenses arising out of his or her participation
at Board of Directors meetings.
The Underwriting Agreement provides for indemnification between the
Company and the Underwriters against certain civil liabilities, including
liabilities under the Securities Act. In addition, the Underwriters' Warrants
provide for indemnification among the Company and the holders of the
Underwriters' Warrants and underlying shares against certain civil liabilities,
including liabilities under the Securities Act and the Exchange Act.
50
<PAGE>
Underwriters' Warrants
Upon the closing of this Offering, the Company has agreed to sell to
the Underwriters, for nominal consideration, warrants to purchase 10% of the
number of Units offered hereunder (the "Underwriters' Warrants"). The
Underwriters' Warrants are exercisable at 120% of the public offering price per
Unit for a four-year period commencing one year from the effective date of this
Offering. The Underwriters' Warrants may not be sold, transferred, assigned or
hypothecated for a period of one year from the date of this Offering except to
the officers of the Underwriters, their successors and dealers participating in
the Offering and/or the partners or officers of such dealers. The Underwriters'
Warrants will contain anti-dilution provisions providing for appropriate
adjustment of the number of shares subject to the Underwriters' Warrants under
certain circumstances. The holders of the Underwriters' Warrants will have no
voting, dividend or other rights as shareholders of the Company with respect to
shares underlying the Underwriters' Warrants until the Underwriters' Warrants
have been exercised.
The Underwriters' Warrants and the securities issuable thereunder have
been registered under the Securities Act in connection with this Offering;
however, such securities may not be offered for sale except in compliance with
the applicable provisions of the Securities Act. The Company has agreed that,
if, at any time after the first anniversary of the date of this Prospectus but
prior to the fifth anniversary of the date of this Prospectus, it shall cause a
Post-Effective Amendment or a new Registration Statement or an Offering
Statement under Regulation A to be filed with the Securities and Exchange
Commission, the Underwriters shall have the right during the four year period
commencing one year after the date of this Prospectus to include in such
Post-Effective Amendment or new Registration Statement or Offering Statement the
Underwriters' Warrants and/or the securities issuable upon their exercise at no
expense to the Underwriters.
For the exercise period during which the Underwriters' Warrants are
exercisable, the holder or holders will have the opportunity to profit from a
rise in the market value of the Common Stock, with a resulting dilution in the
interest of the other stockholders of the Company. The holder or holders of the
Underwriters' Warrants can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital from an
offering of its unissued Common Stock on terms more favorable to the Company
than those provided for in the Underwriters' Warrants. Such factors may
adversely affect the terms on which the Company can obtain additional financing.
To the extent that the Underwriters realize any gain from the resale of the
Underwriters' Warrants or the securities issuable thereunder, such gain may be
deemed additional underwriting compensation under the Securities Act.
Determination of Offering Price
Prior to this Offering, there has been no public market for the
securities offered and there can be no assurance that a regular trading market
will develop upon completion of the Offering. Consequently, purchasers of the
Units may not find a ready market for the sale of their securities. The initial
public offering price for the Units will be determined by negotiation between
the Company and the Underwriters. The factors to be considered in determining
the initial public offering price include the Company's revenue growth since its
organization, the industry in which it operates, the Company's business
potential and earnings prospects and the general condition of the securities
markets at the time of the Offering. The initial public offering price does not
necessarily bear any relationship to the Company's assets, book value, net worth
or other recognized objective value.
51
<PAGE>
LEGAL MATTERS
Certain matters with respect to the validity of the securities offered
hereby will be passed upon for the Company by Maurice J. Bates, L.L.C., Dallas,
Texas 75225. Certain legal matters will be passed upon for the Underwriters by
Winstead Sechrest & Minick P. C., Dallas, Texas.
EXPERTS
The Consolidated Financial Statements of Butterwings Entertainment
Group, Inc. and Subsidiaries at December 31, 1995 and for the two fiscal years
then ended, appearing in this Prospectus, have been audited by McGladrey &
Pullen, LLP, independent accountants, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on authority of such firm as experts in auditing and accounting. The Financial
Statements of Cookie Crumbs, Inc. as of December 31, 1995 and for the period
from May 17, 1995 (Inception) appearing in this Prospectus, have been audited by
McGladrey & Pullen, LLP, independent accountants, as set forth in their report
thereon, appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form SB-2 under the Securities Act
with respect to the Units. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits. For
further information with respect to the Company and the Units, reference is made
to the Registration Statement and the exhibits filed as a part thereof.
Statements made in this Prospectus as to the contents of any contract or any
other document referred to are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference to such exhibit. The Registration Statement,
including exhibits thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, NW, Washington, DC 20549 and at the regional offices of the
Commission at 7 World Trade Center, 13th Floor, New York, New York 10048 and at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the
Registration Statement and the exhibits thereto may be obtained from the
Commission at such offices upon payment of prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. The address of such Web site is http;// www.sec.gov.
The Company is not presently a reporting company. The Company intends
to register the securities offered hereby under the Securities Exchange Act of
1934, as amended, simultaneously with the effectiveness of the Registration
Statement of which this Prospectus is part. As a result, the Company will become
a reporting Company.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as the
Company may determine to be appropriate or as may be required by law.
52
<PAGE>
Butterwings Entertainment Group, Inc.
Index to Financial Statements
Butterwings Entertainment Group, Inc.
<TABLE>
<S> <C>
Independent Auditors Report........................................................................................ F-1
Consolidated Balance Sheets as of December 31, 1995 and October 6, 1996 (Unaudited).................................F-2
Consolidated Statements of Operations for the years ended December 31, 1995 and
December 25, 1994 and for the 40 weeks ended October 6, 1996 (Unaudited) and
October 1, 1995 (Unaudited)........................................................................................F-4
Consolidated Statement of Stockholders' Equity (Deficit) for the year ended
December 31, 1995 and for the period ended October 6, 1996 (Unaudited).............................................F-6
Consolidated Statements of Cash Flows for the year ended December 31, 1995 and December 25,
1994 and for the 40 weeks ended October 6, 1996 (Unaudited) and October 1, 1995 (Unaudited)........................F-7
Notes to Financial Statements...................................................................................... F-9
Cookie Crumbs Inc.
Independent Auditors Report.......................................................................................F-23
Balance Sheets as of December 31, 1995 and October 6, 1996 (Unaudited)............................................F-24
Statements of Operations for the year ended December 31, 1995 and for the periods ended
October 6, 1996 (Unaudited) and September 30, 1995 (Unaudited)...................................................F-26
Statements of Stockholders' Equity (Deficit) for the year ended December 31, 1995 and
for the period ended October 6, 1996 (Unaudited).................................................................F-28
Consolidated Statements of Cash Flows for the year ended December 31, 1995 and for the periods
ended October 6, 1996 (Unaudited) and September 30, 1995 (Unaudited).............................................F-29
Notes to Financial Statements.....................................................................................F-30
Pro Forma Financial Statements
Pro Forma Consolidated Balance Sheet October 6, 1996 (Unaudited)..................................................F-38
Pro Forma Consolidated Statements of Operations for the 40 weeks ended
October 6, 1996 (Unaudited)......................................................................................F-40
Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1995 (Unaudited)....................................................................................F-41
</TABLE>
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1995
AND
OCTOBER 6, 1996
(Unaudited)
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Butterwings Entertainment Group, Inc. and Subsidiaries
Hoffman Estates, Illinois
We have audited the accompanying consolidated balance sheet of Butterwings, Inc.
and subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 1995 and December 25, 1994. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Butterwings
Entertainment Group, Inc. and subsidiaries as of December 31, 1995, and the
results of their operations, cash flows and changes in stockholders' equity for
the years ended December 31, 1995 and December 25, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 8, the Company changed its method of accounting for
preopening costs in 1994.
Schaumburg, Illinois
January 22, 1996 except for Note 2 as to
which the date is March 13, 1996.
F-1
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, October 6,
1995 1996
(Unaudited)
Current Assets
Cash and cash equivalents .................... $ 574,125 $ 497,091
Accounts receivable .......................... 51,391 1,814
Inventories .................................. 104,385 96,819
Prepaid expenses ............................. 55,823 148,218
Income tax deposits .......................... 8,700 775
Total current assets ................ 794,424 744,717
Leasehold Improvements and Equipment
Leasehold improvements ....................... 1,063,628 1,437,770
Equipment .................................... 808,186 816,565
1,871,814 2,254,335
Less accumulated depreciation
and amortization ........................... 186,539 385,675
1,685,275 1,868,660
Other Assets
Deposits ..................................... 670,919 108,683
Franchise costs, net of accumulated
amortization of $17,132 and
$32,746, respectively ...................... 452,868 367,254
Finance costs, net of accumulated
amortization of $121,719 and
$177,484, respectively ..................... 382,234 326,469
Organization costs, net of accumulated
amortization of $4,027 and
$5,841, respectively ....................... 7,762 5,948
Goodwill, net of accumulated
amortization of $0 and $19,288,
respectively ............................... 324,673 356,825
Deferred bridge loan financing costs (Note 12) -- 273,000
1,838,456 1,438,179
--------- ---------
$4,318,155 $4,051,556
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
December 31, October 6,
1995 1996
(Unaudited)
Current Liabilities ----------- ------------
Current maturities of long-term debt .... $ 28,335 $ 3,978,112
Due to parent ........................... 43,006 36,666
Due to affiliate ........................ -- 21,486
Accounts payable ........................ 340,857 272,200
Accrued liabilities ..................... 264,360 494,801
Total current liabilities .......... 676,558 4,803,265
Long-term debt, less current maturities . 3,811,343 117,950
Store closing expense (Note 12) ......... -- 393,000
3,811,343 510,950
Stockholders' Equity (Deficit)
Preferred Stock, 27,500 shares
of 10% Convertible Preferred Stock
is authorized with 12,660 and
15,685 shares, respectively,
issued and outstanding ............. 1,266,000 1,568,500
Common stock, $0.01 par value;
10,000,000 shares authorized,
1,811,301 and 2,001,438 shares,
respectively, issued and outstanding 18,113 20,014
Capital in excess of par value ....... 368,926 828,875
Accumulated deficit .................. (1,822,785) (3,680,048)
----------- -----------
(169,746) (1,262,659)
------------ -----------
$ 4,318,155 $ 4,051,556
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C>
For the Fiscal Years Ended For the 40 Weeks Ended
December 31, December 25, October 6, October 1
1995 1994 1996 1995
(Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Sales ...................................... $ 6,486,327 $ 2,501,273 $ 5,242,470 $ 5,025,351
Costs and expenses:
Cost of products sold .................... 1,995,753 771,374 1,529,174 1,532,403
Salaries and benefits .................... 1,889,192 615,021 1,576,580 1,486,940
Other operating costs .................... 2,168,176 726,459 1,783,737 1,681,082
Depreciation and amortization ............ 154,090 49,333 262,302 116,356
Pre-opening costs ........................ 153,334 551,802 -- 123,191
Total costs and expenses .......... 6,360,545 2,713,989 5,151,793 4,939,972
--------- --------- --------- ---------
Income (Loss) from
operations ....................... 125,782 (212,716) 90,677 85,379
General and administrative expenses ........ 404,417 264,361 461,121 309,800
Write off of franchise fee options (Note 12) -- -- 145,000 --
Provisions for losses on leased
property (Notes 10 and 12) ................ 145,000 -- 927,148 --
Operating (Loss) .................. (423,635) (477,077) (1,442,592) (224,421)
--------- --------- ----------- ---------
Financial income (expense):
Interest income .......................... 19,037 54,287 7,990 14,855
Interest expense ......................... (465,031) (348,734) (366,897) (358,105)
Amortization of finance costs ............ (72,493) (49,226) (55,764) (55,764)
(518,487) (343,673) (414,671) (399,014)
(Loss) before income taxes ($0 for
all periods presented) and
cumulative effect of the change
in accounting principle .......... (942,122) (820,750) (1,857,263) (623,435)
Cumulative effect on prior year of
the change in method of accounting
for pre-opening costs .................... -- 59,913 -- --
Net (Loss) ........................ $ (942,122) $ (880,663) $(1,857,263) $ (623,435)
============ ============ ============ ============
Proforma net (loss) assuming the
new accounting principle had
been applied retroactively ............... $ -- $ (820,750) $ -- $ --
============ ============ ============ ============
</TABLE>
Continued on page -5-
F-4
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued from page -4-)
<TABLE>
<S> <C> <C> <C> <C>
For the Fiscal Years Ended For the 40 Weeks Ended
December 31, December 25, October 6, October 1
1995 1994 1996 1995
(Unaudited) (Unaudited)
----------- ------------ ------------ ------------
Net (loss) ................ $ (942,122) $ (880,663) $(1,857,263) $ (623,435)
Net (loss) per common share $ (.44) $ (.42) $ (.88) $ (.29)
============ ============ ============ ============
Weighted average number of
shares outstanding ...... 2,121,173 2,121,173 2,121,173 2,121,173
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C> <C> <C> <C>
Total
Preferred Common Accumulated Stockholders'
Stock Stock Deficit Equity(Deficit)
------------ In
Par Excess
Value Of Par
----------- ----------- ----------- ------------ ---------------
Balance, December 26, 1993 ..................... $ -- $ -- $ -- $ -- $ --
Sale of 2,012,562 shares of
common stock ................................. -- 20,126 479,874 -- 500,000
Contributed Services (Note 11) ................. -- -- 50,000 -- 50,000
Net (loss) ..................................... -- -- -- (880,663) (880,663)
----------- ----------- ----------- ------------ ---------------
Balance, December 25, 1994 ..................... -- 20,126 529,874 (880,663) (330,663)
Sale of 12,660 shares of preferred
stock (Note 2) ............................... 1,266,000 -- (212,960) -- 1,053,040
Redemption of 201,260 shares of
common stock ................................. -- (2,013) 2,012 -- (1)
Contributed Services (Note 11) ................. -- -- 50,000 -- 50,000
Net (loss) ..................................... -- -- -- (942,122) (942,122)
----------- ----------- ----------- ------------ ---------------
Balance, December 31, 1995 ..................... $ 1,266,000 $ 18,113 368,926 $(1,822,785) $ (169,746)
Sale of 3,025 shares of preferred stock (Note 2)
(Unaudited) .................................. 302,500 -- (18,150) -- 284,350
Sale of 190,136 shares of common
stock (Note 12) (Unaudited) .................. -- 1,901 128,099 -- 130,000
Contributed Services
(Note 11) (Unaudited) ........................ -- -- 77,000 -- 77,000
Bridge loan warrants (Note 12) (Unaudited) ..... -- -- 273,000 -- 273,000
Net (loss)(Unaudited) .......................... -- -- -- (1,857,263) (1,857,263)
----------- ----------- ----------- ------------ ---------------
Balance, October 6, 1996
(Unaudited) .................................. $ 1,568,500 $ 20,014 $ 828,875 $(3,680,048) $(1,262,659)
=========== =========== =========== ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-6
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C>
For the Fiscal Years Ended For the 40 Weeks Ended
December 31, December 25, October 6, October 1,
1995 1994 1996 1995
(Unaudited) (Unaudited)
Cash Flows from Operating Activities: ------------ ------------ ------------ ------------
Net (loss) .................................. $ (942,122) $ (880,663) $(1,857,263) $ (623,435)
Adjustments to reconcile net (loss)
to net cash (used in) operating activities:
Depreciation and amortization ........... 229,096 100,321 320,152 174,059
Provisions for losses on leased property 145,000 -- 917,648 --
Cumulative effect of the change
in accounting principle ............... -- 59,913 -- --
Contributed Services .................... 50,000 50,000 77,000 38,000
Changes in operating assets and liabilities:
Accounts receivable .................... (41,827) (9,564) 49,577 (2,570)
Inventories ............................ 76,746 (181,131) 7,566 26,622
Prepaid expenses ....................... (53,683) (2,140) (92,395) (25,159)
Income tax deposits .................... 25 (8,725) 7,925 (38,253)
Accounts payable ....................... (948) 341,805 (68,657) (31,063)
Accrued liabilities .................... 96,778 167,582 32,941 (17,527)
Due to parent .......................... 4,284 (12,863) (6,340) --
Net cash (used in) operating activities ..... (436,651) (375,465) (611,846) (499,326)
----------- ----------- ----------- ------------
Cash Flows from Investing Activities:
Deposits ............................... (539,113) (48,806) 562,236 (1,834)
Organizational costs ................... 49 (38) -- 49
Receivable from lessor ................. -- (100,000) -- 100,000
Leasehold improvements and equipment ... (405,835) (1,610,979) (738,205) (381,344)
Franchise costs ........................ (60,000) (130,000) (75,000) (35,000)
Write off of franchise fee options ..... -- -- 145,000 --
Goodwill ............................... (324,673) -- (51,440) --
Collection of receivable from lessor ... 100,000 -- -- --
Net cash (used in) investing activities ..... (1,229,572) (1,889,823) (157,409) (318,129)
----------- ----------- ----------- ------------
Cash Flows from Financing Activities:
Finance costs .......................... -- (448,958) -- --
Advances from Affiliate ................ -- -- 21,486 --
Proceeds from long-term debt ........... 25,000 3,850,000 304,532 25,000
Payments of long-term debt ............. (29,619) (5,703) (48,148) (22,430)
Proceeds from Sale of Common Stock
(Note 12) ............................ -- -- 130,000 --
Redemption of common stock ............. (1) -- -- --
Proceeds from issuance of preferred
stock, net ........................... 1,053,040 -- 284,350 --
Net cash provided by financing activities . 1,048,420 3,395,339 692,220 2,570
Net (decrease) increase in cash and
cash equivalents ..................... (617,803) 1,130,051 (77,034) (814,885)
Cash and cash equivalents:
Beginning ................................. 1,191,928 61,877 574,125 1,191,928
Ending .................................... $ 574,125 $ 1,191,928 $ 497,091 $ 377,043
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C>
For the Fiscal Years Ended For the 40 Weeks Ended
December 31, December 25, October 6, October 1,
1995 1994 1996 1995
(Unaudited) (Unaudited)
---------- ----------- ----------- -----------
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest ..................... $464,880 $314,620 $172,901 $369,798
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Information as of and for the 40 weeks ended October 6, 1996 and October 1, 1995
is unaudited. Butterwings Inc. (the Company) was formed July 29, 1993, and
incorporated in the State of Illinois. Operations commenced in 1994. The Company
is a wholly-owned subsidiary of New Era Management Corporation (parent). On
February 23, 1996 the Company's Articles of Incorporation were amended to change
the name of the Company to Butterwings Entertainment Group, Inc. The Company
entered into franchise agreements with Hooters of America, Inc. by which the
Company received the right to establish and operate restaurants in Wisconsin and
Southern California. During 1994 the Company opened three Hooters restaurants as
follows: one in April, one in September and another in December. A fourth
restaurant opened in May, 1995 and was closed in September 1996 (see Note 12).
The Company also acquired a Mrs. Fields cookie store in 1995 and six additional
Mrs. Fields cookie stores on January 1, 1996 (see Note 9).
Significant accounting policies are as follows:
Interim Financial Data: The October 6, 1996 balance sheet and statements of
operations, stockholders' equity (deficit) and cash flows for the 40 weeks ended
October 6, 1996 and October 1, 1995 are unaudited. In the opinion of management
these statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary to state fairly the information set forth therein.
Operating results for the 40 weeks ended October 6, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 29, 1996.
Fiscal Year: The Company's fiscal year is the 52/53-week period ending on the
last Sunday in December. The first quarter consists of four, four-week periods
and each of the remaining three quarters consists of the three, four-week
periods, with the first, second, and third quarters ending 16 weeks, 28 weeks,
and 40 weeks, respectively, into the fiscal year.
The financial statements presented for the fiscal years ended December 31, 1995
and December 25, 1994 are comprised of 53 and 52 weeks, respectively.
Principles of Consolidation: The financial statements include the accounts and
results of operations of the Company and its wholly-owned subsidiaries,
Butterwings of Wisconsin and Butterwings of California. All significant
intercompany accounts and transactions have been eliminated in consolidation.
F-9
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
Cash Equivalents: The Company considers all highly liquid debt instruments with
a maturity of three months or less to be cash equivalents.
Concentration of Cash: The Company had approximately $505,000 and $409,000
(Unaudited) on deposit at two financial institutions at December 31, 1995 and
October 6, 1996, respectively.
Inventories: Inventories consisting of food, beverages, and novelty items, are
stated at the lower of cost or market on a first-in, first-out basis. Cost is
determined by the most recent invoice price.
Leasehold Improvements and Equipment: Leasehold improvements and equipment are
carried at cost and are depreciated using the straight-line method over the
estimated useful lives of the assets. In general, the assets have the following
lives:
Leasehold improvements over lease term
Equipment 8 years
Depreciation of these assets coincides with each restaurant's or store's
commencement of operations or purchase.
Pre-opening Costs: Pre-opening costs are recognized as expense when incurred.
See Note 8 regarding the change in method of accounting for pre-opening costs.
Franchise Costs: Franchise costs represent payments made for the rights to
operate either restaurant facilities or cookie stores meeting the plans and
specifications of the respective franchisor and options to purchase franchise
rights in specified geographical areas at a fixed price. Franchise costs for a
restaurant are amortized to expense using the straight-line method over a
20-year period commencing with the opening of the restaurant. Franchise costs
for a cookie store are amortized to expense using the straight-line method over
a 15-year period commencing with the purchase of the cookie store.
Finance Costs: Finance costs represent legal, accounting, regulatory and blue
sky expenses, printing costs, expense reimbursements and commissions paid to
brokers in connection with the issuance of Secured Promissory Notes. These costs
are amortized to expense using the straight-line method over a seven-year period
coinciding with the life of the notes.
F-10
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
Organization Costs: Organization costs are one-time costs related to the
formation of the Company and are being amortized to expense using the
straight-line method over a five-year period commencing with the opening of the
first restaurant in April 1994.
Goodwill: The Company has classified as goodwill the cost in excess of fair
value of the net assets of the cookie stores acquired in purchase transactions.
Goodwill is being amortized on a straight-line method over 15 years commencing
with the purchase of the stores.
Offering Expenses: Gross proceeds from the issuance of preferred stock have been
credited to Preferred Stock and offering expenses incurred by the Company have
been charged to capital in excess of par value. Offering expenses include legal,
accounting, escrow, regulatory and blue sky expenses, printing costs, expense
reimbursements and commissions paid to brokers.
Impairment of Long Lived Assets: Long lived assets are evaluated for impairment
based on an analysis of cashflow on a store by store basis.
Accounting 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 at
the date of the financial statements and the reported amounts of income and
expenses during the reporting year. Actual results could differ from those
estimates.
Financial Instruments: The Company has no financial instruments for which the
carrying value differs from fair value.
Income Taxes: The Company's results are included in the parent's consolidated
tax return. Intercorporate tax allocation practices adopted by the Company and
its parent provide that to the extent the Company has income, taxes related to
such income will be reflected in the Company's financial statements and paid by
the Company. The tax benefit of losses, if any, will be reflected in the
Company's financial statements and paid to the Company by the parent if: a) the
Company would otherwise be entitled to such benefits if it were filing a
separate tax return, b) the parent has received benefit of such losses on a
consolidated basis, and c) the Company continues to be included in the parent's
consolidated tax return.
F-11
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Per Share Data: Net income (loss) per Common Share is calculated based on
weighted average shares of Common Stock outstanding. The weighted average number
of shares has been adjusted to reflect as outstanding, for each period presented
using the treasury stock method at the estimated initial public offering price
($6.50), the 190,136 shares issued in September, 1996 and all shares issuable
upon the exercise of stock options subsequent to October 6, 1996 and bridge loan
warrants to be issued (See Note 12).
Note 2. Preferred Stock Offering
From September 25, 1995 to March 13, 1996, the Company sold $1,568,500
($1,337,390 net of offering expenses) of its 10% Convertible Preferred Stock
through a private placement at a price of $100 per share to accredited
investors. The shares are non redeemable and have no voting rights. Holders of
the shares will be entitled to receive, to the extent declared by the Company's
Board of Directors, non-compounded, cumulative dividends in an amount equal to
10% per annum on the offering price of the shares. Each share is convertible
into shares of the Company's common stock upon the consummation of the first
sale of common stock by the Company to underwriters for the account of the
Company pursuant to a registration statement under the 1933 Act filed with and
declared effective by the Securities and Exchange Commission. The number of
shares of common stock to be issued to each holder of the preferred stock upon
conversion will be determined by dividing the offering price of the preferred by
an amount equal to 95% of the sale price per share of common stock at the time
of the initial public offering.
The Company paid a commission to the selling agent of 6% of the gross proceeds
of each of the shares sold. In addition, expenses of approximately $137,000 were
incurred in connection with this offering including legal, accounting, escrow
costs, Blue Sky compliance, printing costs and other expenses relating to the
qualification and offering of the shares. As of December 31, 1995, $1,053,040
net of expenses of $212,960 had been raised by the offering.
F-12
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 3. Franchise Agreements
The Company operates under franchise agreements with each franchisor. In
addition to an initial franchise fee for each location, the Company is required
to pay the respective franchisor additional fees for royalties and advertising
based on a percentage of sales. These fees totalled $440,016 and $171,292 for
the fiscal years ended December 31, 1995 and December 25, 1994, respectively.
For the 40 weeks ended October 6, 1996 and October 1, 1995, these fees totalled
$314,704 (Unaudited) and $343,230 (Unaudited), respectively.
Note 4. Long-Term Debt
Long-term debt consists of the following at
(Unaudited)
December 31, 1995 October 6,1996
----------------- --------------
Secured promissory notes $3,700,000 $3,700,000
Bridge loan (See Note 12) - 210,000
Capitalized equipment leases 139,678 186,062
Total long-term debt 3,839,678 4,096,062
Current maturities 28,335 3,978,112
---------- -----------
Long-term debt, net of current maturities $3,811,343 $ 117,950
========== ===========
Secured Promissory Notes issued in May 1994 mature April 2001, bear interest at
12% per annum, are collateralized by all assets of the Company, and until
retired entitle the note holders to receive 5% of the pre-tax profits of the
Company (none as of October 6, 1996). The notes provide for monthly payments of
interest only from date of issuance for 48 months and thereafter, 36 equal
monthly payments of principal and interest. The Secured Promissory Notes may be
prepaid by the Company at any time at a redemption price of 103% of face value.
The notes are secured senior obligations of the Company and rank senior to all
existing and future unsecured indebtedness of the Company provided, however,
that the Company may issue additional debt instruments through private or public
debt offerings for the purpose of opening Hooters restaurant franchises in which
the additional debt will rank equal to the notes. The notes contain covenants
which may limit the incurrence of additional debt, the payment of dividends, the
making of other distributions, and the ability to enter into certain
transactions with affiliates or merge, consolidate or transfer substantially all
of the assets of the Company. The Company was in compliance with these covenants
at October 6, 1996 (Unaudited). Annual maturities of the notes are as follows
(see discussion of suspension of interest payments on May 1, 1996, in Note 12):
F-13
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 4. Long-Term Debt (continued)
Fiscal years ending:
1998 $ 741,268
1999 1,167,917
2000 1,316,039
2001 474,776
-----------
$3,700,000
===========
Various equipment with a cost of $269,532 and accumulated amortization of
$29,689 at December 31, 1995 and $55,602 (Unaudited) at October 6, 1996 is
recorded under capital leases. The capitalized leases provide for 60 equal
monthly payments including imputed interest at 12% per annum. Upon maturity
(1999) ownership of the equipment is transferred to the Company. The leases are
subordinate to the Secured Promissory Notes described above. Future lease
payments for capital leases are as follows:
As of
December 31, 1995 October 6, 1996
Fiscal years ending: (Unaudited)
----------------- ---------------
1996 $ 42,730 $ 20,787
1997 46,614 87,645
1998 46,614 77,389
1999 39,400 39,400
---------- ---------
175,358 225,221
Less amount representing interest 35,680 39,159
---------- ---------
$ 139,678 $186,062
========== =========
F-14
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 5. Lease Commitments
The Company leases a number of facilities under non cancelable leases ranging
from four to ten years. Most of these leases contain renewal options which can
extend the lease from ten to fifteen years. Some of these leases contain
escalation clauses to cover future operating cost increases while other leases
provide for a percentage of gross sales in excess of minimum levels. The minimum
levels were not met for the years ended December 31, 1995 and December 25, 1994.
Several of these leases have been guaranteed by the parent. In connection with
the rental of one facility, an irrevocable letter of credit in the amount of
$83,000 has been issued by a financial institution on behalf of the Company
securing payment of future rent. The letter of credit is collateralized by an
interest-bearing deposit of $83,000. All of the leases require the Company to
pay real estate taxes, insurance and maintenance on the respective properties.
Future minimum rentals under these leases are as follows:
As of
December 31, 1995 October 6, 1996(a)
(Unaudited)
Fiscal years ending: ----------------- ------------------
1996 $ 456,411 $ 89,082
1997 474,678 539,984
1998 487,330 548,471
1999 457,444 432,058
2000 249,277 468,009
Subsequent years 761,320 369,357
------------ -----------
$2,886,460 $2,446,961
============ ===========
(a) Excludes amounts related to leased properties discussed in Notes 10 and 12
- Provision for Restaurant closing.
The total rent expense included in the statements of operations is approximately
$363,000 and $85,000 for the fiscal years ended December 31, 1995 and December
25, 1994, respectively, and $663,601 (Unaudited) and $270,000 (Unaudited) for
the 40 weeks ended October 6, 1996 and October 1, 1995, respectively.
F-15
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 6. Deferred Income Taxes
The Company accounts for deferred income taxes under the liability method. As
explained in Note 1, the liability method requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the reported amounts of assets and liabilities and their tax
bases. The sources of these differences as of December 31, 1995 and October 6,
1996 and the tax effect for each were as follows:
(Unaudited)
December 31, October 6,
1995 1996
Deferred tax assets: ----------- -----------
Other assets ....................... $ 135,848 $ 97,643
Tax credit carryforwards ........... 87,517 115,272
Accrued expenses ................... 58,000 296,371
Leasehold improvements and equipment -- 5,746
Net operating loss carryforwards ... 567,258 985,382
----------- -----------
848,623 1,500,414
Valuation allowance ................ (745,332) (1,413,775)
----------- -----------
103,291 86,639
Deferred tax liability:
Leasehold improvements and equipment 103,291 86,639
----------- -----------
$ - $ -
=========== ===========
No income taxes are reflected in the statements of operations for the fiscal
years ended December 31, 1995 and December 25, 1994 and the 40 weeks ended
October 6, 1996 and October 1, 1995, since they have been eliminated by a
valuation allowance. The valuation allowance increased by $407,664 and $337,668
during the fiscal years ended December 31, 1995 and December 25, 1994,
respectively, and by $668,443 (Unaudited) during the 40 weeks ended October 6,
1996.
The Company has net operating loss carryforwards of approximately $2,463,454
(Unaudited). See Note 1 regarding the conditions necessary to receive the tax
benefits of these losses from the parent company.
F-16
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 7. Related Party Transactions
The Company pays a monthly amount to the parent for ongoing rent and accounting
services. Total charges by the parent to the Company were approximately $162,834
for the fiscal year ended December 31, 1995, $98,000 for the fiscal year ended
December 25, 1994, $127,480 (Unaudited) for the 40 weeks ended October 6, 1996,
and $120,667 (Unaudited) for the 40 weeks ended October 1, 1995. At December 31,
1995 and October 6, 1996, the amounts due the parent were $43,006 and $36,666
(Unaudited), respectively. Management believes services being provided from
related parties are at fair value.
Note 8. Accounting Changes
At December 26, 1993, the Company had deferred $59,913 of pre-opening restaurant
costs in anticipation of capitalizing and amortizing them over the period
expected to be benefitted. In 1994, the Company decided that since the period
benefitted was short, it was more proper to expense these costs as incurred.
Accordingly, the Company changed its method of accounting for pre-opening costs
to expense such costs as incurred. The cumulative effect of the change in
accounting method for pre-opening costs of $59,913 was charged to income in
1994. There was no income tax effect since the related deferred tax asset was
offset by an equal valuation allowance. This change had the effect of increasing
the net loss for the year ended December 25, 1994, by $531,000 compared to the
net loss had the Company continued to capitalize pre-opening costs and amortize
them over a 36-month period.
Note 9. Purchase of Franchised Cookie Stores
The Company entered into a purchase and franchise agreement with Mrs. Fields
Development Corporation by which the Company purchased for $364,673 an existing
cookie store in Flint, Michigan. The purchase price was allocated $15,000 to
equipment, $65,789 to leasehold improvements, $25,000 to franchise rights, and
$258,884 to goodwill. The purchase was effective December 7, 1995.
The Company also entered into an agreement with an affiliate (wholly owned by an
owner of the parent) (see Note 12 - Acquisitions) to purchase six existing
franchised Mrs. Fields cookie stores January 1, 1996 for $703,875. Allocation of
the purchase price resulted in equipment of $90,000, leasehold improvements of
$328,945, franchise rights of $150,000, goodwill of $113,930 and inventory of
$21,000. In November and December 1995, the Company advanced $554,048 to the
affiliate towards the purchase of the stores. The payments have been included in
deposits in the financial statements as of December 31, 1995. The remaining
amount of $149,827 was paid in March 1996.
F-17
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 10. Provision for Loss on Leased Property
During 1995, the Company provided a $145,000 allowance for loss on leased
property which the Company no longer plans to develop. The allowance represents
management's estimate of loss, including loss on purchased leasehold
improvements, carrying costs, and commissions. During September 1996 the Company
executed a sublease whereby the sublessee will pay substantially all amounts due
under the original lease agreement for the remaining lease term. Under certain
conditions, the sublessee may terminate the lease in September 1998 causing the
Company to be liable for the remaining rentals of $5,184 per month through
September 30, 2003, equivalent to $311,040. During 1996 the Company provided an
additional $50,000 (Unaudited) to the allowance for loss.
Note 11. Contributed Services of Officers
The Company's officers have received no compensation for services provided by
them since inception of the Company. Accordingly, in order for the financial
statements to reflect reasonable compensation levels, capital contributions of
$50,000 for each of the fiscal years ended December 31, 1995 and December 25,
1994, and $77,000 (Unaudited) and $38,000 (Unaudited) for the 40 weeks ended
October 6, 1996 and October 1, 1995, respectively, have been recorded to reflect
the fair market value of such services. Offsetting amounts have been included in
general and administrative expenses in the accompanying statements of
operations.
Events (Unaudited) Subsequent to the Date of the Independent Auditor's Report
Note 12. Subsequent Events
Suspension of Interest Payments
On May 1, 1996, payments of interest on the Secured Promissory Notes were
suspended to conserve cash for operating purposes. Per the agency agreement for
the Secured Promissory Notes, an event of default occurs upon failure by the
Company to pay interest on the notes when it becomes due and payable and the
continuance of such failure for 90 days. If an event of default occurs and is
continuing, the noteholders' agent by notice to the Company, or the noteholders
of at least 25% of the principal amount of the notes by notice to the Company
and the Agent, may declare the notes and accrued interest to be due and payable
immediately. As of October 6, 1996 the Company has not received notice of
acceleration from either the noteholders' agent or the noteholders. The notes
have been classified as current liabilities as of October 6, 1996 and as of this
date, accrued and unpaid interest on these notes is $228,149 (Unaudited).
F-18
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 12. Subsequent Events (continued)
Public Offering
In August 1996 and November 1996, the Company executed letters of intent with
two underwriters to file a Registration Statement on Form SB-2 with the
Securities and Exchange Commission to offer approximately $6.5 million of its
common stock in an initial public offering (IPO). In connection therewith, the
Company intends to issue warrants to a) the purchasers of shares of the common
stock on a one-to-one basis and b) to the underwriter which will enable the
underwriter to acquire shares of common stock equal to 10% of the shares offered
in the IPO. It is anticipated that the warrants will be exercisable between one
and five years after the IPO at a price equal to 120% of the share price of the
IPO.
In conjunction with the IPO, the Company will offer common stock to the
noteholders to obtain conversion of the Secured Promissory Notes (See Note 4) to
equity. The number of common shares offered will be equal to 120% of the
outstanding debt and unpaid interest ($333,000 as of December 31, 1996) divided
by the IPO per share offering price.
Concurrent with the IPO, the Company's 10% Convertible Preferred Stock will be
converted to common stock in accordance with the original conversion privileges
(See Note 2).
Bridge Loan and SFAS 123
In October 1996, the Company received $210,000 in bridge loan financing from a
group of lenders. This borrowing bears interest at the LIBOR rate and is due on
the earlier of the close of the Company's IPO or nine months from the date of
issuance. In conjunction with this financing, the Company will issue as
additional compensation to the lender forty-two thousand (42,000) shares of the
Company's common stock to be sold in conjunction with the Company's IPO. The
additional compensation of $273,000 (42,000 shares at $6.50 per share) has been
recognized as deferred financing cost and as additional capital in excess of par
value at October 6, 1996. This deferred charge will be charged to operations
over the estimated life of the bridge loan.
During November and December 1996, the Company received an additional $273,000
in bridge loan financing from a group of lenders. In conjunction with this
additional financing, the Company will issue as additional compensation to the
lenders forty-nine thousand (49,000) shares of the Company's common stock to be
sold in conjunction with the Company's IPO. This additional compensation of
$318,500 (49,000 shares at $6.50) will be accounted for in the same manner as
discussed above.
F-19
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 12. Subsequent Events (continued)
During October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans and also applies to transactions in which an entity
issues its equity instruments to acquire goods or services from non-employees.
SFAS 123 defines a fair value-based method of accounting for an employee stock
option or similar equity instruments and encourages all entities to adopt that
method of accounting. SFAS 123 also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value-based method of
accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25). SFAS 123 is effective for transactions
entered into in fiscal years beginning after December 15, 1995. Pro forma
disclosures required for entities that elect to continue to measure compensation
cost using APB 25 must include the effect of all awards granted in fiscal years
beginning after December 15, 1994. The Company plans to continue to measure
compensation cost using APB 25 for employee stock options.
However, during 1996, the Company adopted the provision of SFAS 123 for
non-employee stock transactions.
Acquisitions
On October 18, 1996, the Company acquired 100% of the outstanding common stock
of an affiliate (wholly owned by an officer of the Company and parent) for $1.
The affiliate currently operates six franchised Mrs. Fields Cookie stores
located in Missouri. The acquisition will be accounted for as a purchase
transaction. At the date of purchase, this company had $1,383,576 of total
assets and $2,030,714 of total liabilities (including $1,690,000 of redeemable
preferred stock). The transaction resulted in $662,138 of goodwill which will be
charged to accumulated deficit as it is considered a preferential dividend due
to the related party nature of the transaction. The assets and liabilities have
been recorded at fair market value which approximates historical cost. For the
nine months ended October 6, 1996, this company's sales were $1,292,532 and
income from operations were $3,139.
Stock Compensation Plan
The 1996 Stock Compensation Plan ("Plan") was approved by shareholders of the
Company on November 14, 1996. There will be reserved for the use upon the
exercise of Options to be granted from time to time under the Plan, an aggregate
of two hundred thousand (200,000) shares of common stock, $.01 par value, of the
Company which shares in whole or in part shall be authorized, but unissued,
shares of the Common Stock or issued shares of Common Stock which shall have
been reacquired by the Company as determined from time to time by the Board of
Directors of the Company.
F-20
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 12. Subsequent Events (continued)
On November 14, 1996, the Board of Directors approved the grant of 100,000
shares to employees, officers and directors at a price of $5.00 per share which
become exercisable one year from date of grant.
Write off of Franchise Fee Options
During third quarter 1996, the Company recognized a charge to operations of
$145,000 to write off the franchise fee options paid in contemplation of
building additional Hooters restaurants. This write down was recorded, because
under existing agreements with Hooters the Company may have no options to build
additional restaurants.
Provision for Restaurant Closing
During first quarter 1996, the Company recognized a long lived asset charge of
$327,148 related to one of its Hooters restaurants. A loss was recognized for
the carrying amount of the equipment, building improvements, and franchise fee
related to the restaurant. In addition, a $100,000 provision was established for
probable future expenses primarily related to vacating the lease of this
location.
During the third quarter of 1996, the Company closed the restaurant and has
entered into an agreement with the landlord to vacate the lease agreement. Under
the terms of the agreement the Company surrendered to the landlord all leasehold
improvements and equipment housed at the site and the Company is obligated to
pay the landlord $4,750 per month from August 1, 1996 through June 30, 2005.
Accordingly, the Company has recorded an additional provision of $450,000 to
provide for the settlement with the landlord and all costs and expenses
associated with the closing of the site.
Sale of Common Stock
As a result of an option issued by the Company on July 11, 1996, the Company
sold 190,136 shares of common stock to an independent investor for $130,000 in
September 1996.
Changes in authorized and Issued common Stock
In October, 1996, the Company changed its common stock, no par value, 1,000
shares authorized to common stock with a par value of $.01 with 10,000,000
shares authorized. In connection with this change, 20,126 shares of the new
common stock were issued for each share of the old common stock outstanding.
This change has been retroactively reflected in the accompanying financial
statements.
F-21
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 13. Going Concern
The Company has incurred recurring losses and its ability to continue as a going
concern is dependent on several factors. The successful completion of the IPO
discussed in Note 12 is expected to position the Company to continue as a going
concern and to pursue its business strategies.
As discussed in Note 12, the Company is currently in default of the provisions
of the $3,700,000 Secured Promissory Notes and unable to service the notes in
accordance with the original terms. Further, the Bridge Loan Notes are
subordinate to the Secured Promissory Notes. If the IPO is unsuccessful,the
Company will remain in default on the Secured Promissory Notes and in accordance
with the default provisions be prohibited from repaying the Bridge Loan Notes.
In the event the IPO is unsuccessful, the Company will seek alternate sources of
equity or attempt to refinance or renegotiate its debt obligations or it may be
required to seek protection from creditors under the Federal Bankruptcy Code.
F-22
<PAGE>
COOKIE CRUMBS, INC.
FINANCIAL REPORT
DECEMBER 31, 1995
AND
OCTOBER 6, 1996
(Unaudited)
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Cookie Crumbs, Inc.
Hoffman Estates, Illinois
We have audited the accompanying balance sheet of Cookie Crumbs, Inc. as of
December 31, 1995, and the related statements of operations, stockholder's
equity (deficit), and cash flows for the period from May 17, 1995 (inception) to
December 31, 1995. 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 principles 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 Cookie Crumbs, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for the
period from May 17, 1995 (inception) to December 31, 1995, in conformity with
generally accepted accounting principles.
Schaumburg, Illinois September 19, 1996, except for the second paragraph of Note
10, as to which the date is September 30, 1996 and Note 11, as to which the date
is October 18, 1996.
F-23
<PAGE>
COOKIE CRUMBS, INC.
BALANCE SHEETS
ASSETS December 31, October 6,
1995 1996
(Unaudited)
---------- -----------
Current Assets
Cash ............................................. $ 200,032 $ 38,081
Accounts receivable .............................. 19,345 4,306
Inventories ...................................... 14,220 21,451
Prepaid expenses ................................. -- 12,576
Due from affiliate ............................... 5,037 17,096
Assets available for sale (Note 10) .............. 735,862 62,500
---------- -----------
Total current assets .................... 974,496 156,010
---------- -----------
Leasehold Improvements and Equipment
Leasehold improvements ........................... 316,884 454,335
Equipment ........................................ 277,434 212,287
---------- -----------
594,318 666,622
---------- -----------
Less accumulated depreciation and amortization ... 44,600 131,085
---------- -----------
549,718 535,537
Deferred income taxes ................................. 17,150 17,150
---------- -----------
Other Assets
Franchise costs, net of accumulated
amortization of $3,973 and $11,806, respectively 146,027 138,194
Goodwill, net of accumulated amortization of
$18,082 and $45,204, respectively .............. 524,367 497,245
Organization costs, net of accumulated
amortization of $3,008 and $7,895, respectively 27,073 23,686
Deposits ......................................... 9,217 15,754
---------- -----------
706,684 674,879
---------- -----------
$2,248,048 $1,383,576
========== ===========
See Notes to Financial Statements.
F-24
<PAGE>
COOKIE CRUMBS, INC.
LIABILITIES AND STOCKHOLDER'S EQUITY (Deficit)
December 31, October 6,
1995 1996
(Unaudited)
---------- -----------
Current Liabilities
Current maturities of capital lease obligations $ 31,239 $ 33,673
Advances from affiliate ....................... 554,048 --
Accounts payable .............................. 125,552 107,323
Accrued liabilities ........................... 119,437 61,420
Note due sole stockholder ..................... -- 100,000
Income taxes payable .......................... 17,150 --
Capital lease obligations to be assumed with
assets available for sale (Notes 6 and 10) . 89,705 --
--------- ------------
Total current liabilities ............ 937,131 302,416
--------- ------------
Capital Lease Obligations, less current maturities . 58,467 38,298
--------- ------------
Redeemable Preferred Stock, $100 par value;
100,000 authorized, 16,650 and 16,900
shares issued and outstanding, respectively ... 1,665,000 1,690,000
--------- ------------
Stockholder's Equity (Deficit)
Common stock, no par value; 10,000 shares
authorized, 1,000 shares issued and
outstanding ................................. 15,000 15,000
Accumulated deficit ........................... (427,550) (662,138)
--------- ------------
(412,550) (647,138)
--------- ------------
$ 2,248,048 $ 1,383,576
============ ============
See Notes to Financial Statements.
F-25
<PAGE>
COOKIE CRUMBS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C>
For the Period
For the Period from from May 17,
May 17, 1995 For the 1995 (inception)
(inception) to 40 weeks ended to September
December 31, 1995 October 6, 1996 30, 1995
(Unaudited) (Unaudited)
----------- ----------- -----------
Sales .................................. $ 1,244,629 $ 1,292,532 $ 407,161
Cost and Expenses:
Cost of products sold ............. 320,588 331,250 90,790
Salaries and benefits ............. 258,403 344,934 65,712
Other operating expenses .......... 357,310 489,859 99,154
Depreciation and amortization ..... 102,052 123,350 30,805
----------- ----------- -----------
Total cost and expenses ......... 1,038,353 1,289,393 286,461
Income from operations .......... 206,276 3,139 120,700
General and administrative expense ..... 162,501 139,632 98,748
----------- ----------- -----------
Operating Income (Loss) ......... 43,775 (136,493) 21,952
----------- ----------- -----------
Financial income (expenses):
Interest income ................... 6,462 8,412 4,123
Interest expense .................. (15,927) (7,253) (3,313)
Loss or impairment of asset ....... (159,474) -- --
Gain on sale of fixed assets ...... -- 30,513 --
----------- ----------- -----------
(168,939) 31,672 810
----------- ----------- -----------
Income (Loss) before income taxes (125,164) (104,821) 22,762
Income taxes (note 8) .................. -- -- --
----------- ----------- -----------
Net Income (Loss) ............... $ (125,164) $ (104,821) $ 22,762
=========== =========== ===========
</TABLE>
Continued to page -5-
F-26
<PAGE>
COOKIE CRUMBS, INC.
STATEMENTS OF OPERATIONS (Continued from page -4-)
For the Period
For the Period from from May 17,
May 17, 1995 For the 1995 (inception)
(inception) to 40 weeks ended to September
December 31, 1995 October 6, 1996 30, 1995
(Unaudited) (Unaudited)
----------- ----------- -----------
Net Income (Loss) ........... $(125,164) $(104,821) $ 22,762
Preferred Stock Dividends ... (86,388) (129,017) (37,235)
----------- ----------- -----------
Net (Loss) applicable
to Common shareholders $(211,552) $(233,838) $ (14,473)
=========== ========== ===========
Weighted average number of
shares outstanding ... 1,000 1,000 1,000
=========== ========== ===========
Net (Loss) per
Common Share ......... $ (212) $ (234) $ (14)
=========== ========== ===========
See Notes to Financial Statements.
F-27
<PAGE>
COOKIE CRUMBS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
Common Accumulated
Stock Deficit Total
--------- --------- ---------
Issuance of 1,000 shares
common stock ..................... $ 15,000 $ -- $ 15,000
Issuance costs related to
redeemable preferred stock ....... -- (200,998) (200,998)
Dividends .......................... -- (101,388) (101,388)
Net (loss) ......................... -- (125,164) (125,164)
--------- --------- ---------
Balance, December 31, 1995 ......... 15,000 (427,550) (412,550)
--------- --------- ---------
Dividends (Unaudited) .............. -- (129,017) (129,017)
Issuance costs related to redeemable
preferred stock (Unaudited) ...... -- (750) (750)
Net (loss) (Unaudited) ............. -- (104,821) (104,821)
--------- --------- ---------
Balance, October 6, 1996
(Unaudited) ...................... $ 15,000 $(662,138) $(647,138)
========== ========== ==========
See Notes to Financial Statements.
F-28
<PAGE>
COOKIE CRUMBS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
For the period
For the Period from from May 17,
May 17, 1995 For the 1995 (inception)
(inception) to 40 weeks ended to September
December 31, October 6, 1996 30,1995
1995 (Unaudited) (Unaudited)
------------ ------------ -----------
Cash Flows from Operating Activities:
Net income (loss) ........................................... $ (125,164) $ (104,821) $ 22,762
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization ........................... 105,144 128,277 32,426
Loss on impairment of asset ............................. 159,474 -- --
Deferred income taxes ................................... (17,150) -- --
Changes in operating assets and liabilities:
Accounts receivable ..................................... (19,345) 15,039 (15,415)
Prepaid expense ......................................... -- (12,576) --
Inventories ............................................. 1,785 (7,231) --
Due from affiliate ...................................... (5,037) (12,059) --
Accounts payable ........................................ 125,552 (18,229) 67,562
Accrued liabilities ..................................... 119,437 (58,017) --
Income taxes payable .................................... 17,150 (17,150) --
------------ ------------ -----------
Net cash provided by(used in) operating activities 361,846 (86,767) 107,335
------------ ------------ -----------
Cash Flows From Investing Activities
Acquisition of Stores net of $1,500 of cash
acquired (includes assets available for sale
of $733,912) .............................................. (1,834,875) -- (1,098,750)
Deposits .................................................... (9,217) (6,537) (10,000)
Organizational costs ........................................ (30,081) (1,500) (4,000)
Leasehold improvements and equipment ........................ (200,199) (168,786) (2,020)
------------ ------------ -----------
Net cash (used in) investing activities .......... (2,074,372) (176,823) (1,114,770)
------------ ------------ -----------
Cash Flows From Financing Activities
Disposition of assets available for sale .................... -- 673,362 --
Advances from affiliate ..................................... 554,048 (554,048) --
Borrowing from franchisor ................................... 600,000 -- 600,000
Payments on borrowings from franchisor ...................... (600,000) -- (600,000)
Borrowings from sole stockholder ............................ 500,000 100,000 500,000
Payments on borrowings from sole stockholder ................ (500,000) -- (500,000)
Payments on capital lease obligations ....................... (19,104) (12,908) --
Proceeds from issuance of common stock ...................... 15,000 -- 15,000
Proceeds from issuance of preferred stock, net .............. 1,464,002 24,250 1,297,513
Dividends paid .............................................. (101,388) (129,017) --
------------ ------------ -----------
Net cash provided by financing activities ........ 1,912,558 101,639 1,312,513
------------ ------------ -----------
Net increase (decrease) in cash .................. 200,032 (161,951) 305,078
Cash:
Beginning ................................................... -- 200,032 --
------------ ------------ -----------
Ending ...................................................... $ 200,032 $ 38,081 $ 305,078
============ ============ ===========
Supplemental Disclosures of Cash Flow Information
Cash payments for interest .................................. $ 15,415 $ 7,253 $ --
Supplemental Schedule of Noncash Investing
and Financing Activities
Capital lease obligations incurred for
purchase of equipment ..................................... 203,164 -- --
Capital lease obligations assumed by others in connection
with the sale of equipment ................................ -- (89,705) --
</TABLE>
See Notes to Financial Statements.
F-29
<PAGE>
COOKIE CRUMBS
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Cookie Crumbs, Inc. (the Company) was formed May 17, 1995,
and incorporated in the State of Illinois. The Company was formed to acquire,
own, operate, and manage a minimum of six cookie store facilities which meet the
plans and specifications for franchised Mrs. Fields Cookie Stores in the St.
Louis, Missouri area. At October 6, 1996, the Company maintained seven stores
located in Missouri (6) and Michigan (1).
Significant accounting policies are as follows:
Interim financial data: The October 6, 1996 balance sheet and the statements of
operations, stockholders equity (deficit) and cash flows for the 40 weeks ending
October 6, 1996 and the period May 17, 1995 (inception) to September 30, 1995
are unaudited. In the opinion of management these statements have been prepared
on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary to state
fairly the information set forth therein. Operating results for the 40 weeks
ending October 6, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
Accounting estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of cash: The Company has funds on deposit at two different
financial institutions which may, at times, be in excess of federally insured
limits.
Inventories: Inventories, consisting of food and beverage items are stated at
the lower of cost or market on a first-in, first-out basis. Cost is determined
by most recent invoice price.
Impairment of Long Lived Assets: Long lived assets are evaluated for impairment
based on an analysis of cashflow on a store by store basis.
Leasehold improvements and equipment: Leasehold improvements and equipment are
carried at cost and are depreciated and amortized using the straight-line method
over the estimated useful lives of the assets. In general, the assets have the
following lives:
Leasehold improvements over lease term
Equipment 3 years used/8 years new
Amortization on leased assets is included with depreciation and amortization on
owned assets.
Goodwill: The Company has classified as goodwill the cost in excess of fair
value of the net assets of the stores acquired in purchase transactions.
Goodwill is being amortized on a straight-line method over 15 years.
F-30
<PAGE>
COOKIE CRUMBS
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (continued)
Franchise costs: Franchise costs represent payments made for the rights to
operate cookie store facilities meeting the plans and specifications of the
franchisor. Franchise costs are amortized to expense using the straight-line
method over a 15-year period commencing with the acquisition of the store.
Organization costs: Organization costs are one-time costs related to the
formation of the Company and are being amortized to expense using the
straight-line method over a five-year period commencing with the opening of the
first cookie store in June 1995.
Offering expenses: Offering expenses incurred by the Company in connection with
the issuance of preferred stock have been charged direct to accumulated deficit
because the preferred stock is redeemable. Offering expenses include legal,
accounting, escrow, regulatory and blue sky expenses, printing costs, expense
reimbursements, and commissions paid to brokers.
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Financial instruments: The Company has no financial instruments for which the
carrying value differs materially from fair value.
Net income per common share: Net income per common share is based on the
weighted average number of common and common equivalent shares outstanding.
Note 2. Incorporation and Business Acquisitions
In May 1995, the Company was incorporated and 1,000 shares of common stock were
issued for $15,000. In two separate purchase transactions during the period May
17, 1995 (inception) to December 31, 1995 the Company purchased thirteen
operating cookie stores for cash of $1,836,375. The assets acquired were as
follows:
Cash $ 1,500
Deposits 8,916
Inventory 36,500
Equipment and leaseholds 808,080
Franchise fees 325,000
Goodwill 656,379
-------------
$1,836,375
=============
F-31
<PAGE>
COOKIE CRUMBS
NOTES TO FINANCIAL STATEMENTS
Note 2. Incorporation and Business Acquisitions (Continued)
The acquisitions were accounted for using the purchase method of accounting and,
therefore, assets were recorded at their fair values. The financial statements
include the results of operations of the acquired business since the date of
acquisition (see Note 10).
Note 3. Related Party Transactions
A company related through common ownership provides management and accounting
services for the Company on a monthly basis. Total charges for these services
for the period from May 17, 1995 (inception) to December 31, 1995, were
approximately $11,500, for the 40 weeks ending October 6, 1996, were
approximately $22,000 (Unaudited) and for the period from May 17, 1995
(inception) to September 30, 1995 were approximately $6,050 (Unaudited).
In connection with a private placement of preferred stock, a company related
through common ownership was used to provide financial advisory and investor
relations services for a charge of 3% of gross proceeds raised by the offering.
Total charges by the related company in connection with the offering were
approximately $50,000 (see Note 9).
Note 4. Franchise Agreement
The Company operates under a franchise agreement with the franchisor. In
addition to an initial franchise fee for each location, the Company is required
to pay the franchisor additional fees for royalties based on a percentage of
sales. These fees totaled approximately $47,000 for the period from May 17, 1995
(inception) to December 31, 1995, $61,000 for the 40 weeks ending October 6,
1996 (Unaudited) and $16,000 (Unaudited) for the period from May 17, 1995
(inception) to September 30, 1995.
The franchise agreement also provides that all cookie materials be purchased
from one vendor specified in the agreement.
Note 5. Line of Credit
The Company maintains an unsecured revolving line of credit with the sole
stockholder. The line provides for borrowing of up to $1,000,000. The borrowing
are due on demand and bear interest at prime (8.25% at December 31, 1995) plus
2%. There were no outstanding borrowings at December 31, 1995.
Note 6. Capital Lease Obligation
An equipment lease was recorded by the Company as a capital lease for financial
statement purposes. The capitalized value of the equipment and related
obligation under capital lease was established based on the present value of the
estimated future minimum monthly lease payments of $6,838 over the 36 month
lease term. The cost of leased equipment was $203,164 and the related
accumulated amortization was $3,907 and $8,073 (Unaudited) at December 31, 1995
and October 6, 1996, respectively.
F-32
<PAGE>
COOKIE CRUMBS
NOTES TO FINANCIAL STATEMENTS
Note 6. Capital Lease Obligation (continued)
The following is a schedule of future minimum payments under this capital lease
as of December 31, 1995 and October 6, 1996, together with the present value of
net minimum lease payments.
(Unaudited)
December 31, October 6,
Years ending December 31: 1995 1996
---------- ---------
1996 $ 82,056 $ 10,258
1997 82,056 41,031
1998 47,869 30,775
---------- ---------
211,981 82,064
Less amount representing interest 32,570 10,093
---------- ---------
Present value of net minimum lease payments 179,411 71,971
Less amount related to assets available for sale (a) 89,705 -
Less current maturities 31,239 33,673
---------- ---------
Long-term portion $ 58,467 $ 38,298
========== =========
(a) Subsequent to December 31, 1995, the Company sold six stores to a related
party (see Note 10) and, as a result, the present value of the net minimum
lease payments of $89,705 has been assumed by the related party.
Note 7. Lease Commitments
The Company has leased facilities under noncancelable leases expiring from
January 23, 1999 through June 30, 2005, with options to renew for certain
leases. The leases contain a percentage rent provision that allows for
additional rents of 10% of gross sales over a minimum gross sales base. All of
the leases provide for the Company to also pay real estate taxes, insurance and
maintenance on the property. The leases also provide the lessor with the ability
to charge an additional percentage rent for general advertising costs.
Future minimum rental under these leases are as follows:
As of
(Unaudited)
December 31, 1995 October 6, 1996
----------- ------------
Fiscal years ending:
1996 $ 488,153 $ 71,317
1997 510,026 285,600
1998 520,818 299,017
1999 356,840 248,870
2000 261,462 175,772
Subsequent years 815,465 610,977
----------- ------------
$2,952,764 $1,691,553
=========== ============
F-33
<PAGE>
COOKIE CRUMBS
NOTES TO FINANCIAL STATEMENTS
Note 7. Lease Commitments (continued)
Subsequent to December 31, 1995, the Company sold six stores to a related party
(see Note 10) and as a result future minimum rentals of $1,128,399 has been
assumed by the related party.
The total rent expense included in the statements of operation for the period
from May 17, 1995 (inception) to December 31, 1995, is approximately $152,000,
including approximately $2,600 relating to percentage rent. The total rent
expense for the 40 weeks ending October 6, 1996 is approximately $196,000
(Unaudited) and for the period May 17, 1995 (inception) to September 30, 1995 is
approximately $42,000 (Unaudited).
Note 8. Income Taxes
The Company accounts for deferred income taxes under the liability method. As
explained in Note 1, the tax liability method requires the recognition of
deferred tax assets and liabilities for operating loss carryforwards and the
expected future tax consequences of temporary differences between the reported
amounts of assets and liabilities and their tax bases.
The deferred tax assets and liabilities consist of the following components as
follows:
At
------------------------------
(Unaudited)
December 31, October 6,
1995 1996
-------- --------
Deferred tax assets:
Loss on impairment of assets .......... $ 63,790 $ 63,790
Equipment and leasehold improvements .. 6,860 --
Accruals .............................. 6,380 --
Net operating losses .................. -- 85,264
-------- --------
77,030 149,054
Less valuation allowance ................... 59,880 91,952
-------- --------
17,150 57,102
-------- --------
Deferred tax liabilities:
Equipment, leaseholds, and amortization -- 39,952
-------- --------
$ 17,150 $ 17,150
======== ========
The deferred tax amounts mentioned above have been classified in the
accompanying balance sheet as a long-term asset.
F-34
<PAGE>
COOKIE CRUMBS
NOTES TO FINANCIAL STATEMENTS
Note 8. Income Taxes (continued)
Income tax expense consists of the following:
(Unaudited)
Period from Period from
May 17, 1995 (Unaudited) May 17, 1995
(inception) to 40 weeks ending (inception) to
December 31, 1995 October 6, 1996 September 30, 1995
----------------- --------------- ------------------
Current $ 17,150 $ - $ -
Deferred (17,150) - -
------------ ----------- ------------
$ - $ - $ -
============ =========== ============
Reconciliation of income tax expense computed at the statutory federal income
tax rate to the Company's income tax expense is as follows:
(Unaudited)
Period from Period from
May 17, 1995 (Unaudited) May 17, 1995
(inception) to 40 weeks ending (inception) to
December 31, 1995 October 6, 1996 September 30, 1995
----------------- --------------- ------------------
Computed "expected" tax
(credits) .................. $(42,500) $(35,996) $ (7,739)
Increase (decrease) resulting
from:
Lower bracket rates .... (12,420) 8,159 4,738
State income taxes ..... (4,960) (4,235) (910)
Valuation allowance .... 59,880 32,072 3,911
--------- --------- ---------
$ - $ - $ -
========= ========= =========
Note 9. Preferred Stock Offering
From June 20, 1995 to January 25, 1996, the Company offered through a private
placement a maximum of $4,000,000 of its 10% participating preferred stock at an
offering price of $100 per share exclusively to accredited investors. The
redemption price of the preferred stock equals its par value plus any accrued
and unpaid dividends and can be redeemed at any time after January 31, 1998, at
the option of the Investor, during any fiscal year in which the Company has net
income in excess of required dividend distributions, including unpaid cumulative
Regular dividends, provided, however, that the Company has no obligation to
apply more than 25% of its net income (adjusted as aforesaid) for its prior
fiscal year towards the redemption of any Shares so surrendered for redemption.
Similarly, at any time after January 31, 1998, the preferred stock is
redeemable, in whole or in part, at the option of the Company, for an amount
equal to the redemption value plus 3% of the Offering price of such Shares. In
the event of a sale of substantially all of the assets and liquidation of the
Company, the liquidation value of the preferred stock is equal to the redemption
price
F-35
<PAGE>
COOKIE CRUMBS
NOTES TO FINANCIAL STATEMENTS
Note 9. Preferred Stock Offering (continued)
plus, pro rata, 10% of the proceeds from the sale up to 8% of the par value.
Holders of the shares will be entitled to receive, to the extent declared by the
Company's Board of Directors, noncompounded, cumulative dividends in an amount
equal to 10% per annum on the offering price of the shares. In addition, holders
of shares will be entitled to receive, to the extent declared by the Company's
Board of Directors, on a pro rata basis, an additional dividend (Participating
Dividend) in respect of each fiscal year of the Company in an amount equal to
10% of the Company's net income for such year determined in accordance with
generally accepted accounting principles provided, however, in no event shall
the Participating Dividend, if any, exceed 8% of the Offering Price. The
Participating Dividend shall be noncumulative and noncompounded. The shares have
no voting rights.
The Company paid $201,748 of costs and expenses in connection with this
offering. These included commissions, legal, accounting, escrow costs, Blue Sky
compliance, printing costs and other expenses relating to the qualification and
offering of the shares. A total of $1,690,000 ($1,488,252 net of expenses) was
raised through this offering.
Note 10. Disposal of Significant Assets
As of December 31, 1995, the Company had entered into an agreement with an
affiliate to sell six existing franchised Mrs. Fields cookie stores which were
acquired by the Company in October 13, 1995 effective January 1, 1996, for fair
value of $703,875. In November and December 1995, the Company received advances
of $554,048 from the affiliate towards the purchase of the stores. The payment
has been reflected as advances from affiliate in the financial statements as of
December 31, 1995. The remaining amount due of $149,827 was subsequently
received in March 1996. Included in the statement of operations for the period
from May 17, 1995 (inception) to December 31, 1995 are net sales of $386,748 and
income from operations of $88,215 that are attributable to these six stores for
the period October 13, 1995 to December 31, 1995. This sale resulted in a gain
of $30,513.
On October 26, 1996, the Company sold a cookie store for $62,500 to an unrelated
party. Since the carrying value of the assets of this store at December 31, 1995
were $221,974, a loss on impairment of assets of $159,474 has been recognized in
the Statement of Operations for the period May 17, 1995 (inception) to December
31, 1995. Also included in the Statements of Operations for the period from May
17, 1995 (inception) to December 31, 1995 and the 40 weeks ending October 6,
1996, are net sales of $74,279 and $131,037 (Unaudited), respectively, and
income (loss) from operations of $74 and $(2,951) (Unaudited), respectively,
attributable to this store.
F-36
<PAGE>
COOKIE CRUMBS
NOTES TO FINANCIAL STATEMENTS
Note 10. Disposal of significant Assets (continued)
Summary of assets and liabilities to be sold:
(a) Sale of stores to affiliate on January 1, 1996:
Inventory $ 21,000
Equipment and leaseholds (net) 391,550
Franchise fee (net) 147,690
Goodwill (net) 113,122
----------
$ 673,362
(b) Sale of store, equipment,
leaseholds and franchise fee
to unrelated party on October 26, 1996 62,500
----------
$ 735,862
==========
Note 11. Subsequent Event
In October 1996, the sole common stockholder entered into an agreement with an
affiliate (sole common stockholder of the Company is owner-officer of the
affiliate) to sell 100 percent of the outstanding common stock of the Company to
the affiliate for $1. This transaction was completed October 18, 1996.
F-37
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed consolidated proforma balance sheets at
October 6, 1996 and the statements of operations for the 40 weeks ended October
6, 1996 and the year ended December 31, 1995 (collectively, the "Proforma
Statements") were prepared to illustrate the estimated effects of the purchase
of Cookie Crumbs, Inc., the conversion of the secured promissory notes as if
100% had accepted the Exchange offer, the conversion of preferred stock to
common stock, the effect of the bridge loans, and the sale of the shares of
common stock offered hereby by the Company, as if those transactions had
occurred for statement of operations purposes as of January 1, 1995 and for
balance sheet purposes as of October 6, 1996. The Proforma Statements do not
purport to represent what the Company's results of operations or balance sheet
would actually have been if such transactions had indeed taken place on such
dates or to project the Company's results of operations or balance sheet for any
future period or date.
The adjustments for the Proforma Statements are based on available information
and upon certain assumptions which management believes are reasonable. The
Proforma Statements and accompanying notes thereto should be read in conjunction
with the Financial Statements and notes thereto, and other financial information
appearing elsewhere in this Prospectus.
F-38
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED BALANCE SHEETS (Unaudited)
October 6, 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Cookie
Cookie Crumbs Butterwings Pro Forma
Assets Butterwings Crumbs Acquisition Adjusted Adjustments(7) Pro Forma
- ------ ----------- ----------- ------- ----------- ------------ ------------
(1)
Current Assets
Cash and cash equivalents ........................$ 497,091 $ 38,081 $ -- $ 535,171 $ 5,300,000(3) --
-- -- -- -- (210,000)(4) 5,625,171
Accounts receivable .............................. 1,814 4,306 -- 6,120 -- 6,120
Inventories ...................................... 96,819 21,451 -- 118,270 -- 118,270
Prepaid expenses ................................. 148,218 12,576 -- 160,794 -- 160,794
Due from affiliate ............................... -- 17,096 -- 17,096 -- 17,096
Assets available for sale ........................ -- 62,500 -- 62,500 -- 62,500
Income tax deposits .............................. 775 -- -- 775 -- 775
----------- ----------- ------- ----------- ------------ ------------
Total current assets .................... 744,717 156,010 -- 900,726 -- 5,990,726
----------- ----------- ------- ----------- ------------ ------------
Leasehold Improvements and Equipment
Leasehold improvements ........................... 1,437,770 454,335 -- 1,892,105 -- 1,892,105
Equipment ........................................ 816,565 212,287 -- 1,028,852 -- 1,028,852
----------- ----------- ------- ----------- ------------ ------------
2,254,335 666,622 -- 2,920,957 -- 2,920,957
Less accumulated depreciation and amortization ... 385,675 131,085 -- 516,760 -- 516,760
1,868,660 535,537 -- 2,404,197 -- 2,404,197
Deferred income tax ................................... -- 17,150 -- 17,150 -- 17,150
----------- ----------- ------- ----------- ------------ ------------
Other Assets
Deposits ......................................... 108,683 15,754 -- 124,437 -- 124,437
Franchise costs, net of accumulated amortization . 367,254 138,194 -- 505,448 -- 505,448
Finance costs, net of accumulated amortization ... 326,469 -- -- 326,469 (326,469)(2) --
Organization costs, net of accumulated amortization 5,948 23,686 -- 29,634 -- 29,634
Goodwill, net of accumulated amortization ........ 356,825 497,245 -- 854,070 -- 854,070
Deferred bridge loan financing costs ............. 273,000 -- -- 273,000 (273,000)(8) --
----------- ----------- ------- ----------- ------------ ------------
1,438,179 674,879 -- 2,113,058 -- 1,513,589
----------- ----------- ------- ----------- ------------ ------------
$ 4,051,556 $ 1,383,576 -- $ 5,435,131 -- $ 9,925,662
=========== =========== ======= =========== ============ ============
</TABLE>
(1) Represents the acquisition of Cookie Crumbs, Inc. on October 18, 1996. The
Company acquired 100% of the outstanding common stock for $1. The
acquisition will be accounted for as a purchase transaction. At the date of
purchase, this company had $1,383,576 ot total assets and $2,030,714 of
total liabilities (including $1,690,000 of redeemable preferred stock). The
assets and liabilities have been recorded at fair market value which
approximates historical cost. The transaction resulted in $662,138 of
goodwill which will be charged to accumulated deficit as it is considered a
preferential dividend due to the related party nature of the transaction.
(2) Represents write-off of debt issue costs on assumed retirement of senior
notes.
(3) Represents the net proceeds to the Company from the initial public offering
($6,500,000 net of $1,200,000 of offering costs).
(4) Represents cash amount received and repayment of bridge loans.
(5) Not used on this page.
(6) Not used on this page.
(7) Pursuant to the exchange offer, the Company will exchange shares of its
Common Stock for $3,700,000 of the Company's 12% Notes. The exchange offer
is based upon the principal amount fo the Notes outstanding, accrued
interest ($228,149 through October 6, 1996), and a 20% premium ($728,000)
over the proposed initial public offering price of $6.50 per Unit. In
addition, as a result of the exchange offer, finance costs of $326,469 at
October 6, 1996 related to the $3,700,000 of debt will be written off.
(8) Represents write off of deferred bridge loan financing costs.
F-39
<PAGE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Cookie
Cookie Crumbs Butterwings Pro Forma
Assets Butterwings Crumbs Acquisition Adjusted Adjustments (7)Pro Forma
- ------ ------------ ------------ -------- ------------ ----------- ------------
(1)
Current Liabilities
Accounts payable ........................$ 272,200 $ 107,323 -- $ 379,523 -- $ 379,523
Accrued liabilities ..................... 494,801 61,420 -- 556,221 (228,149)(7) 328,072
Note due sole stockholder ............... -- 100,000 -- 100,000 -- 100,000
Due to parent ........................... 36,666 -- -- 36,666 -- 36,666
Due to affiliate ........................ 21,486 -- -- 21,486 -- 21,486
Current maturities of long-term debt .... 3,978,112 33,673 -- 4,011,785 (3,700,000)(7) --
-- (210,000)(4) 101,785
------------ ------------ -------- ------------ ----------- ------------
Total current liabilities ...... 4,803,265 302,416 -- 5,105,681 -- 967,532
------------ ------------ -------- ------------ ----------- ------------
Capitalized leases, less current maturities .. 117,950 38,298 -- 156,248 -- 156,248
Store closing expense ........................ 393,000 -- -- 393,000 -- 393,000
------------ ------------ -------- ------------ ----------- ------------
Total non current liabilities ........... 510,950 38,298 -- 549,248 -- 549,248
------------ ------------ -------- ------------ ----------- ------------
Preferred Redeemable Stock,
no par value; 100,000 shares
authorized, issued and
outstanding 16,650 ...................... -- 1,690,000 -- 1,690,000 -- 1,690,000
------------ ------------ -------- ------------ ----------- ------------
Stockholders' Equity (Deficit)
Preferred Stock, no par value;
27,500 shares authorized, issued
and outstanding 15,685 shares ......... 1,568,500 -- -- 1,568,500 (1,568,500)(5) --
Common stock, $0.01 par value;
10,000,000 shares authorized,
2,001,438 shares issued and
outstanding before pro forma
adjustments, 4,112,000 after
pro forma adjustment .................. 20,014 -- -- 20,014 2,540(5) --
-- -- -- -- 1,120(6) --
-- -- -- -- 10,000(3) --
-- -- -- -- 7,446(7) 41,120
Capital in excess of par value .......... 828,875 -- -- 828,875 1,565,960(5) --
-- -- -- -- 453,880(6) --
-- -- -- -- 5,290,000(3) --
-- -- -- -- 4,832,154(7) 12,970,869
Common stock, no par value; 10,000 shares
authorized, 1,000 shares issued and
outstanding ........................... -- 15,000 (15,000) -- -- --
-- -- -- -- (785,630)(7) --
-- -- -- -- (326,469)(2) --
-- -- -- -- (125,821)(4) --
Accumulated deficit ..................... (3,680,048) (662,138) 14,999 (4,327,187) (728,000)(6) (6,293,107)
------------ ------------ -------- ------------ ----------- ------------
(1,262,659) (647,138) -- (1,909,798) -- 6,718,882
------------ ------------ -------- ------------ ----------- ------------
$ 4,051,556 $ 1,383,576 -- $ 5,435,131 -- $ 9,925,662
============ ============ ======== ============ =========== ============
</TABLE>
(1) Represents the acquisition of Cookie Crumbs, Inc. on October 18, 1996. The
Company acquired 100% of the outstanding common stock for $1. The
acquisition will be accounted for as a purchase transaction. At the date of
purchase, this company had $1,383,576 ot total assets and $2,030,714 (based
on fair market value which approximates historical costs) of total
liabilities (including $1,690,000 of redeemable preferred stock). The
transaction resulted in $662,138 of goodwill which will be charged to
accumulated deficit as it is considered a preferential dividend due to the
related party nature of the transaction.
(2) Represents write-off of debt issue costs on assumed retirement of senior
notes.
(3) Represents the net proceeds to the Company from the initial public offering
($6,500,000 net of $1,200,000 of offering costs).
(4) Represents cash amount received and repayment of bridge loans.
(5) Represents the conversion of Butterwings convertible preferred stock to
common stock.
(6) To record cost of bridge loan.
(7) Pursuant to the exchange offer, the Company will exchange shares of its
Common Stock for $3,700,000 of the Company's 12% Notes. The exchange offer
is based upon the principal amount fo the Notes outstanding, accrued
interest ($228,149 through October 6, 1996), and a 20% premium ($728,000)
over the proposed initial public offering price of $6.50 per Unit. In
addition, as a result of the exchange offer, finance costs of $326,469 at
October 6, 1996 related to the $3,700,000 of debt will be written off.
(8) Not used on this page.
F-40
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC. AND SUBSIDIARIES
PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
40 Weeks Ended October 6, 1996
<TABLE>
<S> <C> <C> <C> <C> <C>
Cookie Butterwings Pro Forma
Butterwings Crumbs Adjusted Adjustments(e) Pro Forma
----------- ----------- ----------- ---------- -----------
Sales ............................... $ 5,242,470 $ 1,292,532 $ 6,535,002 -- $ 6,535,002
Costs and expenses:
Cost of products sold ............. 1,529,174 331,250 1,860,424 -- 1,860,424
Salaries and benefits ............. 1,576,580 344,934 1,921,514 -- 1,921,514
Other operating costs ............. 1,783,737 489,859 2,273,596 -- 2,273,596
Depreciation and amortization ..... 262,302 123,350 385,652 -- 385,652
----------- ----------- ----------- ---------- -----------
Total costs and expenses ... 5,151,793 1,289,393 6,441,186 -- 6,441,186
----------- ----------- ----------- ---------- -----------
Income from operations ..... 90,677 3,139 93,816 -- 93,816
----------- ----------- ----------- ---------- -----------
General and administrative expenses . 461,121 139,632 600,753 -- 600,753
Franchise fee option expense ........ 145,000 -- 145,000 -- 145,000
Store closing expense ............... 877,148 -- 877,148 -- 877,148
Provision for loss on leased property 50,000 -- 50,000 -- 50,000
----------- ----------- ----------- ---------- -----------
Operating (loss) ........... (1,442,592) (136,493) (1,579,085) -- (1,579,085)
----------- ----------- ----------- ---------- -----------
Financial income (expense):
Interest income ................... 7,990 8,412 16,402 -- 16,402
Interest expense .................. (366,897) (7,253) (374,150) 341,539(b) (32,611)
Amortization of finance costs ..... (55,764) -- (55,764) 55,764(d) --
Gain on sale of fixed assets ...... -- 30,513 30,513 -- 30,513
----------- ----------- ----------- ---------- -----------
(414,671) 31,672 (382,999) -- 14,304
----------- ----------- ----------- ---------- -----------
(Loss) before income taxes . (1,857,263) (104,821) (1,962,084) -- (1,564,781)
Income taxes ........................ -- -- -- -- --
----------- ----------- ----------- ---------- -----------
Net (loss) ................. $(1,857,263) $ (104,821) $(1,962,084) -- $(1,564,781)
============ ============
Preferred Stock Dividends ........... -- -- (129,017) -- (129,017)
----------- ----------- ----------- ---------- -----------
Net (Loss) applicable to
common shareholders ............ -- -- $(2,091,101) -- $(1,693,781)
============ ============ ============ =========== ============
Net (Loss) per common share ......... -- -- $ (.99) -- $ (.41)
============ ============ ============ =========== ============
Weighted average number of common
shares outstanding ............. -- -- 2,121,173 -- 4,135,119(c)
============ ============ ============ =========== ============
</TABLE>
(a) Not used on this page.
(b) To remove interest expense resulting from the proposed conversion of senior
notes.
(c) Includes the weighted average number of shares outstanding (See Note 12 to
the Consolidated Financial Statements) plus the effect of shares assumed to
be outstanding relating to proposed conversion of notes to common stock
(Exchange Offering), the conversion of convertible preferred stock to
common stock and IPO.
(d) Represents write off of debt issue costs on assumed retirement of senior
notes.
(e) Pursuant to the exchange offer, the Company will exchange shares of its
Common Stock for $3,700,000 of the Company's 12% Notes. The exchange offer
is based upon the principal amount of the Notes outstanding, accrued
interest ($228,149 through October 6, 1996), and a 20% premium ($728,000)
over the proposed initial public offering price of $6.50 per Unit. In
addition, as a result of the exchange offer, finance costs of $326,469 at
October 6, 1996 related to the $3,700,000 of debt will be written off.
F-41
<PAGE>
BUTTERWINGS, INC. AND SUBSIDIARIES
PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Year Ended December 31, 1995
<TABLE>
<S> <C> <C> <C> <C> <C>
Cookie Butterwings Pro Forma
Butterwings Crumbs Adjusted Adjustments(c) Pro Forma
----------- ----------- ----------- ----------- -----------
Sales .................................... $ 6,486,327 $ 1,244,629 $ 7,730,956 -- $ 7,730,956
Costs and expenses:
Cost of products sold .................. 1,995,753 320,588 2,316,341 -- 2,316,341
Salaries and benefits .................. 1,889,192 258,403 2,147,595 -- 2,147,595
Pre-opening costs ...................... 153,334 -- 153,334 -- 153,334
Other operating costs .................. 2,168,176 357,310 2,525,486 -- 2,525,486
Depreciation and amortization .......... 154,090 102,052 256,142 -- 256,142
----------- ----------- ----------- ----------- -----------
Total costs and expenses ........ 6,360,545 1,038,353 7,398,898 -- 7,398,898
----------- ----------- ----------- ----------- -----------
Income from operations .......... 125,782 206,276 332,058 -- 332,058
General and administrative expenses ...... 404,417 162,501 566,918 -- 566,918
Provision for loss on leased property .... 145,000 159,474 304,474 -- 304,474
----------- ----------- ----------- ----------- -----------
Operating income (loss) ......... (423,635) (115,699) (539,334) -- (539,334)
----------- ----------- ----------- ----------- -----------
Financial income (expense):
Interest income ........................ 19,037 6,462 25,499 -- 25,499
Interest expense ....................... (465,031) (15,927) (480,958) 444,000(b) (36,958)
Amortization of finance costs .......... (72,493) -- (72,493) 72,493(d) --
Write Off of unamortized finance costs . -- -- -- (454,727)(a) (454,727)
Write Off of bridge loan financing costs -- -- -- (728,000)(a) (728,000)
----------- ----------- ----------- ----------- -----------
(518,487) (9,465) (527,952) -- (1,194,186)
(Loss) before income taxes ...... (942,122) (125,164) (1,067,286) -- (1,733,520)
Income Taxes ............................. --
----------- ----------- ----------- ----------- -----------
Net (loss) ...................... $ (942,122) $ (125,164) $(1,067,286) -- $(1,733,520)
============ ============
Preferred Stock Dividends ..................... -- -- (101,308) -- (101,308)
----------- -----------
Net (Loss) applicable to common shareholder ... -- -- $(1,168,594) -- $(1,834,828)
============ ============ ============ ========== ============
Net (Loss) per common share ................... -- -- $ (.55) -- $ (.44)
============ ============ ============ ========== ============
Weighted average number of common
shares outstanding ....................... -- -- 2,121,173 -- 4,135,119(c)
============ ============ ============ ========== ============
</TABLE>
(a) To write off unamortized finance costs and bridge loan financing costs.
(b) To remove interest expense resulting from the proposed conversion of senior
notes.
(c) Includes the weighted average number of shares outstanding (See Note 12 to
the Consolidated Financial Statements) plus the effect of shares assumed to
be outstanding relating to proposed conversion of notes to common stock
(Exchange Offering), the conversion of convertible preferred stock to
common stock and IPO.
(d) Represents write off of debt issue costs on assumed retirement of senior
notes.
(e) Pursuant to the exchange offer, the Company will exchange shares of its
Common Stock for $3,700,000 of the Company's 12% Notes. The exchange offer
is based upon the principal amount fo the Notes outstanding, accrued
interest ($228,149 through October 6, 1996), and a 20% premium ($728,000)
over the proposed initial public offering price of $6.50 per Unit. In
addition, as a result of the exchange offer, finance costs of $326,469 at
October 6, 1996 related to the $3,700,000 of debt will be written off.
F-42
<PAGE>
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the securities to which it relates or an
offer to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstance, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
Prospectus Summary........................ 2
Risk Factors.............................. 8
Use of Proceeds........................... 15
Dividend Policy........................... 15
Dilution.................................. 16
Capitalization............................ 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operation................. 18
Business and Properties................... 30
Management................................ 41
Certain Relationships
and Related Transactions............... 44
Principal Stockholders.................... 45
Selling Security Holders.................. 45
Description of Securities................. 46
Shares Eligible For Future Sale........... 49
Underwriting.............................. 50
Legal Matters............................. 52
Experts................................... 52
Additional Information.................... 52
Index to Financial Statements............. F-1
.........Until _________ , 1997 (25 days from the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Article SEVEN of the Amended Articles of Incorporation provides that no
director of the Corporation shall be personally liable to the Corporation or its
shareholders for monetary damages for breach of his fiduciary duty, as a
director; provided, that nothing therein shall be construed to eliminate or
limit the liability of a director (a) for any breach of the director's duty of
loyalty to the Corporation or its shareholders, (b) for acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of Law,
(c) under Section 8.65 of the Illinois Business Corporation Act, as amended, or
(d) for any transaction from which the director derived an improper benefit.
Article 11 of the By-laws of the Corporation provide that the
Corporation may indemnify an officer, director, employee or agent of the
Corporation against expenses, judgments, fines and settlement amounts incurred
in connection with an action, suit or proceeding, other than an action, suit or
proceeding by or in the right of the Corporation, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation and with respect to any criminal proceeding, has no
reasonable cause to believe his conduct was unlawful.
The Corporation may also indemnify an officer, director, employee or agent of
the Corporation who is a party or is threatened to be made a party to an action,
suit or proceeding by or in the right of the Corporation against expenses
actually and reasonably incurred by him in connection with his defense of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the Corporation, provided
that no indemnification shall be made in respect of any claim, issue or matter
as to which he shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation, unless the court
in which such action was brought shall determine upon application that despite
the adjudication of liability, but in view of all the circumstances of the case,
such person fairly and reasonably is entitled to indemnification and expenses as
the court may deem proper,
Any indemnification under Article 11 of the By-laws shall be made by
the Corporation only upon a determination that indemnification of the
indemnified person is proper by (i) a majority vote of a quorum of the board of
directors who were not parties to such action, suit or proceeding, (ii) if such
a quorum is not obtainable, or if directed by the board, by independent legal
counsel in a written opinion, or (iii) by the shareholders.
Expenses incurred in defending a civil or criminal action may be
advanced by the Corporation upon receipt of an undertaking by or on behalf of an
officer, director, employee or agent to repay such amount unless it shall be
determined that he is entitled to indemnification as authorized by the Illinois
Business Corporation Act.
Indemnification under the By-laws is not exclusive of any other rights
which an indemnified party may be entitled under any other By-law, agreement,
vote of shareholders or disinterested directors or otherwise. The Corporation
may purchase and maintain insurance on behalf of persons entitled to
indemnification under Section 8.75 of the Illinois Business Corporation Act. If
the Corporation has paid indemnity or has advanced expenses to a director,
officer, employee or agent, the Corporation shall report the indemnification or
advance in writing to shareholders with or before notice of the next
shareholders meeting.
II-1
<PAGE>
Item 25. Other Expenses of Issuance and Distribution
Estimated expenses in connection with the public offering by the Company of the
securities offered hereunder are as follows:
Securities and Exchange Commission Filing Fee $6,067.85
NASD Filing Fee 2,502.17
Blue Sky Fees and Expenses* 20,000.00
NASDAQ Small Cap Application and Listing Fee 13,000.00
Boston Stock Exchange Application and Listing Fee 7,500.00
Accounting Fees and Expenses* 40,000.00
Legal Fees and Expenses 55,000.00
Printing* 50,000.00
Fees of Transfer Agents and Registrar* 5,000.00
Underwriters' Non-Accountable Expense Allowance 162,500
Miscellaneous* 188,429.98
----------
Total* $550,000.00
* Estimated.
Item 26. Recent Sales of Unregistered Securities
The following is a summary of transactions by the Registrant during the
last three years involving the sale of securities which were not registered
under the Securities Act:
During the period September 1993 through April 1994 the Company issued
$3,700,000 of secured 12% promissory notes (the "Notes") to 160 investors in an
offering exempt from registration pursuant to Regulation D under the Securities
Act. The purchasers were all accredited investors who took the Notes for
investment and without a view to distribution. The offering was effected through
registered broker dealers who are members of the National Association of
Securities Dealers, Inc.("NASD") and were paid a commission for their sale of
the Notes. The Notes bear a restrictive legend prohibiting the transfer thereof
except in compliance with the Securities Act or in reliance upon an opinion of
counsel that distribution may be made in reliance upon applicable exemptions
from the provisions thereof.
In January 1997, the Registrant offered to exchange the Notes for
Common Stock of the Registrant pursuant to an Exchange Offer to all Note
holders. The number of shares of common stock to be exchanged was based upon the
principal amount of Notes held by each Note holder, plus accrued interest plus a
premium of 20% of principal and interest, divided by the proposed public
offering price per share of the common stock in the offering covered by this
registration statement($6.50 per share). If all of the Note holders accept the
Exchange Offer the Registrant will issue 744,554 shares of its Common Stock
based upon the proposed offering price The Note holders are required to agree to
take the shares of Common Stock for investment and not with a view to
distribution. The stock certificates are to be issued concurrently with the
certificates issued to public stockholders in this offering and will bear a
restrictive legend prohibiting transfer in the absence of an effective
registration statement or an opinion of counsel that registration is not
required. No commissions or other remuneration will be paid for soliciting the
exchange. The exchange is exempt under Section 3(a)(9) of the Securities Act for
securities exchanged by the issuer with its securities holders exclusively where
no commissions or other remuneration is paid for soliciting such exchange.
II-2
<PAGE>
From September 1995 through February 1996 the Registrant issued and
sold 15,685 shares of its Convertible Preferred Stock (the "Preferred Stock") at
$100 per share to sixty-three investors in an offering exempt from registration
pursuant to Regulation D under the Securities Act. The offering was effected
through registered broker dealers who are members of the NASD and were paid a
commission for their sale of the Preferred Stock. The certificates bear a
restrictive legend prohibiting the transfer thereof except in compliance with
the Securities Act or in reliance upon an opinion of counsel that distribution
may be made in reliance upon applicable exemptions from the provisions thereof.
By its terms the Preferred Stock is automatically convertible into common stock
of the Registrant upon the consummation of the first sale of common stock by the
Company to underwriters for the account of the Company pursuant to a
registration statement under the Securities Act. The number of shares of common
stock to be issued to each holder of the Preferred Stock upon conversion will be
determined by dividing the offering price of the Preferred Stock by 95% of the
sale price per share of the common stock in the public offering. The issuance of
the common stock for the Preferred Stock will be exempt under Section 3(a)(9) of
the Securities Act. The certificates for the new common stock will be issued
concurrently with the certificates to be issued to the public stockholders in
this offering and will bear a restrictive legend prohibiting transfer in the
absence of an effective registration statement or an opinion if counsel that
registration is not required.
From October through December 1996, the Company issued $483,000 of
Bridge Loan Notes with warrants to provide working capital and funds for this
offering. The transaction was exempt from registration pursuant to Section 4 (2)
of the Securities Act of 1933 for transactions not involving a public offering.
The securities were sold to four investors through La Jolla Securities
Corporation, a registered broker/dealer which received a commission for its
services and to Palisades Capital, LLC as general partner of Sunset Bridge Fund
#3 and to Sagax Fund II Ltd., the latter two as principals, without commissions.
The securities were stamped with a restrictive legend and the investors agreed
to hold the same for investment and not with a view to distribution. The
warrants are automatically convertible into Units identical to the Units offered
pursuant to this registration statement at the time the registration statement
is declared effective. The Units are included in this registration statement and
the Bridge Loan holders are listed as Selling Security Holders.
II-3
<PAGE>
Item 27. Exhibits
<TABLE>
<S> <C>
Exhibit No. Item
- ----------- ----
Exhibit 1.1 Form of Underwriting Agreement. (2)
Exhibit 1.2 Form of Underwriters' Warrant Agreement. (2)
Exhibit 1.3 Form of Selected Dealer Agreement. (2)
Exhibit 1.4 Form of Agreement Among Underwriters. (2)
Exhibit 3.1 Articles of Incorporation, as amended (1)
Exhibit 3.2 Bylaws of the Registrant (1)
Exhibit 4.1 Specimen of Common Stock Certificate (2)
Exhibit 4.2 Specimen of Warrant Certificate. (2)
Exhibit 5.1 Opinion of Maurice J. Bates L.L.C.(2)
Exhibit 10.1 Franchise Agreement between Mrs. Fields Development Corporation and
the Registrant. (1)
Exhibit 10.2 Franchise Agreement between Hooters of America, Inc. and the Registrant. (1)
Exhibit 10.3 Form of 12.0% $3,700,000 Notes, as amended. (1)
Exhibit 10.4 Copy of Exchange Offer for 12.0% Notes, with Acceptance and Transmittal Letter.(1)
Exhibit 10.5 Form of Underwriter's Financial Consulting Agreement. (2)
Exhibit 10.6 Form of Warrant Agreement.(2)
Exhibit 10.7 Independent Contractor Agreement between the Registrant and Edmund C. Lipinski. (1)
Exhibit 10.8 Copy of 1996 Stock Compensation Plan. (1)
Exhibit 10.9 Copy of Stock Purchase Agreement between the Registrant and Cookie Crumbs, Inc.(1)
Exhibit 21.1 Subsidiaries of the Registrant.(1)
Exhibit 24.1 Consent of McGladrey & Pullen, LLP Certified Public Accountants. ( 1)
Exhibit 24.2 Consent of Maurice J. Bates, L.L.C. is contained in his opinion to be filed as Exhibit 5.1 to
this registration statement.(2)
Exhibit 27.1 Financial Data Schedule (1)
- ---------------
</TABLE>
(1) Filed herewith
(2) To be filed with amendment
II-4
<PAGE>
Item 28. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(2) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the Registration Statement
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation form the low or high end of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to
Rule 424 (b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement; and
(iii)Include any additional or changed material information on
the plan of distribution.
(3) For determining any liability under the Securities Act, treat
each post-effective amendment that as a new Registration
Statement of the securities offered, and the offering of the
securities at that time to be deemed to be the initial bona fide
offering
(4) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering..
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy, as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
shares of the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(6) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the small business
issuer under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this Registration Statement as of the
time the Commission declared it effective.
(7) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus
s anew registration statement for the securities offered in the
registration statement, and that offering of the securities at
that time as the initial bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois on January 28, 1997.
BUTTERWINGS ENTERTAINMENT GROUP, INC.
By:
Stephen S. Buckley, President and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Stephen S. Buckley and Douglas
E. Van Scoy, and each for them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities (until revoked in writing), to
sign any and all further amendments to this Registration Statement (including
post-effective amendments), and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person thereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or
their substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
<TABLE>
<S> <C> <C>
/s/ Stephan S. Buckley
- -----------------------
Stephen S. Buckley President and Director January 28, 1997
(Principal Executive Officer)
/s/ Douglas E. Van Scoy Chief Financial Officer January 28, 1997
- -----------------------
Douglas E. Van Scoy (Principal Financial
and Accounting Officer)
/s/ Kenneth B .Drost Director January 28, 1997
- --------------------
Kenneth B. Drost
/s/ Jeffrey A. Pritikin Director January 28, 1997
- -----------------------
Jeffrey A. Pritikin
/s/ Thomas P. Kabat
- ------------------------
Thomas P. Kabat Director January 28, 1997
* By: Stephen S. Buckley,
As Attorney in Fact
Stephen S. Buckley
</TABLE>
II-6
<PAGE>
File Number: 5741-198-8__
State of Illinois
Office of
The Secretary of state
Whereas, ARTICLES OF INCORPORATION OF BUTTERWINGS, INC. INCORPORATED UNDER THE
LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILES IN THE OFFICE OF THE SECRETARY OF
STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF ILLINOIS, IN FORCE JULY 1,
A.D. 1984.
Now Therefore, I, George H. Ryan, Secretary of State of the State of Illinois,
by virtue of the powers vested in me by law, do hereby issue this certificate
and attach hereto a copy of the Application of the aforesaid corporation.
In Testimony Whereof, I hereto set my hand and cause to be affixed the Great
Seal of the State of Illinois, at the City of Springfield, 29th day of July A.D.
1993 and of the Independence of the United States the two hundred and 18th
George H. Ryan
SECRETARY STATE
<PAGE>
File Number: 5741-198-8__
<TABLE>
<S> <C> <C>
- ------------------------------------ ----------------------------------- -----------------------------------
George H. Ryan Filed
Secretary of State
Jul 29, 1993
Department of Business Services SUBMIT IN DUPLICATE!
Springfield, IL 62768 GEORGE H. RYAN
Telephone (217) 782-3647 SECRETARY OF STATE
- ------------------------------------ ----------------------------------- -----------------------------------
- ------------------------------------ ----------------------------------- -----------------------------------
Payment must be made by certified This space for use by
check, cashier's check, Illinois Secretary of State
attorney's check, Illinois
C.P.A.'s check or money order, Date: 11-29-93
payable to "Secretary of State."
Franchise Tax: $ 25.00
Filing Fee: $ 75.00
$100.00
Approved::
- ------------------------------------ ----------------------------------- -----------------------------------
</TABLE>
1. CORPORATE NAME: BUTTERWINGS, INC.
(The corporate name must contain the word "corporation, "company",
"incorporated", "limited" or an abbreviation thereof)
2. Initial Registered Agent: Kenneth B. Drost First Name Middle Initial Last
Name
Initial Registered Office: 150 N. Martingale Rd. 1300 Number Street Suite
Schaumburg 60173 Cook City Zip Code County
3. Purpose or purposes for which the corporation is organized: (If not
sufficient space to cover this point, add one or more sheets to this form)
The transaction of any and all business for which a corporation may be
organized under the Illinois Business Corporation Act.
4. Paragraph 1: Authorized Shares, Issued Shares and Consideration Received:
<TABLE>
<S> <C> <C> <C> <C>
per Value Number of Shares Number of Shares Consideration to be
Class per Share Number of Shares Proposed to be issued Received Therefor
COMMON NPV 1,000 100 100.00
TOTAL $100.00
</TABLE>
Paragraph 2: The preferences, qualifications, limitations, restrictions and
special or relative rights in respect of the shares of each class are:
(If not sufficient space to cover this point, add one or more sheets to this
form)
The right of a holder of shares of the Corporation to cumulate his votes in the
election of directors is hereby denied. (over)
<PAGE>
EXPEDITED
Jul 29, 1993
SECRETARY OF STATE
File Number: 5741-198-8__
5. OPTIONAL:
(a) Number of directors constituting the initial board of directors of the
corporation: N/A
(b) Names and addresses of the persons who are to serve as directors until the
first annual meeting of shareholders or until their successors are elected
and qualify.
N/A
6. OPTIONAL:
(a) It is estimated that the value of all property to be owned by the
corporation for the following year wherever located will be: $__________
(b) It is estimated that the value of the property to be located within the
State of Illinois during the following year will be: $__________
(c) It is estimated that the gross amount of business that will be transacted
by the corporation during the following year will be: $__________
(d) It is estimated that the gross amount of business that will be transacted
from placed of business in the State of Illinois during the following year
will be: $__________
7. OPTIONAL: OTHER PROVISIONS Attach a separate sheet of this size for any
other provisions to be included in the Articles of Incorporation, e.g.,
authorizing preemptive rights, denying cumulative voting, regulating
internal affairs, voting majority requirements, fixing a duration other
than perpetual, etc.
8. NAMES NAME(S) & ADDRESS(ES) OF INCORPORATOR(S)
The undersigned Incorporator(s) hereby declare(s), under
penalties of perjury, that the statements made in the
foregoing Articles of Incorporation are true.
Dated: 7/28, 1993
Signature and Name Address
1. ______________________________ 20 N. Clark Street
- ------------------
Signature Street
2. Christine M. Damesk Chicago Illinois 60602
(Type or Print Name) (City/Town) State Zip Code
(Signatures must be in ink on original document. Carbon
copy, photocopy or rubber stamp signatures may only be
used on conformed copies.) NOTE: If a corporation acts
as Incorporate, the name of the corporation and the
state of Incorporation shall be shown and the execution
shall be by its President or Vice President and verified
by him, and attested by its Secretary or Assistant
Secretary.
FEE SCHEDULE
The initial franchise tax is assessed at the rate of 16/100 of 1 percent ($1.50
per $1,000) on the paid-in capital represented in this state with a minimum of
$25 and a maximum of $1,000,000. The filing fee is $75. The minimum total due
(franchise tax + filing fee) is $100. (Applies when the Consideration to be
Received is set forth in Item 4 does not exceed $16,667) The Department of
Business Services in Springfield will provide assistance in calculating the
total fees if necessary.
Illinois Secretary of State Springfield, IL 62756
Department of Business Services Telephone (217) 782-6951
<PAGE>
State of Illinois
Office of the Secretary of State
Whereas ARTICLES OF AMENDMENT TO THE ARTICLES OF
INCORPORATION OF
BUTTERWINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF
ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore I George H. Ryan, Secretary of State of the State of Illinois, by
virtue of the powers vested in me by law, do hereby issue this certificate and
attach hereto a copy of the Application of :the aforesaid corporation.
In Testimony whereof, I hereto set my hand and cause to be affixed the Great
Seal of the State of Illinois, at the City of Springfield, this 24th day of
August A.D. 1995 and of the Independence of the United States the two hundred
and 20TH
Secretary of State
<PAGE>
NOTES AND INSTRUCTIONS
NOTE 1: State the true exact corporate name as it appears on the records of the
office of the Secretary of State, BEFORE any amendments herein reported.
NOTE 2: Incorporators are permitted ' to adopt amendments ONLY before any shares
have been issued and before any directors have been named or elected. (ss.
10.10)
NOTE 3: Directors may adopt amendments without shareholder approval in only
seven instances, as follows: (a) to remove the names and addresses of
directors named in the articles of incorporation; (b) to remove the name
and address of the initial registered agent and registered office, provided
a statement pursuant to ss. 5. 1 0 is also filed; (c) to increase,
decrease, create or eliminate the par value of the shares of any class, so
long as no class or series of shares is adversely affected. (d) to split
the issued whole shares and unissued authorized shares by multiplying them
by a whole number, so long as no class or series is adversely affected
thereby; (e) lo change the corporate name by substituting the word
"corporation", "incorporated", "company", 'limited", or the abbreviation
'corp.", "inc.", "co.', or "lid." for a similar word or abbreviation in the
name, or by adding a geographical attribution to the name; (1) to reduce
the authorized shares of any class pursuant to a cancellation statement
filed in accordance with ss. 9.05, (g) to restate the articles of
incorporation as currently amended. (ss. 10.15)
NOTE 4: All amendments not adopted under ss. 10.10orss. 10.15 require (1) that
the board of directors adopt a resolution setting forth the proposed
amendment and (2) that the shareholders approve the amendment.
Shareholder approval may be (1) by vote at a shareholders 'meeting (either
annual or special) or (2) by consent, in' writing, without a meeting.
To be adopted, the amendment must receive the affirmative vote or consent of the
holders of at least 2/3 of [he outstanding shares entitled lo vote on the
amendment (but lf c/ass voting applies, thenalsoalleasta2l3volewithin each class
is required).
The arlicles of incorporation may supersede the 2/3 vote requirement by
specifying any smaller or larger vote requirement not less than a majority of
the outstanding shares entitled to vote and not less than a majority within
each class when class voting applies.
10-20)
NOTE 5: When shareholder approval is by consent, all shareholders must be given
notice of the proposed amendment at least 5 days before the consent is signed.
It the amendment is adopted, shareholders who have not signed the consent must
be promptly notified of the passage of the amendment. (ss.ss. 7.10 & 10.20)
Page 4
<PAGE>
EXHIBIT B
ARTICLE SEVEN
7.1 No director of the Corporation shall be personally liable to the Corporation
or its shareholders, for monetary damages for breach of his fiduciary duty, as a
director; provided, that nothing herein shall be construed to eliminate or limit
the liability of a director (a) for any breach of the director's duty of loyalty
to the Corporation or its shareholders, (b) for acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of Law, (c)
under Section 8.65 of the Illinois business Corporation Act, as amended, or (d)
for any transaction from which the director derived an improper personal
benefit.
7.2 Cumulative voting of shares of any class of stock of the Corporation shall
not be allowed under any circumstances.
<PAGE>
EXHIBIT A
ARTICLE FOUR
The total number of shares of all classes which the Corporation has
authorized to is 101,000 of which 1,000 shares shall be common stock having no
par value per share (the "Common Stock"), and 100,000 shares shall be preferred
stock having no par value per share (the "Preferred Stock"). The initial series
of shares of the Corporation's Preferred Stock shall be 27,500 shares designated
as the "Convertible Preferred Stock" (the "Convertible Preferred Stock").
The designations and preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the shares of each class of stock are as follows:
THE COMMON STOCK - GENERALLY
Subject to all of the rights of the Preferred Stock as expressly
provided herein, by law or by the Board of Directors pursuant to this Article
Four of these Articles of Incorporation, the Common Stock of the Corporation
shall possess all such rights and privileges as are afforded to capital stock by
applicable law in the absence of any express grant of rights or privileges in
these Articles of Incorporation including without limitation the following
rights and privileges:
(a) each outstanding share of the Common Stock shall be entitled to one
vote in each matter submitted to a vote at a meeting of shareholders;
(b) dividends may be declared and paid or set apart for payment upon the
Common CT Stock out of any assets or funds of the Corporation legally available
therefor; and
(c) upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation shall be distributed pro
rata to the holders of the Common Stock in accordance with their respective
rights and interests.
THE PREFERRED STOCK - GENERALLY
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Ile description of shares of each series,
including without limitation any preferences, conversion and other rights,
voting and other rights, restrictions, limitations, qualifications, and terms
an! d conditions of redemption, shall be set forth in the resolutions from time
to time hereafter adopted by the Board of Directors and in filings made as
required by law from time to time prior to the issuance of such shares.
Without limiting the generality of the foregoing, the Board of
Directors is expressly vested with authority to fix and determine as to each
series:
<PAGE>
(a) its distinctive designation
(b) the number of shares to be issuable;
(C) the rate of dividend, and whether (and, if so, on what terms and
conditions) dividends shall be cumulative or shall be payable in preference or
in any other relation to the dividends payable on any other class or classes of
stock or any other series of the Preferred Stock;
(d) whether the shares may be redeemed and, if so, the terms and conditions
on which they may be redeemed (including without limitation the dates upon or
after which they may be redeemed and the price or prices at which they may be
redeemed, which price or prices may be different in different circumstances or
at different redemption dates);
(e) whether the shares shall be issued with the privilege of conversion
and, if so, the terms and conditions of such conversion or exchange (including
without limitation the price or prices or the rate or rates of conversion of any
terms for adjustment thereof);
(f) any limitation or denial of voting rights or grant of special voting
rights (it being recited for the avoidance of doubt that the Board of Directors
is granted authority to limit or deny voting rights in its resolution
establishing any series of the Preferred Stock and that the grant of such
authority is to be deemed made under Section 7.40 of the Illinois Business
Corporation Act of 1983 (the "BCA"));
(g) the amounts payable upon the shares 'in the event of voluntary
liquidation, dissolution or winding up of the Corporation;
(h) the amounts payable upon the shares in the event of involuntary
liquidation, dissolution or winding up of the Corporation; and
g) sinking fund provisions, if any, for the redemption or purchase of the
shares (the term "sinking fund" been understood to include any similar fund,
however designated).
In all other respects the rights and preferences of all of the shares of the
Preferred Stock shall be identical.
CONVERTIBLE PREFERRED STOCK
1 . Dividends.
(a) Dividend Obligation. When and as declared by the Board of Directors
of the Corporation, the Corporation will pay to the holders of Convertible
Preferred Stock, out of the assets of the Corporation available for the payment
of dividends under the BCA, preferential dividends at the times and in the
amounts provided for in this Paragraph 1.
<PAGE>
(b) Calculation of Dividends. The holders of Convertible Preferred Stock
shall be entitled to receive, but only-when and as declared by the Board of
Directors of the Corporation out of the funds of the Corporation legally
available, cumulative, non-compounded cash dividends payable at the rate and in
the manner prescribed herein quarterly on the first business day of January,
April, July and October, in each year (the "Dividend Dates") and the periods
commencing on the first day after each Dividend Date or the date of original
issue, as the case may be, and ending on the next succeeding Dividend Date (the
"Dividend Periods") to holders of record on such respective dates, as may be
determined by the Board of Directors in advance of the a payments of each
particular dividend for the Dividend Period.
(C) Dividend Rate. Except as otherwise provided in this Paragraph 1,
dividends will be calculated on an annual basis on each share of Convertible
Preferred Stock at the rate of 10% per annum of the Offering Price thereof (the
"Dividend"). To the extent not paid on the Dividend Date, all Dividends which
have been calculated on each share of Convertible Preferred Stock for the
Dividend Period ending on such Dividend Date will be added to the Liquidation
Value of such share and will remain a part thereof until (but only until) such
dividends are paid.
(d) Distribution of Partial Dividend Payments. If any tine the Corporation
pays less than the total amount of dividends then calculated on all out-standing
shares of Convertible Preferred Stock, such payment will be distributed among
the holders of Convertible Preferred Stock so that an equal amount will be paid
with respect to each outstanding shares.
(e) Priority. So long as any Convertible Prefer-red Stock remains
outstanding, the Corporation will not declare or pay, or set apart for payment,
any cash dividends, or make any cash distributions, on any class or classes of
stock of the Corporation if at the time of making such declaration, payment,
setting apart, distribution, redemption, purchase or acquisition, full
cumulative dividends upon all outstandincy shares of Convertible Prefer-red
Stock shall not have been paid.
2. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of Convertible
Preferred Stock will be entitled, before any distribution or payment is made on
any other class or classes of stock of the Corporation, to be paid out of the
assets of the Corporation available for distribution to its shareholders
(whether from capital, surplus or earnings) an amount in cash equal to the
aggregate Liquidation Value of all Convertible Preferred Stock outstanding, and
the holders of Convertible Preferred Stock will not be entitled to any further
payment. For purposes of this Section 2, the net proceeds available to the
Corporation shall mean the consideration received in connection of such
liquidation, dissolution or winding up less (a) all costs, expenses and payments
made in connection therewith, (the taxes and required dividend distribution any
shares issued by Corporation and (c) all other liabilities of the Corporation.
If upon such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets of the Corporation to be distributed to the
holders of the Convertible Preferred Stock are insufficient to permit payment to
such holders of the aggregate amount which they are entitled to be paid, then
the entire assets of the Corporation (after payment of liabilities) shall be
distributed to the holders
<PAGE>
of the Convertible Preferred Stock. Upon any such liquidation, dissolution or
winding up of the Corporation, after the holders of Convertible Preferred Stock
have been paid in full the amounts to which they are entitled, the remaining
assets of the Corporation may be distributed to the holders of other class or
classes of stock of the Corporation.
3. Conversion rights.
Each share of Convertible Preferred Stock is convertible into shares of
Common Stock (as adjusted to reflect stock splits, stock dividends,
subdivisions, combinations, reclassifications, and for any issuance or sale of
shares of Common Stock or any securities convertible into or exchangeable for
shares of Common Stock), upon the consummation of the first sale of Common Stock
by the Corporation to underwriters for the account of the Corporation pursuant
to a registration statement under the Securities Act of 1933, as amended, filed
with and declared effective by the Securities and Exchange Commission ("Initial
Public Offering"). The Corporation shall give holders of Convertible Preferred
Stock written notice of the effective date of the Initial Public Offering. The
conversion of the outstanding shares of the Convertible Preferred Stock shall
thereupon become effective on and as of the effective date ("Effective Date").
The number of shares of Common Stock to be issued to each holder of the
Shares of Convertible Preferred Stock upon conversion will be determined by
dividing the Offering Price for the Shares of Convertible Preferred Stock by an
amount equal to 95 % of the sale price per share of the Common Stock at the time
of the Initial Public Offering (rounded to the next highest share).
Within ten business days after the Effective Date, the Corporation
shall issue and deliver by hand against a signed receipt therefor or by United
States registered mail, return receipt requested, to the holder of the shares of
the Convertible Preferred Stock so converted a stock certificate or stock
certificates of the Corporation representing the number of shares of Common
Stock to which such holder is entitled and a check or cash in payment of all
unpaid Dividends with respect to such shares of Convertible Preferred Stock.
The Corporation shall take all corporate action as shall be necessary
to increase its authorized but unissued shares of Common Stock for the purpose
of effecting the conversion of the shares of Convertible Preferred Stock. Upon
the conversion of the Convertible Preferred Stock, the shares so converted shall
be canceled and shall be issuable by the Corporation. The Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's capital stock.
The Corporation will not, by amendment of its Articles of Incorporation
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the, observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 3 and
<PAGE>
in Liking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of Convertible Preferred Stock
against impairment.
4. Voting Rights.
Except as other-wise required by statute, Convertible Preferred Stock shall have
no voting rights whatsoever, and no holder of the Convertible Preferred Stock
shall vote or otherwise participate in any proceeds in which actions shall be
taken by the Corporation or the shareholders thereof or be entitled to
notification as to any ineetinc; of the Board of Directors or the shareholders.
5. Definitions.
The following terms used herein have the following meanings, which meanings are
equally applicable to the singular and plural forms of such terms.
"Offering Price " of any share of Convertible Preferred Stock shall be $100.00
per share.
"Liquidation Value" of any share of Participating Preferred Stock as of any
particular date will be equal to the sum of $100.00 plus any unpaid
Dividends on such share added to the Liquidation Value of such share on any
Dividend Date pursuant to Paragraph 1(c) hereof and not thereafter paid,
and in the event of any liquidation, dissolution or winding up of the
Corporation, unpaid Dividends accumulated on such shares since the then
most recent Dividend Date will be added to the Liquidation Value of such
share on the payment date under Section 2 hereof, calculated cumulatively
on a monthly basis to the close of business on such payment date. Upon
consummation of any stock splits, reverse splits or distributions of
additional shares of capital stock in a fashion similar to share dividends,
there shall be a proportional increase or decrease in the Liquidation
Value.
<PAGE>
ARTICLES OF AMENDMENT
FILED
August 24, 1995
George H. Ryan
Secretary of State
Department of Business Services
Springfield, IL 62756
Secretary of State
Telephone (217) 782-1832
Franchise Tax
Filing Fee'
order, payable to "Secretary of State."
The filing fee for articles of GEORGE H. RYAN Penalty $
SECRETARY OF STATE Approved:
amendment - $25.00
1. CORPORATE NAME: Butterwings, Inc.
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted on
August 17 1995 in the manner indicated below. ( 'X" one box only)
By a majority of the incorporators, provided no directors were named in the
articles of incorporation and no directors have been elected; (Note -2)
By a majority of the board of directors, in accordance with Section 1 0. 1
0, the corporation having issued no Shares as of the time of adoption of this
amendment; (Note 2)
By a majority of the board of directors, in accordance with Section 1 0. 1
5, shares having been issued but shareholder action not being required for the
adoption of the amendment; (Note 3)
By the shareholders, in accordance with Section 10.20, a resolution of the
board of directors having been duly adopted and submitted to the shareholders.
At a meeting of shareholders, riot less than the minimum number of votes
required by statute and by the articles of incorporation were voted in favor of
the amendment: (Note 4)
By the shareholders, in accordance with Sections 10.20 and 7.1 0. a
resolution of the board of directors having been duly adopted and submitted to
the shareholders. A consent in writing has been signed by shareholders having
not less than the minimum number of votes required by statute and by the
articles of Incorporation. Shareholders vote have not consented in writing have
been given notice in accordance with Section 7.10-, (Notes 4 & 5)
By the shareholders, in accordance with Sections lO.20 and 7.10, are
solution of the 'board of directors having been duly adopted and submitted to
the shareholders. A consent in writing has been signed by all the shareholders,
entitled to vote on this amendment. (Note 5)
3. TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate name below.
Use Page 2 for all other amendments. Article 1: The name of the corporation
is:
(NEW NAME)
All changes other than name, include on page 2
(over)
<PAGE>
OFFICE OF THE SECRETARY OF STATE
CORPORATION DIVISION
MARCH FONG EU Secretary of State of the State of California,
hereby certify:
That the annexed transcript has been compared with the corporate record on file
in this office, of which it purports to be a copy, and that same is full true
and correct.
IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the
State of California this
OCT 1 1993
Secretary of State
<PAGE>
ARTICLES OF INCORPORATION
SEP 30 1993
OF
MARCH FONG EU, Secretary of
State
BUTTERWINGS OF CALIFORNIA, INC.
FIRST: The name of the corporation (hereinafter referred to as the
"Corporation") is BUTTERWINGS OF CALIFORNIA, INC.-
SECOND: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California, other than the banking, business the trust company business
or the practice of a profession permitted to be incorporated by the California
Corporations Code ("Code").
THIRD: The name of the Corporation's agent for service of process within
the State of California is KENNETH B. DROST, 818 W. 7th Street, Los Angeles, CA
90017.
FOURTH: The total number of shares which the Corporation is authorized to
issue is One Thousand (1,000), all of which are of one class and of no par
value, and all of which are Common Shares.
The Board of Directors of the Corporation may, within the
limits and restrictions set forth herein, determine or alter the rights,
preferences, privileges and restrictions granted to or Composed upon any wholly
unissued class or shares or any wholly unissued series of any class of shares.
FIFTH: In the interim between meetings of shareholders held for the
election of &rectors or for the removal of one or more directors and the
election of the replacement or replacements thereat, any vacancy which results
by reason of the removal of a &rector or &rectors by the shareholder entitled to
vote in an election of directors, and which has not been filled by said
shareholders, may be filled by a majority of the directors then in office:,
whether or not less than a quorum., or by the sole remaining director, as the
case may be.
SIXTH: Subject to limitations set forth in Section 20.4 of the Code, the
Corporation may by bylaw, agreement or otherwise, authorize the indemnification
of agents (as defined in Section 317 of the Code) in excess of that expressly
permitted by Section 317 of the Code for those aaents of the Corporation for
breach of duty to the Corporation and its Stockholders. IN WITNESS WHEREOF, the,
undersigned have executed these Articles this, 23rd day of 1993
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
BUTTERWINGS OF CALIFORNIA, INC.
We, Stephan S. Buckley and Kenneth B. Drost, the President and Secretary,
respectively of BUTTERWINGS OF CALIFORNIA, INC., a corporation certify:
1 That we are the President and the Vice President, respectively, of
Butterwings of California, Inc., a California corporation.
2. That an amendment to the articles of incorporation of this corporation
has been approved by the Board of Directors.
3 . The amendment so approved by the Board of Directors is as follows:
Article SECOND of the Articles of Incorporation of this
corporation is amended to read as follows:
"SECOND: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California, other than the. banking business, the trust company business
or the practice of a profession permitted to be incorporated by the California
Corporations Code ("Code"), provided however, that the Corporation shall confine
its business activities exclusively to the operation of the Franchised Business
as that term is defined in the Franchise Agreement by and between the
Corporation and Hooters of America, Inc.
Article FOURTH of the Articles of Incorporation of this corporation is
amended to read as follows:
"FOURTH: The total number of shares which the Corporation is authorized to
issue is One Thousand (1,000), all of which are of one class and of no par
value, and all of which are Common Shares.
The Board of Directors of the Corporation may, within the limits and
restrictions set forth herein, determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued class
or shares or any wholly unissued series of any class of shares.
The issuance or transfer of shares of the Common Stock of the Corporation
is restricted pursuant to the terms of the Franchise Agreement by and bet when
the Corporation and Hooters of America, Inc. and that any such issuance or
transfer of shares of the Common Stock of the Corporation shall be made in
compliance with said Agreement.
4 That the shareholders have adopted said amendment b That the y written
consent word of said amendment as approved by written consent of the
shareholders is the same as that set forth above. That said written consent was
signed by the holders of all of the outstanding shares of the Corporation and
that said amendment was adopted in accordance with Section 902 of the California
Corporations Code ("Code").
5. That the designation and total number of outstanding shares entitled to
vote on or written consent to said amendment and the minimum percentage vote
required of each class or series entitled to vote on or give written consent to
said amendment for approval thereof are as follows:
6. This certificate shall become effective on the date of filing with the
California Secretary of State.
<PAGE>
Each of the undersigned declare under penalty of perjury that the statements
contained in the fore aoinc, certificate are true of their own knowledge.
Executed at Hoffman Estates, Illinois on October 20, 1993.
BUTTERWINGS OF CALIFORNIA,
INC.
STEPHEN BUCKLEY President
KENNETH B-DROST, Secretary
<PAGE>
UNANIMOUS WRITTEN CONSENT
IN LIEU OF A JOINT SPECIAL MEETING
OF THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
BUTTERWINGS OF CALIFORNIA, INC.
The undersigned, being all of the shareholders and directors of
BUTTERWINGS OF CALIFORNIA, INC., a California corporation, acting pursuant to
the California General Corporation Law, do hereby consent to, approve and adopt
the following resolutions:
I. AMENDMENT TO ARTICLES OF INCORPORATION
RESOLVED, that the Articles of Incorporation of this Corporation be and
are hereby amended to read as follows:
Article SECOND of the Articles of Incorporation of this corporation is
amended to read as follows:
"SECOND: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of California, other than the ban3cing business, the
trust company business or the practice of a profession permitted to be
incorporated by the California Corporations Code ("Code"), provided however,
that the Corporation shall confine its business activities exclusively to the
operation of the Franchised Business as that term is defined in the Franchise
Agreement by and between the Corporation and Hooters of America, Inc".
Article FOURTH of the Articles of Incorporation of this corporation is
amended to read as follows:
"FOURTH: The total number of shares which the Corporation is authorized to
issue is one Thousand (1,000), all of which are of one class and of no par
value, and all of which are Common Shares.
The Board of Directors of the Corporation may, within the
limits and restrictions set forth herein, determine or alter the rights,
preferences, : privileges and restrictions granted to or imposed upon any wholly
unissued class or shares or any wholly unissued series of any class of shares.
The issuance or transfer of shares of the Common Stock of the
Corporation is restricted pursuant to the terms of the Franchise Agreement by
and between the Corporation and Hooters of America, Inc. and that any such
issuance or transfer of shares of
<PAGE>
the Common Stock of the Corporation shall be made in compliance with said
Agreement-,' .
DATED: October 15, 1993
BUTTERWINGS, INC.----
By:
President
STEVE BUCKLEY
KENNETH DROST
DOUGLAS VAN SCOY
BEING THE SOLE SHAREHOLDER OF THIS CORPORATION
BEING ALL OF THE DIRECTORS OF THIS CORPORATION
<PAGE>
UNANIMOUS WRITTEN CONSENT
IN LIEU OF A SPECIAL MEETING
OF THE BOARD OF DIRECTORS
OF
BUTTERWINGS OF CALIFORNIA, INC.
The undersigned, being all of the directors of BUTTERWINGS OF
CALIFORNIA, INC., a California corporation, acting pursuant to the California
General Corporation Law, does hereby consent to and adopt the following
preambles and resolutions:
1. RESOLVED, that the Corporation shall purchase the On-Sale Beer
and Wine Eating Place License No. 41-286931 from Michael Wayne
Guarnieri relating to 1400 Camino De La Reina, Units 115,
116-119, San Diego, California 92108.
2. RESOLVED, that any one (1) officer of the corporation,
including but not limited to Kenneth B. Drost, be, and hereby
is, authorized and directed in its name and on its behalf to
do and perform. any and all things and acts, and to execute
and deliver any and all instruments, certificates and
documents which such officer shall determine to be necessary,
appropriate or desirable in order to effectuate the intendment
of the foregoing resolution, any such determination to be
conclusively evidenced by the doing or performing of any such
act or thing or the execution and delivery of any such
instrument, certificate or document.
IN WITNESS WHEREOF, this instrument has been executed by the
undersigned as of the 15th day of September, 1994, to be filed as part of the
Minutes of the Corporation.
STEVE BUCKLEY
KENNETH DROST
DOUGLAS VAN SCOY
BEING OF THE DIRECTORS OF
BUTTERWINGS OF CALIFORNIA, INC.
<PAGE>
ARTICLES OF INCORPORATION
OF
BUTTERWINGS OF WISCONSIN, INC.
The undersigned, acting as incorporator of a corpora6on under
the Wisconsin Business Corporation UNDER, Chapter 180 of the Wisconsin Statutes,
adopts the following Articles of Incorporation for such corporation.
FIRST: The name of the Corporation is Butterwings of Wisconsin, Inc.
SECOND: The aggregate number of shares which the Corporation shall have
authority to issue is Nine Thousand (9,000), consisting of one class only,
designated as Common Stock, " of the par value of S 1. 00 per share.
THIRD: The number of directors constituting the Board of Directors shall
initially be three (3) and thereafter such other number as may be designated
from time to time by the Board of Directors. The initial di-rectors shall be
Kenneth B. Drost, Stephan S. Buckley and Douglas E. Van Scoy.
FOURTH: The address of the initial registered office of the Corporation is
c/o Harvey L. Temkin, One South Pinckney Street, Post Office Box 1497, Madison,
Wisconsin 53701-1497 and the name of its initial registered agent at such
address is F&L Corp.
FIFTH: The Bylaws of the Corporation may provide for a greater or lower
quorum requirement or a greater voting requirement for shareholders or voting
groups of share holders than Is provided by the Wisconsin Business Corporation
Law.
SIXTH: The name and address of the sole incorporator is:
Harvey L. Temkin c/o Foley & Uidner
One South Pinckney Street
P.0. Box 1497
Madison, Wisconsin 53701
Executed on this 3rd day of September, 1993
This instrument was drafted by and should be returned. to Harvey L. Temkin of
Foley & Lardner, Post Off-ice Box 1497, Madison, Wisconsin 53701-1497.
State of Illinois
Office of
the Secretary of State
Whereas, ARTICLES OF AMENDMENT TO THE ARTICLES OF
INCORPORATION OF
BUTTERWINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF
ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore I, George H. Ryan, Secretary of State of the State of Illinois, by
virtue of the powers vested in me by law, do hereby issue this certificate and
attach hereto a copy of the Application of. the aforesaid corporation.
In testimony whereof, I hereto set my hand and cause to be affixed the Great
Seal of the State of Illinois, atthe City of Springfield, this 24TH day of
AUGUST A.D. 1995 and of the Independence of the United States the two hundred
and 20TH
Secretary of State
<PAGE>
NOTES and INSTRUCTIONS
NOTE 1: State the true exact corporate name as it appears on the records of the
off ice of the Secretary of State, BEFORE any amendments herein reported.
NOTE 2-. Incorporators are permitted ' to adopt amendments ONLY before any
shares have been issued and before any directors have been named or elected.
(ss. 1 0. 1 0)
NOTE 3: Directors may adopt amendments without shareholder approval in only
seven instances, as follows: (a) to remove the names and addresses of directors
named in the articles of incorporation; (b) to remove the name and address of
the initial registered agent and registered office, provided a statement
pursuant to ss. 5.1 0 is also filed; (c) to increase, decrease, create or
eliminate the par value of the shares of any class, so long as no class or
series of shares is adversely affected. (d) to split the issued whole shares and
unissued authorized shares by multiplying them by a whole number, so long as no
class or series is adversely affected thereby; (e) to change the corporate name
by substituting the word "corporation", "incorporated", "company", "limited", or
the abbreviation "corp.", "inc.", "co.", or "ltd." for a similar word or
abbreviation in the name, or by adding a geographical attribution to the name;
(f) to reduce the authorized shares of any class pursuant to a cancellation
statement filed in accordance with ss. 9.05, (g) to restate the articles of
incorporation as currently amended. (ss. 10.15)
NOTE 4: All amendments not adopted under ss. 10.10orss. 10.1 5 require (1)that
the board of directors adopt a resolution setting forth the proposed amendment
and (2) that the shareholders approve the amendment.
Shareholder approval may be (1) by vote at a shareholders' meeting
(either annual or special) or (2) by consent, in writing, without a
meeting.
To be adopted, the amendment must receive the affirmative vote or
consent of the holders of at least 2/3 of the outstanding shares
entitled to vote on the amendment (but if class voting applies,
then also at least a 2/3 vote within each class is required).
The articles of incorporation may supersede the 2/3 vote
requirement by specifying any smaller or larger vote requirement
not less than a majority of the outstanding shares entitled to vote
and not less than a majority within each class when class voting
applies. 10.20)
NOTE 5: When shareholder approval is by consent, all shareholders must be given
notice of the proposed amendment at least 5 days before the consent is signed.
If the amendment is adopted, shareholders who have not signed the consent must
be promptly notified of the passage of the amendment. (ss.ss. 7.10 & 10.20)
<PAGE>
EXHIBIT B
ARTICLE SEVEN
7.1 No director of the Corporation shall be personally liable to the Corporation
or its shareholders, for monetary damages for breach of his fiduciary duty 9 as
a director; provided, that nothing herein shall be construed to eliminate or
limit the liability of a director (a) for any breach of the director's duty of
loyalty to the Corporation or its shareholders, (b) for acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of Law,
(c) under Section 8.65 of the Illinois business Corporation Act, as amended, or
(d) for any transaction from which the director derived an improper personal
benefit.
7.2 Cumulative voting of shares of any class of stock of the Corporation shall
not be allowed under any circumstances.
<PAGE>
EXHIBIT A
ARTICLE FOUR
The total number of shares of all classes which the Corporation has
authority to issue is 101,000 of which 1,000 shares shall be common stock having
no par value per share (the "Common Stock"), and 100,000 shares shall be
preferred stock having no par value per share (the "Preferred Stock"). The
initial series of shares of the Corporation's Preferred Stock shall be 27,500
shares designated as the "Convertible Preferred Stock" (the "Convertible
Preferred Stock").
The designations and preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the shares of each class of stock are as follows:
THE COMMON STOCK - GENERALLY
Subject to all of the rights of the Preferred Stock as expressly
provided herein, by law or by the Board of Directors pursuant to this Article
Four of these Articles of Incorporation, the Common Stock of the Corporation
shall possess all such rights and privileges as are afforded to capital stock by
applicable law in the absence of any express grant of rights or privileges in
these Articles of Incorporation including without limitation the following
rights and privileges:
(a) each outstanding share of the Common Stock shall be entitled to one
vote in each matter submitted to a vote at a meeting of shareholders;
(b) dividends may be declared and paid or set apart for payment upon the
Common VI Stock out of any assets or funds of the Corporation legally available
therefor; and
(c) upon the voluntary or involuntary liquidation, dissolution or winding
up of the " Corporation, the assets of the Corporation shall be distributed pro
rata to the holders of the Common Stock in accordance with their respective
rights and interests.
THE PREFERRED STOCK - GENERALLY
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. The description of shares of each series,
including without limitation any preferences, conversion and other rights,
voting and other rights, restrictions, limitations, qualifications, and terms
and conditions of redemption, shall be set forth in the resolutions from time to
time hereafter adopted by the Board of Directors and in filings made as required
by law from time to time prior to the issuance of such shares.
Without limiting the generality of the foregoing, the Board of Directors is
expressly vested with authority to fix and determine as to each series:
<PAGE>
(a) its distinctive designation;
(b) the number of shares to be issuable;
(c) the rate of dividend, and whether (and, if so, on what terms and
conditions) dividends shall be cumulative or shall be payable in preference or
in any other relation to the dividends payable on any other class or classes of
stock or any other series of the Preferred Stock;
(d) whether the shares may be redeemed and, if so, the terms and conditions
on which they may be redeemed (including without limitation the dates upon or
after which they may be redeemed and the price or prices at which they may be
redeemed, which price or prices may be different in different circumstances or
at different redemption dates);
(e) whether the shares shall be issued with the privilege of conversion
and, if so, the terms and conditions of such conversion or exchange (including
without limitation the price or prices or the rate or rates of conversion of any
terms for adjustment thereof);
(f) any limitation or denial of voting rights or grant of special voting
rights (it be' g recited for the avoidance of doubt that the Board of Directors
is granted authority to limit or deny voting rights in its resolution
establishing any series of the Preferred Stock and that the grant of such
authority is to be deemed made under Section 7.40 of the Illinois Business
Corporation Act of 1983 (the "BCA"));
(g) the amounts payable upon the shares in the event of voluntary
liquidation, dissolution or winding up of the Corporation;
(h) the amounts payable upon the shares in the event of involuntary
liquidation, dissolution or winding up of the Corporation; and
(i) sinking fund provisions, if any, for the redemption or purchase of the
shares (the term "sinking fund" being understood to include any similar fund,
however designated).
In all other respects the rights and preferences of all of the shares of the
Preferred Stock shall be identical.
CONVERTIBLE PREFERRED STOCK
1. Dividends.
(a) Dividend Obligation. When and as declared by the Board of Directors
of the Corporation, the Corporation will pay to the holders of Convertible
Preferred Stock, out of the assets of the Corporation available for the payment
of dividends under the BCA, preferential dividends at the times and in the
amounts provided for in this Paragraph 1.
<PAGE>
(b) Calculation of Dividends. The holders of Convertible Preferred Stock
shall be entitled to receive, but only when and as declared by the Board of
Directors of the Corporation out of the funds of the Corporation legally
available, cumulative, non-compounded cash dividends pay able at the rate and in
the manner prescribed herein quarterly on the first business day of January,
April, July and October, in each year (the "Dividend Dates") and the periods
commencing on the first day after each Dividend Date or the date of original
issue, as the case may be, and ending on the next succeeding Dividend Date (the
"Dividend Periods") to holders of record on such respective dates, as may be
determined by the Board of Directors in advance of the a payments of each
particular dividend for the Dividend Period.
(c) Dividend Rate. Except as otherwise provided in this Paragraph 1,
dividends win be calculated on an annual basis on each share of Convertible
Preferred Stock at the rate of 10% per annum of the Offering Price thereof (the
"Dividend"). To the extent not paid on the Dividend Date, all Dividends which
have been calculated on each share of Convertible Preferred Stock for the
Dividend Period ending on such Dividend Date will be added to the Liquidation
Value of such share and will remain a part thereof until (but only until) such
dividends are paid.
(d) Distribution of Partial Dividend Payments. If any time the
Corporation pays less than the total amount of dividends then calculated on all
outstanding shares of Convertible Preferred Stock, such payment will be
distributed among the holders of Convertible Preferred Stock so that an equal
amount will be paid with respect to each outstanding shares.
(e) Priority. So long as any Convertible Preferred Stock remains
outstanding, the Corporation will not declare or pay, or set apart for payment,
any cash dividends, or make any cash distributions, on any class or classes of
stock of the Corporation if at the time of making such declaration, payment,
setting apart, distribution, redemption, purchase or acquisition, full
cumulative dividends upon all outstanding shares of Convertible Preferred Stock
shall not have been paid.
2. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of Convertible
Preferred Stock will be entitled, before any distribution or payment is made on
any other class or classes of stock of the Corporation, to be paid out of the
assets of the Corporation available for distribution to its shareholders
(whether from capital, surplus or earnings) an amount in cash equal to the
aggregate Liquidation Value of all Convertible Preferred Stock outstanding, and
the holders of Convertible Preferred Stock will not be entitled to any further
payment. For purposes of this Section 2, the net proceeds available to the
Corporation shall mean the consideration received in connection of such
liquidation, dissolution or winding up less (a) all costs, expenses and payments
made in connection therewith, N taxes and required dividend distributions on any
shares issued by the Corporation and (c) all other liabilities of the
Corporation. If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets of the Corporation to
be distributed to the holders of the Convertible Preferred Stock are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid, then the entire assets of the Corporation (after
payment of liabilities) shall be distributed to the holders of the Convertible
Preferred Stock. Upon any such liquidation, dissolution or winding up of the
Corporation, after the holders of Convertible Preferred Stock have been paid in
full the amounts to which they are entitled, the remaining assets of the
Corporation may be distributed to the holders of other class or classes of stock
of the Corporation.
3 . Conversion Rights.
Each share of Convertible Preferred Stock is convertible into shares of Common
Stock (as adjusted to reflect stock splits, stock dividends, subdivisions,
combinations, reclassifications, and for any issuance or sale of shares of
Common Stock or any securities convertible into or exchangeable for shares of
Common Stock), upon the consummation of the first sale of Common Stock by the
Corporation to underwriters for the account of the Corporation pursuant to a
registration statement under the Securities Act of 1933, as amended, filed with
and declared effective by the Securities and Exchange Commission ("Initial
Public Offering"). The Corporation shall give holders of Convertible Preferred
Stock written notice of the effective date of the Initial Public Offering. The
conversion of the outstanding shares of the Convertible Preferred Stock shall
thereupon become effective on and as of the effective date ("Effective Date").
The number of shares of Common Stock to be issued to each holder of the
Shares of Convertible Preferred Stock upon conversion will be determined by
dividing the Offering Price for the Shares of Convertible Preferred Stock by an
amount equal to 95 % of the sale price per share of the Common Stock at the time
of the Initial Public Offering (rounded to the next highest share).
Within ten business days after the Effective Date, the Corporation
shall issue and deliver by hand against a signed receipt therefor or by United
States registered mail, return receipt requested, to the holder of the shares of
the Convertible Preferred Stock so converted a stock certificate or stock
certificates of the Corporation representing the number of shares of Common
Stock to which such holder is entitled and a check or cash in payment of all
unpaid Dividends with respect to such shares of Convertible Preferred Stock.
The Corporation shall take all corporate action as shall be necessary
to increase its authorized but unissued shares of Common Stock for the purpose
of effecting the conversion of the shares of Convertible Preferred Stock. Upon
the conversion of the Convertible Preferred Stock, the shares so converted shall
be canceled and shall be issuable by the Corporation. The Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's capital stock.
The Corporation will not, by amendment of its Articles of Incorporation
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and
<PAGE>
in taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of Convertible Preferred Stock
against impairment.
4. Voting Rights.
Except as otherwise required by statute, Convertible Preferred Stock shall have
no voting rights whatsoever, and no holder of the Convertible Preferred Stock
shall vote or otherwise participate in any proceedings in which actions shall be
taken by the Corporation or the shareholders thereof or be entitled to
notification as to any meeting of the Board of Directors or the shareholders.
5 . Definitions.
The following terms used herein have the following meanings, which
meanings are equally applicable to the singular and plural forms of such terms.
Offering Price " of any share of Convertible Preferred Stock shall be
$100. 00 per share.
"Liquidation Value" of any share of Participating Preferred Stock as
of any particular date will be equal to the sum of $100.00 plus
any unpaid Dividends on such share added to the Liquidation Value
of such share on any Dividend Date pursuant to Paragraph 1(c)
hereof and not thereafter paid, and in the event of any
liquidation, dissolution or winding up of the Corporation, unpaid
Dividends accumulated on such shares since the then most recent
Dividend Date will be added to the Liquidation Value of such
share on the payment date under Section 2 hereof, calculated
cumulatively on a monthly basis to the close of business on such
payment date Upon consummation of any stock splits, reverse
splits or distributions of additional shares of capital stock in
a fashion similar to share dividends, there shall be a
proportional increase or decrease in the Liquidation Value.
<PAGE>
ARTICLES OF AMENDMENT
FILED
August 24, 1995
George H. Ryan
Secretary of State
Department of Business Services
Springfield, IL 62756
Secretary of State
Telephone (217) 782-1832
Franchise Tax
Filing Fee'
order, payable to "Secretary of State."
The filing fee for articles of GEORGE H. RYAN Penalty $
SECRETARY OF STATE Approved:
amendment - $25.00
1. CORPORATE NAME: Butterwings, Inc.
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted on August
17 1995 in the manner indicated below. ( 'X" one box only)
By a majority of the incorporators, provided no directors were named in the
articles of incorporation and no directors have been elected; (Note -2)
By a majority of the board of directors, in accordance with Section 1 0. 1
0, the corporation having issued no Shares as of the time of adoption of this
amendment; (Note 2)
By a majority of the board of directors, in accordance with Section 1 0. 1
5, shares having been issued but shareholder action not being required for the
adoption of the amendment; (Note 3)
By the shareholders, in accordance with Section 10.20, a resolution of the
board of directors having been duly adopted and submitted to the shareholders.
At a meeting of shareholders, riot less than the minimum number of votes
required by statute and by the articles of incorporation were voted in favor of
the amendment: (Note 4)
By the shareholders, in accordance with Sections 10.20 and 7.1 0. a
resolution of the board of directors having been duly adopted and submitted to
the shareholders. A consent in writing has been signed by shareholders having
not less than the minimum number of votes required by statute and by the
articles of Incorporation. Shareholders vote have not consented in writing have
been given notice in accordance with Section 7.10. (Notes 4 & 5)
By the shareholders, in accordance with Sections lO.20 and 7.10, are
solution of the 'board of directors having been duly adopted and submitted to
the shareholders. A consent in writing has been signed by all the shareholders,
entitled to vote on this amendment. (Note 5)
3. TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate
name below. Use Page 2 for all other amendments. Article 1: The
name of the corporation is:
(NEW NAME)
All changes other than name, include on page 2
(over)
<PAGE>
State of Illinois
Office of
The Secretary of State
Whereas ARTICLES OF AMENDMENT TO THE ARTICLES OF
INCORPORATION OF
BUTTERWINGS INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT OF
ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore, I, George H. Ryan, Secretary of State of the State of Illinois,
by virtue of the powers vested in me by law, do hereby 'issue this certificate
and attach hereto a copy of the Application of the aforesaid corporation.
In Testimony Whereof, I hereto set my hand and cause to be affixed the
Great Seal of the State of Illinois, at the City of Springfield, this 8TH day of
OCTOBER A.D. 1996 and of the Independence of the United States the two hundred
and 21ST
Secretary of State
<PAGE>
ARTICLES OF AMENDMENT
FILED
October 8, 1996
George H. Ryan
Secretary of State
Department of Business Services
Springfield, IL 62756
Secretary of State
Telephone (217) 782-1832
Franchise Tax
Filing Fee'
order, payable to "Secretary of State."
The filing fee for articles of GEORGE H. RYAN Penalty $
SECRETARY OF STATE Approved:
amendment - $25.00
1. CORPORATE NAME: Butterwings, Inc.
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted on February
23 1996 in the manner indicated below. ( 'X" one box only)
By a majority of the incorporators, provided no directors were named in the
articles of incorporation and no directors have been elected; (Note 2)
By a majority of the board of directors, in accordance with Section 10.
10, the corporation having issued no Shares as of the time of adoption of this
amendment; (Note 2)
By a majority of the board of directors, in accordance with Section 1 0. 1
5, shares having been issued but shareholder action not being required for the
adoption of the amendment; (Note 3)
By the shareholders, in accordance with Section 10.20, a resolution of the
board of directors having been duly adopted and submitted to the shareholders.
At a meeting of shareholders, riot less than the minimum number of votes
required by statute and by the articles of incorporation were voted in favor of
the amendment: (Note 4)
By the shareholders, in accordance with Sections 10.20 and 7.1 0. a
resolution of the board of directors having been duly adopted and submitted to
the shareholders. A consent in writing has been signed by shareholders having
not less than the minimum number of votes required by statute and by the
articles of Incorporation. Shareholders vote have not consented in writing have
been given notice in accordance with Section 7.10. (Notes 4 & 5)
By the shareholders, in accordance with Sections lO.20 and 7.10, are
solution of the 'board of directors having been duly adopted and submitted to
the shareholders. A consent in writing has been signed by all the shareholders,
entitled to vote on this amendment. (Note 5)
3. TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate
name below. Use Page 2 for all other amendments. Article 1: The
name of the corporation is:
BUTTERWINGS ENTERTAINMENT GROUP, INC.
(NEW NAME)
All changes other than name, include on page 2
(over)
<PAGE>
The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of the number
of authorized shares of any class below the number of issued shares of that
class, provided for or effected by this amendment, is as follows: (if not
applicable, insert "No change)
5. (a) The manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital replaces the
terms Stated Capital and Paid-in Surplus and is equal to the total of these
accounts) is as follows: (if not applicable, insert 'No change)
(b) The amount of paid-in capital (Paid-in Capital replaces the terms
Stated Capital and Paid-in Surplus and is equal to the total of these accounts)
as changed by this amendment is as follows: (If not applicable, insert "No
change")
(Complete either Item 6 or 7 below. All signatures must be in BLACK INK.)
6. The undersigned corporation has caused this statement to be signed by
its duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.
Dated September 25 1996 Butterwings, INC.
KENNETH B. DROST, SECRETARY
DOUGLAS E. SCOY, VICE PRESIDENT
7. If amendment is authorized pursuant to Section I 0. 1 0 by the
incorporators, the incorporators must sign below, and type or print name and
title.
OR
If amendment is authorized by the directors pursuant to Section 1 0. 1 0 and
there are no officers, then a majority of the directors or such directors as may
be designated by the board, must sign below, and type or print name and title.
The undersigned affirms, under the penalties of perjury, that the facts stated
herein are true. Dated '19 -
Page 3
<PAGE>
ARTICLES OF AMENDMENT
FILED
November 7, 1996
George H. Ryan
Secretary of State
Department of Business Services
Springfield, IL 62756
Secretary of State
Telephone (217) 782-1832
Franchise Tax
Filing Fee'
order, payable to "Secretary of State."
The filing fee for articles of GEORGE H. RYAN Penalty $
SECRETARY OF STATE Approved:
amendment - $25.00
1. CORPORATE NAME: Butterwings, Inc.
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted on October
31, 1996 in the manner indicated below. ( 'X" one box only)
By a majority of the incorporators, provided no directors were named in the
articles of incorporation and no directors have been elected; (Note 2)
By a majority of the board of directors, in accordance with Section 1 0. 1
0, the corporation having issued no Shares as of the time of adoption of this
amendment; (Note 2)
By a majority of the board of directors, in accordance with Section 1 0. 1
5, shares having been issued but shareholder action not being required for the
adoption of the amendment; (Note 3)
By the shareholders, in accordance with Section 10.20, a resolution of the
board of directors having been duly adopted and submitted to the shareholders.
At a meeting of shareholders, riot less than the minimum number of votes
required by statute and by the articles of incorporation were voted in favor of
the amendment: (Note 4)
By the shareholders, in accordance with Sections 10.20 and 7.1 0. a
resolution of the board of directors having been duly adopted and submitted to
the shareholders. A consent in writing has been signed by shareholders having
not less than the minimum number of votes required by statute and by the
articles of Incorporation. Shareholders vote have not consented in writing have
been given notice in accordance with Section 7.10. (Notes 4 & 5)
By the shareholders, in accordance with Sections lO.20 and 7.10, are
solution of the 'board of directors having been duly adopted and submitted to
the shareholders. A consent in writing has been signed by all the shareholders,
entitled to vote on this amendment. (Note 5)
3. TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate
name below. Use Page 2 for all other amendments. Article 1: The
name of the corporation is:
(NEW NAME)
All changes other than name, include on page 2
(over)
<PAGE>
Text of Amendment
b. (if amendment affects the corporate purpose. The amended purpose
is required lobe Set forth in its entirely, lf there is not
sufficient space to do so. add one or more sheets of this size.)
RESOLVED, that Article 4 of the Articles of Incorporation of the Corporation be
amended to read, in its entirety, as follows:
Common Series Par Value No. of Shares
Authorized
Common NIA $0.01 10,000,000
Page 2
<PAGE>
4. The manner, if not set forth in Article 3b, in which any exchange.
reclassification or cancellation of issued shall or a reduction of the number of
authorized shares of any class below the number of issued shares of that class.
for or effected by this amendment, is as follows- (If not applicable.) 'No
change)
No change
(a) The manner, if not set forth in Article 3b. in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital replaces the
terms Stated Capital and Paid-in Surplus and is equal to the total of these
accounts) is as follows: (If not applicable, insert "No change")
No change
(b) The amount of paid-in capita) (Paid-in Capital replaces the terms
Stated Capital and Paid-in Surplus and is equal to the total of these accounts)
as changed by this amendment is as follows: (If not applicable, Insert 'No
change)
No change
6. The undersigned corporation has caused this statement to be signed by
its duty authorized officers, each of whom affirms. under penalties of perjury,
that the facts stated herein are true.
October 1996 Butterwings Entertainment Group, Inc.
Kenneth B. Drost. Secretary
Stephan Buckley, President
7. It amendment is authorized pursuant to Section 1 0.1 0 by the
incorporators, the incorporators must sign below, and type or print name and
title.
OR
It amendment is authorized by the directors pursuant to Section 10.10 and
there are no officers, then a majority of the directors or such directors as may
be. designated by the board, must sign below, and type or print name and title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
AMENDED AND RESTATED
BY-LAWS
OF
BUTTERWINGS, INC.
ADOPTED AS OF AUGUST 29, 1995
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
BUTTERWINGS, INC.
TABLE OF CONTENTS
Section Title Page
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ARTICLE 1 OFFICES 1
ARTICLE 2 SHAREHOLDERS 1
2.1 Annual Meeting 1
2.2 Special Meetings 1
2.3 Place of Meeting 1
2.4 Notice of Meetings 1
2.5 Meeting of All Shareholders 2
2.6 Quorum 2
2.7 Manner of Acting 2
2.8 Proxies 2
2.9 Voting of Shares 3
2.10 Voting of Shares by Certain Holders 4
2.11 Informal Action by Shareholders 4
2.12 Voting by Ballot 5
ARTICLE 3 DIRECTORS 5
3.1 General Powers 5
3.2 Qualification 5
3.3 Number, Tenure and Qualifications 5
3.4 Initial Board of Directors 5
3.5 Regular Meetings 5
3.6 Special Meetings 5
3.7 Quorum 6
3.8 Manner of Acting 6
3.9 Resignation 6
3.10 Vacancies 6
3.11 Compensation 6
3.12 Presumption of Assent 6
3.13 Informal Action By Directors 7
3.14 Removal of Directors 7
<PAGE>
ARTICLE 4 COMMITTEES 7
4.1 Committees 7
4.2 Committee Rules 8
4.3 Audit Committee 8
ARTICLE 5 OFFICERS 8
5.1 Number and Qualifications 8
5.2 Election and Tenn of Office 9
5.3 Removal 9
5.4 Vacancies 9
5.5 Bonds 9
5.6 Chairman of the Board 9
5.7 President 9
5.8 Vice President 9
5.9 Chief Financial Officer 10
5.10 Secretary 10
5.11 Assistant Treasurers and Assistant Secretaries 10
5.12 Salaries 10
5.13 Repayment 11
ARTICLE 6 CONTRACTS, LOANS, CHECKS AND DEPOSITS 11
6.1 Contracts 11
6.2 Loans 11
6.3 Checks, Drafts, Etc. 11
6.4 Deposits 11
ARTICLE 7 ISSUANCE, TRANSFER AND RESTRICTION OF
SHARES 11
7.1 Certificates of Shares 11
7.2 Cancellation of Certificates 12
7.3 Lost, Stolen or Destroyed Certificates 12
7.4 Transfer of Shares 12
ARTICLE 8 FISCAL YEAR 12
ARTICLE 9 DIVIDENDS 13
ARTICLE 10 SEAL 13
ARTICLE 11 WAIVER OF NOTICE 14
<PAGE>
ARTICLE 12 INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS; INSURANCE 14
12.1 Authorization for Indemnification 14
12.2 Authorization by Directors, Legal Counsel
or Shareholders 15
12.3 Repayment 15
12.4 Not Exclusive of Other Rights 15
12.5 Insurance 15
12.6 Report to Shareholders 16
12.7 Definitions 16
ARTICLE 13 RELATED PARTY TRANSACTIONS 16
ARTICLE 14 AMENDMENTS 17
ARTICLE 15 GENDER AND NUMBER 17
CONCLUSION OF BY-LAWS 17
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
BUTTERWINGS, INC.
ARTICLE I
OFFICES
The Corporation shall continuously maintain in the State of Illinois a
registered office and a registered agent whose office is identical with such
registered office. The Corporation may have other offices within or without
the State.
ARTICLE 2
SHAREHOLDERS
2.1 ANNUAL MEETING. The annual meeting of the shareholders shall be
held at the office of the Corporation on the 3rd Monday in August each
calendar year, for the election of directors and for the transaction of
such other business as may be brought 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. If the election of directors shall not
be held on the day designated herein for any annual meeting, or at any
adjournment thereof, the Board of Directors shall cause the election to be
held at a meeting of the shareholders as soon thereafter as convenient.
2.2 SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the President, by the Board of Directors or by the holders of not
less than one-fifth (1/5th) of all of the outstanding shares of stock
entitled to vote of the Corporation.
2.3 PLACE OF MEETING. The President, the Board of Directors or those
calling the meeting may designate any place, within or without the State of
Illinois, as the place of meeting for any annual meeting or for any special
meeting called by such parties. A waiver of notice signed by all of the
shareholders may designate any place, either within or without the State of
Illinois, as the place for the holding of 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 in the State of Illinois,
except as otherwise provided in Section 2.4 of this ARTICLE.
2.4 NOTICE OF MEETINGS. Written or printed notice stating the place,
day and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for
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which the meeting is called, shall be delivered not less than ten (10) days nor
more than sixty days (or in a case involving a merger, consolidation, share
exchange, dissolution or sale, lease or exchange of assets, not less than twenty
(20) days nor more than sixty (60) days) before 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 shareholder 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 shareholder at his
address as it appears on the records of the Corporation with postage thereon
prepaid.
2.5 MEETING OF ALL SHAREHOLDERS. If all of the shareholders shall meet at
any time and place, either within or without the State of Illinois, and consent
to the holding of a meeting at such time and place, such meeting shall be valid
without call or notice and at such meeting any corporate action may be taken.
2.6 QUORUM. A majority of the outstanding shares of stock of the
Corporation, entitled to vote on a matter, represented in person or by proxy,
shall constitute a quorum at any meeting of the shareholders. Provided, however,
that if less than a majority of the outstanding shares are represented at said
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice.
2.7 MANNER OF ACTING. Unless otherwise provided by law or by the Articles
of Incorporation of the Corporation, the affirmative vote of a majority of the
shares of stock represented at a meeting shall be the act of the shareholders.
At any adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the original meeting. Withdrawal
of shareholders from any meeting shall not cause failure of a duly constituted
quorum at that meeting.
2.8 PROXIES. A shareholder may appoint a proxy
2.8.1 To vote or otherwise act for such shareholder by signing an
appointment form and delivering it to the person so appointed.
2.8.2 No proxy shall be valid after the expiration of eleven (11) months
from the date thereof unless otherwise provided in the proxy. Except as
otherwise provided in this Section, every proxy continues in full force and
effect until revoked by the person executing it prior to the vote pursuant
thereto. Such revocation may be affected by a writing delivered to the
Corporation stating that the proxy is revoked or by a subsequent proxy executed
by or by attendance at the meeting and voting in person by, the person executing
the proxy. The dates contained on the forms of proxy presumptively determine the
order of execution, regardless of the postmark dates on the envelopes in which
they are mailed.
2.8.3 An appointment of a proxy is revocable by the shareholder unless the
appointment form conspicuously states that it is irrevocable and the
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appointment is coupled with an interest in the shares or in the Corporation
generally. By way of example and without limiting the generality of the
foregoing, a proxy is coupled with an interest when the proxy appointed is one
of the following:
2.8.3.1 a pledgee;
2.8.3.2 a person who has purchased or has agreed to purchase the shares;
2.8.3.3 a creditor of the corporation who has extended it credit under
terms requiring the appointment, if the appointment states the purpose for which
it was given, the name of the creditor and the amount of credit extended;
2.8.3.4 an employee of the corporation whose employment contract requires
the appointment, if the appointment states the purpose for which it was given,
the name of the employee and the period of employment; or
2.8.3.5 a party to a voting agreement.
2.8.4 The death or incapacity of a shareholder appointing a proxy does not
revoke the proxy's authority unless notice of the death or incapacity is
received by the officer or agent who maintains the Corporation's share transfer
book before the proxy exercises his or her authority under the appointment.
2.8.5 An appointment made irrevocable under Subsection 2.8.3 above becomes
revocable when the interest in the proxy terminates. (e.g. the pledge is
redeemed, the shares are registered in the purchaser's name, the creditor's debt
is paid, the employment contract ends or the voting agreement expires.)
2.8.6 A transferee for value of shares subject to an irrevocable
appointment may revoke the appointment if the transferee was ignorant of its
existence when the shares were acquired and both the existence of the
appointment and its irrevocability were not noted conspicuously on the
certificate (or information statement for shares without certificates)
representing the shares.
2.8.7 Unless the appointment of a proxy contains an express limitation on
the proxy's authority, the Corporation may accept the proxy's vote or other
action as that of the shareholder making the appointment. If the proxy appointed
fails to vote or otherwise act in accordance with the appointment, the
shareholder is entitled to such legal or equitable relief as is appropriate in
the circumstances.
2.9 VOTING OF SHARES. The shares of stock of the Corporation shall be voted
by the shareholders as provided in the Articles of Incorporation of the
Corporation and/or the Business Corporation Act of the State of Illinois.
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2.10 VOTING OF SHARES BY CERTAIN HOLDERS. Shares of stock of the
Corporation held by the Corporation in a fiduciary capacity may be voted and
shall be counted in determining the total number of outstanding shares entitled
to vote at any given time. Shares standing in the name of another corporation,
domestic or foreign, may be voted by any officer, agent, proxy or other legal
representative authorized to vote such shares under the law of the state of
incorporation of such corporation. The Corporation may treat the president or
other person holding the position of chief executive officer of such other
corporation as authorized to vote such shares, together with any other person
indicated and any other holder of an office indicated by the corporate
shareholder to the corporation as a person or an office authorized to vote such
shares. Such persons and offices indicated shall be registered by the
Corporation on the transfer books for shares and included in any voting list.
Shares standing in the name of a deceased person, a minor ward
or an incompetent person under legal disability may be voted by his
administrator, executor or court appointed guardian, either in person or by
proxy without a transfer of such shares into the name of such administrator,
executor or court appointed guardian. Shares registered in the name of a trustee
may be voted by him or her, either in person or by proxy.
Shares registered in the name of a receiver may be voted by
such receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into his or her name if
authority so to do is contained in an appropriate order of the court by which
such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
2.11 INFORMAL ACTION BY SHAREHOLDERS.
2.11.1 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 (i) if five (5) days prior to notice of the proposed
action given in writing to all of the shareholders entitled to vote with respect
to the subject matter thereof, by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voting or (ii) by all of the shareholders entitled to vote with
respect to the subject matter thereof.
2.11.2 Prompt notice of the taking of the Corporation action without a
meeting by less than unanimous written consent shall be given in writing to
those shareholders who have not consented in writing.
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2.12 VOTING BY BALLOT. Voting on any question or in any election may he
viva voce unless the presiding officer shall order or any shareholder shall
demand that voting be by ballot.
ARTICLE 3
DIRECTORS
3.1 GENERAL POWERS. The affairs of the Corporation shall be managed by or
under a Board of Directors.
3.2 QUALIFICATION. A minimum of two (2) directors on the Board of Directors
shall be independent. For purposes of this Section, "independent" shall mean a
person other than an officer or employee of the Corporation or its subsidiaries
or any other individual having a relationship which, in the opinion of the Board
of Directors, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director.
3.3 NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the
Corporation shall be five (5). The directors shall hold office until the next
annual meeting of shareholders or until their successors shall have been elected
and qualified. A director need not be a resident of Illinois or a shareholder of
the Corporation. The number of directors may be increased or decreased from time
to time by the amendment of this Section, but no decrease shall have the effect
of shortening the term of any incumbent director. The term of a director elected
as a result of an increase in the number of directors expires at the next annual
meeting of shareholders.
3.4 INITIAL BOARD OF DIRECTORS. The initial Board of Directors shall be as
set forth in the Articles of Incorporation.
3.5 REGULAR MEETINGS. An annual meeting of the Board of Directors shall
be held without other notice than this by-law, immediately after, and at the
same place as the annual meeting of shareholders. The Board of Directors may
provide by resolution, the time and place, either within or without the State of
Illinois, for the holding of additional regular meetings without other notice
than such resolution.
3.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the President or by the Secretary on the written request of any
director on at least two (2) day's notice to each director and shall be held at
such place or places as may be determined by the Board of Directors or as shall
be stated in the call of the meeting. Unless otherwise restricted by the
Articles of Incorporation or these By-Laws, members of the Board of Directors or
any committee designated by the Board of Directors, may participate in a meeting
of the Board of Directors or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating
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in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.7 QUORUM. A majority of the number of directors fixed in these
By-Laws shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors provided that, if less than such a majority of the
directors are present at said meeting, a majority of the directors present may
adjourn the meeting from time to time, said adjourned meeting to be held only
after at least twenty-four (24) hours' personal or telegraphic notice to all
directors.
3.8 MANNER OF ACTING. The act of the majority of all of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
3.9 RESIGNATION. A director may resign at any time by giving written
notice to the Board of Directors, its Chairman or to the President or Secretary
of the Corporation. A resignation is effective when the notice is given unless
the notice specifies a future date. The pending vacancy may be filled before the
effective date, but the successor shall not take office until the effective
date.
3.10 VACANCIES. Any vacancy occurring in the Board of Directors and any
directorship to be filled by reason of an increase in the number of directors
may be filled by election at an annual meeting or at a special meeting of the
shareholders called for that purpose; PROVIDED, HOWEVER, a vacancy arising
between meetings of the shareholders by reason of an increase in the number of
directors or otherwise may be filled by the Board of Directors. The term of a
director elected to fill a vacancy expires at the next annual meeting of
shareholders at which his predecessor's term would have expired.
3.11 COMPENSATION. By the affirmative vote of a majority of the
directors then in office, irrespective of any personal interest of any of the
members, the Board of Directors may authorize payment to the directors of their
expenses, if any, for attendance at each meeting of the Board of Directors and
the Board of Directors may establish reasonable compensation for all directors
for services to the Corporation as directors, officers or otherwise.
3.12 PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively 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 of the meeting. Such
right to dissent shall be sent by certified 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.
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3.13 INFORMAL ACTION BY DIRECTORS.
3.13.1 Any action required to be taken at a meeting of the
Board of Directors or any other action which may be taken at a meeting of the
Board of Directors, or a committee thereof, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the Directors entitled to vote with respect to the subject matter thereof or by
all the members of such committee, as the case may be.
3.13.2 The consent shall be evidenced by one or more written
approvals, each of which sets forth the action taken and bears the signature of
one or more directors. All the approvals evidencing the consent shall be
delivered to the Secretary to be filed in the corporate records. The action
taken shall be effective when all the directors have approved the consent unless
the consent specifies a different effective date.
3.13.3 Any such consent signed by all of the directors or all
the members of a committee shall have the same effect as a unanimous vote.
3.14 REMOVAL OF DIRECTORS.
3.14.1 One (1) or more of the directors may be removed, with
or without cause, at a meeting of shareholders by the affirmative vote of the
holders of a majority of the outstanding shares of stock then entitled to vote
at an election of directors, PROVIDED, HOWEVER, no director shall be removed at
a meeting of shareholders unless the notice of such meeting shall state that the
purpose of the meeting is to vote upon the removal of one or more directors
named in the notice. Only the named director or directors may be removed at such
meeting.
ARTICLE 4
COMMITTEES
4.1 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the Corporation,
which to the extent provided in such resolution or these By-Laws shall have and
may exercise the powers of the Board of Directors in the management and affairs
of the Corporation except as otherwise limited by law. The Board of Directors
may designate one (1) or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Such committee or committees shall have such name or names as may be
deter-mined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors when required.
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4.2 COMMITTEE RULES. Each committee of the Board of Directors may fix
its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee.
4.3 AUDIT COMMITTEE. The Audit committee shall consist of not fewer
than three (3) members of the Board of Directors as shall from time to time be
appointed by resolution of the Board of Directors, provided however, that a
majority of the members of the Audit Committee shall be independent as defined
in Section 3.2 of Article 3 hereof. The Audit Committee shall review and, as it
shall deem appropriate, recommend to the Board of Directors, internal accounting
and financial controls for the Corporation and accounting principles and
auditing practices and procedures to be employed in the preparation and review
of financial statements of the Corporation. The Audit Committee shall make
recommendations to the Board of Directors concerning the engagement of
independent public accountants to audit the annual financial statements of the
Corporation and the scope of the audit to be undertaken by such accountants. In
addition, the Audit Committee will review all potential conflict of interest
situations where appropriate. The Audit Committee shall have. to the fullest
extent permitted by law, but subject to any specific limitation imposed by the
Certificate of Incorporation, these By-Laws or a resolution of the Board of
Directors, all power and authority vested in or retained by the Board of
Directors (whether or not the Audit Committee is specifically mentioned in the
statute, the provision of the Certificate of Incorporation or these By-Laws, the
resolution or any other instrument vesting or retaining any such power or
authority), and the Audit Committee may exercise such power and authority in
such manner as it shall deem for the best interest of the Corporation in all
cases in which specific directions shall not have been given by the Board of
Directors. Specifically, the Audit Committee shall have no authority in
reference to amending the Certificate of Incorporation; adopting an agreement of
merger or consolidation; recommending to the stockholders the sale, lease, or
exchange of all or substantially all of the Corporation's property and assets;
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution; amending the by-laws of the Corporation; electing
or removing directors or officers of the Corporation or members of the Audit
Committee; declaring dividends; or amending, altering, or repealing any
resolution of the Board of Directors which, by its terms, provides that it shall
not be amended, altered or repealed by the Audit Committee.
ARTICLE 5
OFFICERS
5.1 NUMBER AND QUALIFICATIONS. The officers of the Corporation shall be
determined and elected by the Board of Directors. Officers and assistant
officers and agents as may be deemed necessary may be elected or appointed by
the Board of Directors, each to have such authority and to perform such duties
in the management of the property and affairs of the Corporation as hereinafter
provided. Two or more offices may be held by the same person.
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5.2 ELECTION AND TERM OF OFFICE. The officers of the Corporation shall
be elected annually by the Board of Directors at the first meeting of the Board
of Directors held after each annual meeting of shareholders'. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as convenient. Vacancies may be filled or new offices filled at any
meeting of the Board of Directors. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified, until his death
or until he shall resign or shall have been removed in the manner hereinafter
provided. Election of an officer shall not of itself create contract rights.
5.3 REMOVAL. Any officer or agent of the Corporation elected or
appointed by the Board of Directors may be removed by the Board of Directors
whenever in its 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.
5.4 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board of Directors
for the unexpired portion of the term.
5.5 BONDS. If the Board of Directors by resolution shall so require,
any officer or agent of the Corporation shall give bond to the Corporation in
such amount and with such surety as the Board of Directors may deem sufficient,
conditioned upon the faithful performance of their respective duties and
offices.
5.6 CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the
Chairman of the Board of Directors and preside at all meetings of the
shareholders and the Board of Directors. The Board of Directors may decide not
to elect a Chairman of the Board and in such event the office may remain vacant.
5.7 PRESIDENT. The President shall be the chief executive officer of
the Corporation and shall in general supervise and control all of the business
and affairs of the Corporation. In the absence of the Chairman of the Board, if
any, he shall preside at all meetings of the shareholders and of the Board of
Directors. He may sign with the Secretary or any other proper officer of the
Corporation thereunto authorized by the Board of Directors, certificates for
shares of the Corporation, any deeds, mortgages, bonds, contracts or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board of 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 shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from time to time.
5.8 VICE PRESIDENTS. In the absence of the President or in the event of his
inability or refusal to act, the Vice President (or in the event there be more
than one Vice President, Vice presidents, in the order designated or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President. Any Vice president
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may sign with the Secretary or an Assistant Secretary, certificates for shares
of the Corporation and shall perform such other duties as from time to time may
be assigned to him by the President or by the Board of Directors.
5.9 CHIEF FINANCIAL OFFICER. If required by the Board of Directors, the
Chief Financial Officer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board of Directors
shall determine. He shall: (a) have charge and custody of and be responsible for
all funds and securities of the Corporation (b) receive and give receipts for
monies due and payable to the Corporation from any sources 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 the
provisions of Article 6 of these By-laws and (c) in general perform all duties
incident to the office of Chief Financial Officer and such other duties as from
time to time may be assigned to him by the president or by the Board of
Directors.
5.10 SECRETARY. The Secretary shall: (a) keep the minutes of the
shareholders' and of the Board of Directors' meetings in one or more books
provided for that purpose, (b) see that all notices are duly given in accordance
with the provisions of these By-Laws or as required by law, (c) be custodian of
the corporate records, the seal of the Corporation and see that the seal of the
Corporation is affixed to all certificates for shares prior to the issue thereof
and to all documents, the execution of which on behalf of the Corporation under
its seal is duly authorized in accordance with the provisions of these By-Laws,
(d) keep a register of the post office address of each shareholder which shall
be furnished to the Secretary by such shareholder, (e) sign with the President
or a Vice President, certificates for shares of stock of the Corporation, the
issue of which shall have been authorized by resolution of the Board of
Directors, (f) have general charge of the stock transfer books of the
Corporation, (g) certify the By-Laws, resolutions of the shareholders and Board
of Directors and committees thereof and other documents of the Corporation as
true and correct copies thereof; and (h) 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 or her by the President or by the Board of Directors.
5.11 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant
Treasurers shall, respectively, if required by the Board of Directors, give
bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors shall determine. The Assistant Secretaries,
as thereunto authorized by the Board of Directors, may sign with the President
or a Vice President certificates for shares of the Corporation, the issue of
which shall have been authorized by a resolution of the Board of Directors. The
Assistant Treasurers and Assistant Secretaries, in general, shall perform such
duties as shall be assigned to them by the Chief Financial Officer or the
Secretary, respectively, or by the President or the Board of Directors.
5.12 SALARIES. The salaries of the officers shall be fixed from time to
time by the Board of 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.
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5.13 REPAYMENT. Any payments made to an officer of the Corporation or
to any employee of the Corporation such as salary, commission, bonus, interest,
rent, travel or entertainment expenses incurred by him, which shall be
disallowed in whole or in part as a deductible expense by the Internal Revenue
Service, shall be reimbursed by such officer or employee to the Corporation to
the extent the disallowance results in federal or state income tax to the
Corporation. It shall be the duty of the Board of Directors to enforce payment
of each such amounts disallowed. In lieu of payment by the officer or employee,
subject to the determination of the Board of Directors, proportionate amounts
may be withheld from his future compensation payments until the amount owed to
the Corporation has been recovered.
ARTICLE 6
CONTRACTS, LOANS, CHECKS AND DEPOSITS
6.1 CONTRACTS. The Board of 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 and/or confined to specific instances.
6.2 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 Board of Directors. Such authority may be general or
confined to specific instances.
6.3 CHECKS, DRAFTS, ETC. All checks, drafts or other order 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 Board of Directors.
6.4 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 Board of Directors may select.
ARTICLE 7
ISSUANCE, TRANSFER AND RESTRICTION OF SHARES
7.1 CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be respectively numbered serially for each class of shares, or
series thereof, as they are issued, shall be impressed with the corporate seal
or a facsimile thereof and shall be signed by the President and by the Secretary
or as determined by the Board of Directors; provided that such signatures may be
facsimile on any certificate countersigned by an independent transfer agent, or
countersigned by a transfer clerk and registered by an independent registrar.
Each certificate shall exhibit the name of the Corporation, state that the
Corporation is organized or incorporated under the laws of the State of
Illinois, the name of the person to whom issued, the date of issue, the class
(or series of any class) and number
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of shares represented thereby and the par value of the shares represented
thereby or that such shares are without par value.
A statement of the designations, preferences, qualifications,
limitations, restrictions and special or relative rights of the shares of each
class shall be set forth in full or summarized on the face or back of the
certificates which the Corporation shall issue, or in lieu thereof, the
certificate may set forth that such a statement or summary will be furnished to
any shareholder upon request without charge. Each certificate shall be otherwise
in such form as may be prescribed by the Board of Directors and as shall conform
to the rules of any Stock Exchange on which the shares may be listed,
7.2 CANCELLATION OF CERTIFICATES. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificates shall be
issued in lieu thereof until the former certificate for a like number of shares
shall have been surrendered and canceled, except as herein provided with respect
to lost, stolen or destroyed certificates.
7.3 LOST, STOLEN OR DESTROYED CERTIFICATES. Any shareholder who claims
that his certificates for shares of stock are lost, stolen or destroyed may make
an affidavit or affirmation of that fact and lodge the same with the Secretary
of the Corporation, accompanied by a signed application for a new certificate.
Thereupon, and as the Board of Directors may require, upon the giving of a
satisfactory bond of indemnity to the Corporation not exceeding in amount double
the value of the shares represented by such certificate, such value to be
determined by the Board of Directors, a new certificate may be issued of the
same tenor and representing the same number, class and series of shares as were
represented by the certificate alleged to be lost, stolen or destroyed.
7.4 TRANSFER OF SHARES. Subject to law, these By-Laws or any other
Agreement, shares of the Corporation shall be transferable on the books of the
Corporation by the holder thereof in person or by his duly authorized attorney,
upon the surrender and cancellation of a certificate or certificates for a like
number of shares. Upon presentation and surrender of a certificate for shares
properly endorsed the transferee shall be entitled to a new certificate or
certificates in lieu thereof. As against the Corporation, a transfer of shares
can be made only on the books of the Corporation and in the manner hereinabove
provided, and the Corporation shall be entitled to treat the holder of record of
any shares of stock as the owner thereof and shall not be bound to recognize any
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
expressly provided by the statutes of the State of Illinois.
ARTICLE 8
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the Board of
Directors of the Corporation.
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ARTICLE 9
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares of stock in the manner
and upon the terms and conditions provided by law and its Articles of
Incorporation.
ARTICLE 10
SEAL
The Board of Directors may provide a corporate seal which shall be in
the form of a circle and shall have inscribed thereon the name of the
Corporation and the words "Corporate Seal, Illinois."
ARTICLE 11
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of
these By-Laws, under the provisions of the Articles of Incorporation, under the
provisions of the Business Corporation Act of the State of Illinois or
otherwise, a waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance at any meeting shall
constitute waiver of notice thereof unless the person at the meeting objects to
the holding of the meeting because proper notice was not given.
ARTICLE 12
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS; INSURANCE
12.1 AUTHORIZATION FOR INDEMNIFICATION.
12.1.1 The Corporation may indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he
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reasonably believed to be in, or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
'action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contenders or its equivalent, shall not of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to the best interests of the
Corporation or with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
12.1.2 The Corporation may indemnify any person who was or is
a party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to
the best interests of the Corporation, provided that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation, unless, and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability, but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnification for
such expenses as the court shall deem proper.
12.1.3 To the extent that a director, officer, employee or
agent of the Corporation has been successful, on the merits or otherwise, in the
defense of any action, suit or proceeding referred to in Subsections 12. 1. 1
and 12.1.2, or in defense of any claim, issue or matter therein, he may be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
12.2 AUTHORIZATION BY DIRECTORS, LEGAL COUNSEL OR SHAREHOLDERS. Any
indemnification under this ARTICLE 12 (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case, upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsection 12. 1. 1 of this ARTICLE 12. Such determination shall be
made: (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, (ii) if such
a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion or (iii)
by the shareholders.
12.3 REPAYMENT. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding, as authorized by the Board
of Directors in the specific case, upon
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receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount, unless it shall ultimately be determined that he is
entitled to be indemnified by the Corporation as authorized by Section 8.75 'of
the Illinois Business Corporation Act.
12.4 NOT EXCLUSIVE OF OTHER RIGHTS. The indemnification provided by
this ARTICLE 12 shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any other by-law, agreement, vote
of shareholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
12.5 INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or who is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of Section 8.75 of the
Illinois Business Corporation Act.
12.6 REPORT TO SHAREHOLDERS. If the Corporation has paid indemnity or has
advanced expenses to a director, officer, employee or agent, the Corporation
shall report the indemnification or advance in writing to the shareholders with
or before the notice of the next shareholders meeting.
12.7 DEFINITIONS.
12.7.1 For purposes of this ARTICLE 12, references to the
"Corporation" shall include, in addition to the surviving corporation, any
merging corporation (including any corporation having merged with a merging
corporation absorbed in a merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who was a director, officer, employee or
agent of such merging corporation, or is or was serving at the request of such
merging corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under this ARTICLE 12 with respect to the surviving
corporation as he would have with respect to such merging corporation if its
separate existence had continued.
12.7.2 For purposes of this ARTICLE 12, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries. A person who acted in good faith and in a manner
he reasonably believed to
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be in the interests of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this ARTICLE 12.
ARTICLE 13
RELATED PARTY TRANSACTIONS
Any transaction between the Corporation and an officer, director, 10%
shareholder or affiliates, including making any loans or entering into any lease
transactions, shall be on terms no less favorable to the Corporation than those
that could be obtained from unrelated third parties and the transactions shall
be unanimously approved by the Corporation's independent directors.
ARTICLE 14
AMENDMENTS
The power to make, alter, amend or repeal the By-Laws of the
Corporation shall be vested in the Board of Directors or the shareholders,
unless reserved solely to the shareholders by the Articles of Incorporation,
(but no by-law adopted by the shareholders may be altered, amended or repealed
by the Board of Directors.) The By-Laws may contain any provisions for the
regulation and management of the affairs of the Corporation not inconsistent
with law or the Articles of Incorporation.
ARTICLE 15
GENDER AND NUMBER
The use of the masculine, feminine or neuter gender and the use of the
singular and plural shall not be given the effect of any exclusion or limitation
herein; and the use of the word "person" or "party" shall mean and include any
individual, trust, corporation, partnership or other entity.
CONCLUSION OF BY-LAWS
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FRANCHISE AGREEMENT
BETWEEN
MRS. FIELDS DEVELOPMENT CORPORATION
AND
BUTTERWINGS, INC.
FRANCHISEE
<PAGE>
MRS. FIELDS DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
TABLE OF CONTENTS
ARTICLE 1 .DEFINITIONS; 1REAMBLES; AND ACKNOWLEDGMENTS ..................... 1
1.1Date of Agreement ................................................ 1
1.2Certain Definitions .............................................. 1
1.3Preambles ........................................................ 3
1.4Acknowledgments .................................................. 3
ARTICLE 2GRANT OF FRANCHISE ................................................ 3
2.1Franchise ........................................................ 3
2.2Initial Term of the Franchise Agreement .......................... 4
2.3Renewals ......................................................... 4
2.4Reservation of Certain Rights .................................... 4
ARTICLE 3SITE SELECTION, LEASE OF PREMISES AND DEVELOPMENT OF THE LICENSED
STORE ................................................. 4
3.1 Site Selection .................................................. 4
3.2 Acquisition of the Premises ..................................... 5
(a)Your Obligation to Obtain Lease 5
(b)Use of Premises Currently Under Lease to Us 5
(c)Expiration of Lease 6
(d)Effect of our Approval of Lease 6
3.3Licensed Store Development ....................................... 6
(a)Plans and Specifications ........................ 6
(b)Contractors ..................................... 6
(c)Development Obligations ......................... 6
3.4Fixtures, Furnishings, Equipment and Signs .............................. 6
3.5Licensed Store Opening .................................................. 7
3.6Grand Opening Promotion ................................................. 7
ARTICLE 4TRAINING AND GUIDANCE ............................................. 7
4.1 Training .......................................................... 7
(a) Training for You and the Licensed Store Manager ................... 7
(b) Use of the Licensed Store for Training ............................ 8
(C) Failure to Complete Training ...................................... 8
(d) Refresher Training ................................................ 8
4.2 Operations Manual ............................................... 8
4.3 Guidance ........................................................ 8
ARTICLE 5 FEES ............................................................. 9
5.1 The Franchise Fee ............................................... 9
5.2 Royalty Fee ..................................................... 9
5.3 Late Charge; Interest on Late Payments .......................... 9
5.4 Application of Payments ......................................... 9
ARTICLE 6 ADDITIONAL OBLIGATIONS .......................................... 9
6.1 System Standards ............................................... 9
6.2 Performance of Duties and Obligations .......................... 11
6.3 Restrictions on Operations and Customers ....................... 11
6.4 Accounting, Reports and Financial Statements ................... 11
(a) Gross Revenue Reports ......................................... 11
(b) Monthly Financial Reports ..................................... 11
(c) Semi-Annual Reports ........................................... 11
(d) Tax Returns ................................................... 11
6.5 Retention of Records .................................................. 12
6.6 Our Right to Inspect the Licensed Store ............................... 12
6.7 Our Right to Audit .................................................... 12
6.8 Surveys ............................................................... 13
6.9 Guaranties by Entity Owners ........................................... 13
6.10 Obligations with Respect to Restricted Persons . . ; ................. 13
6.11 Insurance ............................................................ 13
(a) Casualty Insurance ..................................... 13
(b) Liability Insurance .................................... 13
(c) Workmen's Compensation Insurance ....................... 13
(d) Other Insurance Policies ............................... 13
(e) Policy Requirements .................................... 13
(f) Release of Insured Claims .............................. 14
ARTICLE 7 MARKETING AND PROMOTION ......................................... 14
7.1 The Marketing Fund .................................................... 14
(a) Establishment of Marketing Funds; Marketing Fund
Contributions ............................................... 14
(b) Right to Direct Operation of the Marketing Fund ............. 14
(c) Accounting for the Marketing Fund ........................... 14
(d) Benefits to Individual Stores ............................... 15
(e) Collection of Marketing Fund Contributions .................. 15
(f) Suspension or Termination of Marketing Fund; Reinstatement15
7.2Advertising and Promotional Activities by You .......................... 15
7.3Marketing Contributions From Suppliers ................................. 16
7.4Our Advertising Materials .............................................. 16
ARTICLE 8 CONFIDENTIAL INFORMATION AND USE
OF THE MARKS ....................................................... 16
8.1Confidential Information ............................................... 16
8.2Concepts Developed by You .............................................. 16
8.3Ownership and Goodwill of Marks ........................................ 16
8.4Limitations on Your Use of Marks ....................................... 17
8.5Discontinuance of Use of Marks ......................................... 17
8.6Notification of Infringements and Claims ............................... 17
8.7Our Indemnification of You ............................................. 17
8.8Copyrights ............................................................. 17
ARTICLE 9 EXCLUSIVE RELATIONSHIP .......................................... 18
9.1 Non-Competition ....................................................... 18
ARTICLE 10 TRANSFERS ............................................. 18
10.1Transfers by Us ....................................... 18
10.2Restrictions on Transfers by You ...................... 18
10.3Conditions for Approval of Transfers by You ........... 19
(a) Character ............................................. 19
(b) Business Experience ................................... 19
(c) Training .............................................. 19
(d) Satisfaction of Obligations ........................... 19
(e) Assumption of Agreement ............................... 19
(f) Payment of Transfer Fees .............................. 19
(g) Release ............................................... 19
(h) Approval of Terms of Transfer ......................... 19
(i) Subordination ......................................... 19
(j) Non-Competition Agreement ............................. 19
(k) Landlord Consent ...................................... 20
(1) Non-Use of Marks ...................................... 20
10.4 Transfer to a Wholly-Owned Corporation .................. 20
10.5 Our Right of First Refusal .............................. 20
(a)Submission of Offers to Us ........................... 20
(b)Our Right to Purchase ................................ 21
(c)Non-Competition Restriction .......................... 21
(d)Non-Exercise by Us of Our Right of First Refusal ..... 21
10.6 Death or Permanent Disability ........................ 21
10.7 Effect of Consent to Transfer ........................ 21
ARTICLE 11 DEFAULTS ....................................................... 22
11.1 Our Defaults .................................................. 22
11.2 Your Defaults ................................................. 22
(a) Insolvency ................................................... 22
(b) Unauthorized Transfer ........................................ 22
(C) Misstatements and other Adverse Developments ................. 22
(d) Unauthorized Use of Marks or Confidential Information ........ 22
(e) Abandonment .................................................. 22
(f) Breach of Lease; Loss of Right of Possession ................. 22
(g) Failure to Comply with Certain System Standards and
Health Requirements .......................................... 22
(h) Understatements of Gross Revenues ............................ 23
(i) Failure to Make Payments ..................................... 23
(j) Failure to Pay Taxes ......................................... 23
(k) Other Breaches ............................................... 23
(1) Repeated Breaches ............................................ 23
(m) Termination Without Cause .................................... 23
(n) Financing Defaults ........................................... 23
ARTICLE 12 TERMINATION OF AGREEMENT ..................................... 23
12.1 Termination Upon Expiration of Term ........................... 23
12.2 Your Right to Terminate if We Default ......................... 23
12.3 Termination by You without Cause .............................. 23
12.4 Our Right to Terminate if You Default ......................... 24
12.5 Our Right to Terminate in Certain Other Circumstances ......... 24
(a)Failure to Complete Training ........................... 24
(b)Failure to Commence Operations ......................... 24
12.6 Your Opportunity to Acquire a Successor Franchise Agreement ... 24
(a)Conditions to Issuance of a Successor Franchise ........ 24
(b)Grant of a Successor Franchise ......................... 24
(c)Agreements and Releases to be Executed ................. 25
12.7 Payment of Amounts Owed to Us and Others following Termination... 25
12.8 Discontinuance of the Use of the Marks following Termination .... 25
12.9 Discontinuance of Use of Confidential Information following
Termination ................................................... 26
12.10 Covenant Not to Compete ........................................ 26
12.11 Our Option to Purchase Licensed Stores ......................... 26
(a) Option to Purchase ........................................ 26
(b) Purchase Price ............................................ 27
(c) Payment of Purchase Price ................................. 27
(d) Lease of Premises ......................................... 27
(e) Interim Management ........................................ 27
(f) Termination of Franchise Agreement ........................ 28
12.12 Continuing Obligations .............................................. 28
ARTICLE 13 RELATIONSHIP OF THE PARTIES/
INDEMNIFICATION .................................. 28
13.1 Independent Contractors ............................................ 28
13.2 No Liability for the Act of Other Party ............................ 28
13.3 Taxes .............................................................. 28
13.4 Indemnification .................................................... 28
ARTICLE 14 SECURITY AGREEMENT ............................................ 29
14.1 Security Agreement ................................................. 29
ARTICLE 15 GENERAL PROVISIONS ............................................ 29
15.1 Severability ........................................................ 29
15.2 Enforcement of Non-Competition Provisions ........................... 30
15.3 Rights Provided by Law .............................................. 30
15.4 Waivers by Either of Us ............................................. 30
15.5 Certain Acts Not to Constitute Waivers .............................. 30
15.6 Excusable Non-Performance ........................................... 30
15.7 Injunctive Relief ................................................... 31
15.8 Rights of Parties Are Cumulative .................................... 31
15.9 Costs and Attorneys' Fees ........................................... 31
15.10 Arbitration ........................................................ 31
(a) Disputes Subject to Arbitration ..................................... 31
(b) Excluded Matters .................................................... 31
(c) Awards .............................................................. 31
(d) Permissible Parties ................................................. 32
(e) Survival ............................................................ 32
15.11 Governing Law ...................................................... 32
15.12 Consent to Jurisdiction ............................................ 32
15.13 Waiver of Punitive Damages ......................................... 32
15.14 Waiver of Jury Trial ............................................... 32
15.15 Binding Effect ..................................................... 32
15.16 Limitation of Claims ............................................... 33
15.17 No Third Party Beneficiaries ....................................... 33
15.18 Approvals .......................................................... 33
15.19 Headings ........................................................... 33
15.20 Joint and Several Liability ........................................ 33
15.21 Counterparts ....................................................... 33
15.22 Notices and Payments ............................................... 33
15.23 Entire Agreement ................................................... 33
<PAGE>
FRANCHISE AGREEMENT
THIS FRANCHISE AGREEMENT (the "Agreement') is between MRS. FIELDS
DEVELOPMENT CORPORATION, a Delaware corporation, with its principal business
address at 462 West Bearcat Drive, Salt Lake City, Utah 84115 (referred to in
this Agreement as 'we' and like terms), and BUTTERWINGS, INC., an Illinois
corporation, whose principal address is 2345 Pembroke Avenue, Hoffman Estates,
IL 60195 (referred to in this Agreement as 'you' and like terms).
OUR AGREEMENT WITH YOU: By signing this Agreement, you and we agree to
all of the terms and provisions in this Agreement and in the Exhibits to this
Agreement. By signing this Agreement, you are also affirming that you understand
and accept the Preamble and Acknowledgements in Article 1 of this Agreement.
ARTICLE 1
DEFINITIONS; PREAMBLES; AND ACKNOWLEDGMENTS
1.1 Date of Agreement. The date of this Agreement is December 23rd, 1995.
1.2 Certain Definitions.
(a) 'Affiliate,' as used in relation to us, means any person or
entity that directly or indirectly owns or controls us, is
directly or indirectly owned or controlled by us or is under
common control with us.
(b) 'Competitive Business' means any business operating or granting
franchises or licenses to others to operate a cookie, bakery or
dessert outlet or any similar food service business. The term
'Competitive Business' does not include a business which is (i)
owned and operated by you, (ii) is in existence on the date of
this Agreement, and (iii) has been disclosed to us in writing
prior to execution of this Agreement.
(c) 'Confidential Information' means any information relating to the
Mrs. Fields Products or the development or operation of Mrs.
Fields Cookies Stores, including site selection criteria; recipes
and methods for the preparation of Mrs. Fields Products; methods,
techniques, formats, specifications, systems, procedures, sales
and marketing techniques and knowledge of and experience in the
development and operation of Mrs. Fields Cookies Stores;
marketing programs for Mrs. Fields Cookies Stores; knowledge of
specifications for and suppliers of certain Mrs. Fields Products,
materials, supplies, equipment, furnishings and fixtures; and
knowledge of operating results and financial performance of Mrs.
Fields Cookies Stores.
(d) 'Controlling Interest' means an interest, the ownership of which
empowers the holder to exercise a controlling influence over the
management, policies or personnel of an Entity. Ownership of 10%
or more of the equity or voting securities of a corporation,
limited liability company or limited liability partnership or
ownership of any general partnership interest in a general or
limited partnership will be deemed conclusively to constitute a
Controlling Interest in the corporation, limited liability
company, or partnership, as the case may be.
(e) 'Entity' means a corporation, general partnership, joint venture,
limited partnership, limited liability partnership, limited
liability company, trust, estate or other business entity.
<PAGE>
(f) "Entity Owner' means, with respect to an Entity, any shareholder
owning directly or beneficially 10% or more of any class of
securities of the Entity; any general partner or co-venturer in
the Entity; any partner in a limited liability partnership or
member in a limited liability company owning directly or
beneficially 10% or more of the ownership interests in the
limited liability partnership or limited liability company; the
trustees or administrators of any trust or estate; and any
beneficiary of a trust or estate owning, directly or
beneficially, 10% or more of the interests in the trust or
estate. If any Entity Owner within the scope of this definition
is itself an Entity (including an Entity Owner that is an Entity
Owner because of this sentence), the term 'Entity Owner' also
includes Entity Owners (as defined in the preceding sentence) in
the Entity. It is the intent of this definition to 'trace back'
and include within the definition of Entity Owner all natural
persons owning the requisite interests to qualify as Entity
Owners.
(g) 'Gross Revenues' means the aggregate amount of all sales of Mrs.
Fields Products, other items, and services made and rendered in
connection with the operation of each Licensed Store (as defined
in Section 2.11(a) below), including sales made at or away from
the premises of the Licensed Store, whether for cash or credit,
but excluding all federal, state or municipal sales, use, or
service taxes collected from customers and paid to the
appropriate taxing authority.
(h) 'Marks' means any trade names, trademarks, service marks and
other commercial symbols, including the trade and service marks
'MRS. FIELDS' and 'MRS. FIELDS COOKIES' and associated logos,
used from time to time in the operation of Mrs. Fields Retail
Outlets and sale of Mrs. Fields Products.
(i) 'Mrs. Fields Cookies Store' means a retail snack, dessert, and
beverage outlet selling any Mrs. Fields Products and other items
and services specified by us. The term "Mrs. Fields Cookies
Store' includes cookie carts and kiosks selling the Products.
Mrs. Fields Cookies Stores that are offering an expanded product
line may also be designated as 'Mrs. Fields Bakery Stores'.
(j) 'Mrs. Fields Retail Outlet' means any store or outlet, such as a
Mrs. Fields Cookies Store, a Mrs. Fields Bakery Store, a mail
order outlet, or an in-store bakery outlet located in a retail
grocery, fast food, convenience or other retail store, which
sells any of the Mrs. Fields Products under the Marks or other
trademarks or service marks. A Mrs. Fields Retail Outlet may be
owned or operated by us or our Affiliates or by franchisees or
licensees of us or our Affiliates.
(k) 'Mrs. Fields Products' means specialty snacks and other bakery
items, desserts, and beverages (such as cookies, brownies, cakes,
muffins, bagels, croissants, cinnamon rolls, sticky buns, and
coffee) developed by us or our Affiliates.
(1) 'Mrs. Fields System' means our business formats, signs,
equipment, methods, procedures, designs, layouts, and
specifications, including the use of the Marks, as we may modify
them in the future.
(m) 'Restricted Person' means you; each of your Entity Owners, if you
are an Entity and the parents, spouses, natural and adopted
children, and siblings of any of you and your Entity Owners.
(n) System Standards' means the specifications, standards, operating
procedures and rules we require for the operation of Mrs. Fields
Cookies Stores.
(o) Transfer' means the voluntary or involuntary, direct or indirect
transfer, assignment, sale, gift, pledge, mortgage, hypothecation
or other disposition (including those occurring by operation of
law and a series of transfers that in the aggregate constitute a
Transfer) of any of your interest in this Agreement of a
Controlling Interest in you.
<PAGE>
1.3 Preambles. Mrs. Fields Cookies Stores operate under distinctive business
formats, systems, methods, procedures, designs, layouts and specifications, all
of which we may improve, further develop or modify in the future. We and our
Affiliates have expended a considerable amount of time and effort in developing
and refining the recipes for and the methods of preparation of Mrs. Fields
Products to obtain high product quality. We may modify these recipes and methods
of preparation, and these modifications may require you to prepare cookies and
other Mrs. Fields Products from scratch mixes and to purchase prepared cookie
dough or other prepared food products from us or other approved suppliers. Our
Affiliates currently own and operate a variety of Mrs. Fields Retail Outlets,
and we and our Affiliates may continue to own and operate Mrs. Fields Retail
Outlets in the future. We own the Marks. We and our Affiliates have franchised
and licensed and, in the future, will continue to franchise and license others
to operate Mrs. Fields Cookies Stores and other Mrs. Fields Retail Outlets.
1.4 Acknowledgments. You acknowledge that you have read this Agreement and our
offering circular and understand and accept the provisions of this Agreement as
being reasonably necessary to maintain our high standards of quality and service
and the uniformity of those standards at all Mrs. Fields Cookies Stores
franchised by us and to protect and preserve the goodwill of the Marks. You have
conducted an independent investigation of the business venture contemplated by
this Agreement and you recognize that, like any other business, the nature of
the business contemplated by this Agreement may change over time, that an
investment in a Mrs. Fields Cookies Stores involves business risks, and that the
success of the venture is largely dependent upon your business abilities and
efforts. Any information relating to the sales, profits or cash flows of Mrs.
Fields Cookies Stores operated by us or our franchisees that is contained in our
offering circular and other materials is intended only to be an indication of
historical performance of certain Mrs. Fields Cookies Stores and NOT of
potential future financial performance. We expressly disclaim the making of, and
you acknowledges that you have not received or relied on, any express or implied
warranty or guarantee as to the revenues, profits or success of the business
venture contemplated by this Agreement. Our officers, directors, employees and
agents are acting only in a representative and not a personal capacity in their
dealings with you. You have not received or relied on any representations about
us or our franchising program or policies from us or our officers, directors,
employees or agents that are contrary to the statements made in our offering
circular or to the terms of this Agreement. You further represent to us, as an
inducement to your entry into this Agreement, that all statements in your
application for the rights granted in this Agreement are accurate and complete
and that you have made no misrepresentations or material omissions in obtaining
these rights.
ARTICLE 2
GRANT OF FRANCHISE
2.1 Franchise.
(a) Grant of Franchise. You have applied for a franchise to own and
operate a Mrs. Fields Cookies Store (the 'Licensed Store') at and
only at Genesee Valley Mall, 3319 Lindon Road, Flint, MI 48507
(the 'Premises'). Subject to the terms and conditions of this
Agreement, we grant you a NON-EXCLUSIVE franchise (the
'Franchise") to operate the Licensed Store at the Premises and to
use the Mrs. Fields System in the operation of the Licensed
Store.
<PAGE>
(b) Mrs. Fields Products. In operating your Cookie Store, you may
offer for sale only those Mrs. Fields Products that we approve
from time to time for you to sell at the Premises. The Mrs.
Fields Products that you Initially are authorized to offer at
your Cookie Store are explained in the Operations Manual referred
to in Section 4.2 of this Agreement. In the future, we may change
or add to the Mrs. Fields Products that you are authorized to
offer at the Premises. We typically base our determination on
whether you will be allowed to offer an expanded line of Mrs.
Fields Products on our evaluation of your compliance, over time,
with the System Standards described in Section 6.1 below,
particularly those related to quality. We do not base our
determinations on sales or marketing quotas, volumes or results.
You must offer all Mrs. Fields Products that we authorize you to
sell; however, we are not required to authorize you to sell all
available Mrs. Fields Products.
2.2 Initial Term of the Franchise Agreement. The initial term of this Agreement
will be 7 years, commencing on the date of this Agreement. This Agreement may be
renewed as provided in Section 2.3 of this Agreement and may be terminated prior
to expiration of its term in accordance with Article 12 of this Agreement.
References in this Agreement to the term of this Agreement mean the initial term
and any renewal term. Following the expiration of the initial term and any
renewal terms, you may have the opportunity to obtain a successor Franchise
Agreement in accordance with the provisions of Section 12.6 of this Agreement.
2.3 Renewals. If you are not in default at the time of exercise of a renewal
option and at the time the prior term expires, you may renew this Agreement for
2 successive 5-year terms, upon giving us written notice of your intention to
renew at least 180 days prior to expiration of the then current term. The
renewal will be upon the terms and conditions contained in the form of Franchise
Agreement in use by us at the time the renewal option is exercised. That form of
Franchise Agreement may include different royalty fees and marketing fees, other
fees and charges, and changes in performance criteria and in other terms and
conditions. In connection with any renewal, we may also require you to
refurbish, remodel, redecorate, and renovate the Licensed Store at the
commencement of the renewal term to meet our then current standards for Mrs.
Fields Cookie Stores, including designs and service systems, trade dress, and
color schemes. We will not charge any renewal fee in connection with any renewal
under this Section 2.3. Following receipt of your election to renew, we will
provide you with an execution copy of the form of Franchise Agreement to be
entered into for the renewal term. If you do not execute and return the renewal
Franchise Agreement to us within 30 days of receipt, then you will be deemed to
have withdrawn your notice of renewal, and this Agreement will terminate at the
end of the current term.
2.4 Reservation of Certain Rights. We and our Affiliates retain the right to:
(1) sell and franchise and license others to sell Mrs. Fields Products and other
items and services offered by Mrs. Fields Cookies Retail Outlets under the Marks
and other trademarks and service marks through Mrs. Fields Retail Outlets on any
terms and conditions and at any location that we deem appropriate; (2) sell and
license and franchise others to sell any other products or services under the
Marks (including items such as refrigerated ready-to-bake cookie dough sold
through various retail outlets); (3) own, operate and grant others the right to
own or operate Mrs. Fields Cookies Stores, other Mrs. Fields Retail Outlets, or
other dessert and snack food businesses at the locations and on the terms and
conditions as we, in our sole discretion, deem appropriate.
<PAGE>
ARTICLE 3
SITE SELECTION, LEASE OF PREMISES
AND DEVELOPPAENT OF THE LICENSED STORE.
3.1 Site Selection. Prior to the execution of this Agreement, you located and we
approved the Premises for the Licensed Store. Our approval of the Premises was
made in reliance by us upon information furnished and representations made by
you (all of which have been carefully and fully considered by you in proposing
the Premises to us) with respect to the size, appearance and other physical
characteristics of the Premises, photographs of the Premises, and demographic
characteristics, traffic patterns, competition from other businesses in the area
(including other Mrs. Fields Retail Outlets) and other commercial
characteristics (including the purchase price, rental obligations, and other
leas; terms). Our approval of the Premises and any information communicated to
you regarding the Premises do not constitute an express or implied
representation or warranty of any kind as to the suitability of the Premises for
a Mrs. Fields Cookies Store or for any other purpose. Our approval of the
Premises indicates only that we believe that the Premises falls within our
criteria as of the time period encompassing the evaluation. Both you and we
acknowledge that application of criteria that have been effective with respect
to other sites and premises may not be predictive of potential for a specific
site and that, subsequent to our approval of a site and Premises, demographic
and/or economic factors, including competition from other dessert and snack food
and similar food service businesses, included in or excluded from our criteria,
could change, thereby altering the potential of a site. The uncertainty and
instability of the factors included in the criteria are beyond our control and
we will not be responsible to you for the failure of the Premises to meet
expectations as to potential revenue or operational criteria. Your acceptance of
a Franchise for the operation of a Mrs. Fields Cookies Store at the Premises is
based on your own independent investigation of the suitability of the Premises.
3.2 Acquisition of the Premises.
(a) Your Obligation to Obtain Lease. Unless you own the Premises, you
agree to obtain any necessary lease or sublease for the Premises. You
agree to obtain our approval of the terms of the lease or sublease for
the Premises prior to your execution of the lease or sublease. You
agree not to execute a lease or sublease which we have disapproved,
and you must deliver a copy of the signed, approved lease to us within
1 5 days after its execution. Any lease or sublease must be in a form
satisfactory to us and must:
(i) Provide for notice to us of any default by you under the
lease or sublease and provide us with a right to cure the default. If
we cure any default, the total amount of all costs and payments
incurred by us in curing the default will be immediately due and owing
to us by you;
(ii) Provide that you may assign your interest under the lease or
sublease to us without the lessor's or sublessor's consent;
(iii) Authorize and require the lessor or sublessor to disclose
to us, upon our request, sales and other information that you furnish
to the lessor or sublessor; and
(v) Provide that we, one of our Affiliates or, in the case that
clause (4) below is applicable, our assignee may assume the lease or
sublease:
(1) Upon termination of this Agreement (unless a successor
Franchise Agreement is granted to you as provided in
Section 12.6 below), or
(2) If you fail to exercise any options to renew or extend
the lease or sublease, or
(3) If you commit a default that gives the lessor or
sublessor the right to terminate the lease or sublease,
or
(4) If we or one of our Affiliates or our assignee
purchases the Licensed Store as permitted by Section 1
2.1 1 below.
(b) Use of Premises Currently Under Lease to Us. If one of our Affiliates
is currently leasing the Premises and has the right under that lease
to sublease the Premises to you, you desire to sublease the Premises
from our Affiliate, and if our Affiliate offers the Premises to you,
you agree to execute our standard sublease form and, if requested by
us, to have each of your Entity Owners execute a guaranty agreement
guarantying payment and performance of all of your obligations under
the sublease. If one of our Affiliates elects to assign an existing
lease to you and you desire to obtain an assignment of the existing
lease, unless we otherwise agree, you agree to arrange for the release
of our Affiliate from its obligations under the assigned lease, as of
the date of the assignment, and you agree to obtain from the landlord
any consents, agreements, and lease amendments as are required so that
the assigned lease satisfies the requirements of Section 3.2(a) above,
as if the assigned lease were a third-party lease.
(c) Expiration of Lease. If a lease or sublease expires prior to
expiration of this Agreement, you agree to obtain any necessary
replacement lease or sublease, and we will have the right to approve
the replacement lease or sublease as otherwise provided in this
Article.
(d) Effect of our Approval of Lease. Our approval of a lease or sublease
for the Premises or the granting by one of our Affiliates of a
sublease or lease assignment for the Premises does not constitute an
express or implied warranty by us of the successful operation or
profitability of a Mrs. Fields Cookies Store operated at the Premises.
The approval indicates only that we believe the Premises and the terms
of the lease fall within the acceptable criteria established by us as
of the time period encompassing the evaluation.
3.3 Licensed Store Development.
(a) Plans and Specifications. You are responsible for constructing and
developing the Licensed Store. Promptly following execution of this
Agreement, we will furnish you prototypical plans and specifications
for a Mrs. Fields Cookies Store, including requirements for exterior
and interior materials and finishes, dimensions, design, image,
interior layout, decor, fixtures, equipment, signs, furnishings and
color scheme. You must comply with these plans and specifications. You
agree to have prepared all required construction plans and
specifications to suit the shape and dimensions of the Premises and to
insure that the plans and specifications comply with applicable
ordinances, building codes and permit requirements and with lease
requirements and restrictions. You agree to submit construction plans
and specifications to us for our approval before construction of the
Licensed Store is commenced, and you agree to submit all revised plans
and specifications to us for our approval during the course of
construction. Upon completion of construction, you agree to provide us
with a set of 'as built' plans and specifications.
(b) Contractors. All construction will be done by competent, licensed
contractors selected by you. We have the right to approve any
contractor hired by you. However, our approval will not be
unreasonably withheld.
(c) Development Obligations. You agree to do each of the following:
(i) Secure all financing required to develop and operate the Licensed
Store;
(ii) Obtain all required building, utility, sign, health, sanitation,
business, environmental and other permits and licenses required
for construction and operation of the Licensed Store;
(iii)Construct all required improvements to the Premises and decorate
the Licensed Store in compliance with plans and specifications
that we approve;
(vi) Purchase and install all fixtures, furnishings, equipment and
signs required for the Licensed Store. However, we reserve the
right, in our sole discretion, to install all required signs at
the Premises at your sole expense; and
(v) Purchase an opening inventory of Mrs. Fields Products, materials
and supplies.
3.4 Fixtures, Furnishings, Equipment and Signs. In developing and operating the
Licensed Store, you agree to use only the fixtures, furnishings, equipment
(including cash registers and computer hardware and software) and signs that we
require and have approved for Mrs. Fields Cookies Stores as meeting our
specifications and standards for quality, design, appearance, function and
performance. You agree to place or display at the Premises (interior and
exterior) only the signs, emblems, lettering, logos and display materials that
we approve in writing. However, we have the right, in our sole discretion, to
install all required signs at the Premises at your sole expense. You agree that
all fixtures, furnishings and equipment used in connection with the operation of
the Licensed Store will be free and clear of all liens, claims and encumbrances,
except for liens, claims or encumbrances asserted by us and except for third
party purchase money security interests.
3.5 Licensed Store Opening. You will not open the Licensed Store for business
until:
(a) We approve the Licensed Store;
(b) Pre-opening training of you and Licensed Store personnel has been
completed to our satisfaction;
(c) The initial franchise fee and all other amounts then due to us
have been paid in full;
(d) The lease documentation has been executed and all other
documentation has been completed in connection with the
development of the Licensed Store; and
(e) We have been furnished with copies of all insurance policies
required by this Agreement and evidence of payment of premiums.
You agree to open the Licensed Store for business within 5 days after we notify
you that the conditions set forth in this Section 3.5 have been satisfied.
3.6 Grand Opening Promotion. You agree to conduct a grand opening advertising
and promotion program for a newly developed Licensed Store for a period of at
least 7 days, commencing within 30 days after opening of the Licensed Store. You
agree to spend no less than $5,000 for the grand opening. The advertising and
promotion will utilize the standard marketing and public relations programs and
media and advertising materials that we have developed for grand opening
programs. You must purchase these materials from us, and we will make them
available to you upon written request, in advance of the opening of your
Licensed Store. Payments for these materials are non-refundable. You may also
incur expenses from other vendors and suppliers in connection with your grand
opening promotion.
<PAGE>
ARTICLE 4
TRAINING AND GUIDANCE
4.1 Training.
(a)Training for You and the Licensed Store Manager. Prior to the Licensed
Store's opening, we will furnish an initial training program on the
operation of Mrs. Fields Cookies Stores to you and the initial store
manager (if the store manager is different from you). The training
program will be furnished at our designated training facility or a
Mrs. Fields Cookies Store owned and operated by us or one of our
franchises. You (or one of your principal owners) and the manager of
the Licensed Store (if different from you) agree to complete all
phases of the training program to our satisfaction and to participate
in all other activities required to open the Licensed Store.
Subsequent managers will also be required to satisfactorily complete
all phases of our training program. You will replace any manager who
we determine, in our sole discretion, is not qualified to manage a
Mrs. Fields Cookies Store. We will furnish the initial training
program to you (or one of your principal owners) and to the initial
Licensed Store manager (if different from you) free of charge. We may
charge a fee for the training for subsequent managers, which you will
be required to pay at least 1 0 days prior to beginning of training.
You will be responsible for all travel and living expenses which you
and your manager incur in connection with the initial and subsequent
training programs.
(b)Use of the Licensed Store for Training. You agree that we may conduct
future franchise training programs at the Licensed Store.
(c)Failure to Complete Training. If you do not satisfactorily complete the
initial training program, we have the right to terminate this
Agreement pursuant to Section 12.5 below.
(d)Refresher Training. We may require you and/or previously trained and
experienced managers to attend periodic refresher courses at the times
and locations that we designate. We may charge fees for refresher
training courses.
4.2 Operations Manual. We will make available to you during the term of the
Franchise one copy of our operations manual (the 'Operations Manual'), either by
loaning a copy of the Operations Manual to you or by making the Operations
Manual available electronically through your computer system. The Operations
Manual contains mandatory and suggested specifications, standards and operating
procedures that we prescribe for Mrs. Fields Cookies Stores and contains
information relating to your other obligations under this Agreement.
TheOperationsManualmaybemodifiedinthefuturetoreflectchangesintheimage,
specifications, standards, procedures, Mrs. Fields Products, Mrs. Fields System,
and System Standards. However, we will not make any addition or modification
that will alter your fundamental status and rights under this Agreement. You may
not at any time copy any part of the Operations Manual, either physically or
electronically. If your copy of the Operations Manual is lost, destroyed or
significantly damaged, you will be obligated to obtain from us, at our then
applicable charge, a replacement copy of the Operations Manual.
4.3 Guidance and Operating Assistance. Although we do not have an obligation to
do so, we may advise you from time to time of operating problems of the Licensed
Store which come to our attention. At your request, we will furnish to you
guidance and operating assistance in connection with:
(a) Methods, standards, specifications and operating procedures
utilized by Mrs. Fields Cookies Stores;
(b) Purchasing required fixtures, furnishings, equipment, signs, Mrs.
Fields Products, materials and supplies;
(c) Advertising and promotional programs;
(d) Employee training; and
(e) Administrative, bookkeeping, accounting and general operating and
management procedures.
The guidance and assistance may, in our discretion, be furnished in the form of
references to the Operations Manual, bulletins and other written materials,
electronic computer messages, telephonic conversations and/or consultations at
our offices or at the Licensed Store. You agree that we will not be liable to
you or any other person, and you waive all claims for liability or damages of
any type (whether direct, indirect, incidental, consequential, or exemplary), on
account of any guidance 6r operating assistance offered by us in accordance with
this Section 4.3, except to the extent caused by our gross negligence or
intentional misconduct. We will make no separate charge to you for such
operating assistance and guidance as we customarily provide to our franchisees
generally. Occasionally, we may make special assistance programs available to
you; however, you will be required to pay the daily fees and charges that we
establish for these special assistance programs.
ARTICLE 5
FEES
5.1 The Franchise Fee. You agree to pay us a nonrecurring franchise fee in the
amount of $-O upon execution of this Agreement. This franchise fee will be fully
earned by us when paid and is not refundable, except as provided in Section
1.2.5(a). The franchise fee represents payment to us for your right to use the
Marks and the Mrs. Fields System in the development and operation of your Cookie
Store.
5.2 Royalty Fee. You agree to pay us a monthly royalty fee of 6 % of the
Licensed Store's Gross Revenues, payable on or before the 10th day of the month
following the month for which the royalty fee is due. Without limiting any of
our rights and remedies under this Agreement or otherwise available under
applicable law, if you fail to pay the monthly royalty fee in a timely fashion,
we may require you to pay the royalty fee on a weekly basis. We may also require
you to make these weekly payments by electronic transfer.
5.3 Late Charge; Interest on Late Payments. To compensate us for the increased
administrative expense of handling late payments, we may charge a $1 00 late
charge for each delinquent payment, due upon making the delinquent payment. All
royalty fees, amounts due for purchases by you from us or our Affiliates and
other amounts which you owe to us or our Affiliates will bear interest from
their due date until paid at a rate equal to the lesser of the highest
applicable legal rate for open account business credit, or 1.5% per month,
payable when the corresponding delinquent payment is made. You agree that this
Section does not constitute our or our Affiliates' agreement to accept payments
after they are due or a commitment by us or our Affiliates to extend credit to
you or otherwise to finance the operation of the Licensed Store. Your failure to
pay all amounts when due will constitute grounds for termination of this
Agreement by us, as provided in Section 11.2 and Section 12.4 below.
5.4 Application of Payments. Regardless of any designation by you, we have sole
discretion to apply any payments by you to any of your past due indebtedness for
royalty fees, purchases from us or our Affiliates, interest or any other
indebtedness or amounts owed to us or our Affiliates.
ARTICLE 6
ADDITIONAL OBLIGATIONS
6.1 System Standards. You acknowledge and agree that the operation of the
Licensed Store in accordance with the System Standards is the essence of this
Agreement and is essential to preserve the goodwill of the Marks and all Mrs.
Fields Cookies Stores. Therefore, you agree that, at all times during the term
of this Agreement, you will maintain and operate the Licensed Store in
accordance with each of the System Standards. System Standards may regulate any
one or more of the following with respect to the Licensed Store:
(a) Design, layout, decor, appearance and lighting; periodic and
daily maintenance, cleaning and sanitation; replacement of
obsolete or worn-out fixtures, furnishings, equipment and signs;
use of interior and exterior signs, emblems, lettering and logos
and the illumination thereof;
(b) Types, specifications, models, brands, maintenance and
replacement of required equipment, fixtures, furnishings and
signs;
(c) Approved, disapproved and required Mrs. Fields Products and other
items and services to be offered for sale;
(d) Designated and approved suppliers (including us or our
Affiliates) of equipment, fixtures, furnishings, signs, Mrs.
Fields Products, materials and supplies;
(e) Use and operation of an approved point of sale register;
(f) Payment of vendors; terms and conditions of sale and delivery of
and payment for Mrs. Fields Products, materials, supplies and
services sold to you by us, our Affiliates or unaffiliated
suppliers;
(g) Marketing, advertising and promotional activities and materials
required or authorized for use;
(h) Use of the Marks;
(i) Qualifications, training, dress, appearance and staffing of
employees;
(j) Minimum hours of operation;
(k) Methods, standards, specifications, and operating procedures for
Mrs. Fields Cookies Stores, including quality and customer
service requirements, terms under which you are required to
guarantee customer satisfaction with Mrs. Fields Products, accept
returns, and provide replacement products;
(1) Restrictions on the storage, use, or sale of 'out-of-code' (old)
materials, supplies, or products, and requirements relating to
the disposition of old or unsalable Mrs. Fields Products;
(m) Participation in market research and testing and product and
service development programs designated by us;
(n) Management by full-time managers who have successfully completed
our training program; communication to us of the identities of
the managers; replacement of managers whom we determine to be
unqualified to manage the Licensed Store; and other matters
relating to the management of the Licensed Store and its
management personnel;
(o) Use of a designated computer hardware and software system and
equipment with telecommunications capability, including the
procedures for providing daily sales information of the Licensed
Store to us;
(p) Bookkeeping, accounting, data processing and record keeping
systems and forms; methods, formats, content and frequency of
reports to us of sales, revenues, financial performance and
condition; tax returns and other operating and financial
information;
(q) Types, amounts, terms and conditions and approved underwriters
and brokers of public liability, product, business interruption,
crime loss, fire and other required insurance coverage; our
rights under the policies as an additional named insured;
required or impermissible insurance contract provisions;
assignment of policy rights to us; periodic verification of the
coverage that must be furnished to us; our right to obtain
insurance coverage for the Licensed Store at your expense if you
fail to obtain required coverage; our right to defend claims; and
similar matters relating to insurance and insured and uninsured
claims;
(r) Compliance with applicable laws, rules, and regulations
(including those relating to health, safety, and sanitation;
obtaining required licenses and permits; adherence to good
business practices; observing high standards of honesty,
integrity, fair dealing and ethical business conduct in all
dealings with customers, suppliers and with us and our
Affiliates; and notification to us if any action, suit or
proceeding is commenced against you or the Licensed Store; and
(s) Regulation of the other elements and aspects of the appearance,
operation of and conduct of business as we determine from time to
time, in our sole discretion, to be required to preserve or
enhance the efficient operation, image or goodwill of Mrs. Fields
Cookies Stores and the Marks.
You agree that the System Standards may be periodically modified by us and
acknowledge that the modifications may obligate you to invest additional capital
in the Licensed Store and to incur higher operating costs. We agree not to
obligate you to invest additional capital at a time when the investment cannot
in our reasonable judgment be amortized during the remaining term of this
Agreement. You agree that System too Standards constitute provisions of this
Agreement as if fully set forth in this Agreement. All references to this
Agreement include all System Standards as periodically modified by us.
6.2 Performance of Duties and Obligations. You will at all times faithfully,
honestly and diligently perform your obligations under this Agreement and you
will continuously exert your best efforts to promote and enhance the business of
the Licensed Store. You will not engage in any other business or activity that
may conflict with your obligations under this Agreement.
6.3 Restrictions on Operations and Customers. You may not operate the Licensed
Store at any site other than the Premises without our prior written consent. You
may not sell Mrs. Fields Products approved for sale or services of the Licensed
Store or any materials, supplies, or inventory bearing the Marks at any site
other than the Premises. without our prior written consent. However, this
restriction will not apply to catering events or to the offering of samples of
Mrs. Fields Products approved for sale at or directly in front of the Licensed
Store. In addition, you may not sell to anyone any materials, supplies, or
inventory used in the preparation of any Mrs. Fields Products. You may only sell
finished Mrs. Fields Products that have been approved for sale, as provided in
Section 2.1 lb) above, and then only to retail customers. You may not sell any
Mrs. Fields Products to any person or entity purchasing the Mrs. Fields Products
for resale.
6.4 Accounting, Reports and Financial Statements. You agree to establish and
maintain a bookkeeping, accounting, record keeping and data processing system
conforming to the requirements and formats that we prescribe. We will, however,
provide you with computer software programs on which to maintain certain sales
data, as further described in the Operations Manual. You agree to furnish to us
on the forms that we prescribe from time to time:
(a) Gross Revenue Reports. Within 1 0 days after the end of each
calendar month (or weekly if we require you to pay the royalty
fees described in Section 5.1 above on a weekly basis), a report
on the Licensed Store's Gross Revenues for the previous calendar
month (or week);
(b) Monthly Financial Reports. Within 1 5 days after the end of
calendar month, a profit and loss statement for the Licensed
Store for the previous month and a year-to-date statement of
financial condition as of the end of the previous month;
(C) Semi-Annual Reports. Within 1 5 days after the end of each
6-calendar month period, a balance sheet for the Licensed Store
as of the end of that semi-annual period; and
(d) Tax Returns. Within 1 0 days after the returns are filed, exact
copies of federal and state income, sales and any other tax
returns and the other forms, records, books and other information
as we may periodically require.
Each report and financial statement will be signed and verified by you in the
manner we specify. We may disclose data derived from the sales reports to other
franchisees and licensees. We may also require you to have audited or reviewed
financial statements prepared on an annual basis. We may, on a daily basis,
access the data base contained in the computerized records of the Licensed Store
and transfer the data from your data base to our data base.
6.5 Retention of Records. You agree to keep full, complete and proper books,
records and accounts of Gross Revenues and of your operations at the Licensed
Store. All the books, records and accounts will be kept in the English language
and will be retained for a period of at least 3 years following the end of each
fiscal year. The books and records will include daily cash reports; cash
receipts journal and general ledger; cash disbursements journal and weekly
payroll register; monthly bank statements and daily deposit slips and cancelled
checks; tax returns (sales and income); supplier invoices; dated cash register
tapes (detail and summary); semi-annual balance sheets and monthly profit and
loss statements; daily production, leftover and donations records and weekly
inventories; records of promotions and coupon redemptions; records of all
corporate accounts; and such other records as we may request.
6.6 Our Right to Inspect the Licensed Store. To determine whether you are
complying with this Agreement and with all System Standards and whether the
Licensed Store is in compliance with the terms of this Agreement, we and our
designated agents may, at any reasonable time and without prior notice to you:
(a) Inspect the Premises;
(b) Observe, photograph and video tape the Licensed Store's
operations for such consecutive or intermittent periods as we
deem necessary;
(c) Remove samples of any Mrs. Fields Products, materials or supplies
for testing and analysis;
(d) Interview personnel of the Licensed Store;
(e) Interview customers of the Licensed Store; and
<PAGE>
(f) Inspect and copy any books, records and documents relating to the
operation of the Licensed Store.
You agree to cooperate fully with us in connection with any of our inspections,
observations, photographing, video taping, product removal and interviews.
6.7 Our Right to Audit. At any time during business hours and without prior
notice to you, we and our representative may inspect and audit the business
records, bookkeeping and accounting records, sales and income tax records and
returns and other records of the Licensed Store as well as your books and
records. You agree to fully cooperate with representatives and independent
accountants hired by us to conduct any inspection or audit. If an inspection or
audit discloses an understatement of the Licensed Store's Gross Revenues, you
will pay to us, within 1 5 days after receipt of the inspection or audit report,
the royalty fees due on the amount of the understatement, plus interest (at the
rate and on the terms provided in Section 5.3 above) from the date originally
due until the date of payment. Further, if inspection or audit is made necessary
by your failure to furnish reports, supporting records or other information as
required by this Agreement, or to furnish the reports, records or information on
a timely basis, or if an understatement of Gross Revenues for the period of any
audit is determined by the audit or inspection to be greater than 2%, then
within 1 5 days after receipt of the inspection or audit report, you will
reimburse us for the cost of the audit or inspection, including the charges of
attorneys and any independent accountants and the travel expenses, room and
board and compensation of our employees. These remedies are in addition to our
other remedies and rights under this Agreement or applicable law, and our right
to audit will continue for 2 years following termination of this Agreement.
6.8 Surveys. You will present to your customers such evaluation forms as we
periodically require and will participate in and request your customers to
participate in any surveys performed by or on our behalf.
6.9 Guaranties by Entity Owners. If you are an Entity, you represent and warrant
to us that you are duly organized or formed and validly existing in good
standing under the laws of the state of your incorporation or formation, are
qualified to do business in all states in which you are required to qualify and
have the authority to execute, deliver and carry out all of the terms of this
Agreement. If you are an Entity, we may require each of your Entity Owners at
any time during the term of this Agreement to execute a guarantee in our favor
in which the Entity Owner guarantees payment of all amounts owed by you under
this Agreement and performance by you of the terms and conditions of this
Agreement and assumes full and unconditional liability for the payment and
performance of all of your obligations, covenants and agreements. You agree to
furnish us upon request, in such form as we may require, a list of all of your
Entity Owners, now and in the future, reflecting their respective interests in
you.
6.10 Obligations with Respect to Restricted Persons. Upon execution of this
Agreement, you agree to furnish us with a list of all Restricted Persons and
promptly to update that list as changes in Restricted Persons occur. In
addition, at our request at any time during the term of this Agreement, you will
obtain and provide to us a written agreement from each Restricted Person
designated by us in which the Restricted Person agrees to be bound by the
provisions of Sections 9.1, 10.3(j), 10.5(c), and 1 2.1 0 of this Agreement.
6.11 Insurance.
(a) Casualty Insurance. You agree, at all times during the term of
this Franchise Agreement and at your sole cost and expense, to
keep all of your goods, fixtures, furniture, equipment, and other
personal property located on the Licensed Store premises insured
to the extent of 100% of the full replacement cost against loss
or damage from fire and other risks normally insured against in
extended risk coverage.
(b) Liability Insurance. You agree, at your sole cost and expense, at
all times during the term of this Franchise Agreement, to
maintain in force an insurance policy or policies which will name
both us and you as insured, insuring against all liability
resulting from damage, injury, or death occurring to persons or
property in or about the Licensed Store premises (including
products liability insurance), the liability under such insurance
to be not less than $ 1,000,000 for one person injured,
$1,000,000 for any one accident, and $1,000,000 for property
damage. The original of such policy or policies shall remain in
your possession. However you agree to give us a copy of the
policy upon our request.
(c) Workmen's Compensation Insurance. You also agree to maintain and
keep in force all workmen's compensation insurance on your
employees, if any, required under the applicable workmen's
compensation laws of the state in which the Licensed Store is
located.
(d) Other Insurance Policies. At your sole cost, you agree, at all
times during the term of this Franchise Agreement, to maintain in
force such other and additional insurance policies as a prudent
franchisee in your position would maintain or as we may
reasonably require.
(e) Policy Requirements. All insurance policies required under this
Section 6.1 1 will contain provisions to the effect that the
insurance will not be canceled or modified without at least 30
days prior written notice to us and that no modification will be
effective unless approved in writing by us. All such policies
will be issued by a company or companies, rated 'A-XII" or better
by Best's Insurance Guide, responsible and authorized to do
business in the state in which the Licensed Store is located, as
you may determine, and will be approved by us, which approval
will not be unreasonably withheld.
(f) Release of Insured Claims. You release and relieve us and our
officers, directors, shareholders, employees, agents, successors,
assigns, contractors, and invitees and waive your entire right of
recovery against us and our officers, directors, shareholders,
employees, agents, successors, assigns, contractors, and invitees
for loss or damage arising out of or incident to the perils
required to be insured against under this Section 6.1 1, which
perils occur in, on or about the Licensed Store premises or
relate to your business on the premises, whether due to the
negligence of us or you or any of our or your related parties.
ARTICLE 7
MARKETING AND PROMOTION
7.1 The Marketing Fund.
(a) Establishment of Marketing , Funds: Marketing Fund Contributions.
Recognizing the value of marketing to the goodwill and public
image of Mrs. Fields Cookies Stores, you agree that, although we
are not obligated to do so, we may, upon 30 days' prior written
notice to you, to establish, maintain and administer one or more
national or regional marketing funds (a 'Marketing Fund'). If a
Marketing Fund is established, you agree to contribute to the
Marketing Fund the amounts that we require. Marketing Fund
contributions will not exceed 2% of the Licensed Store's monthly
Gross Revenues through the end of 1995, 3% of the Licensed
Store's monthly Gross Revenues during calendar year 1996, and 4%
of the Licensed Store's monthly Gross Revenues during calendar
year 1997 and thereafter. However, increases in the
year-over-year percent of Gross Revenues to be paid to the
Marketing Fund will be limited to no more than 1 % per year.
Marketing Fund contributions will be payable monthly together
with the royalty fees. If you fail to pay the monthly Marketing
Fund contribution in a timely fashion, we may require you to pay
the contribution on a weekly basis. We may also require you to
pay the weekly amounts by electronic transfer. Mrs. Fields
Cookies Stores owned by us and our Affiliates in the same market
area as you will contribute to the Marketing Fund on the same
basis as you.
(b) Right to Direct Operation of the Marketing Fund. We will direct
all marketing programs financed by the Marketing Fund, with sole
discretion over the creative concepts, materials and endorsements
used and the geographic, market and media placement and
allocation. You agree that the Marketing Fund may be used to pay
the costs of preparing and producing video, audio and advertising
materials; administering regional and multi-regional marketing
programs, including purchasing direct mail and other media
marketing and employing advertising, promotion and marketing
agencies to assist with advertising; and supporting public
relations, market research and other advertising, promotion and
marketing activities. The Marketing Fund will furnish you with
samples of advertising, marketing and promotional formats and
materials at no cost to you, other than shipping and handling.
Multiple copies of the materials will be furnished to you at our
or the Marketing Fund's direct cost of producing them, including
any related shipping, handling and storage charges, payable when
the materials are ordered.
(c) Accounting for the Marketing Fund. The Marketing Fund will be
accounted for separately from our other funds and will not be
used to defray an y of our general operating expenses, except for
the reasonable salaries, administrative costs and overhead we may
incur in activities related to the administration of the
Marketing Fund and its marketing programs, including conducting
market research, preparing advertising, promotion and marketing
materials and collecting and accounting for contributions to the
Marketing Fund. If we provide goods and services to the Marketing
Fund, we may charge the Marketing Fund our cost for those good,
and services. We may spend in any fiscal year an amount greater
or less than the aggregate contributions of all Mrs. Fields
Cookies Stores to the Marketing Fund in that year, and the
Marketing fund may borrow from us or other lenders to cover
deficits of the Marketing Fund or cause the Marketing Fund to
invest any surplus for future use by the Marketing Fund. All
interest earned on moneys contributed to the Marketing Fund will
be used to pay marketing costs incurred by the Marketing Fund
before other assets of the Marketing Fund are expended. A
statement of moneys collected and costs incurred by the Marketing
Fund will be prepared annually by us and will be furnished to
you. We may cause the Marketing Fund to be incorporated or
operated through an entity separate from us, and that entity will
have all of our rights and duties pursuant to this Section 7.1.
(d) Benefits to Individual Stores. You understand and agree that the
Marketing Fund is intended to maximize recognition of the Marks
and patronage of Mrs. Fields Cookies Stores. Although we will
endeavor to utilize the Marketing Fund to develop advertising and
marketing materials and programs and to place advertising that
will benefit all Mrs. Fields Cookies Stores, we cannot ensure you
that expenditures by the Marketing Fund in or affecting any
geographic area will be proportionate or equivalent to the
contributions to the Marketing Fund by Mrs. Fields Cookies Stores
operating in that geographic area or that any Mrs. Fields Cookies
Store will benefit directly or in proportion to its contribution
to the Marketing Fund from the development of advertising and
marketing materials or the placement of advertising.
(e) Collection of Marketing Fund Contributions. We will attempt to
collect all past due Marketing Fund contributions from Mrs.
Fields Cookies Store franchisees. We also attempt to collect
other amounts due to us and our Affiliates. You agree that any
payments made by a Mrs. Fields Cookies ' Store franchisee will
first be applied to the costs incurred by us in collecting the
amount, including reasonable attorneys' fees and costs. The
remainder, if any, will be allocated proportionally, among the
Marketing Fund, us, and our Affiliates, based on the amount the
franchisee owes the Marketing Fund, us and our Affiliates. Except
as expressly provided in this Section, we are assuming no direct
or indirect liability or obligation to you with respect to
collection of amounts due, or the maintenance, direction or
administration of, the Marketing Fund.
(f) Suspension or Termination of Marketing Fund; Reinstatement. We
reserve the right to suspend contributions to and operations of
the Marketing Fund for one or more periods and the right to
terminate the Marketing Fund upon 30 days' prior written notice
to you. All unspent moneys on the date of termination will be
distributed to our franchisees, us, and our Affiliates in
proportion to their respective contributions to the Marketing
Fund during the preceding 1 2 month period. We may reinstate the
Marketing Fund upon the same terms and conditions as set forth in
this Agreement upon 30 days' prior written notice to you.
7.2 Advertising and Promotional Activities by You. In addition to any
contributions by you to the Marketing F Fund, you agree that you will spend on
marketing and related programs any amount that is required under your lease or
sublease. Those amounts typically vary from lease to lease, and therefore, all
Mrs. Fields Cookies Store franchisees will not be obligated to spend the same
amount on local advertising and marketing. You agree that all advertising,
promotion and marketing by you will comply with the requirements of Article 8,
will be completely clear and factual and not misleading, and will conform to the
highest standards of ethical marketing and promotion policies which may be
prescribed by us. Prior to use, all press releases and policy statements and
samples of all local advertising, marketing and related materials not prepared
or previously approved by us will be submitted to us for approval. Our approval
will not be unreasonably withheld. Pamphlets, brochures, cards or other
promotional materials offering free Products may only be used if prepared by us,
unless otherwise approved in advance by us. However, we will give favorable
consideration to your use of free product cards developed by you, if the cards
clearly state that they may only be redeemed at Mrs. Fields Cookies Stores owned
by you. If we do not give you written approval of any advertising or other
promotional materials within 1 5 days from the date of receipt by us of the
materials, we will be deemed to have disapproved the submission. You agree not
to use any advertising, marketing or related materials that we have disapproved.
You also agree to list the Licensed Store in the principal telephone directories
distributed in your metropolitan area.
7.3 Marketing Contributions From Suppliers. You acknowledge that we and our
Affiliates may receive marketing or promotional contributions, allowances,
rebates, or similar funds from suppliers of products which are sold at Cookie
Stores. We and our Affiliates will be entitled to all the funds and you waive
any rights to those funds. Amounts received by us or our Affiliates on account
of supplies purchased by you will not reduce the contributions due from you to
the Marketing Fund.
7.4 Our Advertising Materials. Upon request, we will provide you with copies of
advertising, marketing and promotional formats and materials that we have
prepared and that are suitable for use at local Mrs. Fields Cookies Stores.
Those items will be provided at our direct cost of producing them, including any
related shipping, handling and storage charges, payable when the materials are
ordered. These payments are not refundable.
ARTICLE 8
CONFIDENTIAL INFORMATION AND USE OF THE MARKS
8.1 Confidential Information. We may disclose certain Confidential Information
to you in the initial training program and subsequent training, the Operations
Manual and in guidance furnished to you during the term of the Franchise. You
are not acquiring any interest in Confidential Information, other than the right
to utilize Confidential Information disclosed to you in the operation of the
Licensed Store during the term of this Agreement. Your use or duplication of any
Confidential Information in any other business will constitute an unfair method
of competition and a violation of this Agreement. The Confidential Information
is proprietary, includes our trade secrets and is disclosed to you solely on the
condition that you agree:
(a) Not to use Confidential Information in any other business or
capacity;
(b) To maintain the absolute confidentiality of Confidential
Information during and after the term of this Agreement;
(c) Not to make unauthorized copies of any portion of Confidential
Information disclosed in written or other tangible form; and
(d) To adopt and implement all reasonable procedures that we
prescribe to prevent unauthorized use or disclosure of
Confidential Information, including restrictions on disclosure of
Confidential Information to your employees and to comply with
requirements we may impose that certain key employees execute
confidentiality agreements as a condition of employment.
8.2 Concepts Developed by You. We and our Affiliates will have the perpetual
right to own and use and authorize other Mrs. Fields Cookies Stores to use, and
you will fully and promptly disclose to us, all ideas, concepts, formulas,
recipes, methods and techniques relating to the development or operation of a
dessert or snack food business conceived or developed by you or your employees
during the term of this Agreement. You may not test, offer, or sell any new
products without our prior written consent.
8.3 Ownership and Goodwill of Marks. You acknowledge that we own the Marks and
that your right to use the Marks is derived solely from this Agreement and is
limited to the conduct of business in compliance With this Agreement and all
applicable standards, specifications and operating procedures that we require.
Any unauthorized use of the Marks by you will constitute a breach of this
Agreement and an infringement of our rights in the Marks. You agree that your
usage of the Marks and any goodwill established by that use will be for our
exclusive benefit. This Agreement does not confer any goodwill or other
interests in the Marks upon you, other than the right to operate a Mrs. Fields
Cookies Store in compliance with this Agreement. All provisions of this
Agreement applicable to the Marks will apply to any additional proprietary trade
and service marks and commercial symbols we or our Affiliates may authorize for
your use in the future.
8.4 Limitations on Your Use of Marks. You agree to use the Marks as the sole
identification of the Licensed Store. However, you will identify yourself as the
independent owner of the Licensed Store in the manner we require. You will not
use any Mark as part of any corporate or trade name or with any prefix, suffix
or other modifying words, terms, designs or symbols (other than logos licensed
to you under this Agreement), or in any modified form, nor may you use any Mark
in connection with the performance or sale of any unauthorized services or
products or in any other manner not expressly authorized in writing by us. You
agree to display the Marks prominently at the Licensed Store, on supplies or
materials designated by us and in connection with packaging materials, forms,
labels and advertising and marketing materials. All Marks will be displayed in
the manner we require. You agree to use the registration symbol "(D' in
connection with your use of the Marks that are registered. You agree to refrain
from any business or marketing practice which may be injurious to our business
and the good will associated with the Marks and other Mrs. Fields Cookies
Stores. You agree to give such notices of trade and service mark registrations
as we specify and to obtain such fictitious or assumed name registrations as may
be required under applicable law.
8.5 Discontinuance of Use of Marks. If it becomes advisable at any time in our
sole discretion for us or you to modify or discontinue use of any Mark or use
one or more additional or substitute trade or service marks, you agree to comply
with our directions to modify or discontinue the use of the Mark or use one or
more additional or substitute trade or service marks within a reasonable time
after notice from us. We will reimburse you for your reasonable direct expenses
in modifying or discontinuing the use of a Mark and substituting a different
trademark or service mark. However, we will not be obligated to reimburse you
for any loss of goodwill associated with any modified or discontinued Mark or
for any expenditures made by you to promote a modified or substitute trademark
or service mark.
8.6 Notification Of Infringements and Claims. You agree to immediately notify us
of any apparent infringement of or challenge to your use of any Mark or claim by
any person of any rights in any Mark, and you will not communicate with any
person other than us or our counsel in connection with the infringement,
challenge or claim. We will have sole discretion to take the action we deem
appropriate and the right to control exclusively any litigation, U.S. Patent and
Trademark Office proceeding or any other administrative or court proceeding
arising out of any such infringement, challenge or claim or otherwise relating
to any Mark. You agree to execute any instruments and documents, render such
assistance and do those things as, in the opinion of our legal counsel, may be
necessary or advisable to protect and maintain our interests in any litigation
or U.S. Patent and Trademark Office or other proceeding or otherwise to protect
and maintain our interests in the Marks.
8.7 Our Indemnification of You. We agree to indemnify you against and to
reimburse you for all damages for which you are held liable in any proceeding
arising out of your authorized use of any Mark in compliance with this Agreement
and for all costs you reasonably incur in defending any claim brought against
you or any proceeding in which you are named as a party, provided that you have
timely notified us of the claim or proceeding and have otherwise complied with
this Agreement. We and our Affiliates, at our option, will be entitled to defend
and control the defense of any proceeding arising Qut of your authorized use of
any Mark.
8.8 Copyrights. We claim copyrights in the Confidential Information, the
Operations Manual, our construction plans, specifications and materials, printed
advertising and promotional materials and in related items used in operating the
Franchise. Such copyrights have not been registered with the United States
Registrar of Copyrights but have been protected under the federal copyright
laws, where appropriate, by virtue of our placing the appropriate notice of
copyright on such items. You may use the Operations Manual and other materials
during the term of the Franchise Agreement. The provisions of Sections 8.3, 8.5,
8.6, and 8.7 of this Agreement relating to Marks also apply to copyrights owned
by us, as if copyrights were included within the definition of Marks.
ARTICLE 9
EXCLUSIVE RELATIONSHIP
9.1 Non-Competition. You agree and acknowledge that we would be unable to
protect the Confidential Information against unauthorized use or disclosure and
would be unable to encourage a free exchange of ideas and information among Mrs.
Fields Cookies Stores if franchised owners of Mrs. Fields Cookies Stores or the
manager of the Licensed Store were permitted to hold interests in or perform
services for a Competitive Business. You also acknowledge and agree that we have
granted the Franchise to you in consideration of and reliance upon your
agreement to deal exclusively with us. Therefore, during the term of this
Agreement, no Restricted Person and no manager of the Licensed Store will:
(a) Have any direct or indirect interest in a Competitive Business
located or operating within 1 mile of the Licensed Store, except
other Mrs. Fields Cookies Stores operated by you under franchise
agreements with us;
(b) Have any direct or indirect interest in a Competitive Business
located or operating within 1 mile of any Mrs. Fields Retail
Outlet in the metropolitan area in which you are located, except
other Mrs. Fields Cookies Stores operated by you under franchise
agreements with us;
(C) Have any direct or indirect interest in a Competitive Business
located or operating within 1 mile of any Mrs. Fields Retail
Outlet, except Mrs. Fields Cookies Stores operated by you under
franchise agreements with us;
(d) Have any direct or indirect interest in a Competitive Business,
except other Mrs. Fields Cookies Stores operated by you under
franchise agreements with us;
(e) Perform services as a director, officer, manager, employee,
consultant, representative, agent or otherwise for a Competitive
Business, except other Mrs. Fields Cookies Stores operated by you
under franchise agreements with us; or
(f) Recruit or hire any employee who, within the immediately
preceding 6-month period, was employed by us or any Mrs. Fields
Retail Outlet operated by us, our Affiliates or another
franchisee or licensee of us, without obtaining the prior written
permission of us or the franchisee of licensee.
The restrictions of this Section 9.1 do not apply to the ownership of shares of
a class of securities listed on a stock exchange or traded on the
over-the-counter market that represent 2% or less of the number of shares of
that class of securities issued and outstanding. Prior to any Licensed Store
manager commencing employment, you agree to provide us with a written agreement
from that Licensed Store manager accepting and agreeing to be bound by the
provisions of this Section 9.1.
ARTICLE 10
TRANSFERS
10.1 Transfers by Us. This Agreement is fully transferable by us and will inure
to the benefit of any transferee or other legal successor to our interest in
this Agreement.
10.2 Restrictions on Transfers by You. Your rights and duties created by this
Agreement are personal to you, and we have granted this Agreement to you in
reliance upon our perceptions of the individual or collective character, skill,
aptitude, attitude, business ability and financial capacity of you and, if you
are not an individual, your Entity Owners. Accordingly, no Transfer will be made
without our prior written approval. Any Transfer without our approval will
constitute a breach of this Agreement and will be void and of no effect.
10.3 Conditions for Approval of Transfers by You. If you are in full compliance
with this Agreement, we will not unreasonably withhold our approval of a
Transfer that meets the following requirements:
(a) Character. The proposed transferee and the individuals ultimately
owning the transferee, if the transferee is an Entity, must be
individuals of good moral character and otherwise meet our then
applicable standards for owners of Mrs. Fields Cookies Stores.
(b) Business Experience. The transferee and, if the transferee is an
Entity, its Entity Owners must have sufficient business
experience, aptitude and financial resources to operate its
business and comply. with this Agreement;
(c) Training. The transferee and/or its senior management personnel
have agreed to complete our training program to our satisfaction;
(d) Satisfaction of Obliggations. You have paid all amounts owed for
purchases by you from us and our Affiliates and all other amounts
owed to us or our Affiliates and third-party creditors;
(e) Assumption of Agreement. The transferee has agreed to be bound by
and expressly assume all of the terms and conditions of this
Agreement for the remainder of its term, and if the transferee is
an Entity, each Entity Owner of the transferee has executed a
guarantee in our favor in which each Entity Owner of the
transferee guarantees performance by the transferee of the terms
and conditions of this Agreement and assumes full and
unconditional liability for the performance of all obligations,
covenants and agreements of you contained in this Agreement;
(f) Payment of Transfer Fees. You or the transferee has paid our then
current transfer fee for a Franchise Agreement. However, no
transfer fee will be required if the Transfer is to a
wholly-owned corporation under Section 10.4 of this Agreement or
if the Transfer is among existing Entity Owners of you;
(g) Release. You and your transferring Entity Owners, if you are an
Entity, have executed a general release, in form satisfactory to
us, of any and all claims against us and our Affiliates and our
respective officers, directors, employees arid agents;
(h) Approval of Terms of Transfer. We have approved the material
terms and conditions of the Transfer, including, without
limitation, that the price and terms of payment are not so
burdensome as to affect adversely the operation of the Licensed
Stores. However, our approval of a Transfer does not ensure the
transferee's success as a Mrs. Fields Cookies Store franchisee
nor should the transferee rely upon our approval of the Transfer
in determining whether to acquire the Licensed Store;
(i) Subordination. If you (or your Entity Owners) finance any part of
the sale price of the transferred interest, you and the Entity
Owners have agreed that all obligations of the transferee under
any promissory notes, agreements or security interests reserved
by you (or your Entity Owners) will be subordinate to the
transferee's obligations to us and our Affiliates; and
(j) Non-Competition Agreement. Each Restricted Person has executed a
non-competition agreement in our favor and in favor of the
transferee agreeing that, for a period of 3 years commencing on
the effective date of the transfer, no Restricted Person will
acquire or hold any direct or indirect interest as an owner,
investor, partner, director, officer, manager, employee,
consultant, representative or agent, or in any other capacity, in
a Competitive Business located within W 1 mile of the Licensed
Store, (ii) 1 mile of any Mrs. Fields Retail Outlet in the
metropolitan area in which you are located, or (iii) 1 mile of
any other Mrs. Fields Retail Outlet, except Mrs. Fields Cookies
Stores operate under agreements with us or our Affiliates. The
restrictions of this Section 10.3(j) will not apply to the
ownership of shares of a class of securities listed on a stock
exchange or traded on the over-the-counter market that represent
2% or less of the number of shares of that class of securities
issued and outstanding.
(k) Landlord Consent. If consent is required, the lessor of the
Premises consents to the assignment or sublease of the Premises
to the transferee; and
(1) Non-Use of Marks. You and your Entity Owners have agreed that you
and they will not directly or indirectly at any time or in any
manner (except with respect to Mrs. Fields Cookies Stores owned
and operated by you or them) identify yourself or themselves or
any of their businesses as a current or former Mrs. Fields
Cookies Store, or as a franchisee, licensee or dealer of us or
our Affiliates, use any Mark, any colorable imitation of any of
the Marks or other indicia of a Mrs. Fields Cookies Store in any
manner or for any purpose or utilize for any purpose any trade
name, trade or service mark or other commercial symbol that
suggests or indicates a connection or association with us or our
Affiliates.
In connection with any assignment permitted under this Section 10.3, you will
provide us with all documents to be executed by you and the proposed transferee
at least 30 days prior to execution.
10.4 Transfer to a Wholly-Owned Corporation. If you are in full compliance with
this Agreement, you may transfer your rights in this Agreement to a corporation
which will conduct no business other than the business contemplated by this
Agreement, which you actually manage and in which you maintain management
control and own and control 100% of the equity and voting power of all issued
and outstanding capital stock. Transfers of shares of such corporation will be
subject to the provisions of Section 10.2 and Section 10.3 of this Agreement.
Even though a transfer is made under this Section, you will remain personally
liable under this Agreement as if the transfer to such corporation had not
occurred. The articles of incorporation, by-laws and other organizational
documents of the corporation will recite that the issuance and assignment of any
interest in the corporation is restricted by the terms of this Article 1 0, and
all issued and outstanding stock certificates of such corporation will bear a
legend reciting or referring to these restrictions.
10.5 Our Right of First Refusal.
(a) Submission of Offers to Us. If you or one or more of your Entity
Owners desires to make a Transfer, you or the Entity Owner will
obtain a bona fide, executed written offer and an earnest money
deposit (in the amount of 5% or more of the offering price) from
a responsible and fully disclosed purchaser and will immediately
submit to us a true and complete copy of such offer, which will
include details of the payment terms of the proposed sale and the
sources and terms of any financing for the proposed purchase
price and a list of the owners of record and beneficially of any
offeror that is an Entity and the individuals ultimately owning
or controlling the offeror. If the offeror or an owner of the
offeror is a publicly-held Entity, you will also submit to us
copies of the most current annual and quarterly reports of the
publicly-held Entity. To be a valid, bona fide offer, the
proposed purchase price will be denominated in a dollar amount.
The offer must apply only to an interest in this Agreement or a
Controlling Interest in you and may not include an offer to
purchase any other property or rights of you or your Entity
-Owners. However, if the offeror proposes to buy any other
property or rights from you or your Entity Owners under a
separate, contemporaneous offer, the price and terms of purchase
offered to you or your Entity owners for the interest in this
Agreement or the Controlling Interest in you will reflect the
bona fide price offered for that interest and will not reflect
any value for any other property or rights.
(b)Our Riqht to Purchase. We will have the right, exercisable by
written notice delivered to you or your Entity Owners within 30
days from the date of delivery of an exact copy of the offer to
us, to purchase the interest in this Agreement or such
Controlling Interest in you for the price and on the terms and
conditions contained in the offer. However we may substitute cash
for any form of payment proposed in the offer, our credit will be
deemed equal to the credit of any proposed purchaser, 'and we
will have not less than 60 days to close the purchase. Without
regard to the representations and warranties demanded by the
proposed purchaser, if any, we will be entitled to purchase the
interest, receiving from you all customary representations and
warranties given by the seller of the assets of a business or
equity interest in an Entity, as applicable, including
representations and warranties as to ownership, condition of and
title to assets, absence of liens and encumbrances relating to
the ownership interest and assets, and validity of contracts and
liabilities affecting the assets being purchased, contingent or
otherwise.
(c) Non-Competition Restriction. If we exercise our right of first
refusal, you and each other Restricted Person agree that, for a
period of 3 years commencing on the date of the closing, no
Restricted Person will acquire or hold any direct or indirect
interest as an owner, investor, partner, director, officer,
manager, employee, consultant, representative or agent, or in any
other capacity, in a Competitive Business located within W within
1 mile from the Licensed Store, (ii) within 1 mile of any Mrs.
Fields Retail Outlet in the metropolitan area in which you are
located, or (iii) 1 mile of any other Mrs. Fields Retail Outlet,
except Mrs. Fields Cookies Stores operated under agreements with
us or our Affiliates. The restrictions of this Section will not
be applicable to the ownership of shares of a class of securities
listed on a stock exchange or traded on the over-the-counter
market that represent 2% or less of the number of shares of that
class of securities issued and outstanding. If we exercise our
right of first refusal, you and your Entity Owners further agree
that you will abide by the restrictions of Section 10.30).
(d)Non-Exercise by Us of Our Right of First Refusal. If we do not
exercise our right of first refusal, you (or your Entity Owners)
may complete the sale to such purchaser pursuant to and on the
terms of such offer, subject to our approval as provided in
Sections 10.2 and 10.3 above. However, if the sale to the
purchaser is not completed within 1 20 days after delivery of the
offer to us, or if there is a material change in the terms of the
sale, our right of first refusal will be extended for 30 days
after the expiration of the 1 20-day period or after the material
change in the terms of the sale.
10.6 Death or Permanent Disability. If you are an individual, upon your death
or permanent disability or, if you are an Entity, upon the death or permanent
disability of an individual owner of a Controlling Interest in you, the
executor, administrator, conservator or other personal representative of that
person will transfer his interest in this Agreement or his Controlling Interest
in you within a reasonable time, not to exceed 6 months from the date of death
or permanent disability, to a third party approved by us. A transfer under this
Section, including, without limitation, transfer by devise or inheritance, will
be subject to all of the terms and conditions for Transfers contained in
Sections 10.2 and 10.3 of this Agreement, and unless transferred by gift, devise
or inheritance, subject to the terms of Section 10.5 above. Failure to dispose
of such interest within the specified period of time will constitute a breach '
of this Agreement. For purposes of this Agreement, the term 'permanent
disability' will mean a mental or physical disability, impairment or condition
that is reasonably expected to prevent or actually does prevent you or an owner
of a Controlling Interest in you from supervising the operation of the Licensed
Store for a period of 6 months from the onset of such disability, impairment or
condition.
10.7 Ef f ect of Consent to Transfer. Our consent to a Transfer will not
constitute a waiver of any claims we may have against the transferor nor be
deemed a waiver of our right to demand full compliance by the transferee with
the terms or conditions of this Agreement.
ARTICLE 11
DEFAULTS
11.1 Our Defaults. If we materially breach a provision of this Agreement and
fail within 30 days after written notice of breach is delivered to us, either to
correct such failure or, if such failure cannot reasonably be corrected within
30 days, to provide proof acceptable to you of efforts which are reasonably
calculated to correct such failure within a reasonable time, which will in no
event be more than 60 days after such notice, and thereafter to cure such
failure within the 60-day time period, then we will be in default under this
Agreement.
11.2 Your Defaults. You will be in default under the terms of this Agreement if
any of the following occur:
(a) Insolvency. You file a petition in bankruptcy or for
reorganization or for an arrangement pursuant to any federal or
state bankruptcy law or any similar federal or state law, or are
adjudicated a bankrupt or make an assignment for the benefit of
creditors or admit in writing your inability to pay your debts
generally as they become due, or if a petition or answer
proposing the adjudication of you as a bankrupt or your
reorganization pursuant to any federal or state bankruptcy law or
any similar federal or state law is filed in any court and you
consent to or acquiesce in the filing thereof or such petition or
answer is not discharged or denied within 60 days after the
occurrence of any of the foregoing, or if a receiver, trustee or
liquidator of you or of all or substantially all of your assets
or your interest in this Agreement is appointed in any proceeding
brought by you, or if any such receiver, trustee or liquidator is
appointed in any proceeding brought against you and is not
discharged within 60 days after the occurrence thereof, or if you
consent to or acquiesce in such appointment (any such event
described in this Section 1 1.2(a) being referred to as an
'Insolvency Event');
(b) Unauthorized Transfer. A Transfer occurs in violation of the
provisions of Article 10 of this Agreement;
(c) Misstatements and other Adverse Developments. You (or, if you are
an Entity, any Entity Owner of you) have made any material
misrepresentation or omission in your application for the rights
conferred by this Agreement, are convicted by a trial court of o,
plead no contest to a felony or to any other crime or offense
that may adversely affect the goodwill associated with the Marks,
or if you engage in any conduct which may adversely affect the
reputation of any Mrs. Fields Cookies Store or the goodwill
associated with the Marks;
(d) Unauthorized Use of Marks or Confidential Information. You or an
Entity Owner of you make any unauthorized use of- the Marks or
any unauthorized use or disclosure of Confidential Information;
(e) Abandonment. You abandon or fail actively to operate the Licensed
Store for 3 consecutive days unless the Licensed Store has been
closed for a purpose approved in advance by us in writing or
because of fire, flood or other casualty or government order;
(f) Breach of Lease; Loss of Right of Possession. You are in breach
of any of your obligations under your lease or sublease of the
Premises or you lose the right to possession of the Premises;
(g) Failure to Comply with Certain System Standards and Health
Requirements. You fail or refuse to comply with System Standards
relating to the cleanliness or sanitation of the Licensed Store
or violate any health, safety or sanitation law, ordinance or
regulation and do not correct the noncompliance within 48 hours
after written notice thereof is delivered to you or you store or
use 'out-of-code' products in violation of the System Standards;
(h) Understatements of Gross Revenues. You understate the Licensed
Store's Gross Revenues in any report or financial statement by an
amount greater than 2%;
(i) Failure to Make Payments. You fail to make payments, when due, of
any amounts due to us or our Affiliates for royalty fees,
Marketing Fund contributions or for any other amounts due to us
or our Affiliates under this Agreement or in connection with a
purchase by you of the Licensed Store assets and you do not
correct the failure within 1 0 days after written notice of the
failure is delivered to you;
(j) Failure to Pay Taxes. You fail to pay any federal or state
income, sales or other taxes due with respect to the Licensed
Store's operations unless you are in good faith contesting your
liability for the taxes;
(k) Other Breaches. You fail to comply with any other provision of
this Agreement or any System Standard and do not correct the
failure within 30 days after written notice of the failure to
comply is delivered to you or provide proof acceptable to us of
efforts which are reasonably calculated to correct the failure
within a reasonable time, which will in no event be more than 60
days after the notice, if the failure cannot reasonably be
corrected within 30 days after written notice of the failure to
comply is delivered to you;
(1) Repeated Breaches. You fall on 2 or more separate occasions
within any period of 1 2 consecutive months or on 3 occasions
during the term of this Agreement to submit when due reports or
other data, information or supporting records or to pay when due
the royalty fees or other payments due to us or our Affiliates or
otherwise fails to comply with this Agreement, whether or not the
failures to comply are corrected after notice thereof is
delivered to you;
(m) Termination Without Cause. You terminate this Agreement without
cause; or
(n) Financing Defaults. You default with respect to any of your
obligations to us or any other lender under any financing
provided to you in connection with this Franchise Agreement or a
purchase of Licensed Store assets.
ARTICLE 12
TERMINATION OF AGREEMENT
12.1 Termination Upon Expiration of Term. This Agreement will terminate upon
expiration of the term of this Agreement, unless terminated earlier.
12.2 Your Right to Terminate if We Default. If we are in default under this
Agreement, in addition to whatever other rights and remedies are available to
you and if you are in compliance with this Agreement, you may terminate this
Agreement effective 10 days after delivery to us of notice of termination,
unless within that time, our default is cured.
12.3 Termination by You without Cause. A termination of this Agreement by you
for any reason other than as permitted by Section 12.2 above will be deemed a
termination by you without cause and in violation of this Agreement.
12.4 Our Right to Terminate if You Default. If you are in default under this
Agreement, in addition to whatever other rights and remedies are available to
us, we may terminate this Agreement, effective upon delivery of notice of
termination to you.
12.5 Our Right to Terminate in Certain Other Circumstances.
(a) Failure to Complete Training. If you or your initial store
manager fails to complete all phases of the initial training
program to our satisfaction, we will have the right to terminate
this Agreement effective upon delivery of notice of termination
to you. If we terminate the Agreement as permitted by this
provision, we will refund to you the initial franchise fee less
all reasonable expenses incurred by us in connection with (i) the
preparation of this Agreement and all related agreements, (ii)
the grant of the Franchise, (iii) approval of the Premises, (iv)
selection of the Premises, and (v) any other services performed
by us in connection with the establishment and development of the
Licensed Store. However, in no event will the refund exceed 50%
of the initial franchise fee. The refund will be delivered to you
upon execution of all releases, waivers and other agreements
necessary to terminate the relationship between you and us.
(b) Failure to Commence Operations. If you fail to commence operation
of the Licensed Store within 1 80 days after the execution of
this Agreement, we will also have the right to terminate this
Agreement effective upon delivery of notice of termination to
you. No refund of the initial franchise fee will be made in these
circumstances.
12.6 Your Opportunity to Acquire a Successor Franchise Agreement.
(a) Conditions to Issuance of a Successor Franchise. Upon termination
of this Agreement, you may acquire a successor franchise for the
Licensed Store on the terms and conditions of the form of
franchise agreement for Mrs. Fields Cookies Stores that we are
using at the time of expiration of this Agreement if:
(i) You have substantially complied with this Agreement during
its term and are not in default of this Agreement;
(ii) You agree either:
(1) To maintain possession of and remodel and/or expand
the Premises, add or replace leasehold improvements,
equipment, fixtures, furnishings and signs and otherwise
modify the Licensed Store to bring it into compliance with
specifications and standards then applicable for Mrs. Fields
Cookies Stores, or
(2) If in our judgment the Licensed Store should be
relocated, to secure substitute premises approved by us and
construct and develop the substitute premises in compliance
with specifications and standards then applicable for Mrs.
Fields Cookies Stores;
(iii)You agree to correct any deficiencies in the Licensed Store
or the Premises, or in your operation of the Licensed Store,
as identified in the notice from us to you described in
Section 12.6(b) of this Agreement, within the time period
specified in the notice; and
(vi) You comply with the provisions of Section 12.6(c) below on
or before expiration of this Agreement.
(b) Grant of a Successor Franchise. You must give us a written notice
of your desire and election to acquire a successor franchise
during the year preceding the last year of the term of this
Agreement; otherwise, you will have no right to acquire a
successor franchise. We agree to give you written notice, not
more than 1 80 days after receipt of your notice, of our
requirements under Section 12.6(a)(iii) of this Agreement and the
time period for satisfying those requirements, as well as a list
of any deficiencies in the Licensed Store or the Premises, or in
your operation of the Licensed Store that must be corrected,
stating the actions you must take to correct the deficiencies and
specifying the time period in which the deficiencies must be
corrected. If, but only if, you have satisfied all of the
conditions set forth in Section 12.6 of this Agreement by the
date of expiration of this Agreement, we will issue the successor
franchise. We agree, however, that if any of the time periods
specified by us for compliance with the provisions of Section
12.6(a)(ii) or Section 12.6(a)(iii) above extend beyond the
expiration of this Agreement, the new franchise will be issued
conditionally, subject to compliance with those requirements
within the applicable time periods.
(c) Agreements and Releases to be Executed,. If you are entitled to a
successor franchise, you (and your Entity Owners, if you are an
Entity) will be required to execute a new franchise agreement and
any ancillary agreements we are customarily using in granting
franchises for the operation of Mrs. Fields Cookies Stores at the
time of expiration of this Agreement. You will also be required
to pay the fees and charges then being charged under the version
of franchise agreement and our franchising policies in effect
upon expiration of this Agreement. These requirements may include
payment of a new initial franchise fee (which will not exceed 50%
of the initial franchise fee then being charged to new f
franchisees) and other fees and charges at the times and in the
amounts provided for in the form of successor franchise agreement
then in use by us. These fees and charges may be different from
those in this Agreement. You (and your Entity Owners) will also
be required to execute general releases, in form satisfactory to
us, of any and all claims against us and our Affiliates and our
respective officers, directors, employees, agents, successors and
assigns arising under this Agreement. Copies of all the
agreements and releases will be delivered to you at least 60 days
prior to expiration of this Agreement and must be executed by you
(and your Equity Owners, if applicable) prior to expiration of
this Agreement.
1 2.7 Payment of Amounts Owed to Us and Others following Termination. You agree
to pay us within 1 5 days after the date of termination of this Agreement, or
such later date as the amounts due to us are determined, the royalty fees,
Marketing Fund contributions, amounts owed for purchases by you from us or our
Affiliates, interest due on any of the foregoing and all other amounts owed to
us or our Affiliates which are then unpaid.
12.8 Discontinuance of the Use of the Marks following Termination. You agree
that, upon termination of this Agreement, you will:
(a) Not directly or indirectly at any time or in any manner (except
with respect to other Mrs. Fields Cookies Stores owned and
operated by you) identify yourself or any business as a current
or former Mrs. Fields Cookies Store, or as a franchisee, licensee
or dealer of us or our Affiliates, use any Mark, any colorable
imitation of a Mark or other indicia of a Mrs. Fields Cookies
Store in any manner or for any purpose or utilize for any purpose
any trade name, trade or service mark or other commercial symbol
that suggests or indicates a connection or association with us or
our Affiliates;
(b)Deliver to us all signs, sign-faces, sign-cabinets, marketing
materials, forms, invoices and other materials containing any
Mark or otherwise identifying or relating to a Mrs. Fields
Cookies Store and allow us, without liability, to remove all such
items from the Licensed Store,-
(c)Take such action as may be required to cancel all fictitious or
assumed name or equivalent registrations relating to your use of
any Mark;
(d)Ifwe do not purchase the Licensed Store as provided in Section 1
2.1 1 below, make the changes to the exterior and interior
appearance of the Licensed Store as are reasonably required by
us;
(e)Deliver all materials and supplies identified by the Marks in full
cases or packages to us for credit and dispose of all other
materials and supplies identified by the Marks within 30 days
after the effective date of termination of this Agreement;
(f) Notify the telephone company and all telephone directory
publishers of the termination of your right to use any telephone
and telecopy numbers and any regular, classified or other
telephone directory listings associated with any Mark and to
authorize transfer of those rights to us or at our direction. You
agree that, as between you and us, we have the sole rights to and
interest in all telephone and telecopy numbers and directory
listings associated with any Mark. You authorize us and appoint
us and any of our officers as your attorney in fact, to direct
the telephone company and all telephone directory publishers to
transfer any telephone and telecopy numbers and directory
listings relating to the Licensed Store to us or at our
direction, should you fail or refuse to do so, and the telephone
company and all telephone directory publishers may accept such
direction or this Agreement as conclusive of our exclusive rights
in the telephone and telecopy numbers and directory listings and
our authority to direct their transfer; and
(g) Furnish us, within 30 days after the effective date of
termination, with evidence satisfactory to us of your compliance
with the obligations in this Section 12.8.
12.9 Discontinuance of Use of Confidential Information following Termination.
You agree that, upon termination of this Agreement, you will immediately cease
to use any Confidential Information disclosed to you pursuant to this Agreement
in any business or otherwise and you will return to us all copies of the
Operations Manual and any other confidential materials which we have loaned to
you.
12.10 Covenant Not to Compete. Upon termination of this Agreement for any
reason other than as a result of our default, you agree that, for a period of 1
year (or 3 years if we purchase the Licensed Store as provided in Section 1 2.1
1 below) commencing on the effective date of termination, no Restricted Person
will have any direct or indirect interest as an owner, investor, partner,
director, officer, employee, consultant, representative or agent or in any other
capacity in any Competitive Business located or operating within (a) 1 mile of
the Licensed Store, N 1 mile of any Mrs. Fields Retail Outlet in the
metropolitan area in which you are located, or (c) I mile of any other Mrs.
Fields Retail Outlet, except Mrs. Fields Cookies Stores operated under
agreements with us or our Affiliates. The restrictions of this Section will not
be applicable to the ownership of shares of a class of securities listed on a
stock exchange or traded on the over-the-counter market that represent two
percent (2%) or less of the number of shares of that class of securities issued
and outstanding. You expressly acknowledge that you and the other Restricted
Persons possess skills and abilities of a general nature and have other
opportunities for exploiting those skills. Consequently, enforcement of the
covenants made in this Section will not deprive you or any of the other
Restricted Persons of their personal goodwill or ability to earn a living-
12.1 1 Our Option to Purchase Licensed Stores.
(a) Option to Purchase. Upon termination of this Agreement other than
as a result of our default and if no successor franchise
agreement has been executed, we or our assignee will have the
option, exercisable by giving written notice thereof within 60
days from the date of such termination or expiration, to acquire
from you, the inventory of Mrs. Fields Products, materials, and
supplies that are in good and saleable condition and not obsolete
or discontinued (the 'Inventory') and the equipment. furnishings,
signs, and the other tangible assets of the Licensed Stores
(collectively, with t@e Inventory, the "Assets'). We will have
the unrestricted right to assign this option to purchase and our
rights under this Section 1 2.1 1. We will be entitled to all
customary warranties and representations in connection with our
purchase, including, without limitation, representations and
warranties as to ownership, condition of and title to the Assets,
no liens and encumbrances on the Assets, and validity of
contracts and agreements and liabilities benefitting us or
affecting the Assets, contingent or otherwise.
(b) Purchase Price. The purchase price for the Assets will be equal
to the greater of: W. The sum of the book value of the Licensed
Store's Assets, other than Inventory, amortized on a
straight-line basis over a 7 year period, plus the lesser of cost
and the then-current wholesale market value of the Inventory, or
(ii) The product of the Licensed Store's average cash flow for
the 2 most recently completed fiscal years, multiplied by 2.
"Cash flow" means the Licensed Store's Gross Revenues less
all Licensed Store-related costs (i.e., cost of goods sold,
labor, occupancy and other Licensed Store expenses) as well
as annual administrative costs of $1 5,000, royalty fees and
marketing fees, but not including interest and depreciation.
We will have the right to set off against and reduce the purchase price by any
and all amounts owed by you to us or our Affiliates. We may exclude from the
Assets purchased any equipment, furnishings, signs, and usable inventory of
Mrs. Fields Products, materials, or supplies of the Licensed Stores that we
have not approved as meeting our standards for Mrs. Fields Cookies Stores, and
the purchase price will be reduced by the replacement cost of such excluded
items which are required in the operation of the Licensed Stores being
purchased.
(c) Payment of Purchase Price. The purchase price will be paid
in cash at the closing of the purchase, which will take
place no later than 90 days after your receipt of our notice
of exercise of this option to purchase the Licensed Stores,
at which time you will deliver instruments transferring to
us good and merchantable title to the Assets purchased, free
and clear of all liens and encumbrances and with all sales
and other transfer taxes paid by you, and with all licenses
or permits of the Licensed Stores which may be assigned or
transferred. If the closing of the purchase does not occur
within the 90-day period because you fail to act diligently
in connection with the purchase, the purchase price will be
reduced by 10%. The purchase price will be further reduced
by 10% per month for each subsequent month you fail to act
diligently to consummate the purchase. Prior to closing, you
and we will comply with the applicable Bulk Sales provisions
of the Uniform Commercial Code as enacted in the state where
the Licensed Store is located.
(d) Lease of Premises. In connection with the purchase of the
Assets of a Licensed Store, you will also deliver to us an
assignment of the lease for the Licensed Store premises (or,
if assignment is prohibited, subleases for the full
remaining term and on the same terms and conditions as your
lease). If you own the premises of the Licensed Store, you
agree to lease the premises to us pursuant to the terms of
our standard lease, for a term of 5 years with two
successive 5-year renewal options at fair market rental
during the initial and renewal terms.
(e) Interim Management. If we exercise the option to purchase
the Licensed Store, pending the closing of such purchase, we
may appoint a manager to maintain the operation of the
Licensed Store or, at our option, require you to close the
Licensed Store during such time period without removing any
assets. If we appoint a manager to maintain the operation of
the Licensed Store pending closing of such purchase, all
funds from the operation of the Licensed Store during the
period of management by our appointed manager will be kept
in a separate fund, and all expenses of the Licensed Store,
including compensation, other costs, and travel and living
expenses of our appointed manager, will be charged to such
fund. As compensation for such management services, we will
charge such fund 10% of the Gross Revenues of the Licensed
Store during the period of our management. Operation of the
Licensed Store during any such period will be on your
behalf, provided that we will have a duty only to utilize
our good faith effort and will not be liable to you for any
debts or obligations incurred by the Licensed Store or to
any of your creditors for any merchandise, materials,
supplies or services purchased by the Licensed Store during
any period in which the Licensed Store is managed by our
appointed manager. You will maintain in force for the
Licensed Store all insurance policies required by this
Agreement until the date of closing.
Terminationof Franchise Agreement. Upon the closing of the purchase of the
Assets and satisfaction by you of all of your obligations under this Agreement
accruing through the closing, this Agreement will terminate.
12.12 Continuing Obligations. All obligations of us and you which expressly or
by their nature survive the termination of this Agreement will continue in full
force and effect subsequent to and notwithstanding termination and until they
are satisfied in full or by their nature expire. Included in the obligations
that will continue following termination of this Agreement are the Provisions of
Sections 5.3, 6.5, 6.7, 6.11, 8.1, 8.7, 10.3(l), 12.7, 12.8, 12.9, 12.10, 12.11,
12.12, 13.4, 14.1, and the provisions of Article 15 of this Agreement.
ARTICLE 13
RELATIONSHIP OF THE PARTIES/INDEMNIFICATION
13.1 Independent Contractors. This Agreement does not create a fiduciary
relationship between the parties. We and you are independent contractors and
nothing in this Agreement is intended to make either party a general or special
agent, joint venturer, partner or employee of the other for any purpose. You
will conspicuously identify yourself in all dealings as the owner of the
Licensed Store under a franchise granted by us and will place such other notices
of independent ownership on the forms, business cards, stationery, marketing and
other materials as we may require from time to time.
13.2 No Liability for the Act of Other Party. You will not employ any of the
Marks in signing any contract or applying for any license or permit or in a
manner that may result in our liability for any indebtedness or obligations of
you, nor may you use the Marks in any way not expressly authorized by us.
Neither we nor you will make any express or implied agreements, warranties,
guarantees or representations or incur any debt in the name or on behalf of the
other or be obligated by or have any liability under any agreements or
representations made by the other. We will not be obligated for any damages to
any person or property directly or indirectly arising out of the operation of
your business authorized by or conducted pursuant to this Agreement.
13.3 Taxes. We will have no liability for any sales, use, service, occupation,
excise, gross receipts, income, property or other taxes, whether levied upon you
or your assets or upon us, arising in connection with your sales or the business
conducted by you pursuant to this Agreement, except for taxes that we are
required by law to collect from you with respect to purchases from us and except
for our own income taxes. Payment of all 'such taxes will be your
responsibility.
13.4 Indemnification. You agree to indemnify, defend and hold harmless us, our
parent company, subsidiaries and Affiliates and each of our respective
shareholders, directors, officers, employees, agents, successors and assigns
(the 'Indemnified Parties') against and to reimburse the Indemnified Parties for
any claims, liabilities, lawsuits, demands, actions, damages and expenses
arising from or out of (a) any breach of your agreements, covenants,
representations, or warranties contained in this Agreement, (b) any damages or
injury to any person, including, but not limited to, your employees, our
employees and agents, your customers, and members of the public, suffered or
incurred on or about any Licensed Store owned or operated by you, (c) product
liabilities claims or defective manufacturing of Mrs. Fields Products by you, or
(d) the activities under this Agreement of you or any of your officers, owners,
directors, employees, agents or contractors. For purposes of this
indemnification, claims will mean and include all obligations, actual,
consequential, and incidental damages and costs reasonably incurred in the
defense of any claim against the Indemnified Parties, including reasonable
accountants', arbitrators', attorneys' and expert witness fees, costs of
investigation and proof of facts, court costs, other litigation expenses and
travel and living expenses. We will have the right to defend any such claim
against us. This indemnity will continue in full force and effect subsequent to
and notwithstanding the termination of this Agreement.
ARTICLE 14
SECURITY AGREEMENT
14.1 Security Agreement. In order to secure full and prompt payment of the fees
and other charges to be paid by you to us, and to secure performance of your
other obligations and covenants under this Agreement, you hereby grant us a
security interest in, lien upon, and right of set off against all of your
interest in the improvements, fixtures, inventory', goods, appliances and
equipment now or hereafter owned and located at the Licensed Store (whether
annexed to the Premises or not) or used in connection with the business
conducted at the Premises, including all machinery, materials, appliances and
fixtures for generating or distributing air, water, heat, electricity, light,
fuel, or refrigeration, for ventilating, cooling or sanitary purposes, for the
exclusion of vermin or insects and for the removal of dust, refuse or garbage;
all engines, machinery, stoves, refrigerators, furnaces, partitions, doors,
vaults, sprinkling systems, light fixtures, fire hoses, fire brackets, fire
boxes, alarm systems, brackets, screens, floor tile, linoleum, carpets,
plumbing, water systems, appliances, walk-in refrigerator boxes, cabinets,
dishwashers, bake ovens, set-up tables, --kitchen ranges, display counters and
shelves, computers and computer software, and other equipment and installations;
all other and further installations and appliances; all raw materials, work in
process, finished goods, and all inventory; and all replacements thereof,
attachments, additions, and accessions thereto, and products and proceeds
thereof in any form, including but not limited to insurance proceeds and any
claims against third parties for loss or damage to or destruction of any or all
of the foregoing (collectively, the 'Collateral'). Without our prior written
consent, you agree that no lien upon or security interest in the Collateral or
any item thereof will be created or suffered to be created and that no lease
will be entered into with respect to any item of Collateral. Without our prior
written consent, you will not sell or otherwise dispose of any item of
Collateral, or remove any Collateral from the Premises, unless the same is
replaced by a similar item of equal or greater value, and except for the sales
of inventory in the ordinary course of business. You agree to give to us
advance-notice in writing of any proposed change in your name, identity, or
structure and not to make any the change without our prior written consent and
compliance with the provisions of this Agreement, including Article 10. You
agree to execute for filing the financing statements and continuation statements
as we may require from time to time. You agree to pay all filing fees, including
fees for filing continuation statements in connection with the financing
statements, and to reimburse us for all costs and expenses of any kind incurred
in connection therewith. If you default under this Agreement, we will have all
the remedies and rights available as a 'secured party" with respect to the
Collateral under the Uniform Commercial Code as in effect from time to time in
the state where the Premises are located. The grant of the security interest by
you pursuant to this Section 14.1 will not be construed to derogate from or
impair any other rights which we may have under this Agreement or otherwise at
law or equity. The provisions of this Section shall survive the termination of
this Agreement.
ARTICLE 15
GENERAL PROVISIONS
15.1 Severability. Each article, section, paragraph, term and provision of this
Agreement will be considered severable and if, for any reason, any provision of
this Agreement is held to be invalid, contrary to or in conflict with any
applicable present or future law or regulation in a final, unappealable ruling
issued by any court, agency or tribunal with competent jurisdiction in a
proceeding to which we are a party, that ruling will not impair the operation
of, or have any other effect upon, such other portions of this Agreement as may
remain otherwise intelligible, and such other portions will continue to be given
full force and effect and bind the parties, although any portion held to be
invalid will be deemed not to be a part of this Agreement from the date the time
for appeal expires, if you are a party thereto, otherwise upon your receipt of a
notice of non-enforcement thereof from us.
15.2 Enforcement of Non-Competition Provisions. If any covenant in this
Agreement which restricts competitive activity is deemed unenforceable by virtue
of its scope in terms of area, business activity prohibited and/or length of
time, but would be enforceable by reducing any part or all of the covenant, you
and we agree that the covenant will be enforced to the fullest extent
permissible under the laws and public policies applied in the jurisdiction in
which enforcement is sought.
15.3 Rights Provided by Law. If any applicable and binding law or rule of any
jurisdiction requires a greater prior notice of the termination or non-renewal
of this Agreement than is required under this Agreement, or the taking of some
other action not required under this Agreement, or if, under any applicable and
binding law or rule of any jurisdiction, any provision of this Agreement is
invalid or unenforceable, the prior notice and/or other action required by such
law or rule will be substituted for the comparable provisions of this Agreement,
and we will have the right in our sole discretion to modify the invalid or
unenforceable provision to the extent required to be valid and enforceable. You
agree to be bound by any promise or covenant imposing the maximum duty permitted
by law which is subsumed within the terms of any provision of this Agreement, as
though it were separately articulated in and made a part of this Agreement, that
may result from striking from any of the provisions of this Agreement any
portion or portions which a court or arbitrator may hold to be unenforceable in
a final decision to which we are a party, or from reducing the scope of any
promise or covenant to the extent required to comply with such a court. order or
arbitration award. Such modifications to this Agreement will be effective only
in such jurisdiction, unless we elect to give them greater applicability, and
will be enforced as originally made and entered into in all other jurisdictions.
15.4 Waivers by Either of Us. Either we or you may by written instrument
unilaterally waive or reduce any obligation of or restriction upon the other
under this Agreement, effective upon delivery of written notice of waiver to the
other or such other effective date stated in the notice of waiver. Any waiver
granted by us will be without prejudice to -any other rights we may have, will
be subject to our continuing review and may be revoked, in our sole discretion,
at any time and for any reason, effective upon delivery to you of ten days'
prior written notice.
15.5 Certain Acts Not to Constitute Waivers. Neither we nor you will not be
deemed to have waived or impaired any right, power or option reserved by this
Agreement (including, without limitation, the right to demand exact compliance
with every term, condition and covenant in this Agreement or to declare any
breach to be a default and to terminate this Agreement prior to the expiration
of its term) by virtue of (i) any custom or practice of the parties at variance
with the terms of this Agreement; (ii) any failure, refusal or neglect of us or
you to exercise any right under this Agreement or to insist upon exact
compliance by the other with its obligations under this Agreement, including any
waiver, forbearance, delay, failure or omission by us to exercise any right,
power or option, whether of the same, similar or different nature, with respect
to other Mrs. Fields Cookies Stores or franchise agreements; or (iii) our
acceptance of any payments due from you after any breach of this Agreement.
15.6 Excusable Non-Performance. Neither we nor you will be liable for loss or
damage or deemed to be in breach of this Agreement if the failure to perform
obligations results from transportation shortages; inadequate supplies of
equipment, merchandise, supplies, labor, material or energy or the voluntary
suspension of the right to acquire or use any of those items in order to
accommodate or comply with the orders, requests, regulations, recommendations or
instructions of any federal, state or municipal government or any governmental
department or agency; compliance with any law, ruling, order, regulation,
requirement or instruction of any federal, state or municipal government or any
governmental department or agency; acts of God; fires, strikes, embargoes, war
or riot; or any other similar event or cause beyond the reasonable control of
the party. Any delay resulting from any of those causes will extend performance
accordingly or excuse performance, in whole or in part, as may be reasonable.
15.7 Injunctive Relief. Notwithstanding anything to the contrary contained in
Section 15.10 below, we and you will each have the right in a proper case to
obtain specific performance, temporary restraining orders and temporary or
preliminary injunctive relief from a court of competent jurisdiction. However,
the parties will contemporaneously submit their dispute for arbitration on the
merits. You agree that we may have temporary or preliminary injunctive relief
without bond, but upon due notice, and your sole remedy in the event of the
entry of such injunctive relief will be the dissolution of the injunctive
relief, if warranted, upon hearing duly had (all claims for damages by reason of
the wrongful issuance of any the injunction being expressly waived).
15.8 Rights of Parties Are Cumulative, Our and your rights under this Agreement
are cumulative and the exercise or enforcement of any right or remedy under this
Agreement will not preclude the exercise or enforcement by a party of any other
right or remedy under this Agreement which it is entitled by law or this
Agreement to exercise or enforce.
15.9 Costs and Attorneys' Fees. If a claim for amounts owed by you to us or our
Affiliates is asserted in judicial proceeding or appeal, or if we or you are
required to enforce this Agreement in an arbitration or proceeding or appeal,
the party prevailing in such proceeding will be entitled to reimbursement of its
costs and expenses, including reasonable arbitrators', accounting and legal
fees, whether incurred prior to, in preparation for or in contemplation of the
filing of any written demand, claim, action, hearing or proceeding to enforce
the obligations of this Agreement. If we incur expenses in connection with your
failure to pay when due amounts owing to us, to submit when due any reports,
information or supporting records or otherwise to comply with this Agreement,
including, but not limited to legal, arbitrators' and accounting fees, you will
reimburse us for any such costs and expenses which we incur.
15.10 Arbitration.
(a) Disputes Subject to Arbitration. EXCEPT FOR THE MATTERS LISTED IN
SECTION 15.1 0(b) OF THIS AGREEMENT, ALL CONTROVERSIES, DISPUTES
OR CLAIMS BETWEEN US (AND OUR SUBSIDIARIES AND AFFILIATES, AND
EACH OF OUR RESPECTIVE SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS,
EMPLOYEES AND ATTORNEYS (IN THEIR REPRESENTATIVE CAPACITY), IF
APPLICABLE) AND YOU (AND YOUR ENTITY OWNERS, GUARANTORS AND
EMPLOYEES, OFFICERS, DIRECTORS, AGENTS, AND ATTORNEYS (IN THEIR
REPRESENTATIVE CAPACITY), IF APPLICABLE) ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR ANY OTHE ' R AGREEMENT BETWEEN YOU
AND US WILL BE SUBMITTED FOR ARBITRATION TO THE SALT LAKE CITY,
UTAH OFFICE OF THE AMERICAN ARBITRATION ASSOCIATION ON DEMAND OF
EITHER YOU OR US. SUCH ARBITRATION PROCEEDINGS WILL BE CONDUCTED
IN SALT LAKE CITY, UTAH AND WILL BE'HEARD BY ONE ARBITRATOR IN
ACCORDANCE WITH THE THEN CURRENT COMMERCIAL ARBITRATION RULES OF
THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATOR WILL BE A
LAWYER OF RECOGNIZED STANDING AND EXPERTISE IN THE AREA OF
FRANCHISING.
(b) Excluded Matters. CONTROVERSIES, DISPUTES OR CLAIMS RELATED TO OR
BASED ON THE MARKS OR ANY LEASE OF REAL ESTATE AND ACTIONS TO
COLLECT AMOUNTS DUE TO US OR OUR AFFILIATES (i) ON ACCOUNT OF THE
PURCHASE OF ASSETS FROM US OR OUR AFFILIATES, (ii) WITH RESPECT
TO PAYMENTS DUE ON ANY PROMISSORY NOTE GIVEN BY YOU TO US OR OUR
AFFILIATES IN CONNECTION WITH THE PURCHASE OF ASSETS, OR (iii)
OTHERWISE DUE PURSUANT TO, OR ARISING IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY, THIS AGREEMENT, ARE EXCLUDED FROM
THE COVERAGE OF THE ARBITRATION PROVISIONS OF THIS AGREEMENT.
(c) Awards. THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN
HIS AWARD ANY RELIEF WHICH HE DEEMS PROPER IN THE CIRCUMSTANCES,
INCLUDING MONEY DAMAGES (WITH INTEREST ON UNPAID AMOUNTS FROM THE
DATE DUE), SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF AND ATTORNEYS'
FEES AND COSTS, IN ACCORDANCE WITH SECTION 15.9 OF THIS
AGREEMENT, PROVIDED THAT THE ARBITRATOR WILL NOT HAVE THE
AUTHORITY TO AWARD EXEMPLARY OR PUNITIVE DAMAGES. THE AWARD AND
DECISION OF THE ARBITRATOR WILL BE CONCLUSIVE AND BINDING UPON
ALL PARTIES AND JUDGMENT UPON THE AWARD MAY BE ENTERED IN ANY
COURT OF COMPETENT JURISDICTION. EACH PARTY WAIVES ANY RIGHT TO
CONTESTTHE VALIDITY OR ENFORCEABILITY OF SUCH AWARD. THE PARTIES
AGREE TO BE BOUND BY THE PROVISIONS OF ANY LIMITATION ON THE
PERIOD OF TIME BY WHICH CLAIMS MUST BE BROUGHT. THE PARTIES AGREE
THAT, IN CONNECTION WITH'ANY SUCH ARBITRATION PROCEEDING, EACH
WILL SUBMIT OR FILE ANY CLAIM WHICH WOULD CONSTITUTE A COMPULSORY
COUNTER-CLAIM (AS DEFINED BY RULE 13 OF THE FEDERAL RULES OF
CIVIL PROCEDURE) WITHIN THE SAME PROCEEDINGS AS THE CLAIM TO
WHICH IT RELATES. ANY SUCH CLAIM WHICH IS NOT SUBMITTED OR FILED
IN SUCH PROCEEDING WILL BE BARRED.
(d) Permissible Parties. YOU AND WE AGREE THAT ARBITRATION WILL BE
CONDUCTED ON AN INDIVIDUAL, NOT A CLASS-WIDE, BASIS AND THAT ANY
ARBITRATION PROO-EEDING BETWEEN YOU AND US WILL NOT BE
CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING INVOLVING US
AND ANY OTHER PERSON OR ENTITY.
(e) Survival. THE PROVISIONS OF THIS SECTION 15.10 WILL CONTINUE IN
FULL FORCE AND EFFECT SUBSEQUENT TO AND NOTWITHSTANDING THE
EXPIRATION OR TERMINATION OF THIS AGREEMENT.
15.11 Governing Law. ALLMATTERSRELATINGTOARBITRATIONANDWITHINTHESCOPEOF THE
FEDERAL ARBITRATION ACT (9 U.S.C. ss. ss. 1 ET SEQ.) Will BE GOVERNED BY SUCH
ACT. EXCEPT TO THE EXTENT GOVERNED BY THE FEDERAL ARBITRATION ACT, THE UNITED
STATES TRADEMARK ACT OF 1946 (LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR
OTHER FEDERAL LAW, THIS AGREEMENT AND THE RELATIONSHIP BETWEEN YOU AND US WILL
BE GOVERNED BY THE LAWS OF THE STATE OF UTAH, EXCEPT THAT THE UTAH BUSINESS
OPPORTUNITY DISCLOSURE ACT, AND ANY OTHER STATE LAW RELATING TO (1) THE OFFER
AND SALE OF FRANCHISEES (2) FRANCHISE RELATIONSHIPS, OR (3) BUSINESS
OPPORTUNITIES, WILL NOT APPLY UNLESS THE APPLICABLE JURISDICTIONAL REQUIREMENTS
ARE MET INDEPENDENTLY WITHOUT REFERENCE TO THIS PARAGRAPH.
15.12 Consent to Jurisdiction. WE MAY INSTITUTE ANY ACTION AGAINST YOU (WHICH IS
NOT REQUIRED TO BE ARBITRATED HEREUNDER) IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE OF UTAH, AND YOU IRREVOCABLY SUBMIT TO THE
JURISDICTION OF SUCH COURTS AND WAIVE ANY OBJECTION YOU MAY HAVE TO EITHER THE
JURISDICTION OF OR VENUE IN SUCH COURTS.
15.13 Waiver of Punitive Damages. EXCEPT WITH RESPECT TO YOUR OBLIGATION TO
INDEMNIFY US PURSUANT TO SECTION 13.4, THE PARTIES WAIVE TO THE FULLEST EXTENT
PERMITTED BY LAW ANY RIGHT TO OR CLAIM FOR ANY PUNITIVE OR EXEMPLARY DAMAGES
AGAINST THE OTHER AND AGREE THAT, IN THE EVENT OF A DISPUTE BETWEEN THEM, THE
PARTY MAKING A CLAIM Will BE LIMITED TO RECOVERY OF ANY ACTUAL DAMAGES IT
SUSTAINS.
15.14 Waiver of Jury Trial. EACH PARTY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY
EITHER PARTY.
15.15 Binding Effect. Subject to the restrictions on Transfers contained in this
Agreement, this Agreement is binding upon the parties hereto and their
respective executors, administrators, heirs, assigns and successors in interest
and will not be modified except by written agreement signed by both you and us.
15.16 Limitation of Claims. Any and all claims arising out of or relating to
this Agreement or the relationship arnong the parties to this Agreement will be
barred unless an action or proceeding is commenced within one year from the date
you or wo knew or should have known of the facts giving rise to such claim,
15.17 No Third Party Beneficiaries. Nothing in this Agreement is intended, nor
will be deemed, to confer any rights or remedies upon any person or legal entity
not a party to this Agreement.
15.18 Approvals. Except where this Agreement expressly obligates us reasonably
to approve or not unreasonably to withhold our approval of any action or request
by you, we have the absolute right to refuse any request by you or to withhold
our approval of any action by you that requires our approval.
15.19 Headings. The headings of the several sections and paragraphs of this
Agreement are for convenience only and do not define, limit or construe the
contents of such sections or paragraphs.
15.20 Joint and Several Liability. If you consist of two or more persons or
Entities, whether or not as partners, joint venturers, or co-owners, the
obligations and liabilities of each person and Entity to us are joint and
several.
15.21 Counterparts. This Agreement may be executed it) multiple copies, each of
which will be deemed an original.
15.22 Notices and Payments. All written notices and reports permitted or
required to be delivered by the provisions of this Agreement will be deemed so
delivered at the time delivered by hand; 1 business day after transmission by
telegraph, facsimile, or other electronic system; 1 business day after being
placed in the hands of a commercial courier service for next business day
delivery, or 3 business days after placement in the United States Mail by
registered or certified mail, return receipt requested, postage prepaid, and
will be addressed to the parties at the addresses set forth on the first page of
this Agreement or to such other address as a party may specify in a written
notice to the other party. Any required payment or report not actually received
by us during regular business hours on the date due (or postmarked by postal
authorities at least two days prior thereto) will be deemed delinquent.
15.23 Entire-Agreement. The preambles and exhibits are a part of this Agreement.
This Agreement constitutes the entire agreement of the parties except as
provided below in this Section, and there are no other oral or written
understandings or agreements between us and you relating to the subject matter
of this Agreement, except that you acknowledge that we justifiably have relied
on your representations made prior to the execution of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement an the day and year first above written.
MRS. FIELOS DEVELOPMENT CORPORATION, BUTTERWINGS. INC.,
a Delaware corporation, a Illinois corporation
By: By:
Title: Title:
<PAGE>
BILL OF SALE
For the consideration of One Dollar and other good and valuable
consideration, the receipt of which is hereby acknowledged, MRS. FTELDS COOKIES,
a California corporation ("Seller"), hereby sells and conveys to BUTTERWINGS,
INC., an Illinois corporation, ( "Buyer") all the assets and personal property
of Seller described on Exhibit A attached hereto (the "Property"), free and
clear of any and all liens, claims, equities, security interests or encumbrances
of any nature or description whatsoever, other than the "Assumed Liabilities",
as described in that certain Asset Purchase Agreement, dated as of December
1995, between Seller and Buyer, and any liabilities created by Buyer.
DATED as of the day of December, 1995.
MIRS. FIELDS COOKEES,
a California corporation
Its:
STATE OF UTAH
County of
The foregoing instrument was acknowledged before me this day of 199-, by
the of Mrs. Fields Cookies, a California corporation, on behalf of the
corporation.
Notary Public
Residing At:
My Commission Expires:
<PAGE>
ALLOCATION MEMORANDUM
This memorandum is intended to memorialize .the mutual intent of the
uundersigned, in connection with the Franchise Agreement and related
documentation dat6d the 12th day of December, 1995 relating to the Mrs. Fields
Cookies Stores located at Genesee Valley Mall, 3319 Lindon Road, Flint, MI 48507
entered into by the Undersigned with respect to the allocation of the Purchase
Price to the following various classification of assets Cash or Cash Equivalents
Tangible Assets $250,000
Equipmut 200,000
Lease Hold Improvements 100,000
Lease 45,000
Franchise Rights 15,000
Intangible Assets
Goodwill/Going Concern Value 4,423 SB
Total Purchase Price $364,673.00
The foregoing values are agreed to by the undersigned and will-be used for
any financial, tax or other reporting purposes, and are a best estimate of the
Fair Market values of each asset.
(SELLER) (BUYER)
MRS FIELDS COOKIES BUTTERWINGS, INC.
BY: Keith M. (non-legible) By: Stephan S. Buckley
ITS: Senior Vice President
<PAGE>
ASSUMPTION AGREEMENT
THIS AGREEMENT is made and entered into this25 th day of December, 1995,
by and between MRS. FIELDS COOKIES,' a California corporation ("Seller") and
BUTTERWINGS, INC.. an Illinois corporation ("Buyer").
WITNESSETH:
WHEREAS, Buyer and Seller are parties to that certain Asset Purchase Agreement,
dated December 1995, (the "Purchase Agreement") (all capitalized terms not
defined herein are as defined in Asset Purchase Agreement); and
WHEREAS, pursuant to the terms and condition or the Purchase Agreement
including Section 3 thereof, Buyer has agreed to assume certain of the
liabilities and obligations of Seller.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the partits hereto do agree as follows:
1. ASSUMPTION OF CERTAIN LIABILITIES. Buyer hereby assumnes and agrees
to pay, perform and discharge, to the extent not paid, performed or discharged
at Closing on the Closing Date, only the Assumed Liabilities as set forth on
Schedule A attached hereto and incorporated by reference into this Agreement.
2. NO ASNUMPTION OF OTUER LIAIIILITEES. Buyer does not assurne any
liability of Seller except as expressly provided in Section I hereof. Without
limiting the generality of the foregoing, Buyer does not assume any liability of
Seller for any loss, co3t, damage, liability, reimbursement or expense for
which, or with respect to which, Buyer is entitled to indemnification pursuant
to Section 11 of the Purchase Agreement, or for which Seller is liable or
responsible pursuant to any other provisions of the Purchase Agreement or any
other agreement, instrument or document delivered by Seller pursuant thereto, or
in connection therewith.
IN WITNESS WHEREOF, the parties hereto have causecd this Agreement to be
executed as of the date first written above.
'BUYER: SELLER:
BUTTERWINGS, INC. , MRS.FIELDS COOKIES Illinois
corporation a California Corporation
By: Stephan S. Buckley By; (signature)
Its President Its
<PAGE>
GUARANTY OF AGREEMENT
GUARANTEED AGREEMENT:
Franchise Agreement, dated December 23 rd 1995, between Mrs. Fields Development
Corporation (the 'Mrs. Fields Party') and Butterwings, Inc. (the 'Obligated
Party').
Sublease Agreement, dated December 23 rd 1995, between Mrs. Fields Cookies (the
Mrs. Fields Party") and Butterwings, Inc. (the 'Obligated Party').
THIS GUARANTY (the 'Guaranty') is given this day of December, 1 995 by
Butterwings, Inc. (referred to in this Guaranty as 'you' and like terms, with
respect to the Guaranteed Agreement described above.
For good and valuable consideration, you unconditionally guarantee to the Mrs.
Fields Party, and to its successors and assigns, the full, complete and timely
payment arid performance of each and all of the terms, covenants and conditions
of the Guaranteed Agreement land any modification or amendment to the Guaranteed
Agreement) to be kept and performed by the Obligated Party during the term of
the Guaranteed Agreement, including the payment of all royalties, rents, fees,
and other charges accruing pursuant to the Guaranteed Agreement.
You further agree as follows:
1. This Guaranty shall continue in favor of the Mrs. Fields Party
notwithstanding any extension, modification, or alteration of the Guaranteed
Agreement, and notwithstanding any assignment of the Guaranteed Agreement, with
or without the consent of the Mrs. Fields Party. No extension, modification,
alteration or assignment of the Guaranteed Agreement shall in any manner release
or discharge you, and you consent to any such extension, modification,
alteration or assignment.
2. This Guaranty will continue unchanged by the occurrence of any
Insolvency Event, as defined in the Guaranteed Agreement, with respect to the
Obligated Party or any assignee or successor of the Obligated Party or by any
disaffirmance or abandonment of the Guaranteed Agreement by a trustee in
bankruptcy of the Obligated Party. Neither your obligation to make payment or
render performance in accordance with the terms of this Guaranty nor any remedy
for the enforcement of this Guaranty will be impaired, modified, changed,
released or limited in any manner whatsoever by any impairment, modification,
change, release or limftation of the liability of the Obligated Party or its
estate in bankruptcy or of any remedy for the enforcement thereof. resulting
from the operation of 3ny present or future provision of the .U.S. Bankruptcy
Act or other statute. or from the decision of any court or agency.
3. Your liability under this Guaranty is primary and independent of the
liability of the Obligated Party. You waive any right to require the Mrs. Fields
Party to proceed 292inst any other person or to proceed against or exhaust any
security held by the Mrs. Fields Party at any time or to pursue any right of
action accruing to the Mrs. Fields Party under the Guaranteed Agreement. The
Mrs. Fields Party may proceed against you and the Obligated Party, jointly and
severally or may, at Its option, proceed against you without having commenced
any action, or having obtained any judgment, against the Obligated Party. You
waive the defense of the statute of limitations in any action under this
Guaranty or for the collection of any indebtedness or the performance of any
obligation guaranteed pursuant to this Guaranty.
4. You agree to pay all attorneys' fees and all costs and other expenses
incurred in any collection or attempted collection of this Guaranty or in any
negotiations relative to the obligations guaranteed or in enforcing this
Guaranty against you.
5. You waive notice of any demand by the Mrs. Fields Party, any notice
of default in the payment of rents or any other amounts contained or reserved in
the Guaranteed Agreement, or any other notice ot default under the Guaranteed
Agreement. You expressly agree that the validity of this Guaranty and your
obligations shall in no way be terminated, affected or impaired by reason of any
waiver by the Mrs. Fields Party, or its successors ' or assigns, or the failure
of the Mrs. Fields Party to enforce any of the terms, covenants or conditions of
the Guaranteed Agreement or this Guaranty, or the granting of any indulgence or
extension of time to the Obligated Party, all of which may be given or done
without notice to you.
6. This Guaranty shall extend, in full force and effect, to any assignee or
successor of the Mrs. Fields Party and shall be binding upon you and your
successors and assigns.
7. Until all obligations of the Obligated Party to the Mrs. Fields Party
have been paid or satisfied in full, you have no remedy or right of subrogation
and you waive any right to enforce any remedy which the Mrs. Fields Party has or
may in the future have against the Obligated Party and any benefit of, and any
right to participate in, and security now or in the future held by the Mrs.
Fields Party.
8. All existing and future Indebtedness of the Obligated Party to you is
hereby subordinated to all indebtedness and other obligations guaranteed in this
Guaranty and, without the prior written consent of the Mrs. Fields Party, shall
not be paid in whole or in part. nor will you accept any payment of or on
account of any such indebtedness while this Guaranty is in effect.
This Guaranty shall be construed in accordance with the laws of
the State of Utah, without giving effect to its conflict of laws principles.
'GUARANTOR"
BUTTERWINGS, INC.
By /s/ Stephan S Buckley
ITS: President
Franchise Agreement
between
Hooters America, Inc.
4501 Circle 75 Parkway
Suite E-5110
Atlanta, Georgia 30339
(404) 951-2040
and
Butterwings of Wisconsin, Inc.
c/o Harvey L. Temkin
1st Wisconsin Plaza
1 South Pinckney Street
Madison, Wisconsin 53701-1497
<PAGE>
HOOTERS OF AMERICA, INC. FRANCHISE AGREEMENT
TABLE OF CONTENTS
Page
RECITALS..............................................................1
I. GRANT ............................................................... 2
II. TERM AND RENEWAL .....................................................4
III. HOOTERS OF AMERICA/S OBLIGATIONS .....................................4
IV. FEES ................................................................6
V. DUTIES OF FRANCHISEE..................................................8
VI. PROPRIETARY MARKS....................................................19
Vii. HOOTERS OF AMERICA'S MANUALS.........................................22
Viii. CONFIDENTIAL INFORMATION.............................................23
IX. ACCOUNTING AND RECORDS...............................................23
X. ADVERTISING..........................................................26
Xi. INSURANCE............................................................29
Xii. TRANSFER OF INTEREST.................................................31
Xiii. DEFAULT AND TERMINATION..............................................37
XIV. OBLIGATIONS UPON TERMINATION OR EXPIRATION...........................43
XV. COVENANTS............................................................45
XVI. TAXES, PERMITS, AND INDEBTEDNESS.....................................48
XVII. INDEPENDENT CONTRACTOR...............................................48
XVIII. INDEMNIFICATION......................................................49
XIX. APPROVALS AND WAIVERS................................................52
XX. NOTICES..............................................................52
XXI. ENTIRE AGREEMENT.....................................................53
XXII. SEVERABILITY AND CONSTRUCTION........................................53
<PAGE>
XXIII. FORCE MAJEURE........................................................54
XXIV. APPLICABLE LAW.......................................................55
XXV. ACKNOWLEDGMENTS......................................................55
<PAGE>
HOOTERS OF AMERICA, INC.
FRANCHISE AGREEMENT
THIS AGREEMENT is made and entered into October 31, 1993, between
HOOTERS OF AMERICA, INC. , f /k/a Neighborhood Restaurants of America, Inc. , a
Georgia corporation with offices at 4501 Circle 75 Parkway, Suite E-5110,
Atlanta, Georgia 3 03 3 9 (hereinafter "Hooters of America" or "Franchisor") ,
and BUTTERWINGS OF WISCONSIN, INC. hereinafter "Franchisee").
RECITALS
1. Hooters of America has entered into an exclusive license with
Hooters, Inc., a Florida corporation, dated July 21, 1984, as amended, to use
certain trademarks, service marks and other property in connection with the
operation of restaurants (the "License Agreement") and has developed a
distinctive system (the "Hooters System 11) for the establishment and operation
of a franchised restaurant offering a limited menu featuring seafood and chicken
wings along with beer and wine.
2. The Hooters System features a distinctive exterior and interior
restaurant design, trade dress decor and color scheme; uniform standards,
specifications, and procedures for operations; procedures for quality control;
training and ongoing operational assistance; advertising and promotional
programs; all of which may be changed, improved, and further developed by
Hooters of America from time to time.
3. Hooters of America identifies the Hooters System by means of certain
trade names, service marks, trademarks, logos, emblems, trade dress and other
indicia of origin, including but not limited to the mark "Hooters." and such
other trade names, service marks, trademarks and trade dress as are now
designated (and may hereafter be designated by Hooters of America in writing)
for use in connection with the Hooters System (hereinafter referred to as
"Proprietary Marks"
4. Hooters of America continues to develop, use, and control the use of
such Proprietary Marks to identify for the public the source of services and
products marketed thereunder and under the Hooters System, and to represent the
Hooters System's high standards of consistent quality, appearance, and service.
5. Franchisee desires to enter into the business of operating a Hooters
Restaurant under the Hooters System and wishes to obtain a franchise from
Hooters of America for that purpose, as well as to receive the training and
other assistance provided by Hooters of America in connection therewith.
6. Franchisee understands and acknowledges the importance of Hooters of
America's high standards of. quality, cleanliness, appearance, and service and
the necessity of operating the franchised business. in conformity with Hooters
of America's standards and specifications.
In consideration of these premises and the commitments set forth herein,
the parties hereby agree as follows:
I. GRANT
A. Hooters of America hereby grants to Franchisee, upon the terms and
conditions herein contained and subject to the License Agreement, the
right, license, and privilege, and Franchisee undertakes the
obligation, to operate a Hooters Restaurant (hereinafter referred to
as the "Restaurant" or the "Franchised Business") and to use solely in
connection therewith the Proprietary Marks and the Hooters System, as
they may be changed, improved, and further developed from time to
time, only at the approved location as provided in Section I.B.
B. The address of the location approved hereunder is: Approved location
to be determined at a later date (hereinafter the "Approved
Location"). Franchisee shall not relocate the Franchised Business
without the express prior written consent of Hooters of America.
During the term of this Agreement, Hooters of America shall not
establish, nor license another party or entity to establish, a Hooters
Restaurant under the Hooters System within a radius of five (5) miles
from the Approved Location (hereinafter the "Protected Territory").
C. Franchisee shall complete the construction of the Restaurant in
accordance with the provisions and requirements of Section V(G) hereof
(the "Construction") and shall open the Restaurant for business within
six (6) months of the date of execution of this Franchise Agreement
(the "Opening Date") ; provided ' however, that Franchisee shall have
the right to substitute a different site, if such different site is
acceptable to Franchisor, within sixty (60) days of execution of this
Agreement. Franchisor may grant Franchisee one thirty (30) day
extension past the six months allotted within which to open the
Restaurant; provided, however, that Franchisee shall pay Hooters of
America a non-refundable extension fee of Five Thousand ($5,000)
Dollars for such right contemporaneously with the grant of such
extension by Hooters of America.
Provided that the Franchisee has made full and complete application
for all building permits, beer and wine licenses, and all other
permits required to open a Hooters restaurant, within 60 days of the
execution date of this agreement, Franchisor may agree to grant up to
three (3) thirty (30) day extensions to obtain all necessary permits
if the delay was due to causes beyond the reasonable control of
Franchisee ' which agreement of Hooters of America will not be
unreasonably withheld. Franchisee must submit documentation of the
status of the applications) ten (10) days prior to the date of each
thirty (30) day extension requested. Upon the grant of such
extensions) by Hooters of America, the Opening Date will be
commensurately extended.
Should the Franchisee be unable to obtain all necessary permits and
licenses during the stated period and extension time period or periods
as a result of causes beyond the reasonable control of Franchisee
(unless the requirement for the issuance of such permits and licenses
is waived in writing by Franchisor), this Agreement, and any Option
Addendum, shall be deemed terminated upon written notice from either
Franchisee or Franchisor to the other, without the necessity of
further action by either party or further documentation. Upon such
termination, the Franchisor shall retain one-third (1/3) of the
Franchise Fee as a Termination Fee, two-thirds (2/3) of the Franchise
Fee and one hundred percent (100%) of any pre-paid option fees will be
refunded to the Franchisee within thirty (30) days of the notice by
Franchisor of the termination of this Agreement.
D. During the term of this Agreement, the Approved Location shall be used
exclusively for the purpose of operating a franchised Hooters
Restaurant. In the event the building shall be damaged or destroyed by
fire or other casualty, or be required to be repaired or reconstructed
by any governmental authority, Franchisee shall commence the required
repair or reconstruction of the building within ninety (90) days from
the date of such casualty or notice of such governmental requirement
(or such lesser period as shall be designated by such governmental
requirement) and shall complete all required repair or reconstruction
as soon as possible thereafter, in continuity, but in no event later
than one hundred eighty (180) days from the date of such casualty or
requirement of such governmental notice. The minimum acceptable
appearance for the restored building will be that which existed just
prior to the casualty; however, every effort should be made to have
the restored building include the then-current image, design and
specifications of new entry Hooters Restaurants. If the building is
substantially destroyed
<PAGE>
by fire or other casualty, Franchisee may, with Franchisor's agreement
and upon payment of an amount equal to six percent (6%) of all
insurance proceeds as a consequence of such casualty to the Franchisor
as a royalty, terminate this Agreement in lieu of Franchisee's
reconstructing the building.
E. It is understood and agreed that, ' except as expressly provided
herein, this franchise is non-exclusive and includes no right of
Franchisee to subfranchise others.
TERM
A. Except as otherwise provided herein, the term of this Agreement shall
commence on the date of execution and acceptance of this Franchise
Agreement by Hooters of America and shall expire twenty (20) years
from such date. There are no renewal rights, options or obligations on
the part of either party.
III. HOOTERS OF AMERICA'S OBLIGATIONS
A. Hooters of America shall provide Franchisee with advice in locating
and opening a completed restaurant, including, but not limited to,
providing approved supplier lists, acceptable site criteria, approved
renovation criteria and, at Hooters, of America's option, a set of
architectural plans of an existing Hooters Restaurant.
B. Hooters of America shall provide a management training program for up
to four (4) management personnel of Franchisee, and shall make
available such other training programs as it deems appropriate. All
training provided by Hooters of America shall be subject to the terms
set forth in Section V.H. of this Agreement.
C. Hooters of America shall also offer training resources to assist
franchisees at their restaurant location for hourly employees. All
pre-opening employee training shall be subject to the terms set forth
in Section V.I. of this Agreement.
D. Hooters of America shall provide, as Hooters of America deems
necessary, a minimum of eight (8) weeks of management training at a
designated restaurant prior to the opening of the Franchisee's
restaurant, by a representatives) of Hooters of America, subject (as
to timing) to the availability of personnel, as well as approximately
one (1) week to ten (10) days of preopening employee training at the
Franchisee Is restaurant.
E. Hooters of America shall provide such continuing advisory assistance
to Franchisee in the operation, advertising and promotion of the
Franchised Business as Hooters of America deems advisable.
F. Hooters of America shall also provide refresher training programs for
Franchisee and to Franchisee's employees as Hooters of America deems
appropriate. All refresher training programs provided by Hooters of
America shall be subject to the terms set forth in Section V.H. of
this Agreement.
G. Hooters of America may, from time to time, provide to Franchisee, at
Franchisees expense, such advertising and promotional plans and
materials for local advertising as described in Section X.A. of this
Agreement and may direct the discontinuance of such plans and
materials, from time to time. All other advertising and promotional
materials which Franchisee proposes to use must be reviewed and
approved by Hooters of America, pursuant to Section X.B. hereof.
H. Hooters of America shall provide. Franchisee, on loan, one copy of the
Hooters Training Manual and Videos (hereinafter "Manuals") as more
fully described in Section VII. hereof.
I. Hooters of America may provide Franchisee, from tire to time, as
Hooters of America deems appropriate, such merchandising, marketing
and other data and advice as may from time to time be developed by
Hooters of America and deemed by Hooters of America to be helpful in
the managing and operation of the Franchised Business.
J. Hooters of America may provide such periodic individual or group
advice, consultation and assistance, rendered by personal visit or
telephone, or by newsletter or bulletins made available from time to
time to all Hooters of America franchisees, as Hooters of America may
deem necessary or appropriate.
K. Hooters of America may provide such bulletins, brochures, manuals and
reports, if any, as may from time to time be published by or on behalf
of Hooters regarding its plans, policies, developments and activities.
In addition, Hooters of America may provide such communication
concerning new developments, techniques and improvements in the food
preparation, equipment, food products, packaging and restaurant
management which Hooters of America feels are relevant to the
operation of the Restaurant.
L. Hooters of America shall provide the requirements for a standardized
system for accounting, cost control and inventory control.
M. Hooters of America shall seek to maintain the high standards of
quality, appearance, and service of the Hooters System, and to that
end shall conduct, as it deems advisable, inspections of the
Restaurant franchised hereunder, and evaluations of the products sold
and services rendered therein.
N. All obligations of Hooters of America under this Agreement shall
benefit only the Franchisee, and no other party is entitled to rely
on, enforce, benefit from or obtain relief for breach of such
obligations, either directly or by subrogation.
IV. FEES
A. Franchisee shall pay to Hooters of America an initial franchise fee in
the amount of Seventy-Five Thousand Dollars ($75,000.00), which is due
upon execution of this Agreement and receipt of which is hereby
acknowledged by Hooters of America. The initial franchise fee shall be
paid in a lump sum in immediately available bank funds and shall be
deemed fully earned and nonrefundable in consideration of
administrative and other expenses incurred by Hooters of America in
granting this franchise and for Hooters of America's lost or deferred
opportunity to franchise others, except as described above in Section
I.C.
B. During the term of this Agreement, Franchisee shall pay to Hooters, of
America a continuing Royalty Fee which shall be equal to six percent
(6%) of the Gross Sales of the Restaurant, without counterclaim or
set-off. The term Gross Sales is defined in Section IV.G. of this
Agreement. Continuing Royalty Fees shall be payable by Franchisee and
actually received by Franchisor within ten (10) days from the end of
each four week accounting period as provided in Section IX hereof.
C. During the term of this Agreement, Franchisee shall spend a minimum of
three percent (3%) of the Gross Sales of the Restaurant on local
advertising and promotion; provided, however, that Franchisor shall
have the right to approve or disapprove any advertising proposed for
use by Franchisee. In the event Hooters of America establishes a Local
Advertising Cooperative within Franchisee's Area of Dominant Influence
(as defined by Arbitron Corporation, or such other entity as shall be
designated by Hooters of America, from time to time) , Franchisee
shall be obligated to contribute a minimum of up to one third of such
three percent (3%) [one percent (1%) of Gross Sales] for local
advertising and promotion expenditure described above to such
Cooperative, to be actually received within ten (10) days from the end
of each four week accounting period. Such percentage contribution to
such Cooperative shall be designated by Hooters of America from time
to time.
D. Franchisee shall pay to Hooters of America, to be actually received
within ten (10) days from the end of each four-week accounting period,
a National Advertising Fee equal to one percent (1%) of Franchisee's
Gross Sales of the Restaurant. The National Advertising Fee shall be
maintained and ad-ministered in a National Advertising Fund by Hooters
as provided in Section X.D. hereof.
E. The obligation of Franchisee to pay the Continuing Royalty Fee and the
National Advertising Fee (collectively the "Fees") shall not be
altered by the occurrence of any casualty or event which would cause a
temporary closing of the Restaurant for a period of more than five (5)
days. In the event that such a casualty or event occurs, the
Continuing Royalty and National Advertising Fees to be paid by
Franchisee for each month in which such temporary closing occurs shall
be the average of all monthly Fees payable by Franchisee during the
immediately preceding period of twelve (12) months, or such lesser
period as the Restaurant has been open, if the Restaurant has been
open less than twelve (12) months. All payments due to Hooters of
America hereunder shall be payable without counterclaim or set-off.
F. Any payment or report not actually received by Hooters of America on
or before' the specified date shall be deemed overdue. If any payment
is overdue, in addition to the right to exercise all rights and
remedies available to Hooters of America under Section XIII of this
Agreement, Franchisee shall pay Hooters of America, in. addition to
the overdue amount, interest on such amount from the date it was due
until paid at the lesser of the rate of eighteen (18%) percent per
annum and the maximum rate allowed by the laws of the State of
Georgia, or any successor or substitute law (hereinafter the "Default
Rate"), until paid in full.
G. As used in -this Agreement, "Gross Sales" shall include all revenue
accrued from the sale of all products and performance of services in,
at, upon, about, through or 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
including insurance proceeds and/or condemnation awards for loss of
sales, profits or business; provided, however, that "Gross Sales"
shall not include revenues from any sales taxes or other add on taxes
collected from customers by Franchisee for transmittal to the
appropriate taxing authority, (the retail value of any complimentary
services or trade-outs or credit card discounts from Gross Sales up to
a maximum of 2% of Gross sales in the aggregate) , and the amount of
cash refunds to, and coupons used by customers, provided such amounts
have been included in gross sales. The sale and delivery of products
and services away from the Restaurant is strictly prohibited; however,
should Hooters of America approve such sales in the future, these
sales will be included in computing Gross Sales.
V. DUTIES OF FRANCHISEE
A. Franchisee understands and acknowledges that every detail of the
Franchised Business, including the uniformity of appearance ' service,
products and advertising of the Hooters System, is important to
Franchisee, Hooters of America, the Hooters System, and other Hooters
of America franchisees in order to maintain high and uniform operating
standards, to increase the demand for the products and services sold
by all franchisees- and to pr6tect Hooters of America's reputation and
goodwill.
B. If Franchisee is or becomes a corporation, the Franchisee corporation
must comply with the following requirements:
1. Franchisee shall confine its activities to the establishment and
operation of the Franchised Business.
2. Franchisee's Certificate or Articles of Incorporation and Bylaws
(or comparable governing documents) shall at all times provide
that its activities are confined exclusively to operation of the
Franchised Business and that the issuance and transfer of voting
stock, or other ownership interest therein, is restricted by the
terms of this Agreement.
3. Franchisee shall furnish Hooters of America promptly upon request
copies of Franchisee's Articles of Incorporation, Bylaws, and
other governing documents, and any other documents Hooters of
America may reasonably request, and any amendments thereto, from
time to time.
4. Franchisee shall maintain stop transfer instructions against the
transfer on its record of any equity securities except in
accordance with the provisions of Article XV. All securities
issued by Franchisee shall bear the following legend, which shall
be printed legibly and conspicuously on each stock certificate or
other evidence of ownership interest:
THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE TERMS AND
CONDITIONS OF A FRANCHISE AGREEMENT WITH HOOTERS OF AMERICA, INC.
DATED REFERENCE IS MADE TO SAID AGREEMENT AND TO THE RESTRICTIVE
PROVISIONS OF THE ARTICLES AND BYLAWS OF THIS CORPORATION.
5. Franchisee shall maintain a current list of all owners of record
and all beneficial owners of any class of voting stock of
Franchisee and shall furnish the list to Hooters of America upon
request, from time to time.
C. If Franchisee is or becomes a partnership, Franchisee shall furnish
Hooters of America promptly upon request a copy of its partnership
agreement and any other documents Hooters of America may reasonably
request, and any amendments thereto, from time to time.
D. Franchisee shall maintain a current list of all general and limited
partners and all owners of record and all beneficial owners of any
class of voting stock of Franchisee and -shall furnish the 'list to
Hooters of America promptly upon request, from time to time.
E. Each individual who or entity which holds a ten percent (10%) or
greater ownership or beneficial ownership interest in Franchisee,
directly or indirectly, (including each individual holding a fifty
(50%) or greater interest in any partnership or corporation having a
controlling interest in Franchisee) shall enter into a continuing
guaranty agreement under seal, in the form attached as Exhibit A, as
such form may be amended or modified by Hooters of America, from time
to time (if such guaranty agreement is to be executed subsequent to
the date hereof in accordance with the terms of this Franchise
Agreement).
F. Franchisee assumes all costs, liability, expense, and responsibility
for locating, obtaining, and developing a site for the Restaurant to
be established under the Franchise Agreement and for constructing and
equipping the Restaurant at such site. Franchisee shall not make any
binding commitment to a prospective vendor or lessor of real estate
with respect to the Approved Location for the Restaurant unless such
Approved Location is approved in accordance with the procedure herein
set forth and which provides, without limitation, for (a) thirty (30)
days prior written notice of any default thereunder specifying such
default and the right (but with no obligation) of Franchisor to cure
any such default within said period, and (b) approval of the
Franchisor as an assignee of Franchisee's interest thereunder.
FRANCHISEE ACKNOWLEDGES THAT HOOTERS OF AMERICA'S APPROVAL OF A
PROSPECTIVE SITE AND THE RENDERING OF ASSISTANCE IN THE SELECTION OF A
SITE DOES NOT CONSTITUTE A REPRESENTATION, PROMISE, WARRANTY, OR
GUARANTEE BY HOOTERS OF AMERICA THAT A HOOTERS RESTAURANT OPERATED AT
THAT SITE WILL BE PROFITABLE OR OTHERWISE SUCCESSFUL.
G. Before commencing the Construction of the Restaurant, Franchisee, at
its expense, shall comply, to Hooters of America's satisfaction, with
all of the following requirements:
1. Franchisee shall submit a site plan to Hooters of America,
including a footprint of the proposed building, and
architectural, kitchen and signage drawings for approval by
Hooters of America. Franchisee, at its option, may use any
architect or engineer currently used by Hooters of America to
prepare detailed plans and specifications for the Construction of
the Hooters Restaurant;
2. Franchisee shall use a qualified general contractor or
construction supervisor to oversee the Construction of the
Restaurant and completion of all improvements, and Franchisee
shall submit to Hooters of America a statement identifying the
general contractor or construction supervisor; and
3. Franchisee shall obtain all licenses, permits and certifications
required for lawful construction and operation of the Hooters
Restaurant including, without limitation, building, zoning',
access, parking, driveway access, sign permits and licenses, and
shall certify in writing to Hooters of America that all such
permits, licenses and certifications have been obtained.
Franchisee shall obtain all health, life safety, alcoholic and
other permits and licenses required for operation of the
Restaurant and shall certify that all such permits and licenses
have been obtained prior to the Opening Date.
4. Franchisee shall cause such Construction to be performed only in
accordance with the site plan, and plans and specifications,
approved by Hooters of America, and no changes will be made to
said approved plans and specifications, or the design thereof, or
any of the materials used therein, or to interior and exterior
colors thereof, without the express written consent of Hooters of
America.
H. Prior to Franchisee's opening of the Franchised Business to the
public, Franchisee and/or up to four (4) management personnel of
Franchisee (or, if Franchisee is a corporation or partnership, a
principal of Franchisee) shall complete to Hooters of America's
satisfaction the management training program offered by Hooters of
America. At Hooters of America's option, key personnel subsequently
employed by Franchisee shall also complete to Hooters of Americas
satisfaction, the management training program. Hooters of America may,
at its discretion, make available additional training programs,
seminars, as well as refresher courses to Franchisee and/or
Franchisee's designated individual (s) from time to time. Hooters of
America may, at any time, discontinue management training and decline
to certify Franchisee and/or Franchisee's designated individuals) who
fail to demonstrate an understanding of the management training
acceptable to Hooters, of America. If Franchisee or Franchisee's
designated individual's management training is discontinued by Hooters
of America, Franchisee shall have thirty (30) days to present an
alternative acceptable candidate for management training to
Franchisor. If Franchisee's new candidate does not adequately complete
the management training, then Hooters of America has the option of
terminating this Agreement. Hooters of America 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. Franchisor offers training
resources if as described below,, to assist franchisees at their
restaurant location for hourly employees. All jump starters shall be
deemed employees of the Franchisee during the period(s) of service to
the Franchisee, as herein provided. Franchisee shall give Franchisor
not less than thirty (30) days notice of when training should begin.
In order for training to begin, Franchisee shall have received a
Certificate of Occupancy and Health Department approval for the
building, and all refrigeration, kitchen and cooking equipment shall
be functioning.
Pre-Opening Training (FIRST UNIT)
Prior to the opening of Franchisee's first Restaurant unit hereunder, Franchisor
shall furnish the following training assistance, upon not less than thirty (30)
days prior written notice received by Franchisor from Franchisee:
opening coordinator (one)
An opening coordinator. for five days of training prior to
opening. Franchisor is responsible for all costs of the opening
coordinator.
Certified front-of-house trainers (up to four, as designated by Hooters of
America)
Front-of-house trainers, whose compensation shall be paid by
Franchisor, shall be furnished for five days of training prior to
opening.
Back-of-house trainers (up to two, as designated by Hooters of America)
Back-of-house trainers, whose compensation shall be paid by
Franchisor, shall be furnished for five days of training prior to
opening.
Jumpstarters (up to six, as requested by Franchisee)
Franchisor, at Franchisee's request, may furnish up to six
jumpstarters to actually work in the restaurant commencing on
opening day. Waitress jumpstarters work for the prevailing local
wage rates and customer's tips. Franchisee shall guarantee such
jumpstarters $45. 00 minimum total compensation (including tips)
for lunch and $65.00 minimum total compensation (including tips)
for dinner, as such minimum total compensation may be increased
by Franchisor, from time to time, with prior written notice to
Franchisee. Franchisee shall pay cook jumpstarters $75.00 per
shift, as such minimum total compensation may be increased by
Franchisor, from time to time, with prior written notice to
Franchisee. It is contemplated that such jumpstarters shall
normally work in the Restaurant during the first seven days after
opening.
Costs shall include: travel costs, per them and lodging costs for
all trainers and jumpstarters, which shall be borne by
Franchisee. Travel within 400 miles of a Franchisor restaurant is
by automobile and drivers are paid $0.20 cents per mile. Travel
further than 400 miles is by commercial airline with tickets
booked to minimize fares, subject to availability. Per them is
currently $20.00 per day. Lodging rates can be negotiated locally
at Franchisee's discretion; however, lodging shall be selected
and designated by Franchisee with consideration for safety,
security, cleanliness and proximity to the Restaurant. The above
stated rates may be changed by Franchisor, from time to time,
upon prior written notice to Franchisee.
Pre-opening Training (SECOND OR ADDITIONAL UNITS FOR A FRANCHISEE, IF PERMITTED
PURSUANT TO THIS FRANCHISE AGREEMENT)
Prior to the opening of Franchisees second or additional units
hereunder, Franchisor shall furnish the following training
assistance, upon not less than thirty (30) days prior written
notice received by Franchisor from Franchisee:
Franchisor shall furnish an opening coordinator for five days for
training prior to opening. Franchisor shall pay for the travel,
lodging, per them and compensation of the opening coordinator.
Prior to the time Franchisee opens its second or any additional
Restaurant units, Franchisee shall cause key employees from the
first unit of the Franchisee to be trained as certified trainers
in accordance with the Manuals. Franchisee's certified trainers
and junpstarters shall then conduct the training of new employees
in the second or additional units.
Franchisee shall be responsible for the compensation, travel,
lodging and per them of their certified trainers and jumpstarters
utilized in opening the second or additional units.
J. Franchisee shall use the Restaurant premises solely for the operation
of the Franchised Business; keep the business open and in normal
operation for a minimum of seven (7) days a week, fifty-two (52) weeks
per year, during hours from 11:30 a.m. to 12:00 midnight Monday
through Thursday, 11:30 a.m. to 1:00 a.m. Friday and Saturday and from
1:00 p.m. to 10:00 p.m. on Sundays, except Thanksgiving and Christmas.
Such minimum hours and days of operation may be changed as Hooters of
America may from time to time specify in the Manual or as Hooters of
America may otherwise approve in writing (subject to local ordinances
or lease restrictions, if any) ; and refrain from using or permitting
the use of the premises for any other purpose or activity at any time
without first obtaining the written consent of Hooters of America.
Franchisee shall not locate or permit to be located on or about the
Hooters Restaurant premises any slot machines or gambling devices, or
coin-operated machine for vending of any merchandise, or entertainment
devices, the playing of electronic or manual games or for any other
similar purpose except as prescribed in the Manual or otherwise
approved by Hooters of America in writing; nor shall Franchisee permit
the sale of products or services not included in the Hooters System
without Franchisor's prior express written consent, provided that
Franchisor, in its sole discretion, may prescribe conditions under
which such products or services may be sold.
K. Franchisee shall maintain the Restaurant in a first class repair and
condition, in accordance with all maintenance and operating standards
set forth in the Manual. In connection therewith, Franchisee shall
make such additions, alterations, repairs, and replacements thereto
(but no others without Hooters of America's prior written consent) as
may be required for that purpose, including, without limitation, such
periodic repainting, repairing, and replacing of obsolete signs,
fixtures, and furnishings as Hooters of America may reasonably direct.
L. Franchisee agrees to display all signs and other promotional materials
provided by Hooters of America, to the extent permitted by applicable
codes, laws, ordinances, rules and regulations of all federal, state
and local governmental authorities having jurisdiction over the
Restaurant (hereinafter collectively the "Laws") . The color, size,
design and location of said signs shall be as specified and/or
approved by Hooters of America. Franchisee shall not place additional
signs, posters or other decor items in, on, or about the Approved
Location without the prior written consent of Hooters of America.
M. Franchisee shall operate and maintain the Restaurant and all exterior
areas at the Approved Location in a clean and neat manner.
N. Franchisee shall, at Franchisee's sole expense, comply (or cause
compliance of the Restaurant and the Approved Location) with all
applicable Laws. Franchisor's standards may exceed the requirements of
the Laws.
0. At Hooters of America's request, which shall not be more often than
once every three (3) years, Franchisee shall refurbish the Restaurant
at its expense, to conform to the building design, trade dress, color
schemes, and presentation of trademarks and service marks consistent
with Hooters of America's designated image, including, without
limitation, remodeling, redecoration, and modifications to existing
improvements.
P. Franchisee shall operate the Restaurant in strict conformity with such
methods, standards, and specifications as Hooters of America may from
time to time prescribe in the Manual or otherwise in writing, to
maintain maximum efficiency and productivity and to insure that the
highest degree of quality and service is uniformly maintained.
Franchisee agrees:
1. To maintain in sufficient supply, and use at all times, only such
products, materials, supplies, ingredients, methods of
preparation and service, weight and dimensions of products
served, standards of cleanliness, health and sanitation and
methods of service as conform to Hooters of America's standards
and specifications; and to refrain from deviating therefrom by
using non-conforming items or methods without Hooters of
America's prior written consent;
2. To purchase such equipment, supplies, or products as may be
required by Hooters of America, for the appropriate handling and
selling of any food or beverage products that become approved for
offering in the Hooters System;
3. To require clean uniforms conforming to such specifications as to
color, design, etc. as Franchisor may designate, from time to
time, to be worn by all of Franchisee's employees at all times
while in attendance at the Restaurant, and to cause all employees
to present a clean, neat appearance and render competent and
courteous service to customers, as may be further detailed in the
Manual;
4. To permit Hooters of America 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
Hooters of America or an independent laboratory to determine
whether said samples meet Hooters of America's then-current
standards and specifications. In addition to any other remedies
it may have under this Agreement, Hooters of America requires
Franchisee to bear the cost of such testing if the supplier of
the item has not previously been approved by Hooters of America,
or if the sample fails to conform to Hooters of America's
specifications;
5. Not to install or permit to be installed on or about the
Restaurant premises, without Hooters of America's prior written
consent, any fixtures, furnishings, signs, equipment, or other
improvements not previously approved as meeting Hooters of
America's standards and specifications;
6. To employ a sufficient number of employees and maintain
sufficient inventories as necessary to operate the Restaurant at
its maximum capacity as prescribed or approved by Hooters of
America and to comply with all applicable Laws with respect to
such employees.
Franchisee further acknowledges that complete and detailed uniformity
among Hooters Restaurants under varying conditions may be inadvisable,
impractical or impossible and, accordingly, agrees that Hooters of
America, at its sole discretion, may modify or vary aspects of the
Hooters 'System 'with respect to any franchisee or group of franchisees
based on (by way of example and not limitation) local site conditions,
sales potential, demographics, competition, local business practices,
or any other condition or circumstances that Hooters of America deems a
reasonable basis for such variances. Franchisee further agrees that
Hooters of America shall have no obligation to disclose or offer the
same or similar variances to Franchisee.
R. Franchisor reserves the right to require Franchisee to purchase
designated proprietary items and products, and products bearing the
Proprietary Marks, as specified in the Manuals from time to time, from
Franchisor or its related or affiliated entities or from sources
designated or approved by Franchisor, to the extent permitted by law.
S. Hooters of America shall have the right to require that certain
equipment, fixtures, furnishings, signs, 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 Hooters of America, the ability to meet
Hooters of America's then-current standards and specifications for
such items; who possess adequate quality controls and capacity to
supply Franchisee's needs promptly and reliably; and who have first
been approved in writing by Hooters of America and not thereafter
withdrawn from the approved supplier list. Such items shall be listed
in the Manual, as well as in periodic bulletins and newsletters
supplied by Hooters of America. If Franchisee desires to purchase any
items from an unapproved supplier, Franchisee shall submit to Hooters
of America a written request for Franchisor's consent to use such
supplier, and have such supplier acknowledge in writing that
Franchisee is an independent entity from Hooters of America and that
Hooters of America is not liable for debts incurred by Franchisee.
Hooters of America shall have the right to require that its
representatives be permitted to inspect the supplier's facilities, and
that samples from the supplier be delivered ' at Hooters of America's
option, either to Hooters of America or to an independent laboratory
designated by Hooters of America for testing. A charge not to exceed
the reasonable cost of the inspection and the actual cost of the test
shall be paid by Franchisee. Hooters of America may also require that
the supplier comply with such other reasonable requirements as Hooters
of America may deem appropriate, including payment of the cost of
reasonable continuing inspection fees and administrative costs.,
Hooters of -America --reserves the right, following consent to use any
supplier and at its option, to reinspect the facilities and products
of any such supplier and to revoke its consent upon the supplier's
failure to continue to meet any of Hooters of America's then-current
criteria and standards. If, in providing services to Franchisee, any
third party may obtain access to confidential information as defined
in Section VIII. herein, Hooters of America may require, as a
condition of approval of such provider, the execution of covenants of
non-disclosure and non-competition in a form provided by Hooters of
America.
T. Franchisee -shall grant Hooters of America and its agents the right to
enter upon the Restaurant premises at any reasonable time to inspect,
photograph, audiotape or videotape the Restaurant, equipment, and
operations therein to insure compliance with the provisions of this
Agreement and the "Manual"; provided, that Hooters of America, in the
exercise of such rights, shall utilize all reasonable efforts to
prevent disruption or interference with the business of the
Franchisee. Franchisee shall cooperate with Hooters of Americas
representatives in such inspections by rendering such assistance as
they nay reasonably request and shall enforce and comply with all
inspection systems established by Franchisor from time to time; and,
upon reasonable notice from Hooters of America or its agents, and
without limiting Hooters of America's other rights under this
Agreement, take such steps as may be necessary to correct immediately
the deficiencies detected during any such inspection, including,
without limitation, immediately desisting from the further use of any
equipment, advertising materials, products, or supplies that do not
conform with Hooters of America's then-current specifications,
standards, or requirements.
U. Franchisee shall not engage in any trade practice or other activity or
sell any product or literature which Franchisor determines to be
harmful to the goodwill or to reflect unfavorably on the reputation of
Franchisee or Hooters of America, the Restaurant, or the products sold
thereat; or which constitutes deceptive or unfair competition, or
otherwise is in violation of any applicable laws.
The above limitations are closely related to the restaurant image, purpose and
marketing strategy of the Hooters System, and therefore any change therefrom
would fundamentally change the nature of the business.
V. Franchisee shall give Hooters of America advance written notice of
Franchisee's intent to institute legal action against Hooters of
America, specifying the basis for such proposed action, and shall
grant Hooters of America thirty (30) days from receipt of said notice
to cure the alleged act upon which such legal action is to be based.
W. During the term of this Agreement, except as otherwise approved in
writing by Hooters of America, Franchisee and/or Franchisees
designated manager must devote his or her full time, energy and best
efforts to the management and operation of the Franchised Business.
X. In any. real. property or equipment or trade fixture lease or
financing that Franchisee executes in connection with the Franchised
Restaurant, Franchisee shall include a provision approving Franchisor
as transferee without any right to accelerate or to modify said lease
or financing, and requiring the lessor or lender to send notice of any
default by the Franchisee on said lease or financing to Franchisor at
the address provided herein and to give Franchisor thirty (30) days
from the date notice of default is delivered to Franchisor to cure
said default. Franchisor is under no duty or obligation whatsoever to
cure said default, but should Franchisor elect to cure said default,
Franchisee agrees to re-pay and to indemnify Franchisor for any costs
and expenses incurred by Franchisor in connection with the cure of
said default upon demand by Franchisor.
VI. PROPRIETARY MARKS
A. Hooters of America represents with respect to the Proprietary Marks
that:
1. Pursuant to a license agreement originally dated July 21, 1984
and subsequently amended between Hooters of America and Hooters,
Inc., a Florida corporation, Hooters of America has been granted
the exclusive right to use and to license others to use the
Proprietary Marks to establish Hooters restaurants in the United
States, except in the following areas: Hillsboro, Pasco, Citrus,
Hernando and Pinellas Counties, Florida, Dupage, Kane, Will,
Lake, McHenry and Cook Counties, Illinois.
2. Hooters of America has taken, shall take or cause to be taken all
steps reasonably necessary to preserve and protect the ownership
and validity of the Proprietary Marks.
3. Hooters of America shall permit Franchisee and other franchisees
to use the Proprietary Marks only in accordance with the Hooters
System and the standards and specifications attendant thereto
which underlie the goodwill associated with and symbolized by the
Proprietary Marks.
B. 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
Hooters of America, and shall use them only in the manner
authorized and permitted by Hooters of America. Franchisee's
right to use the Proprietary Marks is limited to such uses as are
authorized under this Agreement, and any unauthorized use thereof
shall constitute an infringement of Hooters of America's rights.
2. Franchisee shall use the Proprietary Marks only for the operation
of the Franchised Business and only at the Approved Location
authorized hereunder, or in advertising for the business
conducted at or from the Approved Location.
3. Unless otherwise authorized or required by Hooters of America,
Franchisee shall operate and advertise the ' Franchised Business
only under the name "Hooters" without prefix or suffix, except to
describe the location of their franchise. Franchisee shall not
use the Proprietary Marks as part of its corporate or other legal
name.
4. During the term of this Agreement and any renewal hereof,
Franchisee shall identify itself as the owner of the Franchised
Business in conjunction with any use of the Proprietary Marks,
including, but not limited to, on invoices, order forms,
receipts, and contracts, as well as at such conspicuous locations
on the premises of the Franchised Business as Hooters of America
may designate in writing. The form and content of such
identification shall comply with standards set forth in the
Manual.
5. Franchisee shall not use the Proprietary Marks to incur any
obligation or indebtedness on behalf of Hooters of America.
6. Franchisee shall file and maintain requisite trade name or
fictitious name registrations as shall be required and directed
by Franchisor and/or by law, and shall execute any documents
deemed necessary by Hooters of America or its counsel to obtain
protection for the Proprietary Marks or to maintain their
continued validity and enforceability.
7. In the event that litigation involving the Proprietary Marks is
instituted or threatened against Franchisee, Franchisee shall
promptly notify Hooters of America and shall cooperate fully in
defending or settling such litigation, as determined exclusively
by Franchisor.
C. Franchisee-expressly understands and acknowledges that:
1. As between the parties hereto, Hooters of America has the
exclusive right and interest in and to the Proprietary Marks and
the goodwill associated with and symbolized by them.
2. The Proprietary Marks are valid, distinctive, and serve to
identify Hooters of America as the source of the goods and
services offered pursuant to those marks and by those who are
authorized to operate under the Hooters System.
3. Franchisee shall not directly or indirectly contest the validity,
distinctiveness, the ownership or Hooters of America's right to
license the Proprietary Marks.
4. 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. In the event Hooters substitutes
different Proprietary Marks, Franchisee shall be responsible for
the costs associated with such a change in connection with the
Franchised Business.
5. Any and all goodwill arising from Franchisee's use of the
Proprietary Marks in its franchised operation under the Hooters
System shall inure solely and exclusively to Hooters of America's
benefit, and 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 Hooters System or the Proprietary Marks.
6. The right and license of the Proprietary Marks granted hereunder
to Franchisee is nonexclusive, and Hooters of America thus has
and retains the rights, among others:
a. To use the Proprietary Marks itself 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; and
c. To develop and establish other systems using similar
Proprietary Marks, or any other proprietary marks, and to
grant licenses or franchises thereto at any locations)
whatsoever without providing any rights therein to
Franchisee.
7. Franchisee understands and acknowledges that Franchisor and
Hooters, Inc. each has the unrestricted right to engage, directly
or indirectly, through its or their employees, representatives,
licensees, Assigns, agents and others, at wholesale, retail and
otherwise., in the production, distribution and sale of products
bearing the Proprietary Marks licensed hereunder or other names
or marks, including without limitation, products included as part
of the Hooters System. Franchisee shall not under any
circumstances engage in any wholesale trade or sale of Hooters
System products for resale.
VII. HOOTERS OF AMERICA MANUALS
A. In order to protect the reputation and goodwill of Hooters of America
and to maintain high standards of operation under Hooters of America's
Proprietary Marks, Franchisee shall conduct its business in accordance
with this Agreement and Training manuals and/or Videotapes, described
herein as the "Manuals" (one copy of which Franchisee shall
acknowledge in writing upon receipt has been received on loan from
Hooters of America for the term of this Agreement), other written
directives which Hooters of America may issue to Franchisee from time
to time whether or not such directives are made part of the Manuals,
and any other manuals, videotapes, and materials created or approved
for use in the operation of the Franchised Business by Franchisor,
from time to time.
B. Franchisee shall at all times treat the Manuals, any written
directives of Hooters of America, any restaurant plans and
specifications, and any other manuals created for or approved for use
in the operation of the Franchised Business, and any supplements
thereto, and the information contained therein, in trust and as
confidential information, and shall use all reasonable efforts to
maintain such information as secret and confidential. Franchisee shall
not at any time copy, duplicate, record, or otherwise reproduce the
foregoing materials, in whole or in part, nor otherwise make the same
available to any unauthorized person.
C. The Manuals, written directives', other manuals and materials, and any
other confidential communications provided or approved by Hooters of
America, shall at all times remain the sole property of Hooters of
America and shall :it all times be kept and maintained in a secure
place on the Restaurant premises.
D. Hooters of America may from time to time revise the contents of the
Manuals and the contents of any other manuals and materials created or
approved for use in the operation of the Franchised Business, and
Franchisee expressly agrees that each new or changed standard shall be
deemed effective upon receipt by Franchisee or as specified in such
standard.
E. Franchisee shall at all times insure that its copy of the Manuals is
kept current and up-to-date; and, in the event of any dispute as to
the contents of the Manuals/ the master copy of the Manuals maintained
by Hooters of America at Hooters of America's headquarters shall be
controlling..
F. Any suggestions Franchisee may have concerning the improvement of
products, equipment, uniforms, restaurant facilities, service format
and advertising are encouraged and shall be considered by Hooters of
America when adopting or modifying the standards, specifications and
procedures for the Hooters System.
VIII. CONFIDENTIAL INFORMATION
A. Franchisee shall strictly comply with the terms of the Confidentiality
Agreement attached hereto and made a part hereof (hereinafter the
"Confidentiality Agreement").
B. At Hooters of America's request, Franchisee shall require its
principals, managers and any other personnel having access to any
confidential information from Hooters of America to execute and
deliver the Confidentiality Agreement.
C. Franchisee acknowledges that any failure to comply with the
requirements of the Confidentiality Agreement or this Section VIII.
shall cause Hooters of America irreparable injury, and Franchisee
agrees to pay, in addition to other damages, all court costs and
reasonable attorney's fees incurred by Hooters of America in obtaining
specific performance of, or an injunction against violation of, the
requirements of this Section VIII.
IX. ACCOUNTING AND RECORDS
A. Franchisee shall maintain during the term of this Agreement, and shall
preserve for at least two (2) years from the dates of their
preparation, full, complete, and accurate books, records, and accounts
prepared in accordance with generally accepted accounting principles
consistently applied and in the form and manner prescribed by Hooters
of America from time to time in the Manuals or otherwise in writing.
B. Franchisee shall submit to Hooters of America during the term of this
Agreement, after the opening of the Hooters Restaurant, (a) a royalty
report, on a four (4) week accounting period basis in the form
prescribed by Hooters of America from time to time, accurately
reflecting all Gross Sales during each preceding four week accounting
period, and such other data or information as Hooters of America may
require, from time to time, said report to be received by Franchisor
within ten (10) days from the date of expiration of each such four
(4)-week accounting period; and (b) profit and loss statements,
balance sheets and trial balances prepared in accordance with
generally accepted accounting principles, consistently applied, for
each accounting period, to be received by Franchisor within fifteen
(15) days after the date of expiration of each period covered by the
report, (c) copies of all tax returns relating to sales at the Hooters
Restaurant to be received by Franchisor within ten (10) days of the
end of the state sales tax reporting period, and (d) such other data
or information as Hooters of America may require, from time to time.
C. Franchisee shall, at its expense, provide to Hooters of America a
profit and loss statement and balance sheet, accompanied by a review
report certified by the President or Chief Financial Officer of
Franchisee, 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.
Hooters of America also reserves the right to require Franchisee to
'have such review report prepared by an independent certified public
accountant satisfactory to Hooters of America.
D. Franchisee shall also submit to Hooters of America, for review or
auditing, such other forms, reports, records, sales tax returns
information, and data as Hooters of America may reasonably designate,
in the forms and at the times and places reasonably required by
Hooters of America, upon request and as specified from time to time in
the Manuals or otherwise in writing. Franchisee shall provide to
Hooters of America, or its designee, on forms designated for use by
Hooters of America, reports of daily receipts, vendor purchases,
payroll payments, and such other-forms, reports, records, and
information as Hooter's of America may request from time to time.
Franchisee shall also report all discounts" allowances and premiums
received from vendors.
E. Hooters of America or its designated agents shall have the right, at
all reasonable times, to examine and copy, at Hooters of America's
expense, the books, records, and tax returns of Franchisee and the
Franchised Business. Hooters of America 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 any payments
to Franchisor have been understated in any report to Hooters of
America, then Franchisee shall immediately pay to Hooters of America
the amount understated upon demand., in addition to interest on such
amount from the date such amount was due until paid, at the Default
Rate, calculated on a daily basis. If an inspection discloses an
understatement in any payment to Franchisor of two percent (2%) or
more, Franchisee shall, in addition, reimburse Hooters of America for
any and all costs and expenses relating to the inspection (including,
without limitation, travel, lodging and wage expenses and reasonable
accounting and legal costs), and, at Franchisors discretion, submit
audited financial statements prepared, at Franchisee' expense, by an
independent certified public accountant satisfactory to Hooters of
America. If an inspection discloses an understatement in any payment
to Franchisor of four percent (4%) or more, such act or omission shall
constitute grounds for immediate termination of this Agreement, as set
forth in Section XIII. hereof. The foregoing remedies shall be in
addition to any other remedies Hooters of America may have pursuant to
this Agreement and as provided at law and in equity.
F. Franchisee hereby grants permission to Hooters of America to release
to Franchisee's landlord, lenders or prospective landlords or lenders!
any financial and operational information relating to Franchisee
and/or the Hooters Restaurant; however, Hooters of America has no
obligation to do so.
G. Franchisee shall follow and adhere to the daily accounting and
reporting procedures as required by Hooters of America, from time to
time, and shall purchase accounting and reporting equipment including,
but not limited to, point of sale equipment as required by Hooters of
America. The point of sale equipment to be used in the Hooters
Restaurant shall possess several important features in order to
facilitate the operation and internal accounting control of the
Franchised Business. The hardware of the point of sale system shall
contain the following, without limitation:
1. A highly sensitive keyboard for fast input;
2. Controlled access to management functions such as item voids,
sales reports, refunds and adjustments;
3. Remote printer to aid in the service of beer and wine;
4. Internal communication among cash registers;
5. Check printer to document the detail of all sales transactions;
6. Capability to provide telecommunications to a central polling
location; and
7. A hard copy slip printer for guest checks.
Additionally, the software of the point of sale system shall contain the
following, without limitation:
1. Security key and password identification for each employee,
allowing the point of sale system to provide detailed sales
information for each employee;
2. Detailed sales tracking ability including, but not limited to,
hourly sales, department sales, customer counts, sales for the
individual employees and accounting period to date sales
information; and
3. communication or polling ability for all sales information to be
retrieved by Franchisee or Franchisor.
X. 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 Hooters System, the parties agree as follows:
A. Hooters of America may, from time to time, provide to Franchisee, at
Franchisee's expense, such advertising and promotional plans and
materials as Hooters of America deems advisable for local advertising.
Franchisee shall spend a minimum of three percent (3%) of Franchisee's
Gross Sales. on local advertising and promotion annually. In the event
that Hooters of America establishes a local/regional advertising
cooperative, Franchisee will be required to spend one percent (1%) of
the three percent (3%) local advertising expenditure on or through
such advertising cooperative. In addition, Hooters of America may
develop advertising programs for the promotion of the Proprietary
Marks or merchandise offered at Hooters restaurants.
B. Franchisee may undertake additional advertisement and promotion of the
Restaurant at Franchisee's election. All advertising and promotion by
Franchisee in any manner or medium shall conform to such standards and
requirements as are specified by Hooters of America. Franchisee shall
submit to Hooters of America for its prior written approval (except
with respect to product 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 Hooters of America. Franchisee shall display the Proprietary Marks
in the manner prescribed by Hooters of America on all signs and all
other advertising and promotional materials used in connection with
the Franchised Business.
C. Franchisee shall obtain listings and place advertisements in the white
and yellow pages of local telephone directories, in the form, size and
type of directories specified by Hooters of America.
D. (a) Franchisee agrees to make continuing monthly contributions to the
National Advertising Fund as required by Hooters of America in an
amount equal to one percent (1%) of Franchisee's Gross Sales.
Franchisee agrees that the National Advertising Fund shall be
maintained and administered by Hooters of America, or its designee, on
terms determined by Hooters of America -and that the Franchisor or its
designee will direct all advertising and/or promotional programs with
sole discretion over the concepts, materials and media used in such
programs and the placement and allocation thereof. Franchisee
acknowledges that the National Advertising Fund shall be used to
maximize general public recognition and acceptance of the Proprietary
Marks and all Hooters restaurants, and that Hooters of America is not
obligated in administering the National Advertising Fund to undertake
expenditures for Franchisee which are equivalent to Franchisee's
contribution, or to ensure that any particular franchise owner
benefits directly or pro rata from expenditures by the National
Advertising Fee. Upon written request of --------- Franchisee, Hooters
of America will furnish or cause to be furnished to Franchisee, not
more than once annually, an accounting of receipts and disbursements
of the National Advertising Fund.
(b) The National Advertising Fund, all contributions thereto, and any
earnings thereon, will be used exclusively to meet any and all
costs of maintaining, administering, researching, directing, and
preparing advertising and/or promotional activities.
(c) All sums paid by the Franchisee to the National Advertising Fund
will be maintained in an account separate from the other monies
of the Franchisor, and will not be used to defray any of the
Franchisor's expenses, except for such reasonable administrative
costs and overhead as the Franchisor may incur in activities
reasonably related to the administration or direction of the
National Advertising Fund and advertising programs for the
franchisees under the Hooters System. The National Advertising
Fund will not otherwise inure to the benefit of the Franchisor.
The Franchisor or its designee will maintain separate bookkeeping
accounts for the National Advertising Fund.
(d) It is anticipated that all contributions to and. earnings of the
National Advertising Fund will be expended for advertising and/or
promotional purposes during the taxable year within which the
contributions and earnings are received. if, however, excess
amounts remain in the National Advertising Fund at the end of
such taxable year, all expenditures in the following taxable
year(s) will be made first out of accumulated earnings from
previous years, next out of earnings-in-the-current year, and
finally from contributions.
(e) The National Advertising Fund is not and will not be an asset of
the Franchisor or its designee.
(f) Although the National Advertising Fund is intended to be of
perpetual duration, the Franchisor retains the right to terminate
the National Advertising Fund. The National Advertising Fund will
not be terminated, however, until all monies in the National
Advertising Fund have been expended for advertising and/or
promotional purposes or returned to contributors on the basis of
their respective contributions.
E. Franchisee is encouraged, although not required, to take part in
promotional programs which may be developed by Hooters of America.
However, Franchisee may be required to participate in cooperative
advertising programs with certain suppliers or approved sources of
goods. Franchisee shall have the right to sell its products and offer
services at any price Franchisee may determine, and shall in no way be
bound by any price which may be recommended or suggested by Hooters of
America.
XI. INSURANCE
A. Franchisee shall procure, or cause to be procured, prior to the
commencement of any operations under this Agreement, and shall
maintain, or cause to be maintained, in full force and effect at all
times during the term of this Agreement, at Franchisee's expense, an
insurance policy or policies insuring Franchisee and Hooters of
America, and their respective officers, directors, shareholders,
partners, and employees, as additional insured, against any demand or
claim with respect to personal injury, death, or property damage, or
any loss, liability, or expense whatsoever arising or occurring upon
or in connection with the Franchised Business.
B. Such policy or policies shall be written by an insurance company rated
A-minus or better, in Class 10 or higher, by Best Insurance Ratings
Service and satisfactory to Hooters of America in accordance with
standards and specifications set forth in the Manuals or otherwise in
writing, from time to time, and shall include, at a minimum (except as
additional coverages and higher policy limits may be specified by
Hooters of America from time to time), the following initial minimum
coverage:
1. (i) Commercial General Liability Insurance, including coverages
for products-completed operations, contractual liability,
personal and advertising injury, fire damage, medical expenses,
and liquor liability, having a combined single limit for bodily
injury and property damage of $1,000,000 per occurrence and
$2,000,000 in the aggregate (except for fire damage and medical
expense coverages, which may have different limits of not less
than $50,000 for one fire and $5,000 for one person,
respectively); plus (ii) non-owned automobile liability insurance
and., if Franchisee owns f rents or identifies any vehicles with
any Proprietary Mark or vehicles are used in connection with the
operation of the Franchised Business, automobile liability
coverage for owned, non-owned, scheduled and hired vehicles
having limits for bodily injuries of $100,000 per person and
$300,000 per accident, and property damage limits of $50,000 per
occurrence; plus (iii) excess liability umbrella coverage for the
general liability and automobile liability coverages in an amount
of not less than $5,000,000 per occurrence and aggregate. All
such coverages shall be on an occurrence basis and shall provide
for waivers of subrogation.
2. Franchisee shall also maintain comprehensive crime and blanket
employee dishonesty insurance in an amount of not less than
$100,000.
3. All-risk property insurance, including theft and flood coverage
(when applicable), written at replacement cost value covering the
building, improvements, furniture, fixtures, equipment, food and
beverage products. Coverage shall be written in a value which
will cover not less than eighty (80%) percent of the replacement
cost of the building and one hundred (100%) percent of the
replacement cost of the contents of the building.
4. Employer's Liability and Worker's compensation Insurance, as
required by state law.
5. Business interruption insurance of not less than Fifty Thousand
Dollars ($50,000.00) per month for loss of income and other
expenses with a limit of not less than six (6) months of
coverage.
C. Franchisee's obligation to obtain and maintain, or cause to be
obtained and maintained, 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 Hooters of America, nor shall
Franchisee's performance of that obligation relieve it of liability
under the indemnity provisions set forth in Section XVIII of this
Agreement.
D. Prior to the opening of the Hooters Restaurant and thereafter at least
thirty (30) days prior to the expiration of any such policy or
policies, Franchisee shall deliver to Hooters of America certificates
of insurance evidencing the proper coverage with limits not less than
those required hereunder. All certificates shall expressly provide
that not less than thirty (30) days prior written notice shall be
given to Hooters of America in the event of material alteration to
termination, non-renewal, or cancellation of, the coverages evidenced
by such certificates.
XII. TRANSFER OF INTEREST
A. Transfer by Hooters of America:
Hooters of America shall have the right to transfer or assign all or
any part of its rights or obligations herein to any person or legal
entity.
B. Transfer by Franchisee:
1. Franchisee understands and acknowledges that the rights and
duties set forth in this Agreement are personal to Franchisee,
and that Hooters of America has granted this Agreement in
reliance on information provided by Franchisee relating to
Franchisee's business skill, financial capacity, and personal
character. Accordingly, Franchisee agrees that Hooters of
America's express prior written consent shall be a necessary
condition precedent to the sale, assignment, transfer,
conveyance, gift, pledge, mortgage, encumbrance., or
hypothecation of any of the following:
a. any direct or indirect interest in this Agreement or the
franchise and license granted hereunder;
b. any direct or indirect interest in Franchisee, except that,
if the Franchisee is a corporation, the interest of a
stockholder may be transferred to another existing and
approved shareholder of the corporation and, 'if the
Franchisee is a 'partnership,,, the partnership interest of
a partner may be transferred to another existing and
approved partner of the partnership; and
c. Restaurant, the Approved Location, or all or substantially
all of the assets of the Franchised Business.
2.Hooters of America, in its sole discretion, except as herein
specifically provided, may withhold its consent to a transfer of
any interest in Franchisee, this Agreement, or the franchise;
provided, however, in all events, Hooters of America may, at its
sole discretion, require any or all of the following as
conditions of its approval:
a. All of Franchisee's accrued monetary obligations and all
other outstanding obligations to Hooters of America., its
subsidiaries, and its affiliates shall have been satisfied;
b. Franchisee shall have substantially complied with all of the
terms and provisions of this Agreement, any amendment hereof
or successor hereto, or any other agreements between the
Franchisee and Hooters of America, its subsidiaries or
affiliates and, at the time of transfer, shall not be in
default thereof;
c. The transferor shall have executed a general release under
seal, in a form satisfactory to Hooters of America, of any
and all claims against Hooters of America and its officers,
directors', shareholders, and employees, in their corporate
and individual capacities, including, without limitation,
claims arising under federal, state, and local laws, rules,
and ordinances;
d. The transferee (and, if the transferee is .other than an
individual, such principals and/or owners of a beneficial
interest in the transferee as Hooters of America may
request) shall enter into a written assumption agreement, in
a form satisfactory to Hooters of America, assuming and
agreeing to discharge all of Franchisee's obligations under
this Agreement and/or any new franchise agreement, as
hereinafter provided;
e. The transferee shall demonstrate to Hooters of America's
satisfaction that the transferee meets Hooters of America's
educational, managerial, and business standards; possesses a
good moral character, business reputation, and credit
rating; has the aptitude and ability to conduct the
Franchised Business (as may be evidenced by prior related
business experience or otherwise) ; and has adequate
financial resources and capital to operate the Franchised
Business.
f. The transferee (and, if the transferee is other than an
individual, such principals and/or owners of a beneficial
interest in the transferee as Hooters of America may
request) shall execute for a term ending on the expiration
date of this Agreement and with such renewal term, if any,
as may be provided by this Agreement, the standard form
franchise agreement then being offered to new Hooters System
franchisees and such other ancillary agreements as Hooters
of America may require for the Franchised Business, which
agreements shall supersede this Agreement in all respects
and the terms of which agreements may differ from the terms
of this Agreement, including, without limitation, a higher
percentage royalty rate, advertising contribution, and
service charge for goods; provided; however, that the
transferee shall not be required to pay an initial franchise
fee as provided in Section IV. A.;
g. The transferee, at its expense, shall upgrade the Restaurant
to conform to the then-current standards and specifications
of the new entry Hooters System and shall complete the
upgrading and other requirements within the time specified
by Hooters of America;
h. Franchisee shall remain liable for all of the obligations to
Hooters of America in connection with the Franchised
Business prior to the effective date of the transfer and
shall execute any and all instruments reasonably requested
by Hooters of America to evidence such liability;
i. Franchisee shall agree to remain obligated under the
covenants against competition of this Agreement as if this
Agreement had been terminated-on-the-date of the-transfer..
j. At the transferees expense, the transferee and, if
applicable, the transferee's designated individual manager
shall complete any training programs then in effect for
franchisees upon such terms and conditions as Hooters of
America may reasonably require;
k. Except in the case of a transfer to a corporation
wholly-owned by the Franchisee and formed for the
convenience of ownership, transferee shall pay a transfer
fee in an amount equal to twenty (20%) per cent of the then
current initial franchise fee charged by Franchisor.
l. The transferee shall agree to a sublease or to a transfer
and assignment, and assumption of the lease of the
Restaurant site for the original franchisee and shall obtain
the landlord's approval if required prior to any transfer or
sublease, if applicable.
m. The Franchisee and the transferee shall execute and deliver
a transfer agreement in the form attached hereto or the then
current form of transfer agreement approved by the
Franchisor.
3. Franchisee acknowledges and agrees that each condition which must
be met by the transferee is necessary to assure such transferee's
full performance of the obligations hereunder.
4. If the contract of sale between Franchisee and transferee
provides for installment payments of the purchase price of any
such sale of assets or stock of the Franchisee', the terms of any
such transaction must be expressly preapproved in writing by
Franchisor. Franchisee seller shall remain personally liable to
Franchisor for payment of the Fees owed by the transferee until
the installment payments of the purchase price and any related
compensation or remuneration are paid and satisfied. Such
installment payments, compensation and/or remuneration shall be
subordinate to the Fees to be paid to Franchisor under the
Franchise Agreement then if effect for the Restaurant.
C. Transfer to Franchisee's CorDoration:
Franchisee reserves the right to transfer and assign all of its right, title and
interest under this Franchise Agreement relating to an Approved Location to a
corporation or partnership owned and controlled by Franchisee, or shareholders
of the Franchisee, and formed for the convenience of ownership and operation of
the Restaurant, subject to compliance with the requirements otherwise set forth
in this Agreement and the satisfaction of the following additional requirements
as provided in (1) below to be delivered to Franchisor upon such transfer and
assignment and, thereafter, upon request by Franchisor, from time to time:
1. Franchisee or, if Franchisee is a corporation, the shareholders
of Franchisee shall be and at all times shall remain the owner of
a majority of the stock and a majority of the voting control of
such corporation (or, if a partnership, the sole general partner
and the owner of a majority of the partnership interests of said
partnership);
2. The transferee corporation or partnership shall comply, except as
otherwise approved in writing by Franchisor, with the
requirements set forth in Section V.B. throughout the term of
this Agreement.
3. Franchisee agrees to remain responsible and liable for the
performance by Franchisee and such transferee corporation or
partnership of all of the terms and provisions of this Franchise
Agreement.
D. Right of First Refusal:
1. The Franchisee and any party holding any interest in the
Franchisee who desires to accept any bona fide offer from a third
party to purchase such interest shall notify Hooters of America
in writing of each such offer, and shall provide such information
and documentation relating to the offer as Hooters of America may
require, including a true copy of any such offer. Hooters of
America shall have the right and option, exercisable within
twenty (20) business days after receipt of such written
notification, to send written notice to the seller that Hooters
of America intends to purchase the seller's interest on the same
terms and conditions offered by the third party. To enable
Hooters of America to determine whether it will exercise its
option, Franchisee and the seller shall provide such information
and documentation, including financial statements, as Hooters of
America may require. In the event that Hooters of America elects
to purchase the seller's interest, closing on such purchase must
occur within ninety -(90)---days-,from the-date-of-notice-to-the
seller of the election to purchase by Hooters of America. Failure
of Hooters of America to exercise the option afforded by this
Section XII-D. shall not constitute a waiver of any other
provision of this Agreement, including all of the requirements of
this Section XII., with respect to a proposed transfer. Any
change in the terms of any offer prior to closing shall
constitute a new offer subject to the same rights of first
refusal by Hooters of America as in the case of an initial offer.
2. In the event the consideration, terms, and/or conditions offered
by a third party are such that Hooters of America nay not
reasonably be required to furnish the same consideration, terms,
and/or conditions, then Hooters of America may purchase the
interest in the Franchised Business proposed to be sold for the
reasonable equivalent in cash. If the parties cannot agree within
a reasonable time on the cash consideration, an independent
appraiser experienced in appraising business similar to the
Restaurant shall be designated by Hooters of America, and
determination by such appraiser shall be conclusive and binding
on all parties.
E. Transfer Upon Death or Mental Incompetency:
Upon the death or mental incompetency of the Franchisee or any person with an
interest or beneficial interest in the Franchise, the executor, administrator,
or personal representative of such person shall transfer within one (1) year
after such death or mental incompetency such interest to an existing approved
shareholder of Franchisee, or to a third party approved by Hooters of America,
which approval shall not be unreasonably withheld. Mental incompetency, for
purposes of this Franchise Agreement, shall mean the appointment of a guardian
for the subject party by a court of competent jurisdiction. Such transfers,
including, without limitation, transfers by devise or inheritance, shall be
subject to the same conditions as any inter vivos transfer. However, in the case
of transfer by devise or inheritance, if the heirs or beneficiaries of any such
person are unable to satisfy the conditions in this Section XII. within said one
(1) year period, Hooters of America may terminate this Agreement or may exercise
its option to purchase the Hooters Restaurant at fair market value, as
determined by an independent appraiser designated by Hooters of America which
determination by such appraiser shall be conclusive and binding on all parties.
F. "Interim--operation--of-the-Restaurant:
Pending assignment, upon the death of Franchisee or its operating principal, or
in the event of any temporary or permanent mental or physical disability of
Franchisee or its operating principal, a manager shall be employed for the
operation of the Restaurant who has successfully completed Franchisor's training
courses to operate the Restaurant for the account of Franchisee. If after the
death or disability of Franchisee or the operating principal of Franchisee the
Restaurant is not being managed by such trained manager, Hooters of America is
authorized to appoint a manager to maintain the operation of the Restaurant
until an approved assignee will be able to assume the management and operation
of the Restaurant, but ih no event f or a period exceeding one (1) year without
the approval of Franchisee, the personal representative of Franchisee, or
Franchisee's successor in interest; such manager shall be deemed an employee of
the Franchisee. All funds from the operation of the Restaurant during the period
of management by such appointed or approved manager shall be kept in a separate
fund and all expenses of the Restaurant, including compensation of such manager,
other costs and travel and living expenses of such appointed or approved manager
(the "Management Expenses") , shall be charged to such fund. As compensation for
the management services provided, in addition to the Fees due hereunder, Hooters
of America shall charge such fund the full amount of the direct expenses
incurred by Hooters of America during such period of management for and on
behalf of Franchisee ' provided that Hooters of America shall only have a duty
to utilize reasonable efforts and shall not be liable to Franchisee or its
owners for any debts, losses or obligations incurred by the Restaurant, or to
any creditor of Franchisee for any merchandise, materials, supplies or services
purchased by the Restaurant during any period in which it is managed by a
Hooters of America-appointed or approved manager.
G. Non-Waiver of Claims:
Neither Hooters of America's consent to any proposed transfer of any interest in
the franchise granted herein, nor Hooters of America's failure to exercise its
option to purchase any interest of a seller, shall be deemed to constitute a
waiver of any claims it may have-against the transferring party or entity, nor
shall it be deemed a waiver of Hooters of America's right to demand exact
compliance with any of the terms of this Agreement by any transferor or
transferee, any future rights or options of Hooters of America, or any provision
of this Agreement.
XIII. DEFAULT AND TERMINATION
A. 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 events:
1. If Franchisee shall become insolvent or makes a general
assignment for the benefit of creditors;
2. If a petition in bankruptcy is filed or a case in bankruptcy is
commenced by Franchisee, or against Franchisee and is not opposed
by Franchisee;
3. If Franchisee is adjudicated as bankrupt or becomes insolvent, in
Franchisor's reasonable determination, which shall mean any one
or more of the following conditions that appertain - to
Franchisee: (i) The fair value of its property is less than the
amount required to pay all of its indebtedness, including
contingent debts; (ii) The present fair saleable value of its
owned property is less than the amount that will be required to
pay all of its existing indebtedness as such becomes absolute and
matured; (iii) Franchisee is unable to pay all of its
indebtedness as such indebtedness matures, or (iv) Franchisee's
capital is insufficient to carry on its business transactions and
all business transactions in which it is about to engage.
4. If a bill in equity or other proceeding for the appointment of a
receiver of Franchisee or other custodian for Franchisee's
business or assets is filed and consented to by Franchisee,
5. If a receiver or other custodian (permanent or temporary) of the
Restaurant, Franchisee, or Franchisee's assets or property, or
any part thereof, is appointed by any court of competent
jurisdiction;
6. If proceedings for a composition with creditors under any state
or federal law should be instituted by or against Franchisee;
7. If a final judgment remains unsatisfied or of record for thirty
(30) days or longer (unless supersedes bond is filed) ; or if
Franchisee is dissolved;
8. If execution is levied against Franchisee's business or property;
9. If any real or personal property of Franchisee's Restaurant shall
be sold after levy thereupon by any sheriff., marshal, or
constable;
10. If Franchisee (or, if Franchisee is a corporation or partnership,
any principal of Franchisee) is convicted of or pleads nolo
contenders to a felony, fraud, sale of illegal drugs, a crime
involving moral turpitude or any other crime that is directly
related to Franchisee's conduct of the Franchised Business, or
any other crime that Hooters of America determines to have an
adverse effect on the Restaurant, the Hooters System, the
Proprietary Marks, the goodwill associated therewith, or Hooters
of America's interest therein;
11. If, in violation of the terms of Sections VII. or VIII. hereof,
or the Confidentiality Agreement, Franchisee, its principals,
representatives, agents or employees disclose or divulge the
contents of the Manuals or other confidential information
provided to Franchisee by Hooters of America, or if Franchisee
maintains false books or records, or submits any false reports to
Hooters of America;
12. If any inspection of Franchisee's records discloses an
understatement of payments due Hooters of America of four percent
(4%) or more;
13. If Franchisee or any principal of Franchisee is convicted in a
court of competent jurisdiction of an indictable offense
punishable by a term of imprisonment in excess of one (1) year
that is directly related to the business conducted pursuant to
this Agreement;
14. If Franchisee's alternate candidate for management training shall
not adequately complete such management training program, after
either Franchisee or Franchisees designated individual previously
failed to complete adequately the management training;
15. If an approved transfer is not effected within the time set forth
in Section XII.E. hereof, following Franchisee's or the principal
of Franchisee's death or mental incompetency;
16. Except as otherwise provided in this Franchise Agreement, if
Franchisee at any time ceases to operate or otherwise abandons
the Franchised Business, or otherwise forfeits the right to do or
transact business in the jurisdiction where the Restaurant is
located; or
17. In the event of the gross negligence or willful breach of this
Franchise Agreement by the Franchisee, or any of the principals
of the Franchisee, in the breach of any of the covenants of the
Franchisee contained in this Agreement.
B. Except as provided in Sections XIII.A., XIII.C. and XIII.D. of this
Agreement, Franchisee shall have five (5) days after its receipt from
Hooters of America of a written notice of termination within which to
remedy any default hereunder (or, if the default cannot reasonably be
cured within such five (5) days, to initiate within that time
substantial and continuing action to cure the default), and to provide
evidence thereof to Hooters of America. If any such default is not
cured within that time (or, if appropriate, substantial and continuing
action, in continuity, to cure the default is not initiated within
that time), or such longer period as provided herein or as applicable
law may require, this Agreement shall terminate with reference to such
Approved Location(s) wherein said default shall occur without further
notice to Franchisee effective immediately upon expiration of the five
(5) day period or such longer period as applicable law may require.
Franchisee shall be in default hereunder for any failure to comply
with any of the requirements imposed by this Agreement or the Manuals,
as it may from time to time reasonably be supplemented, or to carry
out the terms of this Agreement. Such defaults shall include, without
limitation, the occurrence of any of the following events:
1. If Franchisee fails, refuses, or neglects promptly to pay when
due any monies owing to Hooters of America or its subsidiaries or
affiliates, the National Advertising Fee or to submit the
financial or other information required by Hooters of America
under this Agreement, or makes any false statements in connection
therewith;
2. If Franchisee sells unauthorized products or products not meeting
Franchisor's specifications;
3. If Franchisee fails to maintain any of the standards or
procedures prescribed by Hooters of -America in this - Agreement,
the Manuals, or otherwise in writing; or
4. If Franchisee fails to maintain the character and nature of the
Restaurant through alteration of the product selection, product
restrictions, image, design or inventory.
C. Except as provided in Sections XIII.A., XIII.B. and XIII.D. of this
Agreement, Franchisee shall have ten (10) days after its receipt from
Hooters of America of a written notice of termination within which to
remedy any default hereunder (or, if the default cannot reasonably be
cured within such ten (10) days, to initiate within that time
substantial and continuing action to cure the default), and to provide
evidence thereof to Hooters of America. If any such default is not
cured within that time (or, if appropriate, substantial and continuing
action in continuity to cure the default is not initiated within that
time) , or such longer period as applicable law may require, this
Agreement shall terminate with reference to such Approved Location(s)
wherein said default shall occur without further notice to Franchisee
effective immediately upon expiration of the ten (10) day period or
such longer period as applicable law may require. Franchisee shall be
in default hereunder for any failure to comply with any of the
requirements imposed by this Agreement or the Manuals, as it may from
time to time reasonably be supplemented, or to carry out the terms of
this Agreement in good faith. Such defaults shall include, without
limitation, the occurrence of any of the following events:
1. If a threat or danger to public health or safety results from the
maintenance or operation of the Restaurant which is not
immediately corrected by Franchisee;
2. If Franchisee or any partner of or shareholder in Franchisee
purports to transfer any rights or obligations under this
Agreement or any interest in Franchisee to any third party
without Hooters of America's prior written consent, contrary to
the terms of Section XII. of this Agreement;
3. If Franchisee fails to comply with the in-term covenants in
Section XV.B. hereof or fails to obtain execution of the
covenants required under Section VIII.B. or Section XV.I. hereof;
or
4. If Franchisee, after curing a default pursuant to 'Section -
XIII. C. hereof , commits the " same - act - of default two
additional times within one (1) year of the initial act of
default.
D. Except as provided in Sections XIII.A., XIII.B. and XIII.C. of this
Agreement, Franchisee shall have thirty (30) days after its receipt
from Hooters of America of a written notice of termination within
which to remedy any default hereunder (or, if the default cannot
reasonably be cured within such thirty (30) days, to initiate within
that time substantial and continuing action to cure the default), and
to provide evidence thereof to Hooters of America. If any such default
is not cured within that time (or, if appropriate, substantial and
continuing action to cure the default is not initiated within that
time) ' or such longer period as applicable law -may require, this
Agreement shall terminate with reference to such Approved Location(s)
wherein said default shall occur without further not-ice to Franchisee
effective immediately upon expiration of the thirty (30) day period or
such longer period as applicable law may require. Franchisee shall be
in default hereunder for any failure to comply with any of the
requirements imposed by this Agreement or the Manuals, as it may from
time to time reasonably be supplemented, or to carry out the terms of
this Agreement in good faith. Such defaults shall include, without
limitation, the occurrence of any of the following events:
1. If Franchisee's alcoholic beverage license is revoked or
suspended for any reason;
2. If Franchisee misuses or makes any unauthorized use of the
Proprietary Marks or otherwise materially impairs the goodwill
associated therewith or Hooters of America's rights therein;
3. If Franchisee engages in any business or markets any service or
product under a name or mark which, in Hooters of America's
opinion, is confusingly similar to the Proprietary Marks or the
Hooters System;
4. If Franchisee, by act or omission, commits or permits a violation
of any terms and provisions of this Franchise Agreement not
specifically addressed in this Section, or of any law, ordinance,
rule or regulation of a governmental agency, in the absence of a
good faith dispute over its application or legality and without
promptly resorting to an appropriate administrative or judicial
forum for relief therefrom;
5. If Franchisee fails to a maintain a responsible credit rating by
failing to make prompt payment of undisputed bills, invoices and
statements from suppliers of goods and services to the Hooters
Restaurant;
6. If Franchisee, without the prior written consent of Hooters of
America, enters into a management agreement or consulting
arrangement relating to the Hooters Restaurant with any person or
with an entity not wholly owned by Franchisee;
7. If Franchisee defaults under a lease for or relating to the
Restaurant, or under any mortgage, chattel mortgage, conditional
bills of sale, title retention contracts or security agreements
of every kind or character, and does not cure such default within
any grace period provided by the lease or security instrument; or
8. If Franchisee fails to pay on a timely basis its taxes or other
governmental charges, rent., lease payments, or payments to
suppliers, contractors, or trade creditors.
9. If the current liabilities of Franchisee exceed the current
assets of Franchisee, as shown on any balance sheet of Franchisee
furnished to the Franchisor; provided that a default of this
nature must be cured within the original thirty (30) day cure
period, and its cure may be effected solely by delivery of (i) an
audited or unaudited balance sheet of Franchisee, dated as of the
end of the month preceding the last day of the cure period,
demonstrating that the current assets of Franchisee exceed the
current liabilities of Franchisee, and (ii) a written
certification, executed by the chief executive officer and the
chief accounting officer of Franchisee, that the balance sheet is
accurate and that as of the date of the certification,
Franchisee's current assets exceed its current liabilities.
E. Any and all claims (except for monies due Franchisor) arising out of
or related to the offer, sale, negotiation, administration and
termination of this Agreement, or the relationship between or among
the parties hereto, shall be barred unless an action at law or in
equity is properly filed in a court of competent jurisdiction within
one (1) year from the date Franchisee or Franchisor knows or should
have known of the fact giving- -rise -to -such- -claim except -to -the
- extent any applicable 'law or statute provides for a shorter period
of time to bring a claim.
XIV. OBLIGATIONS UPON TERMINATION OR EXPIRATION Upon termination or expiration
of this Agreement, all rights granted hereunder to Franchisee shall forthwith
terminate, and:
A. Franchisee shall immediately cease to operate the business franchised
under this Agreement ' and shall not thereafter, directly or
indirectly, represent to the public or hold itself out as a present or
former franchisee of Hooters of America.
B. Franchisee shall immediately and permanently cease to use, in any
manner whatsoever, any confidential methods, procedures and techniques
associated with the Hooters System; the Proprietary Mark "Hooters"; or
all other Proprietary Marks and distinctive forms, slogans, signs,
symbols, and devices associated with the Hooters System. In
particular, Franchisee shall cease to use, without limitation, all
signs, advertising materials, displays, stationery, forms, and any
other articles which display the Proprietary Marks; provided, however,
that this Section XIV.B. shall not apply to the operation by
Franchisee of any other franchise under the Hooters System which may
be separately and independently granted by Hooters of America to
Franchisee.
C. Franchisee shall take such action as may be necessary to cancel any
assumed name or equivalent registration which contains the mark
"Hooters" or any other service mark or trademark of Hooters of
America, and Franchisee shall furnish Hooters of America with
confirmation that this obligation has been fulfilled within thirty
(30) days after termination or expiration of this Agreement.
D. Franchisee agrees, in the event it continues to operate or
subsequently begins to operate any other business, not to use any
reproduction, counterfeit, copy, or colorable imitation of the
Proprietary Marks, either in connection with such other business or
the promotion thereof, which is likely to cause confusion, mistake, or
deception, or which is likely to dilute Hooters of America's rights in
and to the Proprietary Marks, and further agrees not to utilize any
designation of origin or description or representation which falsely
suggests or represents an association or connection with Hooters of
America or the Hooters, System.
E. Franchisee shall promptly pay to Franchisor (a) all sums owing to
Hooters of America and its subsidiaries and affiliates accrued through
the effective date of termination following performance by the
Franchisee of the provisions of Section XIV, and (b) an amount equal
to the Fee payable by Franchisee for the thirteen (13) four (4)-week
periods prior to the date of notice by Franchisor to Franchisee of
termination of this Agreement (or if this Agreement is terminated
prior to the expiration of thirteen (13) four (4)-week periods, then
the amount of such Fees payable by Franchisee projected to said
thirteen (13) four (4)-week periods], and (c) all costs and expenses,
including reasonable attorney's fees, incurred by Hooters of America
as a result of the default, which obligation, until paid in full '
shall be and constitute a lien in favor of Hooters of America against
any and all cf the personal property, furnishings, equipment, signs,
fixtures inventory and assets owned by Franchisee and on the premises
operated hereunder at the time of default. The Franchisor and the
Franchisee specifically acknowledge and agree that the damage to
Franchisor from Franchisee's default hereunder would be difficult or
impossible to accurately determine, and that the sums payable by
Franchisee to Franchisor, as herein provided, are a reasonable
estimate of Franchisor's damages and does not constitute a penalty.
F. Franchisee shall pay to Hooters of America all damages, costs, and
expenses, including reasonable attorney's fees, , incurred by Hooters
of America in obtaining injunctive or other relief for the enforcement
of any provisions of Section XIV.
G. Franchisee shall immediately deliver to Hooters of America all
manuals, including the Manuals, records, files, instructions,
correspondence,. all materials related to operating the Franchised
Business, including, without limitation, brochures, agreements,
invoices, and any and all other materials relating to the operation of
the Franchised Business in Franchisee's possession, and all copies
thereof (all of which are acknowledged to be Hooters of America's
property), and shall retain no copy or record of any of the foregoing,
except Franchisee's copy of this Agreement and of any correspondence
between the parties and any other documents which Franchisee
reasonably needs for compliance with any provision of law.
H. Within ten (10) days from the date of termination of this Agreement,
Franchisee and Hooters of America shall arrange f or an, inventory -
to --be - made, -at -- Hooters- of America's cost if required by
Hooters of America, of all of the assets of the Restaurant, including
without limitation resalable merchandise, decor package, signs, and
any items containing the Proprietary Marks related to the operation of
the Restaurant. Hooters of America shall have the option to purchase
from Franchisee any or all such items at fair market value, as
determined by an independent appraiser designated by Hooters of
America, which determination by such appraiser shall be conclusive and
binding on all parties; such option may be exercised by Hooters of
America within thirty (30) days from the date of receipt of such
appraisal, for closing of purchase and sale within thirty (30) days
from the date of exercise of such option.
XV. COVENANTS
A. Franchisee covenants that during the term of this Agreement, except as
otherwise approved in writing by Hooters of America, Franchisee shall
devote his full time, energy, and best efforts to the management and
operation of the Franchised Business hereunder.
B. Franchisee specifically acknowledges that, pursuant to this Agreement,
Franchisee will receive valuable specialized training and confidential
information, including, without limitation, information regarding the
operational, sales, promotional and marketing methods and techniques
of Hooters of America and the Hooters System. Franchisee covenants
that, during the term of this Agreement'. except as otherwise approved
in writing by Hooters of America, Franchisee shall not, either
directly or indirectly, for itself, or through, on behalf of ' or in
conjunction with, any person, persons, or legal entity, employ or seek
to employ any person who is at that tin ' e employed by Hooters of
America or by any other franchisee or affiliate of Hooters of America,
or otherwise directly or indirectly induce such person to leave his or
her employment.
C. Franchisee covenants that, except as otherwise approved in writing by
Hooters of America, Franchisee shall not, during the term of this
Agreement and for a continuous uninterrupted period commencing upon
the 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, be employed by, or have any interest in
any restaurant business featuring female sex appeal, with similar
decor or similar menu items to Hooters restaurants within a five (5)
mile radius of the restaurant location designated hereunder, or within
a five (5) mile radius of any other Hooters Restaurant in existence or
planned as of the time of termination or expiration of this Agreement,
as identified in the Franchise Offering Circular of Hooters of America
in effect as of the date of expiration or termination of this
Agreement.
D. Section XV.C. shall not apply to ownership by Franchisee of less than
a five percent (5%) beneficial interest in the outstanding equity
securities of any publicly held corporation.
E. The parties agree that each of the foregoing covenants shall be
construed as independent of any other covenant or provision of this
Agreement. If all or any portion of a covenant in this Section XV. is
held unreasonable or unenforceable by a court or agency having valid
jurisdiction in an unappealed final decision in a proceeding to which
Hooters of America is a party, Franchisee expressly agrees to be bound
by any lesser covenant subsumed within the terms of such covenant that
imposes the maximum duty permitted by law, as if the resulting
covenant were separately stated in and made a part of this Section XV.
F. Franchisee understands and acknowledges that Hooters of America shall
have the right, in its sole discretion, to reduce the scope of any
covenant set forth in Sections XV.B. and XV.C. of this Agreement, or
any portion thereof, without Franchisee's consent, effective
immediately upon receipt by Franchisee of written notice thereof; and
Franchisee agrees that it shall comply forthwith with any covenant as
so modified, which shall be fully enforceable notwithstanding the
provisions of Section XX. hereof.
G. Franchisee expressly agrees that the existence of any claims it may
have against Hooters of America, whether or not arising from this
Agreement, shall not constitute a defense to the enforcement by
Hooters of America of the covenants in this Section XV. Franchisee
agrees to pay all damages, costs and expenses (including reasonable
attorney's fees) incurred by Hooters of America in connection with the
enforcement of this Section XV.
H. Franchisee acknowledges that Franchisee's violation of the terms of
this Section XV. would result in irreparable injury to Hooters of
America for which no adequate remedy 'at, law may be available, and
Franchisee accordingly consents to the issuance of an injunction
prohibiting any conduct by Franchisee in violation of the terms of
this Section XV and waives any requirement for the posting of any
bond(s) relating thereto.
I. At Hooters of America's request, Franchisee shall require and obtain
execution of covenants set forth in this Section XV. (including
covenants applicable upon the termination of a person's relationship
with Franchisee) from any or all of the following persons: (1) all
principals of Franchisee (if Franchisee is a corporation or
partnership), all managers of Franchisee, and any other personnel
employed by Franchisee who have received or will receive training in
the Hooters System; (2) all officers, directors, and holders of a
beneficial interest of five percent (5%) or more of the securities or
ownership of Franchisee, and of any corporation directly or indirectly
controlling Franchisee, if Franchisee is a corporation; and (3) the
general partners and any limited partners (including any corporation,
and the officers, directors, and holders of a beneficial interest of
five percent (5%) or more of the securities of any corporation which
controls, directly or indirectly, any general or limited partner), if
Franchisee is a partnership. Every covenant required by this Section
XV.I. shall be in a form and substance satisfactory to Hooters of
America, including, without limitation. specific identification of
Hooters of America as a third party beneficiary of such covenants with
the independent right to enforce such covenants. Failure by Franchisee
to obtain execution of a covenant required by this Section XV.I. shall
constitute a default under Section XIII.B. hereof.
XVI. TAXES, PERMITS, AND INDEBTEDNESS
A. 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 business franchised under this Agreement.
Franchisee shall pay to Hooters of America an amount equal to any
sales tax, gross receipts tax, or similar tax (other than income tax,
or similar tax) imposed on Hooters of America with respect to any
payments to Hooters of America required under this Agreement, unless
the tax is credited against income tax otherwise payable by Hooters of
America.
B. In the event of any bona fide dispute as to Franchisee's liability for
taxes assessed or other indebtedness, Franchisee may contest the
validity or the amount of the tax or-indebtedness-in-accordance-with
procedures-of-the taxing authority or applicable law; however, in no
event shall Franchisee permit a tax sale or seizure by levy or
execution or similar writ or warrant, or attachment by a creditor, to
occur against the premises of the Franchised Business, or any
improvements thereon.
C. 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 business franchised under this Agreement, including, without
limitation, licenses to do business, fictitious name registrations,
sales tax permits, and fire and liability insurance.
D. Franchisee shall notify Hooters of America in writing within five (5)
days of the 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 adversely
affects or relates to the operation or financial condition of the
Franchised Business.
XVII. INDEPENDENT CONTRACTOR
A. It is understood and agreed by the parties hereto that this Agreement
does not create a fiduciary relationship between the parties hereto or
any affiliated or related parties or entities; that Franchisee is an
independent contractor; and that nothing in this agreement is intended
to constitute either party as an agent, legal representative,
subsidiary, joint venturer, partner, employee, or servant of the other
for any purpose whatsoever.
B. 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 Hooters
of America. 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 Hooters of America reserves the right to specify.
C. It is understood and agreed that nothing in this Agreement authorizes
Franchisee, and Franchisee shall have no authority, to make any
contract, agreement, warranty, or representation on behalf of Hooters
of America, or to incur - any debt or other obligation in Hooters of
America's name; and that Hooters of America -shall -in --no -event
assume -,liability for, or- be deemed liable hereunder or thereunder
as a result of any such action; nor shall Hooters of America be liable
by reason of any act or omission of Franchisee in its conduct of the
Franchised Business or for any claim or judgment arising therefrom
against Franchisee or Hooters of America.
XVIII. INDEMNIFICATION
A. As used in this Section, the phrase "losses and expenses" shall
include without limitation, all losses, compensatory, exemplary or
punitive damages, fines, charges, costs, lost profits, attorneys,
fees, accountants' fees, expert witness fees, expenses, court costs,
settlement amounts" judgments, compensation for damages to Hooters of
America's reputation and goodwill, costs of or resulting from delays,
financing, costs of advertising material and media time/space, and
costs of changing, substituting or replacing the same, and any and all
expenses of recall, refunds', compensation, public notices and other
such amounts incurred in connection with the matters described.
B. Franchisee shall, at all times, indemnify and hold harmless to the
fullest extent permitted by law Hooters of America, its corporate
affiliates, successors and assigns and the respective directors,
officers, employees, agents and representatives of each (collectively,
the "Indemnities") from all losses and expenses incurred in connection
with any action, suit, proceeding, claim, demand, investigation or
inquiry (formal or informal) , or any settlement thereof (whether or
not a formal proceeding or action has been instituted) which arises
out of or is based upon Franchisee's acquisition, construction,
renovation, financing, management and operation of the Franchised
Business, including, without limitation, any of the following:
1. Franchisee's violation, breach or asserted violation or breach of
any contract, federal state or local law, regulation, rule,
order, standard, or directive or of any industry standard;
2. Libel, slander or any other form of defamation by Franchisee;
3. Franchisee's violation or breach of any warranty, representation,
agreement or obligation in this Agreement;
A. Acts, errors or omissions of Franchisee or any of its agents,
servants, employees, contractors, partners, affiliates or
representatives.
This indemnification shall include cases alleging the negligence of any
Indemnitee, including, without limitation, negligence in the supervision and
inspection of the Franchised Business, the training of a Restaurant employee,
and the specification of System standards, but excluding any case in which the
Indemnitee is determined by a court of competent jurisdiction to have engaged in
gross negligence or willful misconduct. The indemnification set forth in this
Section shall survive the termination of this Agreement.
C. Franchisee shall promptly notify Hooters of America of any action,
suit, proceeding, claim, demand, inquiry or investigation as described
in Section XVIII.B. If Hooters of America is or may be named as a
party in any such action, Hooters of America may elect (but under no
circumstances will be obligated) to undertake the defense and/or
settlement thereof, at the cost and expense of Franchisee. No such
undertaking by Hooters of America shall, in any manner or form,
diminish Franchisee's obligation to indemnify Hooters of America and
to hold it harmless.
D. With respect to any action, suit, proceeding, claim, demand, inquiry
or investigation, Hooters of America may, at any time and without
notice, in order to protect persons or property or the reputation or
goodwill of Hooters of America or others, order, consent or agree to
any settlement or take any remedial or corrective action as Hooters of
America deems expedient, if, in Hooters of America's sole judgment,
there are reasonable grounds to believe that:
1. any of the acts or circumstances enumerated in Section XVIII.B.
have occurred;.-or
2. any act, error, or omission of Franchisee may result directly in
or indirectly in damage, injury or harm to any person or any
property.
E. All losses and expenses incurred under this Section XVIII. shall be
chargeable to and paid by Franchisee pursuant to its obligations of
indemnity hereunder.
F. Under no circumstances shall the Indemnities be required or obligated
to seek recovery from third parties or otherwise mitigate their losses
in order to maintain a claim against Franchisee. Franchisee agrees
that the failure to pursue such recovery or mitigate loss shall in no
way reduce the amounts recoverable by the Indemnities from Franchisee.
G. The Indemnities assume no liability whatsoever for any acts, errors,
or omissions of any persons with whom Franchisee may contract,
regardless of the purpose. Franchisee shall hold harmless and
indemnify the Indemnities and each of them for all losses and expenses
that may arise out of any acts, errors or omissions of such third
parties with whom Franchisee may contract.
XIX. APPROVALS AND WAIVERS
A. Whenever this Agreement requires the prior approval or consent of
Hooters of America, Franchisee shall make a timely written request to
Hooters of America therefor, and such approval or consent shall be
obtained in writing.
B. Hooters of America makes no warranties or guarantees upon which
Franchisee may rely, and assumes no liability or obligation to
Franchisee, by providing any waiver, approval, consent, or suggestion
to Franchisee or in connection with any consent, or by reason of any
neglect, delay, or denial of any request therefor.
C. No failure of Hooters of America to exercise any power reserved to it
in this Agreement, or to insist upon compliance by Franchisee with any
obligation or condition in this Agreement, and no custom or practice
of the parties at variance with the terms hereof, shall constitute a
waiver of Hooters of America's rights to demand exact compliance with
any of the terms of this Agreement. Waiver by Hooters of America of
any particular default shall not affect or impair Hooters of America's
right with respect to any subsequent default of the same or of a
different nature; nor shall any delay, forbearance, or omission by
Hooters of America to exercise any power or right arising out of any
breach or default by Franchisee of any of the terms, provisions, or
covenants of this Agreement affect or impair Hooters of America's
rights; nor shall such constitute a waiver by Hooters of America of
any rights hereunder or rights to declare any subsequent breach or
default.
XX. NOTICES
Any and all notices required or permitted under this Agreement shall be in
writing and shall be personally -delivered ... or-mailed by certified,
registered or express mail, return receipt requested, or by overnight delivery
service, to the respective parties at the following addresses unless and until
a different address has been designated by written notice to the other party:
Notices to Hooters of America:
Hooters of America, Inc.
4501 Circle 75 Parkway
Suite E-5110
Atlanta, Georgia 30339
Attention: Franchise Department
<PAGE>
With Copy To:
A. J. Block, Jr., Esq.
Fine and Block
2060 Mt. Paran Road, N.W.
Atlanta, Georgia 30327
Notices to Franchisee:
Butterwings of Wisconsin, Inc. c/o Harvey L. Temkin 1st
Wisconsin Plaza 1 South Pinckney Street
Madison, Wisconsin 53701-1497
Any notice by certified, registered or express mail, or
overnight delivery service, shall be deemed to have been given
at the earlier of the date and time of receipt or refusal of
receipt or, if by mail, three (3) business days after being
deposited in the United States mail.
XXI. ENTIRE AGREEMENT
This Agreement, the documents referred to herein, and the attachments hereto, if
any, constitute the entire, full, and complete Agreement between Hooters of
America and Franchisee concerning the subject matter hereof, and supersede all
prior agreements. Except for those acts permitted to be made unilaterally by
Hooters of America hereunder, no amendment, change, or variance 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.
XXII. SEVERABILITY AND CONSTRUCTION
A. Except as expressly provided to the contrary herein, each -portion,
--section, -part,---term- and/or 'provision of this Agreement shall be
considered severable; and if, for any reason, a 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
portions, sections, parts, terms, and/or provisions of this Agreement
as may remain otherwise valid and enforceable; and the latter shall
continue to be given full force and effect and bind the parties
hereof; and said invalid portions, sections, parts, and/or provisions
shall be deemed not to be a part of this Agreement.
B. Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person
or legal entity other than Franchisee, Hooters of America, Hooters of
America's officers, directors, and employees, and such of Franchisee's
and Hooters of America's respective successors and assigns as may be
contemplated (and, as to Franchisee, permitted) by Section XII.
hereof, any rights or remedies under or by reason of this Agreement.
C. Franchisee expressly agrees to be bound by any promise or covenant
imposing the maximum duty permitted by law which is subsumed within
the terms of any provision hereof, as though it were separately
articulated in and made a part of this Agreement, that may result from
striking from any of the provisions hereof any portion or portions
which a court may hold to be unreasonable and unenforceable in a
final, decision in a proceeding to which Hooters of America is a
party, or from reducing the scope of any promise or covenant to the
extent required to comply with such a court order.
D. All captions in this Agreement are intended solely for the convenience
of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
E. All references herein to the masculine, neuter, or singular shall be
construed to include the -masculine, feminine, neuter, or plural,
where applicable; and 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.
F. This Agreement may be executed in several counterparts, and each copy
so executed shall be deemed an original.
XXIII. FORCE MAJEURE
Except for monetary obligations hereunder, or as otherwise specifically provided
in this Franchise Agreement, if either party to this Agreement shall be delayed
or hindered in or prevented from the performance of any act required under this
Agreement by reason of strikes, lock-outs, labor troubles, inability to procure
materials., failure of power, restrictive governmental laws or regulations,
riots, insurrection, war, or other causes beyond the reasonable control of the
party required to perform such work or act under the terms of this Agreement not
the fault of such party, then performance of such act shall be excused for the
period of the delay, but in no event to exceed ninety (90) days from the stated
time periods as set forth in Article I of this Franchise Agreement.
XXIV. APPLICABLE LAW
A. This Agreement takes effect upon its acceptance and execution by
Hooters of America as its principal office in the State of Georgia,
and shall be interpreted and construed under the laws of the State of
Georgia which laws shall prevail in the event of any conflict of law.
B. The parties agree that any action brought by either party against the
other in any court, whether federal or state, may, at the option of
Hooters of America., be brought within the State of Georgia in the
judicial circuit or district in which Hooters of America has its
principal place of business and Franchisee does hereby agree to and
submit to such jurisdiction and does hereby waive all questions of
personal Jurisdiction or venue for the purpose of carrying out this
provision.
C. No right or remedy conferred upon or reserved to Hooters of America or
Franchisee by this Agreement is intended to be, nor shall be deemed,
exclusive of any other right or remedy herein or by law or equity
provided or permitted, but each shall be cumulative of every other
right or remedy.
D. Nothing herein contained shall bar Hooters of America's right to
obtain injunctive relief against threatened conduct that shall cause
it loss or damages, under the usual equity rules, including the
applicable rules for obtaining restraining orders and preliminary
injunctions.
XXV. ACKNOWLEDGMENTS
A. 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 Franchisee as an independent businessperson. Hooters of America
expressly disclaims the making of, and Franchisee 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.
B. Franchisee acknowledges that it received a copy of the complete
Hooters of America, Inc. Franchise Agreement, the Attachments thereto,
and agreements relating thereto, if any, at least five (5) business
days prior to the date on which this Agreement was executed.
Franchisee further acknowledges that it received the disclosure
document required by the Trade Regulation Rule of the Federal Trade
Commission entitled "Disclosure Requirements and Prohibitions
concerning Franchising and Business Opportunity Ventures" at least ten
(10) business days prior to the date on which this Agreement was
executed.
C. Franchisee acknowledges that it has read and understood this
Agreement, the Attachments hereto, and any agreements relating
thereto, and that Franchisee has been advised by a representative of
Hooters of America to consult with an attorney or advisor of
Franchisee's own choosing about the potential benefits and risks of
entering into this Agreement prior to its execution.
D. Franchisee acknowledges that any statements, oral or written, by
Hooters of America or its agents preceding the execution of this
Agreement were for informational purposes only and do not constitute
any representation or warranty by Hooters of America. The only
representations, warranties and obligations of Hooters of America are
those specifically set forth in this Agreement. Franchisee must not
rely on, and the parties do not intend to be bound by, any statement
or representation not contained herein.
E. Franchisee acknowledges that Hooters of America will not provide or
designate locations for Franchisee, will not provide financial
assistance to Franchisee, and has made no representation that it will
buy back from Franchisee any products, supplies or equipment purchased
by Franchisee in connection with the Franchised Business. F.
Franch'isee, and each party executing Exhibit "All hereto,
acknowledges that Hooters of America, itself or through any officer,
director, employee or agent, has not made, and Franchisee has not
received or relied upon, any oral or written, visual, express or
implied information, representations, assurances, warranties,
guarantees, inducements, promises or agreements concerning the actual,
average, projected or forecasted franchise sales, revenues, profits,
earnings or likelihood of success that Franchisee might expect to
achieve from operating the Franchised Business, except as set forth in
the Franchise Offering Circular reviewed by Franchisee or its
representatives and except as follows, (if no exceptions, please
initial:
Initials:/WJ
IN WITNESS WHEREOF, the parties hereto have duly executed, and delivered this
Agreement on the day and year first above written.
FRANCHISEE:
BUTTERWINGS OF WISCONSIN
By: )
Attest Kenneth B. Drost
T i t 1 e
FRANCHISOR:
HOOTERS OF AMERICA, INC.
Attest
By: Robert H. Brooks
Title: President
EXHIBIT "A"
WHEREAS, the undersigned are the majority shareholders of the
Franchisee (hereinafter jointly and severally, referred to collectively as the
"Undersigned"), as designated in the foregoing Franchise Agreement; and
WHEREAS, as a condition to and in consideration of Franchisor
entering into said Franchise Agreement with Franchisee ' Franchisor has
required that the Undersigned guarantee the performance by the Franchisee of
all of the non-monetary covenants and agreements of the Franchisee contained
in the Franchise Agreement (the "NonMonetark Covenants") , together with the
monetary covenants and agreements of the Franchisee ("Monetary Covenants")
contained in the Franchise Agreement (hereinafter collectively referred to as
the "Covenants"),
NOW, THEREFORE, in consideration of $10.00, the entering into of the
Franchise Agreement by the Franchisor, and other good and valuable
considerations paid or delivered to the Undersigned, the receipt and
sufficiency of which are herewith acknowledged by the Undersigned hereby
agrees as follows:
I. The Undersigned guarantees the due and punctual payment when due
of Monetary Covenants and the due and punctual performance of the Non-Monetary
Covenants. The Undersigned agrees that, with reference to the Monetary
Covenants, this guarantee is a guarantee of payment and not of collection, and
that the obligations of the Undersigned are primary, absolute, and
unconditional and, without impairing or releasing or affecting the obligations
of the Undersigned hereunder, and without notice to or consent of the
Undersigned, the Franchisor may: (a) amend or modify in any respect the
Franchise Agreement, and (b) extend or waive any time for Franchisee's or any
other person's or entity's performance of or compliance with any term,
'covenant or -agreement to be performed or observed under the Franchise
Agreement, or waive such performance or compliance or consent to a failure of
or departure from such performance or compliance, and (c) take any action
under or with respect to the Franchise Agreement in the exercise of any
remedy, power or privilege contained therein or available to the franchiser at
law, in equity, or otherwise, or waive or refrain from exercising any such
remedies! powers or privileges. The Undersigned hereby waives all rights it
may have now or in the future under any statute, or at common law, or at law
or in equity, or otherwise, to compel Franchisor to proceed with respect to
the Covenants or any other' party before proceeding against, or as a condition
to proceeding against the Undersigned hereunder.
<PAGE>
2. The Undersigned hereby subordinates all obligations of Franchisee to
the Undersigned under any note, agreement, contract, guaranty or accommodation
claim or right of action, and any other obligations of Franchisee to the
Undersigned, however and whenever created, arising or evidenced, whether direct
or indirect, absolute, contingent, or otherwise, now or hereafter arising, or
due or to become due, to the Covenants.
3. This agreement shall be construed and enforced in accordance with
the laws of the State of Georgia, and shall be binding upon and shall inure to
the benefit of the legal representatives, successors, and permitted transfers
and assigns of the parties hereto.
IN WITNESS WHEREOF, the undersigned party or pasties has (or have)
hereunto set his/their hand(s) and seal(s) this_____day of October, 1993.
<PAGE>
CONFIDENTIALITY AGREEMENT
THIS AGREEMENT is made and entered into as of_____ 1993 by and between
HOOTERS OF AMERICA, INC. ("Franchisor") , a Georgia corporation, and Butterwings
of Wisconsin, Inc. a Wisconsin corporation ("Franchisee"). Franchisor and
Franchisee are concurrently entering into a Franchise Agreement dated of even
date herewith (or have heretofore entered into such Franchise Agreement) (the
"Franchise Agreement"), the terms (including definitions) of which are hereby
incorporated by reference. In case of any inconsistency between any term of the
Franchise Agreement and this Agreement, this Agreement shall control. In
consideration of the mutual promises of the parties set forth in the Franchise
Agreement, and of Franchisor's disclosures to Franchisee of certain
confidential, proprietary documents and information in reliance upon this
Agreement, it is agreed as follows:
1. Franchisor owns the Hooters System, and has the right to franchise
it, including the reproduction and distribution of confidential information
relating thereto. All tangible things which Franchisor has marked "Confidential"
(or with words to similar effect) prior to their loan to Franchisee,
collectively with their content, "Confidential Materials" are covered by this
Agreement. All such Confidential Materials shall remain the property of
Franchisor, and are (unless they bear copyright notices) unpublished works
nonetheless protected under the U. S. Copyright Act. Confidential Materials
include, but are not limited to the following particularly sensitive documents
and things (as they may be revised or supplemented by Franchisor from time to
time hereafter) : (a) the Marketing Manual; (b) the Promotions Management
Manual; (c) the Concept Overview Manual; and (d) all other Hooters System
Manuals, including those on the subjects of Franchise Operations, Employee
Relations, Finance and Administration, Field Operations, Purchasing and
Marketing and other documentation.
2. Franchisee shall hold and cause Confidential Materials to be held
- -in -the -strictest --confidence, following instructions published from time to
time in the System Manuals for preserving their confidentiality, and maintaining
at least the same level of security for them as it maintains for its own most
confidential business information. Franchisee shall take appropriate precautions
to insure that access to Confidential Materials is limited to authorized
Franchisee personnel (and with Franchisor's prior written consent, contractors)
who have first signed a confidentiality agreement in the form attached as
Exhibit A, and shall then permit access only on a need-to-know basis. Franchisee
shall maintain a separate file for such confidentiality agreements, and shall
make such file available for inspection and copying by Franchisor, upon written
or oral request.
<PAGE>
Confidentiality Agreement
Page -2-
3. Neither the Franchisee nor any of its officers, directors, partners!
employees, agents, independent contractors or affiliates, or any other persons
or organizations over which Franchisee has control (collectively, the
"Obligors") , shall directly or indirectly use, disclose, copy, reproduce or
duplicate all or any part of the Confidential Materials for any purpose not
associated with complying with the Franchisee's duties under the Franchise
Agreement, or disseminate, loan, assign, reveal or disclose all - or any part of
the Confidential Materials to any person or organization not licensed or
affiliated with Franchisor unless with the express prior written consent of
Franchisor. Additional copies or reprints of Confidential Materials may be
obtained only from Franchisor, if needed. If Franchisor permits Franchisee to
cause derivative works to be prepared from Confidential Materials (for example,
architectural and construction plans) , such works shall be created as a
work-made-f or hire (if by an independent contractor, under a written agreement
so stipulating) and Franchisee shall at the conclusion of such work assign all
copyrights therein to Franchisor (including, without limitation, f irst
publication rights and the right to make copies) .
4. If Franchisee is licensed to use any proprietary computer programs
of Franchisor, Obligors shall not attempt to translate, decompile, decode,
modify, merge or otherwise alter the object code of such programs.
5. Franchisee shall use its best efforts to collect all copies of
Confidential Materials from each employee and independent contractor permitted
access to them, at or prior to termination of such employment or retention. Upon
termination of the Franchise (or earlier as requested by Franchisor) ,
Franchisee shall return to Franchisor at Franchisee's expense or destroy (as
Franchisor directs) any or all copies of Confidential Materials, and all other
tangible things containing information from or otherwise derived from such
Confidential Materials, then in Franchisee's-actual-or constructive possession.
6. In the event that any obligor shall breach this Agreement, or the
separately signed Confidentiality Agreement in the form of Exhibit A, or in the
event that such breach appears to be imminent', Franchisor shall be entitled to
all legal and equitable remedies afforded by law as a consequence of such breach
or imminent breach, and may, in addition to any and all other forms of relief,
recover from the breaching obligor all reasonable costs and attorney's fees
incurred by Franchisor in seeking any such remedy. Franchisee acknowledges that
Confidential Materials contain Franchisor's commercially valuable trade secrets
and that
<PAGE>
Confidentiality Agreement
Page -3-
unauthorized use or disclosure of all or any part of them would cause great and
irreparable injury, for which there may be no adequate remedy at law.
7. While some of the information contained in the Confidential
Materials may already be known by Franchisee or its personnel or be in the
public domain, Franchisee acknowledges that the compilation of that information
in Confidential Materials has cost Franchisor great effort and expense, and
affords the persons to whom the Confidential Materials are disclosed, including
the Obligors, a competitive advantage over persons who do not know the
information or have the compilation contained in the Confidential Materials.
Franchisee and the Obligors shall be liable for damages sustained by Franchisor
as a result of willful or negligent publication or dissemination of the
Confidential Materials or any information contained therein by Obligors to whom
Franchisee has disclosed Confidential Materials. The burden of proof shall be on
the party opposed to Franchisor in any claim that the Confidential Materials or
any information contained therein in the form presented is not confidential or
secret.
8. This Agreement shall remain in effect from the above date until the Term
expires or otherwise terminates, and thereafter for the lesser of five (5) years
or the longest time permitted by applicable law. Confidential Material
describing a food or beverage recipe, list of ingredients, and preparation and
serving instructions shall remain secret and confidential forever, unless
Franchisor causes the same to be disclosed without a secrecy obligation from the
discloses. It shall be binding upon the parties hereto and upon their respective
executors, administrators, legal representatives, heirs, successors and assigns.
9. This Agreement shall be governed for all purposes by the
laws-of-the-State-of Georgia. If-any provision of this Agreement is declared
void, or otherwise unenforceable, such provision shall be deemed to have been
severed from this Agreement, which shall otherwise remain in full force and
effect.
10. Any Franchisee notice, consent request or the like shall be in writing
and shall be sent via first class United States mail or by any courier service
having receipted delivery, to Franchisor at 4501 Circle 75 Parkway, Suite
E-5110, Atlanta, Georgia 30339, Attention President, or to such other address or
persons as Franchisor shall advise the undersigned in writing from time to time.
Notice to or consent from an officer of Franchisor shall be sufficient.
<PAGE>
Confidentiality Agreement
Page -4
The undersigned acknowledges and agrees that it has read the foregoing,
understands all of its obligations under this Agreement, is duly authorized to
sign this Agreement, is willing to receive and use the Confidential Materials in
full compliance with the terms of this Agreement, and that this Agreement does
not require the signatures of officers of Franchisor.
THE UNDERSIGNED
BUTTERWINGS OF WISCONSIN, INC.
ADDRESS:
c/o Harvey L. Temkin 1st Wisconsin Plaza 1 South Pinckney Street
Madison, Wisconsin 53701-1497
By:
Title:
Date:
<PAGE>
EXHIBIT "A"
CONFIDENTIALITY AGREEMENT
I, an employee/independent contractor of ("Employer"), in order to
induce disclosure to the Employer of certain confidential, proprietary
documents and information ("Confidential Materials") owned or licensed
by Hooters of America, Inc.
--------, represent and warrant to Employer and that:
I understand that written or otherwise recorded Confidential
Materials remain the property of HOA and are (Unless they bear copyright
notices) unpublished works nonetheless protected under the U.S. Copyright Act,
which include valuable HOA trade secrets and confidential information. I further
understand that HOA has made and will continue to make substantial investments
in developing Confidential Materials, which can be recouped only if HOA's
proprietary rights are honored, and that any unauthorized use or disclosure by
me or all or any part of the Confidential Materials would cause HOA great and
irreparable injury.
2. I acknowledge that all tangible things which HOA has marked
"Confidential" (or with words to similar effect) prior to their loan to
Employer, are Confidential Materials covered by this Confidentiality Agreement,
and that the following (as they may be revised or supplemented by HOA from time
to time) are particularly sensitive: (a) the Marketing Manual; (b) the
Promotions Management Manual; (c) the Concept Overview Manual; and (d) all other
HOA System Manuals, including those on the subject of Franchise operations,
Employee Relations Finance and Administration, Field operations, Purchasing and
Marketing and other documentation.
3. I promise that I will use Confidential Materials and information
contained therein only at places designated by Employer, in furtherance of
Employer's business, and pursuant to Employer's direction. I will not (except as
Employer properly directs) copy all or any part of Confidential Materials, or
transfer or loan to any other person any Confidential materials which are
entrusted to me. If Employer directs me to create works derived from
Confidential Materials (for example, architectural and construction plans) ,
such works shall be deemed works-made-f or hire and Employer shall own all
copyrights in such works, subject to its obligations to assign such rights to
HOA.
<PAGE>
4. If my employment by Employer terminates or I am no longer assigned to
work with Confidential Materials, I will promptly surrender to Employer all
copies of Confidential Materials and any notes, memoranda and the like
concerning or derived from them, which are then in my possession or control.
5. I will not disclose all or any part of Confidential Materials or
information contained therein to any person who is not also employed (directly
or as an independent contractor) by Employer, and then only pursuant to
Employers' directions.
6. If I am granted access to any Confidential Materials which are computer
programs, I will not attempt to translate, decompile, decode, modify, merge or
otherwise alter the object code of such programs.
7. My obligation to preserve the confidentiality of Confidential
Materials and information contained therein will continue for the longest term
permitted by applicable law after termination of my employment by Employer, even
if that termination is wrongful, but in no event less than five (5) years.
understand that this is not an employment agreement of any kind. I understand
further that Confidential Material describing a food or beverage recipe, list of
ingredients, and preparation and serving instructions shall remain secret and
confidential forever, unless HOA causes the same to be disclosed without a
secrecy obligation form the discloses.
8. If a dispute arises as to whether particular information in
Confidential Materials ' used or disclosed by me in violation of this Agreement,
is confidential information or a trade secret, I agree that I shall bear the
burden of proving that I knew the information prior to first disclosure to like
of the Confidential Materials containing it, that it or the Confidential
Materials first became publicly known through no wrongful act on my part, or
that I independently developed it without reference to any Confidential
Materials.
9. I shall be liable to HOA for damages caused by my willful or
negligent use or disclosure of Confidential Materials or information contained
therein, in violation of this Agreement.
<PAGE>
10. This Agreement shall be governed for all purposes by the laws of the
State of Georgia, and shall be construed to maximize protection for HOA's rights
in the Confidential Materials. If any provision of this Agreement is declared
void or unenforceable, such provision shall be deemed severed, and the balance
of the Agreement shall remain in full force and effect.
Dated:
Signature
(Typed or Printed Name)
Address:
Signature
(Typed or Printed Name)
Address:
Signature
(Typed or Printed Name)
Address:
<PAGE>
WISCONSIN ADDENDUM
THIS ADDENDUM is made and entered into 19 93, between Hooters Of
America, Inc., a Georgia corporation ('Franchisor") and ' BUTTERWINGS OF
WISCONSIN, Inc. ('Franchisee"). This Addendum relates to that certain Franchise
Agreement, dated of even date herewith, and any Option Addendum, dated of even
date herewith, between the parties.
IN CONSIDERATION of the mutual promises and covenants herein contained,
and to induce Franchisee to enter into the Franchise Agreement with Franchisor,
and to comply with certain statutory and administrative requirements applicable
to franchises sold subject to Wisconsin law, the parties agree as follows:
I . Notwithstanding Section XIII. of the Franchise Agreement, to the
extent any of the provisions regarding notice of termination or change in
dealership are in conflict with Section 135.04 of the Wisconsin Fair Dealership
Law, the Wisconsin law shall be controlling.
2. Notwithstanding Section XXI. of the Franchise Agreement, and Section
15 of the Option Addendum, if any, this Addendum shall not be merged with or
into, or superseded by the Franchise Agreement. In the event of any conflict
between the Franchise Agreement or the Option Addendum and this Addendum, this
Addendum shall be controlling. Except as expressly set forth herein, no other
amendments or modifications of the Franchise Agreement or the Option Addendum
are intended or made by the parties.
IN WITNESS WHEREOF, the parties hereto have duly executed, and delivered
this Addendum on the day and year first above written.
FRANCHISOR:
HOOTERS OF AMERICA, INC.
By:
Attest Robert H. Brooks
Title: President
FRANCHISEE:
WMRWINGS OF WISOCNSIN, INC.
By:
Attest
<PAGE>
OPTION ADDENDUM
THIS ADDENDUM (the "Option") is made and entered into as of the
day of _____, 1993, between HOOTERS OF AMERICA, INC., a Georgia corporation with
its principal office at 4501 Circle 75 Parkway, Suite E-5110, Atlanta, Georgia
30339 (hereinafter referred to as "Franchisor" or "Hooters of America") and
BUTTERWINGS OF WISCONSIN, INC., a corporation incorporated in the State of
Wisconsin (hereinafter referred to as "Franchisee").
WITNESSETH:
WHEREAS, Franchisee has purchased a Hooters of America, Inc. franchise
contemporaneously herewith for the development and operation of an Approved
Location pursuant to and as identified in the Franchisor's Franchise Agreement
of even date herewith (the "Franchise Agreement"), and
WHEREAS, Franchisee desires to secure an option for the development and
operation of four (4) additional Hooters of America, Inc. franchised locations,
within a specified period of time and geographical area as defined in this
Option (the "Territory") (hereinafter collectively referred to as the
"Locations" and singularly as the "Location") and for a specified additional
franchise fee, which fee shall be Seventy Five Thousand ($75,000) Dollars per
Location, and
WHEREAS, Franchisor desires to grant such an option to Franchisee.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereby agree as follows:
1. Grant of Qption Subject to the terms and conditions set forth
herein, Franchisor grants to Franchisee, and Franchisee accepts, an exclusive
option to develop and operate four (4) additional Location(s) within the
Territory, subject to the terms and conditions of this option and the Franchise
Agreement.
2. Franchise Fees for Optioned Location. The additional franchise fee to be
charged and collected by the Franchisor in connection with each additional
Location approved by the Franchisor pursuant to this Option shall be
Seventy-Five Thousand ($75,000) Dollars.
<PAGE>
3. Option Fee., In consideration for Franchisor's granting the within
option to Franchisee, Franchisee shall pay to Franchisor the sum of Ten Thousand
($1 0,000) Dollars for each Location optioned to Franchisee hereby, or the total
amount of Forty ($40,000), which sum shall be due in full upon the execution of
this Agreement and shall be deemed fully earned when paid in consideration of
the Franchisor's granting the within option(s). This Option Fee is not
refundable in whole or in part, except as otherwise provided in the Franchise
Agreement.
4. Time Periods. The option to develop and open additional LOGation(s) in
the Territory, to the extent granted hereby, may be exercised by Franchisee at
any time for construction and opening within the following time period(s):
Additional Restaurant No.,-- Time Period (In Months) For
Execution of This Agreement
1 Under Construction within 12 months
and open within 15 months
2 Open within 21 months
3 Open within 27 months
4 Open within 33 months
Nothing contained in this paragraph shall grant, create or
extend the rights granted to the Franchisee in Paragraph 1 hereof.
5. Optioned Franchise Territgriaa. The Location(s) optioned hereby shall be
located within that certain geographic area delineated in Exhibit "All to this
Agreement, either by a map or written description.
6. Exercise of Option. Any option granted hereunder shall be exercised in
the following manner:
(a) Prior to the expiration of each of the option time(s)
specified hereunder, Franchisee shall serve upon Franchisor a written notice of
exercise the option(s) granted hereunder, accompanied by payment for such
Locations(s) by certified check or bank draft made payable to the order of the
Franchisor in the amount of Sixty-Five Thousand ($65,000) Dollars for each
Location, and designation of a proposed site for approval by the Franchisor in
accordance with the provisions of this Option.
(b) If Franchisee shall fail to perform any of the acts or
fail to deliver the notice required pursuant to the provisions of sub-section
(a) in a timely fashion, such failure shall be deemed an election by Franchisee
not to exercise its option rights hereunder, and such failure shall cause all of
Franchisee's said option rights as provided in this Option to lapse and expire,
in which event all Option Fees paid to Franchisor hereunder shall be retained by
the Franchisor as consideration for this Option.
(c) Provided that Franchisee shall exercise the Franchisee's
option in the form and manner herein described and upon approval of a
Location(s) by the Franchisor in accordance with the provisions of Paragraph 8
of this Option, the Franchisor shall deliver to Franchisee an addendum to the
Franchise Agreement designating such Location(s) as an Approved Location, as
defined in the Franchise Agreement in the form attached hereto as Exhibit "Bit,
or in the then current form approved by Franchisor (the "Addendum"), which
Addendum shall be executed and delivered by the Franchisee to the Franchisor
within ten (10) business days from receipt of such Addendum from the Franchisor
subject and pursuant to the terms of the Franchise Agreement.
(d) As to each Approved Location and upon execution and
delivery of the Addendum relating to said Approved Location, the Franchisee
shall be bound by all of the terms, conditions, requirements and duties imposed
by the Franchise Agreement, which Franchise Agreement shall govern the parties
and preempt this Agreement with reference to such Approved Location.
7. Conditions Precedent. Franchisee's right to exercise its opt-ion to
develop and operate a Location(s) pursuant to this option is conditioned upon
Franchisee's fulfillment of each and all of the following conditions precedent:
(a) At the time of Franchisee's exercise of said option, Franchisee shall
have fully performed and otherwise be in compliance with all of the Franchisee's
obligations under the Franchise Agreement and under all other agreements which
may then be in effect between Franchisor (and its affiliates and subsidiaries,
if any) and Franchisee.
(b) Franchisee shall not be in default of any provision of the Franchise
Agreement, and the amendments thereto or any replacement thereof, or any other
agreement with Franchisor, its subsidiaries and affiliates (if any) and shall
have complied with all the terms and conditions of such agreements during the
terms thereof.
(c) Franchisee shall have submitted to the Franchisor a proposed site for
such Location(s) and shall have obtained the approval of the Franchisor to such
site, or any alternative site, within sixty (60) days from the date of notice
from the Franchisee, as provided in Paragraph 6(a).
3
<PAGE>
(d) Butterwings of California, Inc. shall not be in default of any
provision of the Franchise Agreement between Franchisor and Butterwings of
California, Inc. dated (the "California Franchise Agreement"), or any other
agreement with Franchisor, it subsidiaries and affiliates (if any) and shall
have complied with all of the terms and conditions of such agreements during the
terms thereof, Butterwings of California, Inc. being an affiliated or related
entity of Franchisee and/or the principals of Franchisee.
(e) Butterwings of California, Inc. shall have timely exercised the first
three (3) of its options for additional Locations under the Option Addendum to
the California Franchise Agreement and shall be in compliance with all of the
terms and provisions thereof, including the opening of Restaurants at additional
Locations within the time schedule set forth in said Option Addendum, the
Franchisee acknowledging that the performance by Butterwings of California, Inc.
pursuant to said Option Addendum is a material consideration to the grant of the
within and foregoing Option Addendum.
In the event that the Franchise Agreement is terminated or
expires, then the Options herein granted shall be null and void at the time of
such termination or expiration.
8. Site Selection. (a) Franchisee agrees to submit for evaluation by
the Franchisor site approval request documents for each proposed site for a
Hooters Restaurant. The Franchisor shall review the site approval request
documents and conduct such other investigation of the proposed site as it
determines is necessary to properly evaluate the site, including an evaluation
of the financial terms of the acquisition or rental of the proposed site.
Approval shall be at the sole discretion of the Franchisor. The Franchisor shall
notify Franchisee of the acceptance, acceptance with contingencies or
conditions, or rejection of a site by written notice to Franchisee with fifteen
(15) business days from the date of compliance by Franchisee with the
requirements of Paragraph 6 hereof. Written notice of the acceptance of any site
request by the Franchisor shall be accompanied by an Addendum to the Franchise
Agreement, as provid ed in Paragraph 6. Written notice of the rejection of any
site request by the Franchisor shall set forth the Franchisor's reasons for any
such rejection. The Franchisor shall pay all reasonable travel expenses incurred
by agents and employees of the Franchisor (the "Costs") in connection with the
inspection of the initially proposed site by Franchisee for each option period,
and the Franchisee shall pay all other Costs for inspection of additional or
alternative sites proposed by Franchisee within thirty (30) days of the receipt
of written notice of the actual expenses incurred by said agents and employees.
(b) Franchisee acknowledges that no officer, employee or agent of the
Franchisor has any authority to approve or accept
4
<PAGE>
any proposed site except by written acceptance by an officer of the Franchisor
authorized to approve and accept a site proposal and any other representations,
approvals or acceptances, whether oral or written, shall be of no effect.
FRANCHISEE ACKNOWLEDGES THAT THE FRANCHISORS ACCEPTANCE OF SAID SITE DOES NOT
CONSTITUTE ANY REPRESENTATION, WARRANTY OR GUARANTEE BY THE FRANCHISOR THAT SAID
SITE WILL BE A SUCCESSFUL LOCATION FOR A HOOTER'S RESTAURANT.
(c) The Franchisor reserves the right to revoke any site
acceptance after ninety (90) days from the date thereof if a Hooter's Restaurant
is not under construction, as defined herein, at the site in accordance with a
fully executed Addendum to the Franchise Agreement for said site, as provided in
this Option, or if said Addendum is not executed and delivered to the Franchisor
as herein provided.
9. Construction Plans and Site Acquisition.
(a) Property Acquisition. Upon receipt of the Franchisor's
written acceptance of a proposed site as set forth in Paragraph 6 hereof,
Franchisee shall immediately take the necessary steps to acquire the site by
purchase, lease or sublease, and to otherwise obtain the rights to construct,
maintain and operate a Hooter's Restaurant on the site.
(b) Site Plan Approval. Upon site approval by Franchisor f or
the construction of new improvements, the Franchisor shall provide Franchisee
with a set of plans for a Hooter's Restaurant which has already been
constructed. The Franchisee shall engage a licensed architect or engineer to
conform the plans to local, state and federal codes and requirements, and site
conditions, prior to submission of such plans to the Franchisor. Franchisee
shall submit to the Franchisor a Site Plan for the Franchisor's approval. Such
Site Plan must be reviewed and approved by the Franchisor in writing prior to
commencement of construction. Rejection of any Site Plan shall be at the sole
discretion of the Franchisor, and the Franchisor shall notify Franchisee in
writing of any rejection of the Site Plan, setting forth the Franchisor's
reasons for said rejection. If alterations of any kind are required to be made
to the Site Plan other than alterations necessary to conform the Site Plan to
local, state and federal codes and requirements or to adapt the Site Plan to
site topography or soil conditions, as approved by the Franchisor, or to any of
the Franchisor's construction plans, specifications or layouts, for any reason,
such alterations must be approved by the Franchisor in writing before any work
is begun on the site. All costs for any Site Plan or alteration to the
Franchisor standard construction plans, specifications and layouts shall be paid
by Franchisee, including costs incurred for any reason such as soil tests,
engineering and architectural fees, and fees required to comply with any
applicable law, regulation or ordinance.
5
<PAGE>
(c) Renovation Plan Approval. If Franchisee is renovating an existing
building, all plans and specifications including a site plan must be approved in
writing by the Franchisor for renovation prior to commencement of any such
renovation. Rejection of any plans and specifications shall be at the sole
discretion of the Franchisor, and the Franchisor shall notify Franchisee in
writing of said rejection and shall set forth the reasons for rejection. The
Franchisor shall provide Franchisee with the Franchisor-'s standard floor plan
specifications and examples of same; however, Franchisee at Franchisee's
expense, shall provide final working drawings which must be reviewed and
approved by the Franchisor in writing, prior to commencement of construction.
(d) Notification of Construction Commencement. As soon as Franchisee has
received the Franchisor's written approval of a site plan and construction
plans, acquired the right to use the site, obtained all permits, governmental
approvals, and otherwise obtained all required rights to construct, maintain and
operate the Hooter's Restaurant on the site, Franchisee shall notify the
Franchisor of such facts in writing, postage fully prepaid, delivered by U. S.
Certified Mail or overnight delivery.
10. Conditions of Construction. Prior to the commencement of construction
of any Hooters Restaurant, Franchisee must satisfy the following conditions:
(a) The site must have been accepted by the Franchisor and any
contingencies or conditions to which such acceptance is subject must have been
met, as specified in Paragraph 8 hereof.
(b) Franchisee's site plan must have been approved by the
Franchisor and all proposed construction plans, specifications and layouts must
have been approved by the Franchisor, as specified in Paragraph 9 hereof.
(c) Franchisee has obtained an Addendum to the Franchise
Agreement for the site fully executed by both Franchisee and the Franchisor, as
specified in Paragraph 6.
(d) Franchisee must have obtained the right to use the site,
obtained all necessary permits and governmental approvals, and otherwise
obtained all required rights to construct, maintain and operate the Hooter's
Restaurant as specified in Paragraph 11 herein.
If at any time the Franchisor determines that Franchisee has
begun constructing or renovating a Hooters restaurant without all of these
conditions having been met, the Franchisor shall, in addition to any other
remedies (including termination of the
6
<PAGE>
franchise), have the-right to obtain an injunction against the continued
construction, opening and operation of the Hooters Restaurant from a court of
competent jurisdiction. All legal fees and expenses incurred by the Franchisor
in connection with any such litigation in connection with an action for
injunctive relief as contemplated hereby shall be paid by Franchisee.
11. Commencement of Constructign.
(a) Construction. Upon receipt from the Franchisor of the executed Addendum
for said site., Franchisee shall commence and complete construction of or
renovation to a Hooters Restaurant at the site in accordance with the terms of
the Franchise Agreement.
(b) Deviation from Approved Plan. Franchisee shall not deviate from the
approved site ------------------------------- plan, construction plans or
specifications in any manner in the construction or renovation of the Hooters
Restaurant without the prior written approval of the Franchisor. If, at any
time, the Franchisor determines that Franchisee has not constructed or renovated
the Hooters Restaurant in accordance with the plans and specifications, as
approved by the Franchisor, the Franchisor shall, in addition to any other
remedies, have the right to obtain an injunction from a court of competent
authority against the continued construction, opening and/or operation of the
Hooter's Restaurant. All legal fees incurred by the Franchisor in connection
with any such litigation in connection with an action for injunctive relief as
contemplated hereby shall be paid by Franchisee.
12. No Franchise Convey-p&. The Franchisee shall not be deemed for any purpose
to be a franchisee of the Franchisor with respect to any of the Locations
optioned hereunder except to the extent that the option herein granted shall
have been exercised in the manner provided for herein and a valid addendum to
the Franchise Agreement with respect to the Location(s) optioned has been
executed by the Franchisor and Franchisee.
13. Transfer of Interest. If the Franchise Agreement is validly transferred to a
third party pursuant to Section XII of the Franchise Agreement with the approval
of Hooters of America, Inc., this option shall also be transferred to such
transferee.
14. Waiver and Delay. No waiver or delay in enforcement of any breach of any
term, covenant or condition of this Agreement shall be construed as a waiver of
any preceding or succeeding breach or delay in enforcement, or any other term,
covenants or condition of this Option; and, without limitation upon any of the
foregoing, the acceptance of any payment specified to be paid by Franchisee
hereunder shall not be, nor be construed to be, a waiver of any breach of any
term, covenant or condition of this Option.
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<PAGE>
15. Integration of Option. This Option, and all ancillary agreements executed
contemporaneously herewith, constitute the entire agreement between the parties
with reference to the subject matter hereof and supersedes all prior
negotiations, understandings, representations and agreements, if any. Franchisee
acknowledges that Franchisee is entering into this Option as a result of his own
independent investigation of the business and not as a result of any
representations about the Franchisor by its agents, officers or employees that
are contrary to the terms herein set forth.
This Option Addendum may not be amended orally, but may be
amended only by a written instrument signed by the parties hereto. Franchisee
expressly acknowledges that no oral promises or declarations were made to it and
that the obligations of the Franchisor are confined exclusively to the terms
herein. Franchisee understands and assumes the business risks inherent in this
enterprise.
16. Applicable Law
(a) This Option is effective upon its acceptance and execution
by the Franchisor in Georgia, and shall be interpreted and construed under the
laws thereof, which laws shall prevail in the event of any conflict of law;
provided, however, that if any of the provisions of this Option would not be
enforceable under the laws of Georgia, then such provisions shall be interpreted
and construed under the laws of the state in which the premises of the
Franchised Business is located.
(b) The parties agree that any action brought by either party
against the other in any court, whether federal or state, shall be brought
within the State of Georgia in the judicial district in which Hooter's of
America has its principal place-of business and do hereby waive all questions of
personal jurisdiction or venue for the purpose of carrying out this provision.
(c) No right or remedy conferred upon or reserved to the
Franchisor or Franchisee by this option is intended to be, nor shall be deemed,
exclusive of any other right or remedy herein or by law or equity provided or
permitted, but each shall be cumulative of every other right or remedy.
(d) Nothing herein contained shall bar the Franchisor's right
to obtain injunctive relief against threatened conduct that shall cause it loss
or damages, under the usual equity rules, including the applicable rules for
obtaining restraining orders and preliminary injunctions.
17. Notice. Any notice required or permitted to be given hereunder shall be in
writing and shall be served upon the other
<PAGE>
17. Notice- Any notice required or permitted to be given hereunder shall be in
writing and shall be served upon the other party personally, or by certified
mail, return receipt requested, postage prepaid. Any notice to Franchisor shall
be addressed to Franchisor at:
Hooters of America, Inc.
4501 Circle 75 Parkway
Suite E-5110
Atlanta, Georgia 30339
Notices to the Franchisee shall be addressed as
follows:
Butterwings of Wisconsin, Inc. c/o Mr. Harvey L. Temkin Foley & Lardner 1
South Pickney Street
P.O. Box 1497
Madison, Wisconsin 53701-1497
18. Miscellaneous.
Construction and Interpretation:
(a) This Option is to be construed in accordance with the laws of the State
of Georgia.
(b) The titles and subtitles of the various sections and paragraphs of this
Option are inserted for convenience and shall not be deemed to affect the
meaning or construction of any of the terms, provisions, covenants and
conditions of this Option.
(c) The language in all parts of this Option shall in all cases be
construed simply according to its fair and plain meaning and not strictly for or
against Franchisor or Franchisee.
(d) It is agreed that if any provision of this option is capable of two
constructions, one of which would render the provision void and the other of
which would render the provision valid, then the provision shall have the
meaning which renders it valid.
(e) The words "Franchisor" and "Franchisee" herein may be applicable to one
or more parties, the singular shall. include the plural, and the masculine shall
include the feminine and neuter; and if there shall be more than one (1) party
or person referred to as the Franchisee hereunder, then their obligations and
liabilities hereunder shall be joint and several.
9
<PAGE>
contract, the latter shall prevail, but in such event the provision of this
Option thus affected shall be curtailed and limited only to the extent necessary
to bring it within the requirement of the law. In the event that any part,
section, paragraph, sentence or clauses of this Option shall be held to be
indefinite, invalid or otherwise unenforceable, the entire option shall not fail
on account thereof and the balance of this option shall continue in full force
and effect. If any Court of competent jurisdiction deems any provision hereof
(other than for the payment of money) unreasonable, said Court may declare a
reasonable modification hereof and this Option shall be valid and enforceable
and the parties hereto, agree to be bound by and perform the same as thus
modified.
(g) This Option may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
19. Submission of Option. The submission of this Option does not constitute an
offer and this option shall become effective only upon the execution thereof by
the Franchisor and Franchisee. THIS OPTION SHALL NOT BE BINDING ON THE
FRANCHISOR UNLESS AND UNTIL IT SHALL HAVE BEEN ACCEPTED AND SIGNED, BY AN
AUTHORIZED OFFICER OF THE FRANCHISOR.
IN WITNESS WHEREOF, the parties have duly executed this instrument on the date
first written above.
FRANCHISOR:
HOOTERS OF AMERICA, INC.
By:
Name:
Attest Title:
Dated:
10
<PAGE>
FRANCHISEE(S):
BUTTERWINGS OF WISCONSIN.
By
Title:
Attest:
Dated:
11
<PAGE>
Exhibit "A"
Territory
Madison, Wisconsin, and Milwaukee, Wisconsin
12
<PAGE>
Exhibit "B"
Approved Location
Address:
Date of Approval:
FRANCHISOR: FRANCHISEE:
Hooters of America, Inc. Butterwings of Wisconsin,
Inc.
By: By:
President President
Attest: Attest:
Secretary Secretary
13
FOR CONNECTICUT RESIDENTS ONLY:
"THESE N0TEES HAVE NOT BEEN REGISTERED UNDER SECTION 36-485 OF THE CONNEC11CUT
UNIFORM SECURITIES ACT BUT WILL BE SOLD IN RE11ANCE ON AN EXEMPTION FROM SUCH
REGISTRATION SET FORTH IN SECTION 36-490(B)(9)(A) OF SAID ACT AND REGULATIONS
PROMULGATED THEREUNDER. THE NOTES CANNOT BE RESOLD WITHOUT REGISTRATION UNDER
36-485 OF SAME ACT OR AN EXEMP-17ON FROM REGISTRATION PURSUANT TO SECTION 36-490
OF SAID ACT.
12% NOTES
Certain capitalized terms used but not defined herein shall have the
meanings given to them in the Agency Agreement pursuant to which this Note is
issued. The terms and conditions of such Agency Agreement are incorporated
herein by reference.
I . Interest. Butterwings, Inc., an Illinois corporation (the
"Company"), promises to pay interest on the principal amount of this Note at
twelve percent (12.0 %) per annum ("Basic Interest") from 199- until as
described herein. The Company will pay Basic Interest only monthly from 199-
[date of issuance of Note] until the last day through the forty-eighth full
calendar month following final closing of the Offering (the "Interest Only
Period'). From and after the Interest Only Period, the Company will pay interest
and principal as set forth in paragraph 2 below. During the Interest Only
Period, the Company will pay interest monthly on the first day of each month, or
if any such day is not a Business Day, on the next succeeding Business Day (each
an "Interest Payment Date"). Interest on the Notes will accrue from the most
recent date, on which interest has been paid, or, if no interest has been paid,
front the date of issuance. The Company shall pay interest on overdue principal
from time to the on demand at the rate of one percent (1.0%) per annum in excess
of the Basic Interest; it shall pay interest on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate as is payable on overdue principal to the extent lawful. Interest
will be computed on the basis of a 360-day year of twelve 30-day months. In
addition to the interest described above, additional interest ("Additional
Interest") shall be paid to Persons, if at all, within sixty (60) days after the
end of each calendar year during the term of the Notes and the Additional
Interest shall be determined in the following manner: In the event the Maximum
Offering is achieved (i.e. $3,700,000), the Additional Interest will be an
amount equal to five percent (5 %) of the "pre-tax income" of the Company (i.e,
all income and deductions, other than deductions for income taxes). in the event
less than the Maximum Offering is achieved, the Additional Interest will be an
amount equal to (i) five percent (5 %) of the "pre-tax income" of the Company
multiplied by (ii) a fractions the numerator of which is the total amount raised
in the offering and the denominator of which is the Maximum Offering. In either
event, the amount of Additional Interest each Person shall be entitled to
receive will be in proportion to the amount that such Person's Notes shall bear
to the total amount of Notes issued and outstanding at the time Additional
Interest is paid,
2. Amortization. From and after the Interest only Period, the Company will
pay Principal and interest as follows: thirty-six (36) equal monthly
installments of Dollars ($ ) each, commencing On the first day of the Calendar
month following the Interest only period, and continuing on the first day Of
each and every month for 36 months the after, with a final payment on
3. Method of Payment- The Company will pay interest on the Notes (except
defaulted interest) to the Persons who are registered Holders of Notes at the
close of business On the record date next preceding the Interest Payment Date,
even if such Notes are canceled after such record date and on or before such
Interest payment Date. The Company will pay the principal of and interest on the
Notes in money of the United States Of America that at the time of payment is
legal tender for payment of public and private debts, Provided that the Company
may pay such amounts by check payable in such money. It may mail an interest
check to a Holder's registered address. 'Me record date shaft be ten (10) days
prior to the interest Payment Date unless the Company and Agent otherwise agree.
4. Paying Agent and &Registrar. The Company will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar or co-registrar
without notice to any Holder.
5. Agency Agreement. The Company issued the Notes under an Agency Agreement
dated as of , 199 - (the "Agency Agreement") between the Company and Guaranty
National Title Company (the "Agent'). The terms of the Notes include those
stated in the Agency Agreement. The Notes are subject to all such terms of the
Agency Agreement, and Holders are referred to dw Agency Agreement for a
statement of such terms. The Notes are obligations of the Company limited to
$3,700,000 in aggregate principal amount (but not less than S600,000).
6. Official Redemption. The Notes may be redeemed at any time following
the Final Offering Closing, in who)e or in part, at the option of the Company at
a redemption price equal to the one hundred three percent (I 03 %) of the unpaid
principal amount thereof, in each case together with accrued and unpaid interest
thereon to the redemption date,
7. Notice Of Redemption. Notice of an optional redemption will be mailed
at least 15 days but not more than 60 days before the redemption date to each
Holder at its registered address. On and after the, redemption date, interest
ceases to accrue on Notes or portions thereof Called for redemption and redeemed
in accordance with the provisions of the Agreement.
8 . Denominations Transfer. Exchange. The Notes are in registered form
without coupons in denominations of $25,000 and multiples of $1,000. The,
Registrar and the Agent may require a Holder, among other things, to furnish
appropriate, - endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Agency Agreement. Without the prior consent
of the Company, the Registrar is not required (i) to transfer or exchange any
Note selected for redemption, (ii) to transfer or exchange any Note or a period
of 15 days before a selection of Notes to be redeemed, or (iii) to register the
transfer or exchange of a Note between a record date and the next succeeding
interest payment date.
<PAGE>
9. Persons Deemed Owners. The registered Holder of a Note may be treated as
its owner for all purposes,
10. Amendments and Waivers - Subject to certain exceptions, the Agency
Agreement or the Notes may be amended or supplemented with the consent (which
may include consents obtained in connection with a tender offer or exchange
offer for Notes) of the Holders of at least a Majority in principal amount of
the Notes then outstanding, and any existing Default under, Or Compliance with
any provision of, the Agency Agreement may be waived (other than any continuing
Default or Event of Default in the payment of interest on or the principal of
the Notes) with the consent of the Majority in Interest of Noteholders. Without
the consent of any Holder, the Company and the Agent may amend or supplement the
Agency Agreement or the Notes to, among other things, cure any ambiguity, defect
or inconsistency to make any change that does not adversely affect the rights of
any Holder,
Without the consent of each Holder affected, the Company may not take
certain actions, including (i) changing the maturity of any Note or waiving any
default in payment in respect of any Note, (ii) affecting the terms (including
the interest rate) of any scheduled payment of interest on or principal of the
Notes, (iii) modification of the ranking of the Notes, or (iv) reducing the,
percentage of Holders necessary to consent to an amendment, supplement or a
waiver to the Agency Agreement.
The right of any Holder to participate in any consent pursuant to any
provision of this Agency Agreement (and the obligation of the Company to obtain
any such consent otherwise required from such Holder) maybe subject to the
requirement that such Holder shall have been the Holder of record of any Notes
with respect to which such consent is required or sought as of a date identified
by the Agent in a notice furnished to Holders in accordance with the terms of
this Agency Agreement,
11. Default and Remedies. Events of Default, more fully specified in the
Agreement, include default in payment of interest (including Additional
Interest) on the Notes for 90 days, default in payment of principal on the Notes
for 90 days, failure by the Company for 120 days to comply with any of its other
agreements in the Agency Agreement or the Notes, certain defaults under, or the
acceleration of, certain other Indebtedness; certain fuW judgments that remain
undischarged; and certain events of bankruptcy or insolvency. if an Event of
Default occurs and is continuing, the Agent or the Holders of at least 2S % in
principal amount of the then outstanding Notes may declare all the Notes to be
immediately due and payable for an amount equal to 100% of the principal amount
of the Notes plus accrued interest to the date of payment, except that in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency , all outstanding Notes become due and payable immediately without
further action Y or notice. Holders may not enforce the Agency Agreement or the
Notes except as provided in the Agency Agreement. The Agent may require
indemnity satisfactory to it before it enforces the Agency Agreement or the
Notes. Subject to certain limitations, Majority in Interest of Noteholders may
direct the Agent in its exercise of any trust or power. The Agent may withhold
from Holders notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interests.
<PAGE>
12. Agent Dealings With Company. The Agent, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates, and may otherwise deal with the Company or such
Affiliates, as if it were the Agent.
13. Abbreviations. 'Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN, COM (=tenants in common), TEN ENT (=
Tenants by the entireties), TEN ENT (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (- Uniform Gifts
to Minors Act).
The Company will furnish to any Holder upon written request and without
charge a copy of the Agency Agreement. Request may be made to.-
Butterwings, Inc.
2345 Pembroke Avenue
Hoffman Estates, Illinois 60195
<PAGE>
INDEPENDENT CONTRACTOR AGREEMENT
THIS INDEPENDENT CONTRACTOR AGREEMENT is entered into as of the lst day
of August, 1995, by and between BUTTERWINGS, INC., an Illinois corporation (the
"Company") and Edmund C. Lipinski ("Lipinski").
RECITALS
A. The Company is engaged in the business of restaurant operations in certain
areas of the United States, including but not limited to the State of Wisconsin
and Southern California (collectively, the "Territory"); and
B. The Company, through its subsidiaries, is a franchisee of Hooters of America
authorized to own and operate Hooters restaurants in certain portions of the
Territory; and
C. Lipinski has experience in the construction and operation of Hooters
restaurants; and
D. The Company desires to retain the services of Lipinski, and Lipinski desires
to be retained by the company, as an independent contractor, and not as an
employee, for the purposes of consulting with and advising the company regarding
the construction and operation of Hooters restaurants; and
E. In the course of its business, the Company has developed and will continue to
develop a considerable body of confidential and secret information in connection
with its business, and in connection with the performance of his duties and
obligations as an independent contractor, Lipinski will have access to
information concerning the Company's business which Lipinski agrees is entitled
to protection;
NOW, THEREFORE, in consideration of the foregoing Recitals and mutual promises
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Retention of Lipinski. The Company hereby agrees to retain
Lipinski, as an independent contractor and not as an employee, for the term
of this Agreement, and Lipinski hereby agrees to accept such retention by
the Company.
2. Appointment.
(a) The Company hereby appoints Lipinski as its non-exclusive agent,
to use his best efforts:
(i) to assist the Company in identifying and selecting site
locations suitable for Hooters restaurants; and
(ii) to assist the Company in constructing and developing Hooters
restaurants within the Territory. In connection therewith,
Lipinski shall: (a) make recommendations to the Company
regarding the selection of architects and suppliers and the
design and construction of the restaurants; and (b)
supervise and direct the construction process; provided,
however, that Lipinski shall have no authority to bind the
company in the absence of the written authorization of an
officer of the Company; and
(iii)to consult with and advise the Company regarding the
operations of Hooters restaurants within the Territory; and
(iv) to perform such other and further services relating to
restaurant construction and operation as the Company shall
direct.
(b) Such services shall be rendered by Lipinski at such reasonable
times and places as Lipinski shall determine; provided, however,
that nothing herein shall require Lipinski to devote his full
time and attention to the performance of services hereunder.
3. Term. Unless earlier terminated as hereinafter provided or pursuant to
Section 4 hereof, the term of this Agreement shall commence on the date hereof
and shall continue until the fifth anniversary of such date. Upon the expiration
of the term, the term of this Agreement may be continued by mutual agreement of
the Company and Lipinski.
4. Termination. This agreement shall terminate prior to the term specified in
Section 3 hereof:
(a) if either party hereto serves 30-day advance written notice to
the other party of its intent to terminate this Agreement (in the
event this clause is exercised by the Company, such notice must
be preceded by a vote of a majority of the Board of Directors of
the Company authorizing such notice); or
(b) at either party's election, for cause, which for purposes of this
Agreement shall mean (i) the material disregard or gross neglect
by the other party of its duties and obligations hereunder; or
(ii) the breach by such other party of any material
representation, covenant or agreement contained in this Agreement
and applicable to it and, in each case, the inability of such
other party to cure the existence of such event specified in this
Section 4(b) within ten days after the delivery of written
notification thereof as provided in Section 11 hereof.
5. Representations and Warranties of the Company. The Company represents and
warrants to Lipinski as follows:
(a) The Company has the necessary power and authority to execute this
Agreement and to perform the obligations imposed upon the Company
and consummate the transactions contemplated hereby.
(b) The Company is a corporation duly organized and validly existing
under the laws of its state of incorporation and it is duly
authorized to execute this Agreement and to perform its duties
and obligations hereunder.
(c) The execution of this Agreement and the performance of the
obligations and consummation of the transactions herein
contemplated will not result in a material breach of, or
constitute a default under, any statute, indenture, mortgage or
other agreement or instrument to which the Company is a party or
by which it is bound, or any order, rule or regulation imposed
upon the Company by any court or governmental agency or body
having jurisdiction over it. The Company has no knowledge of any
consent, approval, authorization or action that is required for
the execution of this Agreement and the performance of the
obligations and consummation of the transactions herein
contemplated and which has not been obtained.
6. Representations and Warranties of Lipinski. L i p i n s k i represents and
warrants to the Company as follows:
(a) Lipinski has the necessary power and authority to execute this
Agreement and to perform the obligations imposed upon Lipinski
and consummate the transactions contemplated hereby.
(b) The execution of this Agreement and the performance of the
obligations and consummation of the transactions herein
contemplated will not result in a material breach of, or
constitute a default under, any statute, indenture, mortgage or
other agreement or instrument to which Lipinski is a party or by
which he is bound, or any order, rule or regulation imposed upon
Lipinski by any court or governmental agency or body having
jurisdiction over him. Lipinski has no knowledge of any consent,
approval, authorization or action that is required for the
execution of this Agreement and the performance of the
obligations and consummation of the transactions herein
contemplated and which has not been obtained.
7. Compensation and Reimbursement.
(a) In consideration of the services to be performed by Lipinski
hereunder, the Company agrees to remit to Lipinski:
(1) the sum of $8,333.33 per month, payable in advance on the
first day of each month;
(2) the sum of $350.00 payable on the first day of each month;
(3) the sum of $5,000.00 payable upon the opening of the
Company's fifth Hooters restaurant;
(4) the sum of $5,000.00 payable upon the opening of the
Company's sixth Hooters restaurant.
(b) The Company's obligation to make any further payments to Lipinski
pursuant to subsection (a) hereof shall cease upon the effective
date of termination of this Agreement.
(c) In addition to the payments provided in subsection (a) hereof,
the Company shall directly pay or reimburse to Lipinski any
approved expenses of travel, lodging, food, telephone/fax,
overnight delivery and other related expenses.
8. Office and Clerical Services. In consideration of payment of the sum of
$10.00, receipt of which is hereby acknowledged, the Company shall provide
Lipinski with office space and clerical, secretarial and administrative services
wherever the Company maintains its corporate headquarters for the term of this
Agreement.
9. Covenants of Lipinski. Lipinski covenants and agrees with the Company that
Lipinski will:
(a) Protect as confidential and will not disclose (other than in
connection with Lipinski's assigned duties or as the Company may
consent in writing) Proprietary Information (as hereinafter
defined). In furtherance of such obligation, Lipinski will not
divulge, copy, reveal, sell, license or otherwise make available,
in whole or in part, any Proprietary Information (as hereinafter
defined) to any other person, firm or corporation in any fashion
whatsoever; nor will Lipinski appropriate any such Proprietary
Information for Lipinski's own use personally or as a partner,
agent, shareholder, independent contractor or employee of any
person, firm or corporation.
(b) For purposes hereof, the term "Proprietary Information" shall
mean all information, whenever developed, concerning the Company,
including financial data, writings, computer software, sales
policies, customer information, conceptions, inventions,
techniques, trade secrets, sources of supplies, know-how, plans
and programs or other knowledge that is proprietary or
confidential in nature and was or shall be directly or indirectly
developed by the Company.
(c) Upon termination of this agreement for any reason, Lipinski will
immediately return to the Company any materials in Lipinski's
possession relating to the Proprietary Information. Lipinski's
obligation to preserve the confidentiality of Proprietary
Information pursuant to Section 8(a) hereof shall continue for a
period of two (2) years following termination of this agreement.
(d) The parties hereto acknowledge that any breach of this Section 8
of this Agreement will cause significant and irreparable harm to
the Company and its relationship with the Issuer and other
parties. Accordingly, in the event Lipinski shall breach this
Section 8(a) (b) or (c), the Company shall have the right, in its
discretion, to seek an injunction against such acts, without any
prior notice to Lipinski and/or to obtain such damages as are
appropriate.
10. Indemnification. Lipinski agrees to indemnify and hold harmless the Company
from and against any and all loss, liability, claim, damage and expense
whatsoever (including but not limited to reasonable attorneys and paralegals'
fees) arising out of or resulting from any willful and knowing breach by
Lipinski of this Agreement. The Company agrees to indemnify and hold harmless
Lipinski from and against any and all loss, liability, claim, damage and expense
whatsoever (including but not limited to reasonable attorneys and paralegals'
fees) arising out of or resulting from any authorized actions taken by Lipinski
in the performance of this Agreement.
11. Relationship of Parties. Lipinski shall at all times act as an independent
contractor, and nothing contained herein shall be deemed to create an
employment, partnership, joint venture or agency relationship between the
parties. Lipinski shall neither have nor claim any right arising from any such
relationship.
12. Notices. All notices required or permitted to be given under this Agreement
shall be sufficient if in writing and mailed certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Company: Butterwings, Inc.
2345 Pembroke Avenue
Hoffman Estates, IL 60195
Attn: Kenneth B. Drost
with a copy to: Joel R. Schaider, Esq.
Sachnoff & Weaver
30 South Wacker Drive, Ste. 3000
Chicago, IL 60606
If to Lipinski: Edmund C. Lipinski
2345 Pembroke Avenue
Hoffman Estates, IL 60195
with a copy to: Peter B. Shaeffer, Esq.
135 South LaSalle Street
Suite 1420
Chicago, IL 60603
13. Construction. This Agreement shall be governed by, subject to and construed
in accordance with the laws of Illinois.
14. Severability. If any portion of this Agreement is held invalid or
unenforceable by a court of competent jurisdiction, then, so far as is
reasonable and possible (a) the remainder of this Agreement shall be considered
valid and operative, and (b) effect shall be given to the intent manifested by
the portion held invalid or inoperative.
15. Multiple Counterparts. This Agreement may be executed in any number of
identical counterparts, each of which shall be deemed to be an original, but all
of which shall constitute, collectively, one and the same Agreement; provided,
however, in making proof of this Agreement, it shall not be necessary to produce
or account for more than one such counterpart, provided such counterpart has
been executed by the party to be charged with performance of the Agreement.
16. Modification of Amendment. This Agreement may not be modified or amended
except by written agreement executed by all the parties hereto and dated after
the date hereof.
17. Number and Gender of Words. Whenever the context so requires, the masculine
shall include the feminine and neuter, and the singular shall include the
plural, and conversely.
18. Other Instruments. The parties hereto covenant and agree that they will
execute such other and further instruments and documents as are or may become
necessary or convenient to effectuate and carry out this Agreement.
19. Captions. The captions used in this Agreement are for convenience only and
shall not be considered as part of this Agreement.
20. Parties. This Agreement shall be binding upon and inure solely to the
benefit of the parties hereto, and their respective successors, legal
representatives, heirs and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect to or by virtue of this Agreement or any provision herein contained.
Notwithstanding the foregoing, no party shall assign its obligations and duties
hereunder without the written consent of the other party hereto.
21. Entire Agreement. This Agreement contains the entire understanding between
the parties and supersedes any prior understandings or written or oral
agreements between them respecting the subject matter hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day
and year written above.
BUTTERWINGS, INC.
By:
Authorized Officer
EDMUND C. LIPINSKI
1996 STOCK COMPENSATION PLAN
of
BUTTERWINGS ENTERTAINMENT GROUP, INC.
(an Illinois corporation)
* * * * *
<PAGE>
1996 Stock Compensation Plan
TABLE OF CONTENTS
* * *
1996 STOCK COMPENSATION PLAN
of
Butterwings Entertainment Group, Inc.
SECTION SUBJECT PAGE
1. Purpose of Plan............................................1
2. Stock Subject to the Plan..................................1
3. Administration of the Plan.................................2
(a) General..........................................3
(b) Changes in Law Applicable........................3
4. Types of Awards Under the Plan.............................3
5. Persons to Options Shall Be Granted........................3
(a) Nonqualified Options.............................3
(b) Incentive Options................................3
6. Factors to Be Considered in Granting Options...............3
7. Time of Granting Option....................................3
8. Terms and Conditions of Options.............................3
(a) Number of Shares..................................3
(b) Type of Option....................................3
(c) Option Period.....................................4
(1)General....................................... 4
(2)Termination of Employment..................... 4
(3)Cessation of Service as Director or Advisor....4
(4)Disability.....................................4
(5)Death .........................................4
(6)Acceleration and Exercise Upon Change
of Control.....................................5
(d) Option Prices.......................................6
(1)Nonqualified Options.......................... 6
(2)Incentive Options.............................6
(3)Determination of Fair Market Value........... 6
(e) Exercise of Options................................6
(f) Nontransferability of Options......................7
(g) Limitations on 10% Shareholders....................7
(h) Limits on Vesting of Incentive Options.............7
(i) Compliance with Securities Laws....................7
(j) Additional Provisions..............................8
9. Medium and Time of Payment.......................................8
10. Rights as a Shareholder.........................................9
11. Optionee's Agreement to Serve....................................9
12 Adjustments on Changes in Capitalization.......................9
(a) Changes in Capitalization............................9
(b) Reorganization, Dissolution or Liquidation...........9
(c) Change in Par Value..................................10
(d) Notice of Adjustments................................10
(e) Effect Upon Holder of Option.........................10
(f) Right of Company to Make Adjustments.................11
13. Investment Purpose...............................................11
14. No Obligation to Exercise Option ................................11
15. Modification, Extension, and Renewal of Options.................11
16 Effective Date of the Plan........................................11
17.Termination of the Plan...........................................11
18. Amendment of the Plan............................................11
19. Withholding ...............................................12
20. Indemnification of Committee.....................................12
21. Application of Funds.............................................12
22. Governing Law ...............................................12
<PAGE>
1996 STOCK COMPENSATION PLAN
OF
BUTTERWINGS ENTERTAINMENT GROUP, INC.
1. Purpose of Plan. This 1996 Stock Compensation Plan ("Plan")
is intended to encourage ownership of the common stock of Butterwings
Entertainment Group, Inc. ("Company") by certain officers, directors, employees
and advisors of the Company or any Subsidiary or Subsidiaries of the Company (as
hereinafter defined) in order to provide additional incentive for such persons
to promote the success and the business of the Company or its Subsidiaries and
to encourage them to remain in the employ of the Company or its Subsidiaries by
providing such persons an opportunity to benefit from any appreciation of the
common stock of the Company through the issuance of stock options to such
persons in accordance with the terms of the Plan. It is further intended that
options granted pursuant to this Plan shall constitute either incentive stock
options ("Incentive Options") within the meaning of Section 422 (formerly
Section 422A) of the Internal Revenue Code of 1986, as amended ("Code"), or
options which do not constitute Incentive Options ("Nonqualified Options") as
determined by the Committee (as hereinafter defined) at the time of issuance of
such options. Incentive Options and Nonqualified Options are herein sometimes
referred to collectively as "Options". As used herein, the term Subsidiary or
Subsidiaries shall mean any corporation (other than the employer corporation) in
an unbroken chain of corporations beginning with the employer corporation if, at
the time of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
2. Stock Subject to the Plan. Subject to adjustment as
provided in Section 12 hereof, there will be reserved for the use upon the
exercise of Options to be granted from time to time under the Plan, an aggregate
of two hundred thousand (200,000) shares of the common stock, $.01 par value, of
the Company ("Common Stock"), which shares in whole or in part shall be
authorized, but unissued, shares of the Common Stock or issued shares of Common
Stock which shall have been reacquired by the Company as determined from time to
time by the Board of Directors of the Company ("Board of Directors"). To
determine the number of shares of Common Stock available at any time for the
granting of Options under the Plan, there shall be deducted from the total
number of reserved shares of Common Stock, the number of shares of Common Stock
in respect of which Options have been granted pursuant to the Plan which remain
outstanding or which have been exercised. If and to the extent that any Option
to purchase reserved shares shall not be exercised by the optionee for any
reason or if such Option to purchase shall terminate as provided herein, such
shares which have not been so purchased hereunder shall again become available
for the purposes of the Plan unless the Plan shall have been terminated, but
such unpurchased shares shall not be deemed to increase the aggregate number of
shares specified above to be reserved for purposes of the Plan (subject to
adjustment as provided in Section 12 hereof).
3. Administration of the Plan.
(a) General. The Plan shall be administered by a Compensation
Committee ("Committee") appointed by the Board of Directors, which
Committee shall consist of not less than two (2) members of the Board of
Directors who are not eligible to participate in the Plan, and have not,
for a period of at least one (1) year prior thereto been eligible to
participate in the Plan, except that if at any time there shall be less
than two (2) directors who are qualified to serve on the Committee, then
the Plan shall be administered by the full Board of Directors. All
references in this Plan to the Committee shall be deemed to refer instead
to the full Board of Directors at any time there is not a committee of two
(2) members qualified to act hereunder. The Board of Directors may from
time to time appoint members of the Committee in substitution for or in
addition to members previously appointed and may fill vacancies, however
caused, in the Committee. If the Board of Directors does not designate a
Chairman of the Committee, the Committee shall select one of its members as
its Chairman. The Committee shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall
constitute a quorum. Any action of the Committee shall be taken by a
majority vote of its members at a meeting at which a quorum is present.
Notwithstanding the preceding, any action of the Committee may be taken
without a meeting by a written consent signed by all of the members, and
any action so taken shall be deemed fully as effective as if it had been
taken by a vote of the members present in person at the meeting duly called
and held. The Committee may appoint a Secretary, shall keep minutes of its
meetings, and shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
The Committee shall have the sole authority and power, subject to the
express provisions and limitations of the Plan, to construe the Plan and
option agreements granted hereunder, and to adopt, prescribe, amend, and
rescind rules and regulations relating to the Plan, and to make all
determinations necessary or advisable for administering the Plan,
including, but not limited to, (i) who shall be granted Options under the
Plan, (ii) the term of each Option, (iii) the number of shares covered by
such Option, (iv) whether the Option shall constitute an Incentive Option
or a Nonqualified Option, (v) the exercise price for the purchase of the
shares of the Common Stock covered by the Option, (vi) the period during
which the Option may be exercised, (vii) whether the right to purchase the
number of shares covered by the Option shall be fully vested on issuance of
the Option so that such shares may be purchased in full at one time or
whether the right to purchase such shares shall become vested over a period
of time so that such shares may only be purchased in installments, and
(viii) the time or times at which Options shall be granted. The Committee's
determinations under the Plan, including the above enumerated
determinations, need not be uniform and may be made by it selectively among
the persons who receive, or are eligible to receive, Options under the
Plan, whether or not such persons are similarly situated.
The interpretation by the Committee of any provision of the Plan or of
any option agreement entered into hereunder with respect to any Incentive
Option shall be in accordance with Section 422 of the Code and the
regulations issued thereunder, as such section or regulations may be
amended from time to time, in order that the rights granted hereunder and
under said option agreements shall constitute "Incentive Stock Options"
within the meaning of such section. The interpretation and construction by
the Committee of any provision of the Plan or of any Option granted
hereunder shall be final and conclusive, unless otherwise determined by the
Board of Directors. No member of the Board of Directors or the Committee
shall be liable for any action or determination made in good faith with
respect to the Plan or any Option granted under it. Upon issuing an Option
under the Plan, the Committee shall report to the Board of Directors the
name of the person granted the Option, whether the Option is an Incentive
Option or a Nonqualified Option, the number of shares of Common Stock
covered by the Option, and the terms and conditions of such Option.
(b) Changes in Law Applicable. If the laws relating to Incentive
Options or Nonqualified Options are changed, altered or amended during the
term of the Plan, the Board of Directors shall have full authority and
power to alter or amend the Plan with respect to Incentive Options or
Nonqualified Options, respectively, to conform to such changes in the law
without the necessity of obtaining further shareholder approval, unless the
changes require such approval.
4. Types of Awards Under the Plan. Awards under the Plan may be in the form
of either Incentive Options or Nonqualified Options, or a combination thereof.
5. Persons to Whom Options Shall be Granted.
(a) Nonqualified Options. Nonqualified Options shall be granted only
to officers, directors employees and advisors of the Company or a
Subsidiary who, in the judgment of the Committee, are responsible for or
contribute to the management or success of the Company or a Subsidiary and
who, at the time of the granting of the Nonqualified Options, are either
officers, directors, employees or advisors of the Company or a Subsidiary.
(b) Incentive Options. Incentive Options shall be granted only to
employees of the Company or a Subsidiary who, in the judgment of the
Committee, are responsible for or contribute to the management or success
of the Company or a Subsidiary and who, at the time of the granting of the
Incentive Option are either an employee of the Company or a Subsidiary.
Subject to the provisions of Section 8(g) hereof, no individual shall be
granted an Incentive Option who, immediately before such Incentive Option
was granted, would own more than ten percent (10%) of the total combined
voting power or value of all classes of stock of the Company ("10%
Shareholder").
6. Factors to Be Considered in Granting Options. In making any
determination as to persons to whom Options shall be granted and as to the
number of shares to be covered by such Options, the Committee shall take into
account the duties and responsibilities of the respective officers, directors,
employees, or advisors, their current and potential contributions to the success
of the Company or a Subsidiary, and such other factors as the Committee shall
deem relevant in connection with accomplishing the purpose of the Plan.
7. Time of Granting Options. Neither anything contained in the Plan or in
any resolution adopted or to be adopted by the Board of Directors or the
Shareholders of the Company or a Subsidiary nor any action taken by the
Committee shall constitute the granting of any Option. The granting of an Option
shall be effected only when a written Option Agreement acceptable in form and
substance to the Committee, subject to the terms and conditions hereof including
those set forth in Section 8 hereof, shall have been duly executed and delivered
by or on behalf of the Company and the person to whom such Option shall be
granted. No person shall have any rights under the Plan until such time, if any,
as a written Option Agreement shall have been duly executed and delivered as set
forth in this Section 7.
8. Terms and Conditions of Options. All Options granted pursuant to this
Plan must be granted within ten (10) years from the date the Plan is adopted by
the Board of Directors of the Company. Each Option Agreement governing an Option
granted hereunder shall be subject to at least the following terms and
conditions, and shall contain such other terms and conditions, not inconsistent
therewith, that the Committee shall deem appropriate:
(a) Number of Shares. Each Option shall state the number of shares of
Common Stock which it represents.
(b) Type of Option. Each Option shall state whether it is intended to
be an Incentive Option or a Nonqualified Option.
(c) Option Period.
(1) General. Each Option shall state the date upon which it
is granted. Each Option shall be exercisable in whole or in part
during such period as is provided under the terms of the Option
subject to any vesting period set forth in the Option, but in no
event shall an Option be exercisable either in whole or in part
after the expiration of ten (10) years from the date of grant;
provided, however, if an Incentive Option is granted to a 10%
Shareholder, such Incentive Option shall not be exercisable more
than five (5) years from the date of grant thereof.
(2) Termination of Employment. Except as otherwise provided
in case of Disability (as hereinafter defined), death or Change
of Control (as hereinafter defined), no Option shall be
exercisable after an optionee who is an employee of the Company
or a Subsidiary ceases to be employed by the Company or a
Subsidiary as an employee; provided, however, that the Committee
shall have the right in its sole discretion, but not the
obligation, to extend the exercise period for not more than three
(3) months following the date of termination of such optionee's
employment; provided further, however, that no Option shall be
exercisable after the expiration of ten (10) years from the date
it is granted and provided further, no Incentive Option granted
to a 10% Shareholder shall be exercisable after the expiration of
five (5) years from the date it is granted.
(3) Cessation of Service as Director or Advisor. In the
event an optionee who was a director or advisor of the Company or
a Subsidiary ceases to be a director or advisor of the Company or
a Subsidiary for any reason, other than Disability or death,
prior to the full exercise of the Option, such optionee may
exercise his Option at any time within ninety (90) days after
such optionee's status as a director or advisor of the Company or
a Subsidiary is so terminated to the extent he was entitled to
exercise such Option at the date such optionee's status as a
director or advisor of the Company or a Subsidiary terminated;
provided, however, that no Option shall be exercisable after the
expiration of ten (10) years from the date it is granted.
(4) Disability. If an optionee's employment is terminated by
reason of the permanent and total Disability of such optionee or
if an optionee who is a director or advisor of the Company or a
Subsidiary ceases to serve as a director or advisor by reason of
the permanent and total Disability of such optionee, the
Committee shall have the right in its sole discretion, but not
the obligation, to extend the exercise period for not more than
one (1) year following the date of termination of the optionee's
employment or the date such optionee ceases to be a director or
advisor of the Company or a Subsidiary, as the case may be,
subject to the condition that no Option shall be exercisable
after the expiration of ten (10) years from the date it is
granted and subject to the further condition that no Incentive
Option granted to a 10% Shareholder shall be exercisable after
the expiration of five (5) years from the date it is granted. For
purposes of this Plan, the term "Disability" shall mean the
inability of the optionee to fulfill such optionee's obligations
to the Company or a Subsidiary by reason of any physical or
mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous
period of not less than twelve (12) months as determined by a
physician acceptable to the Committee in its sole discretion. (5)
Death. If an optionee dies while in the employ of the Company or
a Subsidiary, or while serving as a director or advisor of the
Company or a Subsidiary, and shall not have fully exercised
Options granted pursuant to the Plan, such Options may be
exercised in whole or in part at any time within one (1) year
after the optionee's death, by the executors or administrators of
the optionee's estate or by any person or persons who shall have
acquired the Options directly from the optionee by bequest or
inheritance, but only to the extent that the optionee was
entitled to exercise such Option at the date of such optionee's
death, subject to the condition that no Option shall be
exercisable after the expiration of ten (10) years from the date
it is granted and subject to the further condition that no
Incentive Option granted to a 10% Shareholder shall be
exercisable after the expiration of five (5) years from the date
it is granted.
(6) Acceleration and Exercise Upon Change of Control.
Notwithstanding the preceding provisions of this Section 8(c), if
any Option granted under the Plan provides for either (a) an
incremental vesting period whereby such Option may only be
exercised in installments as such incremental vesting period is
satisfied or (b) a delayed vesting period whereby such Option may
only be exercised after the lapse of a specified period of time,
such as after the expiration of one (1) year, such vesting period
shall be accelerated upon the occurrence of a Change of Control
(as hereinafter defined) of the Company, or a threatened Change
of Control of the Company as determined by the Committee, so that
such Option shall thereupon become exercisable immediately in
part or its entirety by the holder thereof, as such holder shall
elect. For the purposes of this Plan, a "Change of Control" shall
be deemed to have occurred if:
(i) Any "person", including a "group" as determined in
accordance with Section 13(d)(3) of the Securities Exchange
Act of 1934 ("Exchange Act") and the Rules and Regulations
promulgated thereunder, is or becomes, through one or a
series of related transactions or through one or more
intermediaries, the beneficial owner, directly or
indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then
outstanding securities, other than a person who is such a
beneficial owner on the effective date of the Plan and any
affiliate of such person;
(ii) As a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination, sale
of assets or contested election, or any combination of the
foregoing transactions ("Transaction"), the persons who were
Directors of the Company before the Transaction shall cease
to constitute a majority of the Board of Directors of the
Company or any successor to the Company;
(iii)Following the effective date of the Plan, the Company is
merged or consolidated with another corporation and as a
result of such merger or consolidation less than 40% of the
outstanding voting securities of the surviving or resulting
corporation shall then be owned in the aggregate by the
former stockholders of the Company, other than (x) any party
to such merger or consolidation, or (y) any affiliates of
any such party;
(iv) A tender offer or exchange offer is made and consummated for
the ownership of securities of the Company representing 25%
or more of the combined voting power of the Company's then
outstanding voting securities; or
(v) The Company transfers more than 50% of its assets, or the
last of a series of transfers result in the transfer of more
than 50% of the assets of the Company, to another
corporation that is not a wholly-owned corporation of the
Company. For purposes of this subsection 8(c)(6)(v), the
determination of what constitutes more than 50% of the
assets of the Company shall be determined based on the sum
of the values attributed to (i) the Company's real property
as determined by an independent appraisal thereof, and (ii)
the net book value of all other assets of the Company, each
taken as of the date of the Transaction involved.
In addition, upon a Change of Control, any Options previously granted under
the Plan to the extent not already exercised may be exercised in whole or
in part either immediately or at any time during the term of the Option as
such holder shall elect.
(d) Option Prices.
(1) Nonqualified Options. The purchase price or prices of the
shares of the Common Stock which shall be offered to any person under
the Plan and covered by a Nonqualified Option shall be the price
determined by the Committee at the time of granting of the
Nonqualified Option, which price may be less than, equal to or higher
than one hundred percent (100%) of the fair market value of the Common
Stock at the time of granting the Nonqualified Option.
(2) Incentive Options. The purchase price or prices of the shares
of the Common Stock which shall be offered to any person under the
Plan and covered by an Incentive Option shall be one hundred percent
(100%) of the fair market value of the Common Stock at the time of
granting the Incentive Option or such higher purchase price as may be
determined by the Committee at the time of granting the Incentive
Option; provided, however, if an Incentive Option is granted to a 10%
Shareholder, the purchase price of the shares of the Common Stock of
the Company covered by such Incentive Option may not be less than one
hundred ten percent (110%) of the fair market value of such shares on
the day the Incentive Option is granted.
(3) Determination of Fair Market Value. During such time as the
Common Stock of the Company is not listed upon an established stock
exchange, the fair market value per share shall be deemed to be the
closing sales price of the Common Stock on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") on the day
the Option is granted, as reported by NASDAQ, if the Common Stock is
so quoted, and if not so quoted, the mean between dealer "bid" and
"ask," prices of the Common Stock in the New York over-the-counter
market on the day the Option is granted, as reported by the National
Association of Securities Dealers, Inc. If the Common Stock is listed
upon an established stock exchange or exchanges, such fair market
value shall be deemed to be the highest closing price of the Common
Stock on such stock exchange or exchanges on the day the Option is
granted or, if no sale of the Common Stock of the Company shall have
been made on established stock exchange on such day, on the next
preceding day on which there was a sale of such stock. If there is no
market price for the Common Stock, then the Board of Directors and the
Committee may, after taking all relevant facts into consideration,
determine the fair market value of the Common Stock.
(e) Exercise of Options. To the extent that a holder of an Option
has a current right to exercise, the Option may be exercised from time
to time by written notice to the Company at its principal place of
business. Such notice shall state the election to exercise the Option,
the number of whole shares in respect of which it is being exercised,
shall be signed by the person or persons so exercising the Option, and
shall contain any investment representation required by Section 8(i)
hereof. Such notice shall be accompanied by payment of the full
purchase price of such shares and by the Option Agreement evidencing
the Option. In addition, if the Option shall be exercised, pursuant to
Section 8(c)(4) or Section 8(c)(5) hereof, by any person or persons
other than the optionee, such notice shall also be accompanied by
appropriate proof of the right of such person or persons to exercise
the Option. The Company shall deliver a certificate or certificates
representing such shares as soon as practicable after the aforesaid
notice and payment of such shares shall be received. The certificate
or certificates for the shares as to which the Option shall have been
so exercised shall be registered in the name of the person or persons
so exercising the Option. In the event the Option shall not be
exercised in full, the Secretary of the Company shall endorse or cause
to be endorsed on the Option the number of shares which has been
exercised thereunder and the number of shares that remain exercisable
under the Option and return such Option Agreement to the holder
thereof.
(f) Nontransferability of Options. An Option granted pursuant to
the Plan shall be exercisable only by the optionee or the optionee's
court appointed guardian as set forth in Section 8(c)(4) hereof during
the optionee's lifetime and shall not be assignable or transferable by
the optionee otherwise than by Will or the laws of descent and
distribution. An Option granted pursuant to the Plan shall not be
assigned, pledged or hypothecated in any way (whether by operation of
law or otherwise other than by Will or the laws of descent and
distribution) and shall not be subject to execution, attachment, or
similar process. Any attempted transfer, assignment, pledge,
hypothecation, or other disposition of any Option or of any rights
granted thereunder contrary to the foregoing provisions of this
Section 8(f), or the levy of any attachment or similar process upon an
Option or such rights, shall be null and void.
(g) Limitations on 10% Shareholders. No Incentive Option may be
granted under the Plan to any 10% Shareholder unless (i) such
Incentive Option is granted at an option price not less than one
hundred ten percent (110%) of the fair market value of the shares on
the day the Incentive Option is granted and (ii) such Incentive Option
expires on a date not later than five (5) years from the date the
Incentive Option is granted.
(h) Limits on Vesting of Incentive Options. An individual may be
granted one or more Incentive Options, provided that the aggregate
fair market value (as determined at the time such Incentive Option is
granted) of the stock with respect to which Incentive Options are
exercisable for the first time by such individual during any calendar
year shall not exceed $100,000. To the extent the $100,000 limitation
in the preceding sentence is exceeded, such option shall be treated as
an option which is not an Incentive Option.
(i) Compliance with Securities Laws. The Plan and the grant and
exercise of the rights to purchase shares hereunder, and the Company's
obligations to sell and deliver shares upon the exercise of rights to
purchase shares, shall be subject to all applicable federal and state
laws, rules and regulations, and to such approvals by any regulatory
or governmental agency as may, in the opinion of counsel for the
Company, be required, and shall also be subject to all applicable
rules and regulations of any stock exchange upon which the Common
Stock of the Company may then be listed. At the time of exercise of
any Option, the Company may require the optionee to execute any
documents or take any action which may be then necessary to comply
with the Securities Act of 1933, as amended ("Securities Act"), and
the rules and regulations promulgated thereunder, or any other
applicable federal or state laws regulating the sale and issuance of
securities, and the Company may, if it deems necessary, include
provisions in the stock option agreements to assure such compliance.
The Company may, from time to time, change its requirements with
respect to enforcing compliance with federal and state securities
laws, including the request for and enforcement of letters of
investment intent, such requirements to be determined by the Company
in its judgment as necessary to assure compliance with said laws. Such
changes may be made with respect to any particular Option or stock
issued upon exercise thereof. Without limiting the generality of the
foregoing, if the Common Stock issuable upon exercise of an Option
granted under the Plan is not registered under the Securities Act, the
Company at the time of exercise will require that the registered owner
execute and deliver an investment representation agreement to the
Company in form acceptable to the Company and its counsel, and the
Company will place a legend on the certificate evidencing such Common
Stock restricting the transfer thereof, which legend shall be
substantially as follows:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER
HEREOF AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE
SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AND
ITS COUNSEL THAT REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER, SALE OR
TRANSFER.
(j) Additional Provisions. The Option Agreements authorized under
the Plan shall contain such other provisions as the Committee shall
deem advisable, including, without limitation, restrictions upon the
exercise of the Option. Any such Option Agreement with respect to an
Incentive Option shall contain such limitations and restrictions upon
the exercise of the Incentive Option as shall be necessary in order
that the option will be an "Incentive Stock Option" as defined in
Section 422 of the Code.
9. Medium and Time of Payment. The purchase price of the shares of the
Common Stock as to which the Option shall be exercised shall be paid in full
either (i) in cash at the time of exercise of the Option, (ii) by tendering to
the Company shares of the Company's Common Stock having a fair market value (as
of the date of receipt of such shares by the Company) equal to the purchase
price for the number of shares of Common Stock purchased, or (iii) partly in
cash and partly in shares of the Company's Common Stock valued at fair market
value as of the date of receipt of such shares by the Company. Cash payment for
the shares of the Common Stock purchased upon exercise of the Option shall be in
the form of either a cashier's check, certified check or money order. Personal
checks may be submitted, but will not be considered as payment for the shares of
the Common Stock purchased and no certificate for such shares will be issued
until the personal check clears in normal banking channels. If a personal check
is not paid upon presentment by the Company, then the attempted exercise of the
Option will be null and void. In the event the optionee tenders shares of the
Company's Common Stock in full or partial payment for the shares being purchased
pursuant to the Option, the shares of Common Stock so tendered shall be
accompanied by fully executed stock powers endorsed in favor of the Company with
the signature on such stock power being guaranteed. If an optionee tenders
shares, such optionee assumes sole and full responsibility for the tax
consequences, if any, to such optionee arising therefrom, including the possible
application of Code Section 424(c), or its successor Code section, which negates
any nonrecognition of income rule with respect to such transferred shares, if
such transferred shares have not been held for the minimum statutory holding
period to receive preferential tax treatment.
10. Rights as a Shareholder. The holder of an Option shall have no rights
as a shareholder with respect to the shares covered by the Option until the due
exercise of the Option and the date of issuance of one or more stock
certificates to such holder for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section 12
hereof.
11. Optionee's Agreement to Serve. Each employee receiving an Option shall,
as one of the terms of the Option Agreement agree that such employee will remain
in the employ of the Company or Subsidiary for a period of at least one (1) year
from the date on which the Option shall be granted to such employee; and that
such employee will, during such employment, devote such employee's entire time,
energy, and skill to the service of the Company or a Subsidiary as may be
required by the management thereof, subject to vacations, sick leaves, and
military absences. Such employment, subject to the provisions of any written
contract between the Company or a Subsidiary and such employee, shall be at the
pleasure of the Board of Directors of the Company or a Subsidiary, and at such
compensation as the Company or a Subsidiary shall reasonably determine. Any
termination of such employee's employment during the period which the employee
has agreed pursuant to the foregoing provisions of this Section 11 to remain in
employment that is either for cause or voluntary on the part of the employee
shall be deemed a violation by the employee of such employee's agreement. In the
event of such violation, any Option or Options held by such employee, to the
extent not theretofore exercised, shall forthwith terminate, unless otherwise
determined by the Committee. Notwithstanding the preceding, neither the action
of the Company in establishing the Plan nor any action taken by the Company, a
Subsidiary or the Committee under the provisions hereof shall be construed as
granting the optionee the right to be retained in the employ of the Company or a
Subsidiary, or to limit or restrict the right of the Company or a Subsidiary, as
applicable, to terminate the employment of any employee of the Company or a
Subsidiary, with or without cause.
12. Adjustments on Changes in Capitalization.
(a) Changes in Capitalization. Subject to any required action by the
Shareholders of the Company, the number of shares of Common Stock covered
by the Plan, the number of shares of Common Stock covered by each
outstanding Option, and the exercise price per share thereof specified in
each such Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company
resulting from a subdivision or consolidation of shares or the payment of a
stock dividend (but only on the Common Stock) or any other increase or
decrease in the number of such shares effected without receipt of
consideration by the Company after the date the Option is granted, so that
upon exercise of the Option, the optionee shall receive the same number of
shares the optionee would have received had the optionee been the holder of
all shares subject to such optionee's outstanding Option immediately before
the effective date of such change in the number of issued shares of the
Common Stock of the Company.
(b) Reorganization, Dissolution or Liquidation. Subject to any
required action by the Shareholders of the Company, if the Company shall be
the surviving corporation in any merger or consolidation, each outstanding
Option shall pertain to and apply to the securities to which a holder of
the number of shares of Common Stock subject to the Option would have been
entitled. A dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation, shall
cause each outstanding Option to terminate as of a date to be fixed by the
Committee (which date shall be as of or prior to the effective date of any
such dissolution or liquidation or merger or consolidation); provided, that
not less than thirty (30) days written notice of the date so fixed as such
termination date shall be given to each optionee, and each optionee shall,
in such event, have the right, during the said period of thirty (30) days
preceding such termination date, to exercise such optionee's Option in
whole or in part in the manner herein set forth.
(c) Change in Par Value. In the event of a change in the Common Stock
of the Company as presently constituted, which change is limited to a
change of all of its authorized shares with par value into the same number
of shares with a different par value or without par value, the shares
resulting from any change shall be deemed to be the Common Stock within the
meaning of the Plan.
(d) Notice of Adjustments. To the extent that the adjustments set
forth in the foregoing paragraphs of this Section 12 relate to stock or
securities of the Company, such adjustments, if any, shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive, provided that each Incentive Option granted pursuant to this
Plan shall not be adjusted in a manner that causes the Incentive Option to
fail to continue to qualify as an "Incentive Stock Option" within the
meaning of Section 422 of the Code. The Company shall give timely notice of
any adjustments made to each holder of an Option under this Plan and such
adjustments shall be effective and binding on the optionee.
(e) Effect Upon Holder of Option. Except as hereinbefore expressly
provided in this Section 12, the holder of an Option shall have no rights
by reason of any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class by reason of any
dissolution, liquidation, merger, reorganization, or consolidation, or
spin-off of assets or stock of another corporation, and any issue by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to the Option. Without limiting the generality of the
foregoing, no adjustment shall be made with respect to the number or price
of shares subject to any Option granted hereunder upon the occurrence of
any of the following events:
(1) The grant or exercise of any other options which may be
granted or exercised under any qualified or nonqualified stock option
plan or under any other employee benefit plan of the Company whether
or not such options were outstanding on the date of grant of the
Option or thereafter granted;
(2) The sale of any shares of Common Stock in the Company's
initial or any subsequent public offering, including, without
limitation, shares sold upon the exercise of any overallotment option
granted to the underwriter in connection with such offering;
(3) The issuance, sale or exercise of any warrants to purchase
shares of Common Stock whether or not such warrants were outstanding
on the date of grant of the Option or thereafter issued;
(4) The issuance or sale of rights, promissory notes or other
securities convertible into shares of Common Stock in accordance with
the terms of such securities ("Convertible Securities") whether or not
such Convertible Securities were outstanding on the date of grant of
the Option or were thereafter issued or sold;
(5) The issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment
in the purchase price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not
such Convertible Securities were outstanding on the date of grant of
the Option or were thereafter issued or sold; or
(6) Upon any amendment to or change in the terms of any rights or
warrants to subscribe for or purchase, or options for the purchase of,
Common Stock or Convertible Securities or in the terms of any
Convertible Securities, including, but not limited to, any extension
of any expiration date of any such right, warrant or option, any
change in any exercise or purchase price provided for in any such
right, warrant or option, any extension of any date through which any
Convertible Securities are convertible into or exchangeable for Common
Stock or any change in the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock.
(f) Right of Company to Make Adjustments. The grant of an Option
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassification, reorganizations, or changes
of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
13. Investment Purpose. Each Option under the Plan shall be granted on the
condition that the purchase of the shares of stock thereunder shall be for
investment purposes, and not with a view to resale or distribution; provided,
however, that in the event the shares of stock subject to such Option are
registered under the Securities Act or in the event a resale of such shares of
stock without such registration would otherwise be permissible, such condition
shall be inoperative if in the opinion of counsel for the Company such condition
is not required under the Securities Act or any other applicable law,
regulation, or rule of any governmental agency.
14. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon the optionee to exercise such Option.
15. Modification, Extension, and Renewal of Options. Subject to the terms
and conditions and within the limitations of the Plan, the Committee and the
Board of Directors may modify, extend or renew outstanding Options granted under
the Plan, or accept the surrender of outstanding Options (to the extent not
theretofore exercised). Neither the Committee nor the Board of Directors shall,
however, modify any outstanding Options so as to specify a lower price or accept
the surrender of outstanding Options and authorize the granting of new Options
in substitution therefor specifying a lower price. Notwithstanding the
foregoing, however, no modification of an Option shall, without the consent of
the optionee, alter or impair any rights or obligations under any Option
theretofore granted under the Plan.
16. Effective Date of the Plan. The Plan shall become effective on the date
of execution hereof, which date is the date the Board of Directors approved and
adopted the Plan ("Effective Date"); provided, however, if the Shareholders of
the Company shall not have approved the Plan by the requisite vote of the
Shareholders, within twelve (12) months after the Effective Date, then the Plan
shall terminate and all Options theretofore granted under the Plan shall
terminate and be null and void.
17. Termination of the Plan. This Plan shall terminate as of the expiration
of ten (10) years from the Effective Date. Options may be granted under this
Plan at any time and from time to time prior to its termination. Any Option
outstanding under the Plan at the time of its termination shall remain in effect
until the Option shall have been exercised or shall have expired.
18. Amendment of the Plan. The Plan may be terminated at any time by the
Board of Directors of the Company. The Board of Directors may at any time and
from time to time without obtaining the approval of the Shareholders of the
Company or a Subsidiary, modify or amend the Plan (including such form of Option
Agreement as hereinabove mentioned) in such respects as it shall deem advisable
in order that the Incentive Options granted under the Plan shall be "Incentive
Stock Options" as defined in Section 422 of the Code or to conform to any change
in the law, or in any other respect which shall not change: (a) the maximum
number of shares for which Options may be granted under the Plan, except as
provided in Section 14 hereof; or (b) the option prices other than to change the
manner of determining the fair market value of the Common Stock for the purpose
of Section 8(d) hereof to conform with any then applicable provisions of the
Code or regulations thereunder; or (c) the periods during which Options may be
granted or exercised; or (d) the provisions relating to the determination of
persons to whom Options shall be granted and the number of shares to be covered
by such Options; or (e) the provisions relating to adjustments to be made upon
changes in capitalization. The termination or any modification or amendment of
the Plan shall not, without the consent of the person to whom any Option shall
theretofore have been granted, affect that person's rights under an Option
theretofore granted to such person. With the consent of the person to whom such
Option was granted, an outstanding Option may be modified or amended by the
Committee in such manner as it may deem appropriate and consistent with the
requirements of this Plan applicable to the grant of a new Option on the date of
modification or amendment.
19. Withholding. Whenever an optionee shall recognize compensation income
as a result of the exercise of any Option granted under the Plan, the optionee
shall remit in cash to the Company or Subsidiary the minimum amount of federal
income and employment tax withholding which the Company or Subsidiary is
required to remit to the Internal Revenue Service in accordance with the then
current provisions of the Code. The full amount of such withholding shall be
paid by the optionee simultaneously with the award or exercise of an Option.
20. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily incurred
in connection with the defense of any action, suit or proceedings, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his duties; provided that within sixty (60) days after institution of any such
action, suit or proceeding a Committee member shall in writing offer the Company
the opportunity, at its own expense, to pursue and defend the same.
21. Application of Funds. The proceeds received by the Company from the
sale of Common Stock pursuant to Options granted hereunder will be used for
general corporate purposes.
22. Governing Law. This Plan shall be governed and construed in accordance
with the laws of the state of incorporation of the Company.
EXECUTED this ______ day of ____________1996.
BUTTERWINGS ENTERTAINMENT GROUP, INC.
By: ______________________________
Stephan S. Buckley
President
ATTEST:
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into this
18th day of October, 1996, by and between Stephan S. Buckley ("Seller"), sole
common stock shareholder of Cookie Crumbs, Inc., an Illinois corporation
("Company") and Butterwings, Inc. ("Purchaser").
RECITALS
WHEREAS, the Company owns and operates Mrs. Field's Cookie Stores at
various locations, and has certain rights to develop various geographic
territories for Mrs. Field's Development Corporation ("Mrs. Field's"); and,
WHEREAS, Seller owns of record and beneficially 1,000 shares of the common
stock, no par value (the " Stock") of the Company, which constitutes one hundred
percent (100%) of the common stock of the Company; and,
WHEREAS, Seller desires to sell, assign, transfer and deliver to Purchaser,
and Purchaser desires to purchase one hundred percent (100%) of the common stock
of the Company (the "Shares") on the terms and subject to the conditions
hereinafter contained,
NOW THEREFORE, in consideration of the mutual covenants, promises,
agreements, representations and warranties contained herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby covenant, promise, agree, represent
and warrant as follows:
<PAGE>
1. Definitions. In addition to the terms otherwise defined herein, in
construing this Agreement, the following terms shall have the following
meanings:
1.1 "Agreement" shall mean this Stock Purchase Agreement dated
October 18, 1996, by and amongst Seller and Purchaser.
1.2 "Closing" shall mean the consummation of the transactions
contemplated hereby as set forth in Section 11 hereof.
1.3 "Closing Date" shall mean the date of Closing as set forth in
Section 14 hereof.
1.4 "Closing Date Assets" shall mean the assets of the Company as of
the Closing Date and properly includable on the Closing Date
Balance Sheet under the captions "Cash"; "Accounts Receivable";
"Inventories"; "Due From Affiliates"; "Assets Available for
Sale"; "Equipment"; "Deferred Income Taxes"; "Leasehold
Improvements"; "Franchise Costs"; "Goodwill"; "Organization
Costs"; and "Deposits".
1.5 "Closing Date Balance Sheet" shall mean the balance sheet to be
prepared by the Seller containing a statement of Closing Date
Assets and Closing Date Liabilities as of Closing Date to be
delivered to Purchaser at Closing as Exhibit K. The Closing Date
Balance Sheet shall be prepared in accordance with generally
accepted accounting principles applied on a year end basis
consistent in form with the Balance Sheet of Company as of
December 31, 1995, attached hereto as a part of Exhibit B.
1.6 "Closing Date Liabilities" shall mean the book value, as of the
Closing Date, of the liabilities properly includable in the
Closing Date Balance Sheet under the captions "Accounts Payable",
"Income Taxes Payable"; "Accrued Liabilities"; "Advances From
Affiliates"; "Current Maturities of Capital Lease Obligations";
"Capital Lease Obligations" and "Redeemable Preferred Stock".
1.7 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.8 "Financial Statements" shall mean Company's financial statements
as of December 31, 1995, attached hereto as Exhibit B, prepared
in accordance with generally accepted accounting principles,
consistent when applied, that present a true and accurate
statement of Company's financial condition for the periods
covered therein.
2. Purchase and Sale of the Shares.
2.1 Current Ownership. As of the Closing Date, Seller shall own of
record and beneficially such shares of Stock as is set for as
follows: Stock Seller Certificate No. No. of Shares Stephan S.
Buckley 001 1,000
A copy of said stock certificate is attached hereto as Exhibit A.
2.2 Transfer of Stock. On the Closing Date, and subject to the terms
and conditions set forth in this Agreement, Seller shall sell,
assign, transfer and deliver to Purchaser, and Purchaser shall
purchase from Seller, free and clear of all liens, charges,
encumbrances, equities, claims and options of any kind
whatsoever, one hundred percent (100%) of the issued and
outstanding common stock of Company as of the Closing. Seller
shall then deliver his certificates to the Company and the
parties shall cause the Company to issue replacement certificates
of Stock to Purchaser and cancel all certificates previously
issued to Seller. Thereafter, ownership of the Stock of Company
shall be as follows:
Stock
Name Certificate No. No. of Shares
Butterwings, Inc. 002 1,000
3. Purchase Price and Terms. In consideration of Seller's obligations
hereunder, Purchaser shall pay to Seller the aggregate sum of One Dollar and No
Cents ($1.00), ("Purchase Price") payable in cash at Closing.
4. Representation and Warranties of Seller. Seller represents and warrants
to Purchaser that:
4.1 Title and Authority. The Seller is the unqualified and
unconditional owner of the number of shares of the Company shown
opposite his respective name in Section 2 hereof, and has the
full right and authority to sell and transfer all such shares to
the Company at the Closing Date, as herein provided, free and
clear of any lien, encumbrance, equity or claim of any kind.
4.2 Organization; Good Standing; Authority of Company. The Company is
a corporation duly organized, validly existing as a stock
corporation, and in good standing under the laws of the State of
Illinois and has full right, power, and authority to own its
properties and assets, and to carry on its business. A complete
and correct copy of each of Company's Articles of Incorporation,
and By-Laws, as amended to the date of this Agreement, and the
minute books of the Company containing the minutes of meetings of
the stockholders of Company and the board of directors of
Company, are attached hereto as Exhibit D, and are complete and
correct and accurately reflect all proceedings of the Company.
The Articles and By-Laws are in full force and effect, and
Company is not in breach or violation of any of the provisions
thereof.
4.3 Validity of Agreement. The Seller has the legal capacity and
authority to enter into this Agreement, and all corporate and
other proceedings required to be taken by and/or on behalf of the
Company to authorize and to carry out the transactions
contemplated by this Agreement have been duly and properly taken.
This Agreement is a valid and legally binding obligation of
Seller and is fully enforceable against Seller in accordance with
its terms.
4.4 Capitalization; Company Stock; Related Matters. The authorized,
issued and outstanding capital stock of the Company (prior to the
changes described in Section 2.2 hereof) is as follows:
Shares Shares Issued
Class Authorized and Outstanding
Common 1,000 10,000
Preferred 100,000 16,650
Except as set forth above, there are no other classes or types of
capital stock. All of the issued and outstanding shares of
capital stock of the Company are duly authorized, validly issued,
fully paid and non-assessable, none of the shares was issued in
violation of the preemptive rights of any shareholder of the
Company. There are no outstanding subscriptions, warrants,
options, or rights requiring the issuance of any additional
shares of capital stock of the Company. All of the outstanding
issued shares have been issued in full compliance with all
applicable laws of the State of Illinois and with the Securities
Exchange Commission, as applicable. Delivery of Seller's Stock by
Seller to Purchaser at Closing pursuant to this Agreement will
transfer to Purchaser full and entire legal and equitable title
to 100% of the issued and outstanding common stock of Company.
4.5 Options, Warrants and Other Rights and Agreements Affecting
Company Stock. Company has no authorized or outstanding options,
warrants, calls, subscriptions, rights, convertible securities or
other securities [as defined in the Federal Securities Act of
1933 ("Securities")] or any commitments, agreements, arrangements
or understandings of any kind or nature obligating Company, in
any such case, to issue shares of Company common stock or other
Securities or securities convertible into or evidencing the right
to purchase shares of Company capital stock or other Securities.
Neither Seller nor Company is a party of any agreement,
understanding, arrangement or commitment, or bound by any
Articles or By-Law provision which creates any rights in any
person with respect to the authorization, issuance, voting, sale
or transfer of any shares of Company's Stock or other Securities.
4.6 No Subsidiaries. Company does not have any subsidiaries and does
not, directly or indirectly, own any interest in or control any
corporation, partnership, joint venture, or other business
entity.
4.7 Agreement Not in Conflict With Other Instruments. Required
Approvals Obtained. The execution, acknowledgement, sealing,
delivery, and performance of this Agreement by Seller and the
consummation of the transactions contemplated by this Agreement
will not:
(a) violate or require any registration, qualification, consent,
approval, declaration, reporting or filing under (i) any
law, statue, ordinance, rule or regulation (hereinafter
collectively referred to as "Laws") of any federal, state or
local government or governmental agency ("Governmental
Entities"), (ii) any judgment, injunction order, writ or
decree of any court, arbitrator, or Governmental Entities
applicable to Seller or Company or any of their assets or
properties ; or
(b) conflict with, require any consent, approval, authorization
or filing under, result in the breach or termination of any
provision of, constitute a default under, result in the
acceleration of the performance of Seller's or Company's
obligations under, or result in the creation of any claim,
security interest, lien charge, or encumbrance upon any of
Seller's or Company's properties, assets, or businesses
pursuant to (i) Company's Articles or By-Laws, or (ii) any
indenture, mortgage, deed of trust, license, permit,
approval, consent, franchise, lease, contract, or other
instrument or agreement to which Seller or Company is a
party or by which Seller or Company or any of Company's
assets or properties is bound.
4.8 Conduct of Business in Compliance With Regulatory and Contractual
Requirements. Company has conducted and is conducting its
business in compliance with all Laws. Neither the real or
personal properties owned, leased, operated or occupied by
Company, nor the use, operation or maintenance thereof (i)
violates any Laws of any Governmental Entities, or (ii) violates
any restrictive or similar covenant, agreement, commitment,
understanding or arrangement.
4.9 Licenses; Permits; Related Approvals. Company possesses all
licenses, permits, consents, approvals, authorizations,
qualifications and orders (hereinafter "Permits") of all
Governmental Entities, including the State of Illinois, lawfully
required to enable Company to conduct its business. A true,
accurate and complete list of the Permits is attached hereto as
Exhibit E.
4.10 Legal Proceedings. Except as disclosed in Exhibit C attached
hereto, there is not and there will not be any action, suit,
proceeding, claim, arbitration, or investigation by any
Governmental Entities or other person (i) to which Company is or
may be a party relating to the activities of the Company prior to
the Closing Date, (ii) threatened against or relating to Company
or any of Company's assets or businesses, (iii) challenging
Company's right to execute, acknowledge, seal, deliver, perform
under or consummate the transactions contemplated by this
Agreement, or (iv) asserting any rights with respect to any of
the Seller's Stock, and there is no basis for any such action,
suit, proceeding, claim, arbitration or investigation.
4.11 Tax Matters. Company has duly and timely filed with all
appropriate Governmental Entities, all tax returns, information
returns, and reports required to be filed by Company. Company has
paid in full all taxes (including taxes withheld from employees'
salaries and other withholding taxes and obligations), interest,
penalties, assessments and deficiencies owed by Company to all
taxing authorities. The Company does not have any liability or
obligation for any taxes relating to operations during the
periods for which tax returns have been filed, and the Company
has no liability or obligation for any taxes due for operations
during the current period prior to the Closing Date, unless such
taxes shall have been fully and separately reserved in the
Closing Date Liabilities.
4.12 Closing Date Assets. Attached hereto as Exhibit F is a true,
correct and complete list of all personal property, owned by
Company or used by Company in the conduct of its business,
including, but not limited to, all equipment, machinery and
fixtures (whether or not included in the Financial Statements)
("Personal Property"), which Personal Property is included within
the Closing Date Assets. Company has sole and exclusive, good and
merchantable title to all of the Closing Date Assets, free and
clear of all pledges, claims, liens, restrictions, security
interests, charges and other encumbrances (except liens created
by this Agreement), unless otherwise disclosed on Exhibit F. Each
of the items of Personal Property is in good repair and good
operating condition, fit for its intended purposes, and is
adequate for the continuation of Company's business. Inventories
included within the Closing Date Assets shall consist of bona
fide and current raw materials, work in process and finished
goods which are fit for sale and not obsolete. Purchaser's
consent to the inclusion of Inventories on the Closing Date
Balance Sheet shall conclusively establish that such Inventories
are fit for sale and not obsolete.
4.13 Leases and Other Agreements. Attached hereto and incorporated by
reference herein as Exhibit G is a true, correct and complete
list and copy (or where they are oral, true, correct and complete
written summaries) of all leases of Company relating to real and
personal property. Also included on said Exhibit is a list of any
other agreement to which Company is a party. Each of the
agreements, arrangements and understandings so listed is in full
force and effect, is valid and binding upon each of the parties
hereto and is fully enforceable by Company against the other
party thereto in accordance with its terms.
4.14 Employment Contracts. Exhibit H to this Agreement is a list of
all employment contracts and collective bargaining agreements,
and all pension, bonus, profit-sharing, stock option, or other
agreements or arrangements providing for employee remuneration or
benefits to which Company is a party or by which Company is
bound; all these contracts and arrangements are in full force and
effect, and neither Company nor any other party is in default
under them. There have been no claims or defaults and, to the
best knowledge of Seller, there are no facts or conditions which
if continued, or on notice, will result in a default under these
contracts or arrangements. There is no pending or, to selling
parties' knowledge, threatened labor dispute, strike, or work
stoppage affecting Company's business. Except as set forth on
Exhibit H, the Company has no outstanding employment agreement or
any incentive compensation, deferred compensation, profit
sharing, stock option, stock bonus, stock purchase, savings,
consultant, retirement, pension or other "fringe benefit" plan or
arrangement with or for the benefit of any officer, general
manager, key employee or other person. Exhibit K sets forth a
true, correct and complete list of all the "employee benefit
plans" as that term is defined in Section 3(3) of ERISA that are
maintained or contributed to by the Company. None of the employee
benefit plans are "multi-employer plans" as that term is defined
in Section 3(37) of ERISA. A copy of all employee benefit plans
has been provided by Seller to Purchaser. There are no unexempt
"prohibited transactions" as that term is defined in Section 4975
of the Internal Revenue code of 1986, as amended ("Code") or
Section 406 of ERISA with respect to any of the employee benefit
plans. Each employee benefit plan has been administered in
compliance with the applicable requirements of ERISA and the
Code. There is no pending or, to the best of Seller's knowledge,
threatened legal action, proceeding, or investigation against any
employee benefit plan that could result in material liability to
the Company, and there is no basis for any such legal action,
proceeding or investigation.
4.15 Insurance Policies. Exhibit I to this Agreement is a description
of all insurance policies held by Company concerning its business
and properties for the year of initiation of coverage through the
Closing Date (the "Insurance Policies"). All Insurance Policies
are in the respective principal amounts set forth in said
Exhibit. Company has maintained and now maintains (i) insurance
on all its assets and businesses of a type customarily insured,
covering property damage and loss of income by fire or other
casualty, and (ii) adequate insurance protection against all
liabilities, claims, and risks against which is customary to
insure. Premiums with respect to the Insurance Policies have been
fully prepaid through the Closing Date.
4.16 Bank Accounts and Safe Deposit Arrangements. Attached hereto as
Exhibit J and incorporated by reference herein is a true, correct
and complete list of each checking account, savings account and
other bank account and safe deposit box (the "Accounts")
maintained by Company, and the names of all persons authorized to
withdraw funds or other property from, or otherwise deal with,
the Accounts. At Closing, Seller will cause the Company to
execute documents necessary to change authorized signatories to
those persons designated by Purchaser. At Closing, the Company
shall cancel all existing lines of credit and Seller shall be
removed from any obligations for vendor credit arising after the
Closing Date. Seller represents that Company has no existing line
of credit as of the Closing Date.
4.17 Absence of Certain Changes. Since the date of the Company's
Financial Statements attached hereto as Exhibit B, without the
consent of Purchaser, the Company has not:
(a) Issued, sold, purchased, or redeemed or agreed to issue,
sell, purchase or redeem any of the capital stock reserved
for issuance as reflected in the Financial Statements;
sub-divided or in any way re-classified any of its capital
stock; declared or made any payment, dividend, or other
distribution to its Seller; or granted any option or made
any commitment relating to its authorized capital stock;
(b) Incurred any liability under agreements or otherwise, except
(1) liabilities incurred, and obligations entered into, in
the ordinary course of business, which individually or in
the aggregate do not have any materially adverse effect on
the financial or other condition, business, prospects,
assets, or good will of the Company; and (2) obligations or
liabilities entered into or incurred in connection with the
execution and performance of this Agreement.
(c) Discharged or satisfied or agreed to discharge or satisfy
any lien, charge or encumbrance, or paid or agreed to pay
any obligation or liability, absolute, accrued, contingent,
or otherwise, whether due or to become due, except
obligations or liabilities arising under the ordinary course
of business, which individually or in the aggregate do not
have a materially adverse affect on the financial or other
condition, business, prospects, assets or goodwill of the
Company;
(d) Except in the ordinary course of business (1) sold or
transferred or entered into any agreement relating to the
sale or transfer of any tangible or intangible assets; or
(2) entered into any lease of real property, machinery,
equipment or buildings;
(e) Suffered any material loss or damage to any of its
properties (whether or not covered by insurance);
(f) Entered into or agreed to enter into any transaction other
than in the ordinary course of business, except in
connection with the execution and performance of this
Agreement and except transactions disclosed in or permitted
by this Agreement;
(g) Caused or permitted any of its current insurance contracts
to be canceled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with that
cancellation, termination, or lapse, replacement policies
providing coverage equal to or greater than the coverage
under the canceled, terminated or lapsed policy with
substantially similar premiums are in full force and effect.
4.18 Environmental Health and Safety Matters.
(a) The Company has duly complied with, and all real property
owned by the Company is in compliance with the provisions of
all federal, state, and local environmental, health and
safety laws, codes and ordinances, and all rules and
regulations promulgated thereunder.
(b) The Company has received no notice of, and neither knows of
nor suspects, any fact that might constitute a violation of
any federal, state, or local environmental, health or safety
laws, codes, or ordinances, and any rules or regulations
promulgated thereunder that relate to the history, use,
ownership, or occupancy of all real property owned by the
Company, and the Company is not in violation of any
covenants, conditions, easements, rights of way, or
restrictions affecting all real property owned by the
Company or any rights appurtenant thereto.
4.19 Advertising. To the best of Seller's knowledge, neither any
advertising by Company for the products, nor any promotional
materials used by the Company at any time contains any untrue
material or misleading statements or claims.
4.20 Disclosure. Seller has disclosed to Purchaser in this Agreement
all material facts related to the transactions contemplated by
this Agreement. No representation or warranty of the Seller
contained in this Agreement or other agreements and instrument
referred to in this Agreement, and no statement contained in any
certificate, schedule, list or other writing furnished to
Purchaser pursuant to the provisions of this Agreement contains
any untrue statement of a material fact, or omits to state a
material fact necessary in order to make the statements herein or
therein not misleading.
5. Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller that:
5.1 Investment Interest. Purchaser acknowledges that the sale of the
Common Stock to Purchaser has not been registered under the
Securities Act of 1933, as amended, or any other securities laws,
that all the Stock acquired by Purchaser under this Agreement
shall be acquired for investment solely for the account of
Purchaser and with no view to making any distribution, or record
or beneficially, of the Stock, and that the certificates
representing the Stock when delivered by Seller at Closing as
well as the certificates representing the Stock if and when
transferred of record to Purchaser may bear a restrictive legend,
in form and substance satisfactory to the Company, to the effect
that the Stock has not been registered with the Securities
Exchange Commission and may need to be registered under
applicable federal and state securities laws prior to transfer
unless subject to an exemption from such registration
requirement.
5.2 Rights of Purchaser. Purchaser has all requisite power, right and
authority to enter into this Agreement and to perform the
obligations of Purchaser under this Agreement.
6. Additional Documents.
6.1 Landlord and Lessor Consent. At Closing, Seller shall provide
Purchaser with a form of consent duly executed by each Landlord
or Lessor identified in Exhibit G by which such Landlord or
Lessor consents to this Agreement and acknowledges that neither
this Agreement nor any transaction contemplated thereby
constitutes a default under the terms of such lease.
6.2 Closing Date Balance Sheet. Prior to Closing, Seller shall
prepare the Closing Date Balance Sheet, which shall be
incorporated into this Agreement at Closing as Exhibit K.
7. Seller's Contingencies.
7.1 Compliance by Purchaser. All of the terms and conditions of this
Agreement to be complied with or performed by Purchaser shall be
complied with and performed in all material respects and the
covenants, representations and warranties made by the Purchaser
in this Agreement shall be true and correct in all material
respects at and as of the Closing Date with the same force and
effect as those such covenants, representations and warranties
have been made at and as of the Closing Date except for changes
contemplated by this Agreement.
8. Purchaser's Contingencies. The transaction herein contemplated is
expressly subject to the satisfaction, within ten (10) days following Closing,
of the following described conditions. The failure of any condition to be
satisfied within ten (10) days following Closing shall, at Purchaser's option,
render this Agreement null and void, and all money or documents previously
delivered shall be returned to their original owner, and all parties shall be
relieved of all liabilities hereunder.
8.1 Compliance by the Company and Seller. All of the terms and
conditions of this Agreement to be complied with and performed by
the Seller or on behalf of the Company at or before the Closing
shall have been complied with and performed in all material
respects, and the representations, warranties, covenants, and
agreements made by the Seller, or on behalf of the Company in
this Agreement shall be true and correct in all material respects
at and as of the Closing Date with the same force and effect as
if those such representations, warranties, covenants, and
agreements were made at and as of the Closing Date except for
changes contemplated by this Agreement.
8.2 Closing Date Balance Sheet. Within ten (10) days of the Closing
Date, the Closing Date Balance Sheet shall have been prepared by
Seller and approved by Purchaser.
9. Indemnification.
9.1 Survival of Representations and Warranties. All representations,
warranties, covenants and agreements made by either party to this
Agreement shall survive the Closing and shall remain in effect
for a period of two (2) years.
9.2 Indemnification by Purchaser. Purchaser hereby agrees to
indemnify and hold Seller harmless from, against and in respect
of:
(a) Any and all debts, liabilities or obligations of Company,
direct or indirect, fixed, continued or otherwise accruing
after the Closing Date except to the extent related to a
breach by Seller of the covenants and warranties provided in
this Agreement;
(b) Any and all loss, liability, deficiency, or damage suffered
or incurred by Seller resulting from any untrue
representation, breach of warranty, or non-fulfillment of
any covenant or agreement by Purchaser contained in this
Agreement, or any certificate, document, or instrument
delivered to Seller pursuant hereto or in connection
herewith;
(c) Any and all loss, liability, deficiency, or damage suffered
or incurred by Seller as a result of Purchaser's failures to
discharge the Closing Date Liabilities;
(d) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, and expenses, including,
without limitation, legal fees and expenses, incident to any
of the foregoing or incurred in enforcing this indemnity.
9.3 Indemnification by Seller. Seller indemnifies and agrees to hold
Purchaser harmless from, against, and in respect of the following:
(a) Any and all debts, liabilities, or obligations of Seller or
Company, direct or indirect, fixed, contingent or otherwise
existing before the Closing Date, including, but not limited
to, any liabilities arising out of any act, transaction,
circumstances, state of facts, or violation of law that
occurred or existed before the Closing Date, whether or not
then known, due, or payable and irrespective of whether the
existence thereof is disclosed to Purchaser in this
Agreement or any schedule hereto, except with regard to the
Closing Date Liabilities;
(b) Any and all loss, liability, deficiency, or damage suffered
or incurred by Purchaser as a result of default by Seller or
Company existing on the Closing Date or any event of default
occurring prior to the Closing Date that with the passage of
time would constitute a default, under any actual obligation
of Company assumed by Purchaser under this Agreement;
(c) Any and all loss, liability, deficiency, or damage suffered
or incurred by Purchaser by reason of any untrue
representation, breach of warranty, or non-fulfillment of
any covenant or agreement by Seller contained in this
Agreement, or in any certificate, document, or instrument
delivered to Purchaser hereunder or in connection herewith;
(d) Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, and expenses, including,
without limitation, legal fees and expenses, incident to any
of the foregoing or incurred in enforcing this indemnity.
10. Employees. Seller shall be solely responsible and Purchaser shall have
no obligations whatsoever, for any compensation or other amounts payable to any
employee, director, consultant or independent contractor of Company, including,
but not limited to bonus, salary, compensation, accrued vacation, fringe,
pension or profit sharing benefits, or severance paid or payable to any
employee, director, consultant or independent contractor of Company relating to
service with or for the Company at any time prior to the Closing Date unless
such amount is included in the Closing Date Liabilities.
11. Obligations at Closing.
11.1 Execution and Delivery of Documents. At Closing, Seller and
Purchaser and Company shall execute and deliver all
documents referenced in or contemplated by this Agreement,
and such other documents as may be necessary to effect the
transaction contemplated by this Agreement as of the Closing
Date.
11.2 Resignations of Officers and Directors. Seller shall cause
Company to provide for the resignation of each of the
Officers and Directors at Closing and shall deliver to
Purchaser such resignations at Closing.
11.3 Payment of Purchase Price. Purchaser shall pay to Seller the
Purchase Price in Cash.
11.4 Delivery and Reissuance of Stock. Seller shall take all
action and execute all documents necessary to convey and
reissue the Stock as provided in Section 2.2 hereof.
11.5 Transfer of Accounts. Seller will cause the Company to
execute documents necessary to change authorized signatories
on the Accounts to those persons designated by Purchaser.
11.6 Representations and Warranties. As of Closing each party,
respectively, without executing any additional instrument,
shall be deemed to represent and warrant to and covenant
with the other as to the accuracy of each of the
representations and warranties as stated in Section 4,
hereof, regarding Seller, and Section 5, hereof, regarding
Purchaser.
12. Obligations After Closing.
12.1 Further Assurances. Subsequent to the Closing, Seller,
Purchaser and Company shall execute and deliver such other
instruments and take all such other action as either party
may reasonably request from time to time, in order to effect
the transaction provided for herein. The parties shall
cooperate with each other in connection with any steps to be
taken as a part of their respective obligations under this
Agreement.
13. General Provisions.
13.1 Notices. All notices, requests, demands, consents, and other
communications which are required or may be given under this
Agreement (hereinafter "Notices") shall be in writing and
shall be given either (a) by personal delivery, (b) by
registered or certified mail, return receipt requested, or
(c) by delivery utilizing a nationally recognized overnight
mail service, to the following addresses:
(a) If to Seller: Stephan S. Buckley
2345 Pembroke Avenue
Hoffman Estates, IL 60195
(b) If to Purchaser: Butterwings, Inc.
2345 Pembroke Ave.
Hoffman Estates, IL 60195
Attn: Kenneth B. Drost
or to such other address of which written notice in
accordance with this paragraph. Notices shall be effective
upon receipt, and any written acknowledgement demonstrating
delivery as addressed shall be prima facie evidence of
receipt.
13.2 Entire Agreement; Amendments. This Agreement and the
amendments, instruments, schedules and other writings
referred to in this Agreement contain the entire
understanding of the parties with respect to the subject
matter of this Agreement. There are no restrictions,
agreements, promises, warranties, covenants, or other
undertakings other than those expressly set forth herein or
therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its
subject matter. This Agreement may be amended only by a
written instrument duly executed by all the parties or their
successors or assigns.
13.3 Binding Effect; Benefit. This Agreement will be binding
upon, and inured to the benefit of and be enforceable by and
against the respective successors and assigns of the parties
hereto and shall not be assigned by Purchaser without the
express written consent of Seller.
13.4 Severability. If any term, condition, or provision of this
Agreement shall be declared invalid or unenforceable, the
remainder of the Agreement, other than such term, condition
or provision, shall not be affected thereby and shall remain
in full force and effect and shall be valid and enforceable
to the fullest extent permitted by law.
13.5 No Waiver. No waiver of any breach or default hereunder
shall be considered valid unless in writing and signed by
the party giving such waiver, and no such waiver shall be
deemed a waiver of any subsequent breach or default of the
same or of a similar nature. No provision of this Agreement
may be amended, waived, or otherwise modified without the
prior written consent of all of the parties hereto.
13.6 Section Headings. The section and other headings contained
in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
13.7 Applicable Law Jurisdiction and Venue; Costs and Attorneys'
Fees. This Agreement is made and entered into, and shall be
governed by and construed in accordance with, the laws of
the State of Illinois applicable to contracts made and to be
performed therein. Any litigation relating in any manner to
this Agreement or the transactions contemplated thereby
shall be commenced only in State or Federal courts having
their situs in Illinois, and each party irrevocably consents
to the jurisdiction and venue of such courts. In any action
to enforce or interpret this Agreement and any appeal or
enforcement of a judgment rendered in such action, the
prevailing party shall be entitled to recover its costs and
attorneys' fees, which shall be included in any judgment or
award rendered therein.
13.8 Right to Counsel. Purchaser and Seller hereby acknowledge
that they have each had this document reviewed by counsel of
their choice, so that this document shall not be construed
more strictly against one party than the other.
13.9 Costs and Expenses. Unless otherwise provided herein, each
party hereto shall respectively pay its own costs, fees, and
expenses incurred in connection with the negotiation,
preparation of, and performance under this Agreement, and
all matters incident thereto.
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
14. Closing Date.
The Closing of this transaction shall take place at 10:00 a.m. at the
offices of Purchaser on or before October 18, 1996, or on such other date as to
which Purchaser and Seller shall agree in writing.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the date first above written.
SELLER: PURCHASER:
BUTTERWINGS, INC.
By: By:
Stephan S. Buckley Kenneth B. Drost, Vice President
<PAGE>
EXHIBITS
Stock Certificates A
-----------------------------------
Financial Statements B
-----------------------------------
Litigation C
-----------------------------------
Corporate Records D
-----------------------------------
Permits E
-----------------------------------
Personal Property F
-----------------------------------
Leases and Other Agreements G
-----------------------------------
Employment Contracts H
-----------------------------------
Insurance Policies I
-----------------------------------
Bank Accounts/Deposits J
-----------------------------------
Closing Date Balance Sheet K
-----------------------------------
Exhibit 21
Subsidiaries of the Registrant
Other States in
Name State of Incorporation Which Qualified DBA Name
Butterwings of Wisconsin None NA
Wisconsin, Inc.
Butterwings of California None NA
California, Inc.
Cookie Crumbs, Inc. Illinois Michigan, Minnesota
Missouri, NA(All)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001030988
<NAME> BUTTERWINGS ENTERTAINMENT GROUP, INC.
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-29-1996
<PERIOD-START> DEC-26-1994 JAN-1-1996
<PERIOD-END> DEC-31-1995 OCT-6-1996
<EXCHANGE-RATE> 1 1
<CASH> 574,125 497,091
<SECURITIES> 0 0
<RECEIVABLES> 51,391 1,814
<ALLOWANCES> 0 0
<INVENTORY> 104,385 96,819
<CURRENT-ASSETS> 794,424 744,717
<PP&E> 1,871,814 2,254,335
<DEPRECIATION> 186,539 385,675
<TOTAL-ASSETS> 4,318,155 4,051,556
<CURRENT-LIABILITIES> 676,558 4,803,265
<BONDS> 0 0
0 0
1,266,000 1,568,500
<COMMON> 18,113 20,014
<OTHER-SE> 368,926 828,875
<TOTAL-LIABILITY-AND-EQUITY> 4,318,115 4,051,556
<SALES> 6,486,327 5,242,470
<TOTAL-REVENUES> 0 0
<CGS> 1,995,753 1,529,174
<TOTAL-COSTS> 6,360,545 5,151,793
<OTHER-EXPENSES> 404,417 606,121
<LOSS-PROVISION> 145,000 927,148
<INTEREST-EXPENSE> 465,031 366,897
<INCOME-PRETAX> (942,122) (1,857,263)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (942,122) (1,857,263)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (942,122) (1,857,263)
<EPS-PRIMARY> ($0.44) ($0.88)
<EPS-DILUTED> ($0.44) ($0.88)
</TABLE>
BUTTERWINGS ENTERTAINMENT GROUP, INC.
INSTRUCTIONS TO ACCEPTANCE AND TRANSMITTAL LETTER
1. Indicate your acceptance or non-acceptance of the Exchange Offer in the
space provided in the first paragraph. Insert the principal amount of the
Note(s) you are tendering. You must tender the full amount you hold.
2. Sign the Acceptance Form in the space provided in duplicate; complete
the name and address information.
3. Return the Acceptance and Transmittal Letter in duplicate and the
original copy of your Note(s) to the Company at the address below. It is
suggested that you use registered mail or express mail for safety.
4. Certificates for shares will be issued in the name and at the address
listed in your transmittal form by the transfer agent of the Company's common
stock unless otherwise specified.
5. The Notes and properly executed Acceptance and Transmittal Letter must
be transmitted to arrive at the Company's office by the close of business on the
termination date of the Exchange Offer.
6. If the public offering is not consummated, the Notes will be returned to
you at the address specified in the Acceptance and Transmittal Letter.
Address to which the Notes and Acceptance and Transmittal Letter should
be sent:
Butterwings Entertainment Group, Inc.
2345 Pembroke Avenue
Hoffman Estates, Illinois 60195
Telephone (847) 925-1050
or
1-800-445-3510
Fax (847) 925-1265
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC.
ACCEPTANCE AND TRANSMITTAL LETTER
The undersigned Note holder of the Company's 12% Notes hereby
( ) accepts
( ) does not accept
the Company's Offer to exchange my Notes for Common Stock of the Company in
accordance with the Company's Exchange Offer dated January 20,1997. I hereby
tender my Note(s) in principal amount of $______________________. I understand
that the Exchange Offer is subject to the following terms and conditions which I
agree to abide by:
1. The number of shares I receive will be determined by the principal
amount of my Note(s) plus accrued interest to date plus a 20% premium on
principal and accrued interest divided by the public offering price of the
Company's common stock in the proposed public offering (the "public offering"),
currently $6.50 per share. If the public offering price per share falls below
$5.75 per share the number of shares will be increased proportionately. No
fractional shares will be issued. The number of shares to be issued will be
rounded to the nearest whole number.
2. I agree that the shares issued to me in the Exchange Offer will be
taken for investment and not with a view to distribution. I understand that the
certificates for my shares will be stamped with a restrictive legend
substantially as follows and that a stop transfer order will be placed with the
transfer agent:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 or any state securities act. No
transfer, sale or other disposition of these shares may be made unless
a registration statement with respect thereto has become effective
under said Act, or the Company has been furnished with an opinion of
counsel satisfactory in form and substance to it that such registration
is not required."
I agree that the certificates for such shares will be issued to me
concurrently with certificates issued to stockholders in the public offering,
approximately four days after the effective date of the registration statement
for the public offering.
3. At any time after one year from the effective date of the
registration statement relating to the public offering, upon the written
request of holders of at least 50% of the common stock issued in this Exchange
Offer, the Company will file a registration statement and use its best efforts
to cause said registration statement to become effective to effect the sale of
said shares. The underwriter of the public offering has agreed to use its best
efforts to effect a firm commitment underwriting of such shares, subject to
favorable market conditions at such time.
4. I understand that at least 90 % in dollar amount of the Notes must
accept the Exchange Offer by the termination date in order for the Exchange
Offer to become effective. The Company also has the right to accept a lesser
amount of Notes with the consent of the Underwriter, but not less than 60%.
5. I agree that the Note(s) transmitted herewith will be held by the
Company in safekeeping until they are canceled and the shares issued in
exchange therefor, or if the offering is not consummated, that the Notes(s)
will be returned to me.
Name and address of Noteholder: ACCEPTED:
Butterwings Entertainment Group, Inc.
----------------------------
Print Name
___________________________ By:_________________________
Signature
Stephan S. Buckley, President
___________________________ Date: ______________, 1997
Address
---------------------------
City, State, Zip Code
<PAGE>
BUTTERWINGS ENTERTAINMENT GROUP, INC.
Offer to Exchange
Dated January 20, 1997
The Company has entered into a Letter of Intent for a firm commitment
underwriting of approximately $6,500,000 of its securities which is scheduled to
be filed with the Securities and Exchange Commission (the "SEC") before the end
of January, 1997. As a condition to the underwriting, the underwriter has
required the Company to strengthen its balance sheet and eliminate substantial
interest accruals resulting from approximately $3,700,000 of its outstanding
12.0% Notes (the "Notes").
The Company has determined, with the Underwriters approval, to
eliminate the outstanding Notes by offering to exchange the Notes for common
stock of the Company at a favorable exchange ratio which would return to the
Note holders their principal, accrued interest and a premium on their original
investment and accrued interest, based upon the proposed initial offering price
of the Company's common stock in the public offering. The exchange is calculated
to return to the Note holders a return of 120% of their original investment and
accrued interest on the foregoing basis. A copy of the Preliminary Prospectus as
proposed to be filed with the SEC is enclosed to assist you in your decision to
accept the Exchange Offer. The unaudited financial statements in the Prospectus
are presented on a pro forma basis (i) to reflect the Notes outstanding, (ii) as
if 100 % of the Notes are exchanged for stock in the Exchange Offer, and (iii)
to reflect the pro forma financial position of the Company after the public
offering and the exchange of the Notes. The pro forma financial statements also
reflect the mandatory conversion of the Company's currently outstanding
Convertible Preferred Stock concurrent with the public offering. As filed with
the SEC, the Prospectus will reflect the actual results of the Exchange Offer.
The Exchange offer will be open for 10 days from the date hereof, unless
the Offer is extended by the Company (the "termination date").
<PAGE>
The following is a hypothetical example of the number of shares of
common stock you would receive in the Exchange Offer, assuming a $50,000
investment in the Notes and accrued interest of $4,500:
Principal $50,000
Accrued interest $ 4,500
Total $54,500
20% premium $10,900
Total $65,400
Divided by
the proposed public
offering price
per share $6.50
Equals 10,062 shares
The Exchange Offer is subject to the following terms and conditions:
1. Note holders who receive shares of common stock pursuant to the
Exchange Offer will receive "restricted stock" as that term is recognized in the
securities laws, which means that their certificates will be stamped with a
restrictive legend and they will not be able to sell their stock in the open
market for at least two years when the stock will become eligible for sale
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act").
The Company has agreed however, to register the Note holders' common
stock under the Securities Act at any time after one year from the effective
date of the public offering upon the written request of holders of at least 50%
of the common stock issued pursuant to the Exchange Offer. The Underwriter has
agreed to use its best efforts to effect a firm commitment underwriting of such
shares at such time, subject to favorable market conditions,
2. In the event the proposed public offering price per share falls below
$5.75, the number of shares will be increased proportionately.
3. The Exchange Offer will not become effective unless at least 90% in
dollar amount of Notes accept the Exchange Offer by the termination date. With
the consent of the Underwriter, the Company reserves the right to accept a
lesser amount of Notes, but not less than 60%.
Certificates for shares of common stock issuable in exchange for Notes
surrendered will be issued concurrently with certificates sold in the public
offering, i.e. approximately four days after the effective date of the public
offering.
The Notes will be held by the Company in safekeeping until the
certificates for shares of common stock are issued and the Notes are canceled.
If, for any reason, the offering is not consummated, the Notes surrendered in
exchange for stock will be returned to the Note holders.
An Acceptance and Transmittal Letter with Instructions for transmittal
of your Notes is attached hereto. Please execute and return your Acceptance and
Transmittal Letter in duplicate with the original of your Note(s) as soon as
possible to expedite the filing and processing of the Registration Statement. An
acceptance of your tender of the Notes will be returned to you. If you elect not
to accept the Exchange Offer please so indicate on the Acceptance and
Transmittal Letter in the space provided and return it to the Company. If you
have any questions concerning the Exchange Offer, please call the undersigned at
1-800-445-3510.
Butterwings Entertainment Group, Inc.
Stephan S. Buckley, President
Consent of Independent Accountants
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 22. 1996, except for Note 2, as to which the
date is March 13, 1996, with respect to the financial statements of Butterwings
Entertainment Group, Inc. and Subsidiaries and our report dated September 19,
1996, except for the second paragraph of Note 10, as to which the date is
September 30, 1996, and Note 11, as to which the date is October 18, 1996, with
respect to the financial statements of Cookie Crumbs, Inc. included in the
Registration Statement or, Form SB-2 and related Prospectus for the offering of
common stock of Butterwings Entertainment Group, Inc. and Subsidiaries.
McGLADREY & PULLEN, LLP
Schaumburg, Illinois
January 20, 1997
